The Problem: When Insurance Doesn’t Cover the Gap
Sydney, a driver from Alaska, was involved in a car accident where she was not at fault. The damage to her vehicle and the related expenses were significant—far beyond what the at-fault driver’s insurance would cover. Fortunately, Sydney had wisely purchased Underinsured Motorist (UIM) coverage through her own insurer, Allstate. She believed this policy would bridge the gap between her actual losses and what the other driver’s insurance had paid. But when she filed her claim, she found herself facing a complicated disagreement over numbers.
The Legal and Administrative Issue
Allstate agreed that Sydney was entitled to compensation, but the dispute centered on how the final payout should be calculated. After Sydney collected a $50,000 settlement from the at-fault driver’s insurer, Allstate wanted to deduct that entire amount from the arbitration award determined under her UIM policy. This would result in Sydney receiving far less than expected. Sydney believed the deduction should be taken from her total damages—not from the amount owed under her UIM coverage—leaving her with a higher compensation. The disagreement escalated to court to determine which calculation method was legally correct.
Important Legal Insight
According to Alaska Statute 28.20.445, Underinsured Motorist (UIM) coverage can only be used after the limits of the at-fault driver’s insurance policy have been fully exhausted. In other words, UIM coverage is intended to act as a secondary safety net—never as an additional payout on top of the other driver's liability settlement.
The Outcome and the Lesson
The Alaska Supreme Court ultimately ruled in favor of Allstate regarding the deduction method. The court clarified that the purpose of UIM coverage is to fill the gap between the victim’s damages and what the at-fault driver’s insurance pays—not to provide compensation that exceeds the total loss.
For this reason, policyholders are encouraged not only to purchase uninsured/underinsured motorist coverage but also to understand how it interacts with other settlements. UIM is a supplement, not a multiplier.
How to Avoid This Situation
When reviewing your auto insurance policy, ask your agent directly: “If I’m hit by a driver who doesn’t have enough coverage, how will the payout from my UIM coverage be calculated after I receive a settlement from the other insurer?” Understanding your insurer’s offset or deduction method can prevent unpleasant financial surprises when you need support the most.
Sources
- Case Summary: Sidney v. Allstate Ins. Co. (2008) – Justia Law
- “9 Bad Faith Insurance Practices You Should Know” – PARRIS Law Firm
- “What Is Uninsured/Underinsured Motorist Coverage?” – Forbes Advisor
