“Drop Downs” in Auto Coverages: Another Reason to Have Underinsured (“UIM”) Coverage

Most people have never heard of a “drop down” provision or clause in auto liability insurance policies, or even given the idea any thought.  But the existence of such provisions in a defendant’s auto liability policy can have a profound impact on the compensation available to an injured plaintiff.  A “drop down” provision in an auto liability policy decreases the amount of coverage the insured policy holder has if certain events occur, such as being convicted of felony drunk driving out of a motor vehicle collision which causes injury to the other driver(s).  A recent case handled by Janssen Malloy LLC partners Michael Crowley and Jeff Slack serves to illustrate the issues.  Our clients were struck head on by an impaired driver on Highway 299 who had swerved over the double yellow lines.  The impact caused our clients’ vehicle to be propelled over an embankment post impact.  The defendant driver was arrested and prosecuted for felony DUI (California Vehicle Section 23153) in Trinity County Superior Court.  The defendant’s insurance carrier advised that his coverage therefore “dropped down” from a $100,000/person, $300,000/occurrence coverage to the minimum mandated under California’s auto liability insurance requirements, a $15,000/person, $30,000/occurrence limit.

Fortunately, our clients had the foresight to secure their own underinsured motorist (“UIM”) coverage with their own auto liability insurer, so we were able to pursue the remainder of their recovery under their own UIM coverage.  The process necessarily involved two phases of litigation: first, exhausting the entire $30,000 in coverage from the defendant’s coverage (he was without any assets to satisfy a judgment in any event), then turning to their own UIM coverage.  Making an UIM claim with one’s own insurer requires that the entire coverage of the underlying defendant’s policy be paid in full.  The UIM carrier in entitled under California’s Uninsured Motorist Act to claim a credit or setoff for the underlying recovery from defendant’s policy; in other words, the UIM carrier gets to subtract the $30,000 recovery in this instance from the clients’ UIM policy limit amount. 

In this case, we were able to obtain a significant additional recovery for our clients under their UIM coverage.  The demand for compensation under the UIM policy was phrased as a demand for “new money,” meaning a dollar amount separate and additional to the underlying $30,000 from defendant’s insurer, and separate and additional to any medical payments made on our clients’ behalf under their own medpay coverage in the UIM policy.  The purpose of that clarification is to ensure that the UIM carrier’s settlement offer doesn’t end up being X dollars, but really minus $30,000 per the setoff or credit described above.

This case is an excellent example of why it is so important for drivers to secure their own UIM coverage, at the highest amount their family budget can afford.  No driver gets to select which careless or drunk defendant driver injures them, and especially gets no vote on what coverage, if any, that defendant driver has.  Even though the defendant in our client’s case appeared to have a $100,000/person liability coverage, that shrunk down to the minimum limits of $15,000/person due to the “drop down” provision in the insurance policy.  Had our clients not had the prudence and foresight to have their own UIM coverage, that $15,000/person limit might have been the extent of their recovery.  The discussion of this case also shows why it is important for injured plaintiffs to be represented by experienced trial counsel who can navigate their case through the procedural obstacles to obtain a full and just recovery.