Underinsured motorist claims: offset vs excess and consent to settle

When the driver who hurt you carries too little liability insurance, your own underinsured motorist (UIM) coverage can pay part of the gap, but how much depends on one design choice your state or policy made. In an "offset" design your UIM limit is reduced by what the other driver's insurer pays; in an "excess" design your losses are reduced by that payment and your UIM limit sits on top. Either way, you generally have to tell your own insurer before you sign a release with the at-fault driver's company, because a signed release can end your claim.

This article follows one hypothetical $100,000 injury claim through both designs, then covers the notice and consent steps, what happens to medical benefits, how arbitration clauses work, and the traps that cost people money. All dollar figures in the examples are invented to show the arithmetic.

Two questions the claim has to answer

Every UIM claim answers two separate questions, and people often blur them.

Is the other driver "underinsured" at all? States and policies use two tests. Under a limits-based test, the other vehicle is underinsured only if its liability limit is lower than your UIM limit. Ohio's statute is written this way: UIM protection applies where the limits available to you under all bodily injury liability policies covering the people liable to you "are less than the limits for the underinsured motorist coverage" (Ohio Revised Code 3937.18, as amended in 2023). Under a damages-based test, the other vehicle is underinsured when its limits are less than what you can prove you lost. Washington defines an underinsured vehicle as one where the sum of the limits of all applicable liability policies "is less than the applicable damages which the covered person is legally entitled to recover" (RCW 48.22.030). A policy form can follow either test; one Louisiana personal auto form from National Automotive Insurance Company (edition 04/2015) uses the damages-based wording, defining an underinsured vehicle as one whose bodily injury limit "is less than the amount of the insured person's damages."

How much does UIM pay once the other driver is underinsured? That is the offset-versus-excess question. The first question decides whether you have a claim; the second decides its size.

Our companion article on underinsured motorist coverage: difference-in-limits vs add-on states compares the two formulas at several limit levels. This article is about what comes after: running a real claim, in the right order, without forfeiting it.

One $100,000 loss under two designs

Say Jordan is hit by a driver carrying $30,000 per person in bodily injury liability coverage. Jordan's medical bills, lost wages and pain and suffering total $100,000 once a jury or an agreed valuation puts a number on them. The other driver's insurer pays its full $30,000 limit. Jordan has underinsured motorist coverage and is deciding what it adds.

Offset design (the UIM limit is reduced). The most UIM will pay is Jordan's UIM limit minus the $30,000 already received. Ohio's statute says the policy limits of the underinsured motorist coverage "shall be reduced by those amounts available for payment under all applicable bodily injury liability bonds and insurance policies." The same statute says UIM coverage in Ohio "is not and shall not be excess coverage to other applicable liability coverages."

Excess design (the loss is reduced). UIM pays Jordan's damages minus the $30,000, up to Jordan's full UIM limit. The other driver's payment does not eat into the UIM limit. Florida's uninsured motorist statute, which deems an insured vehicle "uninsured" when its bodily injury limits are less than the total damages sustained, says the coverage "shall cover the difference, if any, between the sum of such benefits and the damages sustained, up to the maximum amount of such coverage" (Fla. Stat. 627.727).

Three readings of the table. With a $50,000 limit, Jordan is $50,000 short of the loss under the offset design and $20,000 short under the excess design. With a $100,000 limit the two designs coincide because the limit equals the loss. With a $250,000 limit nothing is capped, and in both designs Jordan is made whole only to the extent the damages are proven and not otherwise reduced.

Neither design pays more than the damages. That sounds obvious, but it matters in the next section, because "damages" is the number that gets argued about.

Which number is "the damages"?

UIM is a contract to pay what you are "legally entitled to recover" from the underinsured driver. The Texas Supreme Court treated that phrase as including the prejudgment interest the other driver would have owed in a tort suit, so UIM coverage could be asked to pay it (*Brainard v. Trinity Universal Insurance Co.*, 216 S.W.3d 809 (Tex. 2006)). In that case a jury valued a wrongful death loss at $1,010,000, the other driver had paid its $1,000,000 limit, and $5,000 in personal injury protection had also been paid, so $5,000 was left payable under the UIM policy, and the dispute was whether UIM also had to cover prejudgment interest. The practical lesson is that your claim is built from the same elements a lawsuit would use: past and future medical costs, lost income, and non-economic damages, plus whatever the law of your state adds.

Some states limit the non-economic part for UIM. Florida's statute says the legal liability of an uninsured motorist coverage insurer "does not include damages in tort for pain, suffering, mental anguish, and inconvenience" unless the injury meets the thresholds in its no-fault law (s. 627.737(2)). Whether such a threshold applies to your claim is a question for your state's statute or a licensed attorney, not something to assume from a general article.

When your own insurer's money becomes available

Some policies make UIM payable only after the other driver's liability limits are used up. The Louisiana form described above says the company will pay under its uninsured/underinsured part "only after the limits of liability under any applicable bodily injury liability policies, self-insurance and bonds have been exhausted by payment of judgments or settlements." That is the exhaustion rule, and it creates a sequence:

1. Establish that the other driver's coverage is too small. Ask the at-fault driver's insurer to confirm its limits in writing; whether it must disclose them varies by state.
2. Present your claim to the at-fault insurer and obtain its limits offer.
3. Before you accept it, notify your own insurer (see the next section).
4. Once your insurer authorizes the settlement, or its response time passes under your state's rule, close out the liability claim.
5. Present the UIM claim, with your medical records and the proof of what you collected.

Exhaustion can be a trap when the other driver's insurer offers less than its limit. If it offers $22,000 on a $30,000 policy, the question becomes whether your insurer will treat the full $30,000 as paid. In Florida, the statute gives the UIM insurer a credit against total damages equal to the other driver's policy limits "even if the settlement" is "for less than the underinsured motorist's full liability policy limits" (Fla. Stat. 627.727(6)(c)). In Jordan's example under the excess design, accepting $22,000 does not change the arithmetic for the UIM insurer, which still credits $30,000, so Jordan would bear the $8,000 shortfall. Check your policy and state rule before you discount a limits claim.

The notice-and-consent step

Most UIM claims are won or lost on one thing: whether you told your own insurer in time. Policies commonly say the company will not cover you if you settle with the at-fault driver without its consent. That wording creates two risks for you, and the law handles them differently depending on the state.

The risk: losing the insurer's right to recover

When your UIM insurer pays you, it usually takes over your rights against the at-fault driver, a right called subrogation. A release that frees the at-fault driver from all further claims can destroy those rights. That is why the clause exists: your insurer wants a chance to preserve its own recovery, or at least to decide whether it is worth keeping.

Texas: an insurer must show actual harm

In Hernandez v. Gulf Group Lloyds, 875 S.W.2d 691 (Tex. 1994), the insured family settled with a 19-year-old driver for the full $25,000 limit of his policy six weeks after a fatal crash, without the consent of their own insurer, which carried $100,000 in UIM coverage. Damages exceeded $125,000. The Texas Supreme Court held that an insurer "may escape liability on the basis of a settlement-without-consent exclusion only when the insurer is actually prejudiced by the insured's settlement with the tortfeasor" (Hernandez v. Gulf Group Lloyds). The insurer had stipulated that it had suffered no financial loss to its subrogation rights, so the court affirmed judgment for the family. That is a Texas prejudice rule, not a promise that every unconsented settlement is safe, and other states have different rules.

Florida: a written process with a 30-day clock

Florida builds the process into its statute. If you agree to settle with a liability insurer for less than your claim, you must send written notice of the proposed settlement by certified or registered mail to every UIM insurer. The UIM insurer then has 30 days after receipt to authorize the settlement or keep its subrogation rights. If it authorizes the settlement, or fails to respond in 30 days, you may sign a full release "without prejudice to any underinsured motorist claim." If it refuses permission, it must pay you the amount of the written offer within 30 days and then pursue the at-fault driver itself (Fla. Stat. 627.727(6)).

A policy form can set its own notice rule

The Louisiana form excludes coverage if the insured settles or obtains a judgment "without thirty (30) days advance written notice to us" and, in doing so, "impairs or prejudices our rights or interests." So the form pairs a notice period with a prejudice test. Read your own policy: the notice period, what counts as notice, and whether harm must be shown differ by company and state.

What to send your UIM insurer, and when

You do not need a lawyer to avoid the most common mistake, which is saying nothing. A short, dated written notice, kept with proof of delivery, does the job.

1. Give early notice of a possible UIM claim. Do it as soon as you know the other driver's limits may be low, not when a settlement is signed. Your policy's notice and cooperation conditions apply from the accident.
2. Send the limits and the offer. Include the other insurer's written statement of its limits and the dollar amount it has offered.
3. Ask for a written answer. Ask the company to state, in writing, whether it consents to the settlement, waives subrogation, or will pay the offer amount and preserve its rights, using the process your state sets.
4. Wait for the answer or the deadline. Do not sign a release while the response period is running.
5. Keep a copy of everything. Certified-mail receipts, emails and claim numbers prove the date you gave notice.

A scripted set of questions to put to the adjuster:

• "What UIM limit applies to me, and does the policy reduce that limit by the other driver's payment, or reduce my damages?"
• "What is your deadline to respond to a notice of a proposed settlement?"
• "What documents do you need to evaluate the claim?"
• "Does the policy require arbitration of UIM disputes, and who can demand it?"
• "What will you subtract for medical payments, personal injury protection, or workers' compensation?"

Medical bills, PIP, MedPay and health insurance

The coverage that pays your medical bills first usually reduces what UIM adds. The pattern in statutes and forms is "no double payment."

• Personal injury protection. In Brainard, the court applied a $5,000 personal injury protection payment as an offset against damages before computing the UIM shortfall. Florida's statute likewise describes UM coverage as "over and above, but shall not duplicate" personal injury protection benefits, automobile medical expense coverage and workers' compensation.
• Medical payments coverage. The Louisiana form reduces the amount payable by sums "paid or payable under Part B - Medical Payments Coverage" and by workers' compensation or disability benefits. Our article on MedPay or health insurance: who pays first after a crash explains how medical payments coverage sits next to health insurance.
• Workers' compensation. Rules differ sharply by state. Ohio's statute says UM and UIM coverage "shall not be subject to an exclusion or reduction in amount because of any workers' compensation benefits payable as a result of the same injury or death." Florida and the Louisiana form go the other way. If you were hurt on the job, the answer for your state matters a great deal.
• Health insurance. Whether a health plan's payments reduce UIM is a policy and state question, and the plan may also claim repayment from your recovery. Ask your insurer in writing whether it reduces the claim for health plan payments, and ask the plan whether it asserts a reimbursement right.
• Medicare. Federal regulations define "liability insurance" for Medicare's secondary-payer rules to include uninsured motorist and underinsured motorist insurance (42 CFR 411.50). If Medicare paid conditional benefits, expect a repayment demand from the recovery.

Why the order matters for your net

Say Jordan's $100,000 loss includes $40,000 of medical bills. If a state's UIM statute lets the policy subtract a $5,000 PIP payment and a $10,000 MedPay payment before UIM applies, the loss that UIM measures is $85,000 in an excess design. That does not mean Jordan receives less overall: the $15,000 came from those other coverages. It means Jordan cannot count the same dollars twice.

Arbitration: who can demand it

Many UIM policies send disputes about whether you are owed benefits, or how much, to arbitration instead of a jury. The rules differ by state because insurance regulators approve or prescribe the endorsement language.

• New York. An informal 2001 opinion from the New York State Insurance Department's counsel, applying Regulation 35-D on supplementary uninsured/underinsured motorist coverage, concluded that when an insured sued, the carrier could ask the court to stay the lawsuit and enforce its contractual right to arbitrate (New York DFS OGC Opinion 01-12-02).
• New Mexico. The state Supreme Court held in 2003 that New Mexico law does not require arbitration of uninsured motorist claims on the unilateral demand of either side where an approved policy clause provides for arbitration only if both the insurer and insured consent (*McMillan v. Allstate Indemnity Co.*, 2003-NMSC-002).

Do not assume which one you have. Look for the words "either party may demand" versus "if both agree," and find out whether the arbitrators' decision is binding, whether there is a cap on awards, and who pays for arbitrators. Our overview of arbitration and mediation in auto insurance disputes explains the format.

Deadlines and traps

The contract can set a shorter clock than a lawsuit would. Ohio's statute allows a UM/UIM policy to require that a claim or suit be made "within three years after the date of the accident," or within one year after the other driver's insurer is in insolvency proceedings, whichever is later, so long as the insured has not prejudiced the insurer's subrogation rights (R.C. 3937.18(H)). Another state's rule may be shorter or longer, and when the clock starts is argued in many cases. Our article on uninsured motorist claim deadlines: when the clock starts covers that.

Payment timing can matter for fees. In Brainard, the Texas Supreme Court held that an insured may recover attorney's fees under Chapter 38 of the Civil Practice and Remedies Code only if the insurer does not tender UIM benefits within 30 days after the trial court signs a judgment establishing the other driver's liability and underinsured status. That is a Texas rule about when a UIM insurer's payment duty ripens, and it explains why such claims often wait for a judgment or an agreed value.

Common mistakes:

• Signing the at-fault insurer's release before the UIM insurer has answered.
• Accepting less than the policy limit and assuming UIM will make up the difference without a credit.
• Counting a PIP or MedPay payment as a separate "extra" recovery.
• Giving your UIM insurer a recorded statement without reading the policy's cooperation clause first.
• Missing the policy's contractual deadline because the lawsuit deadline looked longer.
• Assuming the formula you read about in another state applies to yours.

Whether to sign anything, and how to value non-economic damages, are questions for a licensed attorney; the state insurance department takes complaints about how an insurer handled the claim. See Settlement paperwork: releases, liens and Medicare reimbursement for what a release typically covers.

How to check your own rule

1. Open the declarations page and find the UIM limit, written as per-person and per-accident amounts. The liability limits decoder explains the notation.
2. Find the definition of "underinsured motor vehicle" and the "limit of liability" clause in the policy.
3. Look up your state's UIM statute at the state legislature's site.
4. Read your state insurance department's consumer guide. The state car insurance requirements lookup shows which coverages your state requires or must offer.
5. Ask your insurer for a written example using your limits and a hypothetical claim.

Common questions

Do I need my insurer's permission to accept the at-fault driver's policy limits?

In many states you need to give notice and wait for a response, and some policies word it as consent. Florida's statute sets a 30-day process, and Texas courts enforce a settlement-without-consent clause only if the insurer shows actual prejudice. Because rules and policy wording differ, send the notice before you sign.

Does a UIM claim raise my rates?

That depends on the insurer's filed rating rules in your state, which this article cannot predict. The claim arises from another driver's fault, but how a company records it for rating is a question for the company and your state insurance department, so ask before you file.

Can I have a UIM claim if the other driver's limit equals mine?

Under a limits-based test, probably not, because the other driver's limit is not lower than yours. Under a damages-based test, yes if your damages exceed what the other insurer paid. That is why the definition of underinsured matters.

How long does a UIM claim take?

There is no standard timeline. The claim usually cannot be valued until your treatment is stable and the at-fault insurer has paid or offered its limit, so it often takes many months. Ongoing treatment and disagreements about the value of non-economic damages are common causes of delay.

What if my insurer denies or lowballs the claim?

Ask for the reasons in writing, check the policy's dispute clause, and contact your state insurance department. See when your own insurer lowballs an uninsured motorist claim for the process and for when a lawyer is worth hiring.

Key takeaways

• Two questions decide a UIM claim: whether the other driver counts as underinsured under your state's test, and whether UIM is reduced by the other driver's payment (offset) or sits on top of it (excess).
• On a hypothetical $100,000 loss with a $30,000 liability payment and a $50,000 UIM limit, the offset design pays $20,000 and the excess design pays $50,000.
• Tell your own insurer in writing before you sign any release; Florida sets a 30-day response process, Texas requires the insurer to show actual prejudice, and policy forms add their own notice rules.
• PIP, MedPay and, in some states, workers' compensation reduce what UIM pays; Medicare may claim repayment from a UIM recovery.
• Check the arbitration clause and the contract deadline in your own policy, because both can differ from what a court would apply to an ordinary lawsuit.