Higher Offer: Make Them An Offer They Can Refuse

By Laura Marie Payne

  1. STATUTORY REQUIREMENT TO OFFER
    1. Nevada requirementsAs of January 1, 1990, the statutory requirements for UM/UIM notification are contained in N.R.S. 687B.145(2) and provide as follows:

      “Insurance companies transacting motor vehicle insurance in this state must offer, on a form approved by the commissioner, uninsured and underinsured vehicle coverage in an amount equal to the limits of coverage for bodily injury sold to an insured under a policy of insurance covering the use of a passenger car. The insurer is not required to reoffer the coverage to the insured in any replacement, reinstatement, substitute or amended policy, but the insured may purchase the coverage by requesting it in writing from the insurer. Each renewal must include a copy of the form offering such coverage. Uninsured and underinsured vehicle coverage must include a provision which enables the insured to recover up to the limits of his own coverage any amount of damages for bodily injury from his insurer which he is legally entitled to recover from the owner or operator for the other vehicle to the extent that those damages exceed the limits of the coverage for bodily injury carried by that owner or operator.”

      (N.R.S. 687B.145(2); emphasis added.) As has been highlighted above, the statue requires an insurer to give notice on a form approved by the commissioner and to include the approved form with each renewal of an insurance policy.

      1. Duty to inform insured — The statute mandates the insurer to offer UIM/UM coverage to an insured in amount equal to the limits of the bodily injury coverage. However, the duty will fall on the insurer at the time of trial to prove that the insured was in fact, offered such coverage.
        1. Duty to use terms understandable to the layman — In view of the tendency of the courts to strictly construe statutes of this type, a variety of precautionary procedures in proffering such coverage should be used. Preferably, the clause should contain some definition of the basic meaning of the coverage which would be understandable to the layman since a mere mention of the term “uninsured motorist protection” or a bare reference to the applicable statute, may not be regarded as sufficiently explanatory. Nevada appears to have resolved this issue by requiring the Commissioner to approve the form.
        2. Need to explain coverage to insured — Several state statutes contain additional language indicating that UIM/UM coverage must be explained to the named insured, or at least called to his attention in connection with a rejection. A statutory provision requiring that every policy issued contain a notice a notice indicating that such an explanation was given to the named insured has been interpreted by one court to call for the conclusion that rejection of such coverage is only effective after the insurer has fully informed the insured of what he or she is rejecting. The Nevada statute does not contain such an express provision and the Nevada Court has not ruled on the issue. However, even in the absence of such an express provision to explain the coverage to the insured, some courts held that an insurer must explain such coverage to the insured in order to secure a binding rejection.
        3. Requirement of Renewal Notice — As is clear from the Nevada Statute, each renewal policy must include a copy of the form offering UIM/UM coverage equal to bodily injury coverage. The failure of the insurer to notify insureds of their option to purchase higher UM/UIM limits when their policy is renewed may entitle toe insured to higher UM/UIM limits.
      2. Valid rejection
        1. Writing requirement — The Nevada statute does specifically require that a rejection be in writing and the Nevada courts have not addressed the issue. However, some courts, including Arizona courts, have held that the rejection must be in writing even in the absence of a statutory mandate.
        2. Policy renewal – Some states require a new written rejection with each policy renewal. However, the Nevada statute specifically addresses this issue and does not impose a duty on the insurer to obtain a new written rejection with each renewal. However, the Nevada statute does require that each renewal include a copy of the form offering such coverage.
        3. Signature by named insured – effectiveness against remaining named insureds– Some states have required the such coverage be rejected by the “new insureds” and have found that rejection by one named insured may not be effective against other named insureds in the policy. The Nevada statute simply refers to “an insured” and thus it is likely that in Nevada, a Court would find that a rejection by one named insured is effective against the remaining named insureds on the policy. However, the Nevada Courts have not specifically addressed this issue.
        4. Burden to prove proper rejection placed is upon insurance company — In defending suits for the recovery of UIM/UM benefits equal to to bodily injury benefits, the burden of proving that there has been a statutorily sufficient rejection of waiver of the coverage has been placed directly upon the insurance company.
        5. Additional vehicle – need for new rejection – In Nevada, the statute specifically addresses the issue of placing a new vehicle on the policy and does not require an additional rejection. Courts from other jurisdictions are split where the statute does not specifically address this issue. Some courts have held that a named insured’s original rejection of higher UIM/UM coverage was effective as to a vehicle subsequently added to the policy. However, some Courts have held that the original rejection of higher UIM/UM coverage did not apply to a subsequent vehicle that was added to the policy since it was not clear that insured intended to reject such coverage as the new vehicle.
        6. Corporation must reject through properly authorized representative — Rejections of higher UIM/UM coverage executed by a corporate representative who is not specifically authorized to reject coverage by corporate resolution or any other corporate directive may not be held valid and may not relieve insurers of the obligation to provide higher UIM/UM coverage to any injured insured.
  2. NEVADA CASE LAW
    1. Notice Requirement – Based on the Nevada Supreme Court cases discussed below, it is most likely that the insurance company will have the burden of establishing that such notices were in fact sent by a “clear and convincing” evidentiary standard.1987

      Quinlan v. Mid-Century Ins. Co., 103 NEV 399 (1987). In this decision, which was decided before the statute, the Court consolidated two cases involving UM/UIM notification requirements. The Court held the notification given in both cases was sufficient. In one case, the insurer had sent two premium renewal notices informing the insured that higher uninsured motorist coverage was available. The notices each contained the following notice in bold capital letters: “Did you know that you may now have uninsured motorist coverage in amounts up to your bodily injury liability limits?” If interested, contact your agent.” The Court upheld the lower court summary judgment in favor of the insurer.

      In the second case, the insurer had informed the insured through flyers and a telephone discussion with an agent that UM coverage could be increased to the amount of her liability coverage. The Court upheld the lower court summary judgement in favor of the insurer.

      In the Quinlan decision, the Court discussed four alternative potential interpretations as to what the phrase “must offer” could mean. One of the four interpretations mentioned was a four-part test which required:

      1) notification must be commercially reasonable if the offer is made in other than face-to-face negotiations; 2) the limits of the optional coverage must be specified and not to set forth in general terms; 3) the insured must be intelligibly advised by the insurer of the nature of the option; and 4) the insurer must advise the insured that the optional coverage is available for relatively modest premium increases.

      The Court did not indicate a preference for any of the four interpretations. From its holding in the case, it is obvious that the Court did not endorse the four-part test as there was no evidence whatsoever that the insurers had informed the insureds that the coverage was “available for relatively modest premium increases.”

      1992

      Khoury v. Maryland Casualty Co., 108 Nev. 1037 (1992). In this case the Court held that, as a matter of law, the testimony of two agents that they told an insured of the availability of UM coverage was insufficient to meet the burden of proof. The case was sent back to the lower court to have the jury decide the adequacy of the notification.

      In addition, the Court said a slightly modified version of the “four-part test [they] approved in Quinlan” was applicable in determining whether an insurer’s notification was sufficient. Once again, the Quinlan decision did not approve this test.

      1994

      Breithaupt v. USAA Property and Casualty Ins. Co., 110 Nev. 31 (1994). This case overturns the notice requirement expansion of Khoury. The Court said the Khoury decision was limited to the holding that “the testimony of two employees of the insurance agency was insufficient, as a matter of law, to establish by clear and convincing evidence that notice was given.” The Court went on to say that the Khoury decision “did not reach the issue of the adequacy of the content of the notice. To the extent that dictum in Khoury conflicts with the standard of notice set in Quinlan, we disapprove it.” Our reading of this case is that the four-part test, which was never adopted in Quinlan and unnecessary in Khoury for the Court to reach its decision, is not the law in Nevada. The court went on to say that the 1990 amendments to the statute render “Quinlan’s [and we believe all decisions based on the prior statute] notice standard inapplicable to insurance transactions which occur after the effective date of the statute.”

    2. Effect of 1990 amendment to statute on pre-existing policies(1) Amendment to statute will not effect coverage to pre-existing policies by operation of law. The amendment to the statute in 1990 requiring the insurer to offer UIM/UM coverage in amounts equal to bodily injury coverage on a form approved by the commissioner did not grant existing policy holders higher coverage by operation of law. The insurer was required to offer new policy holders such coverage and required to include the appropriate documents with all renewal packages.
  3. PRACTICAL APPLICATION
    1. Insureds claim he is not aware that he was waiving underinsured coverage — Insured’s who have declined higher UIM/UM coverage may seek to avoid the effect of their actions by contending that the statute which requires all policies issued offer UIM/UM coverage equal to bodily injury coverage envisions a rejection which possesses more clarity or dignity than one made incident to a mere application for insurance, the implication being that the coverage must be renounced within the policy itself or within a separate instrument of rejection. In rejecting this argument by insureds, Courts have relied on the following factors:
      1. Clarity of Rejection — In a number of California decisions, it has been indicated that in order for an insurer-proffered rejection of UIM/UM motorist coverage to possess the clarity needed for enforceability under the statute, once executed by the insured, it must, at least to the extent the insurer’s oral instructions fail to furnish such an explanation, contain not merely a bare reference to the term UIM/UM coverage, but must state some minimal definition of the term which is adequate to apprise the insured of the basic nature of the protection he is relinquishing. The Nevada statute, however, appears to include a “safe harbor” provision, meaning if the insurance company utilizes a form approve by the Commissioner to reject higher UIM/UM limits, it will be protected from this argument. However, Nevada courts have not addressed the issue.
      2. Conspicuous Placement of Availability of Coverage — Courts have held that a provision containing a purported agreement to reject higher UIM/UM coverage by the insured which has been drafted by the insurer, will be considered statutorily sufficient only if it is “conspicuous” to the insured to whom it has been tendered for acceptance or rejection. Nevada has left the decision as to whether such a provision is sufficiently conspicuous to the Nevada Insurance commissioner and the Nevada courts have not addressed the issue.
      3. Oral vs. written waiver — It has been recognized in some states involving statutes silent on the matter of whether rejection must be written that an oral rejection may be valid. However, the Nevada legislature has left this issue to the Nevada insurance commissioner to approve a form with or without the need for the insured’s signature. Although the Nevada statute does not specifically require a written rejection and the Nevada Supreme Court has not ruled on this specific issue, Arizona and other states have found that the statute implied a written rejection requirement even in the absence of a specific mandate.
      4. Necessity of insured’s signature — Courts have held that a rejection of higher UIM/UM coverage can only be given effect if it is signed be the insured. Courts have held that the signature of the insured’s broker after a telephone conference with the insured was not a sufficient rejection as a matter of law. Nevada has not addressed this issue.
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