Because a substantial number of owners and operators of cars and trucks in the United States either maintain inadequate amounts of insurance coverage or fail to maintain any insurance coverage at all on their vehicles, many motor vehicle insurance policies contain provisions for underinsured motorist coverage, sometimes abbreviated as UIM, and uninsured motorist coverage, sometimes abbreviated as UM. The intent of such provisions is to give persons insured under auto insurance policies and innocent third parties some of the insurance protection they would have enjoyed if the underinsured or uninsured driver with whom they are involved in an accident had maintained adequate insurance coverage on the underinsured or uninsured vehicle.
When an insurer pays a benefit under a policy provision for underinsured motorist coverage or uninsured motorist coverage, it is in effect paying a debt owed by the underinsured or uninsured driver, the person who is actually liable for the damages arising as a result of the event that led to the insurer having to make the payment. An insurer who makes such payments has a right, the right of subrogation, by which it is permitted to take legal action against the underinsured or uninsured motorist in an attempt to recover as much as possible of the amount the insurer has paid out. The insurer’s subrogation right will only have value, as a practical matter, to the extent that the underinsured or uninsured driver has assets that can be seized by legal process to satisfy the judgment that the insurer obtains against the underinsured or uninsured driver in its subrogation action.
The business of insurance in the United States, including that of motor vehicle insurance, has traditionally been governed by the law of each state rather than by a single unified system of federal law. As a result, the extent of an insurer’s subrogation right and the manner in which it can exercise that right will vary from one state to another.