1. Forms
2. PP
3. PP-03-11

Form PP 03 11 - Underinsured Motorists Coverage

1. What the form is

The PP 03 11, Underinsured Motorists Coverage (UIM) endorsement, is a crucial component of a Personal Auto Policy (PAP). Its primary purpose is to provide an insured with financial protection for bodily injuries sustained in an accident caused by an at-fault driver who has auto liability insurance, but whose coverage limits are insufficient to cover the full extent of the insured's damages. Essentially, this endorsement bridges the gap between the at-fault driver's low liability limits and the actual damages incurred by the insured. The PP 03 11 is designed to be relatively self-contained, featuring its own insuring agreement, exclusions, limit of liability, and other insurance and arbitration provisions. It modifies certain sections of the standard PAP (PP 00 01), such as "Additional Duties" and "General Provisions".

2. Classes of business it applies to

This endorsement applies specifically to Personal Auto Policies. It is not intended for commercial auto policies. The coverage is for individuals and families who have a PAP for their private passenger vehicles. Real-world examples where this form is critical include:

• An insured is rear-ended by a driver who only carries the state minimum liability coverage of $25,000 for bodily injury. The insured's medical bills and lost wages amount to $75,000. If the insured has UIM coverage with a limit of $100,000, this endorsement would typically cover the $50,000 difference, after the at-fault driver's $25,000 limit is exhausted.
• A family member, covered under the PAP, is a passenger in a friend's car and is injured in an accident caused by another driver with inadequate insurance. The UIM coverage on their own PAP could respond.
• An insured is a pedestrian or bicyclist struck and injured by an underinsured driver. Their own UIM coverage can provide benefits.

3. Special considerations

Several important considerations apply to the PP 03 11 endorsement:

• Trigger for Coverage: Coverage typically applies after the liability limits of all applicable bodily injury liability bonds or policies covering the at-fault underinsured driver have been exhausted by payment of judgments or settlements, or a tentative settlement has been reached.
• Definition of "Underinsured Motor Vehicle": The form defines what constitutes an "underinsured motor vehicle." It explicitly excludes certain vehicles, such as those owned or operated by a government entity or those operated on rails. It also specifies that a vehicle isn't considered underinsured if its liability limits are less than the minimum required by the financial responsibility laws of the state where the insured's covered auto is principally garaged. Similarly, a vehicle whose insurer denies coverage or becomes insolvent is typically treated as an *uninsured* motor vehicle, not an underinsured one, under the terms of the PAP.
• State Variations: While this is a standard ISO form, many states have their own specific endorsements for UIM coverage that address unique state laws, regulations, and public policy. The availability and specific rules for UIM coverage (e.g., whether it's "stacking" or "non-stacking," or "difference in limits" vs. "excess") can vary significantly by state.
• Relationship to Uninsured Motorists Coverage (UM): UIM coverage is distinct from, but related to, Uninsured Motorists (UM) coverage (which applies when the at-fault driver has no insurance or is a hit-and-run driver). Often, UM and UIM coverages are purchased together.
• Exclusions: The endorsement contains its own set of exclusions. For instance, there is typically an exclusion for using a vehicle as a public or livery conveyance (though some newer versions may have exceptions for volunteer or charitable purposes). It also excludes coverage for individuals using a vehicle without a reasonable belief they are entitled to do so (with an exception for family members using "your covered auto").
• Notification Requirements: The insured has specific duties after an accident, such as promptly notifying the insurer of a tentative settlement with the underinsured motorist's insurer and forwarding legal papers if a suit is brought.

4. Key information for agents and underwriters

• Pricing and Limits: UIM coverage is typically offered with limits that match the insured's own Bodily Injury liability limits, though insureds may sometimes opt for lower limits to save on premium. Agents should emphasize the importance of selecting UIM limits that are adequate to protect the insured and their family members from significant financial loss due to an accident with an underinsured driver. The form includes a schedule to list the limit of liability and premium for up to three vehicles.
• Risk Assessment: While the primary risk is the inadequacy of another driver's insurance, underwriters may consider an insured's driving record and claims history as indirect factors. The principal garaging location of the vehicle is important due to varying state laws and the prevalence of underinsured motorists in certain areas.
• Coverage Gaps: Agents should be aware of potential coverage gaps. For example, if an insured carries low Bodily Injury liability limits, they may also be offered or only be able to purchase correspondingly low UIM limits, which might not be sufficient. It's also crucial to explain how the "Other Insurance" clause works, as the PP 03 11 often states that if multiple policies apply, the total recovery will not exceed the highest single limit available under any one policy for a single vehicle. When a non-owned auto is involved, the UIM coverage on the PAP typically applies on an excess basis.
• Endorsement Clarity: Recent revisions to the PP 03 11 have aimed to clarify wording related to exclusions (e.g., for personal vehicle sharing programs, "flying vehicles") and exceptions (e.g., for volunteer or charitable use of a vehicle).
• Importance of Education: Agents play a key role in educating clients about the risks of being hit by an underinsured motorist and the value of UIM coverage, especially as medical costs continue to rise. Many insureds may not understand the difference between UM and UIM coverage or may underestimate their potential exposure.
• Limit of Liability Reduction: A key aspect of the PP 03 11 is that the limit of liability for UIM coverage is often reduced by all sums paid by or on behalf of the persons or organizations who may be legally responsible for the bodily injury. Agents should ensure clients understand this offset.