Setoffs and Uninsured Motorist Insurance Policies

When an insured files a lawsuit against an insurance company, the insurance company can file a counter claim against the insured to reduce the amount of the insured's claim by an amount that the insurance company claims that the insured owes to it. The amount owed can be unpaid premiums or funds received by the insured from other sources that would exceed the amount of the insured's loss. This is called a setoff, an offset provision, or a benefit-set off provision. In the case of uninsured motorist coverage, setoffs exist for a number of benefits that an insured could obtain due to an automobile accident.

Some state statutes allow uninsured motorist insurance companies to setoff amounts that an insured received from workers compensation, Social Security, and settlements with a liability insurance company. Therefore, if an insured were injured in a car accident while driving in the course of his or her employment, the insurance company could offset the uninsured motorist benefits in the full amount of the insured's workers compensation judgment.

Some states prohibit the reduction of uninsured motorist benefits by the amount of an insured's personal injuries award. Those states contend that the amount paid by a third-party's insurance company to the insured for personal injuries does not affect the amount that the insured should receive from his or her insurance company based on the loss caused by an uninsured person.

Setoffs not only avoid double recovery by insureds, they can reduce insurance costs. Setoffs required by an insurance policy must be considered by an arbitrator.

Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.