Oliver Shami, Esq., Legal Contributor

Motorcycle Insurance

Motorcycling for many of us is a hobby that we engage in for fun and stress relief. So, thinking about and researching insurance coverage is the last thing we want to associate with our fun and relaxation. And because of the state of the economy, many people (riders and drivers alike) buy the cheapest and most convenient insurance they can obtain—or go without it altogether. As I see it, there are basically three general ways to go regarding motorcycle insurance: (1) Buy solid comprehensive coverage. (2) Buy the cheapest insurance possible, or (3) Go without insurance (the “hope and pray method”).

You say, “What does a lawyer know about what insurance to get? Isn’t that the job of the insurance agent?” As I’m aware insurance agents may be reading this (one of my best friends is a Farmers Agent), please be patient and read the rest of this article before you all hit the roof and write me nasty comments. Statistically, motorcycle riders are at a higher risk of accident and injury than their car driving counterparts. Tragically, people often don’t realize they’re not covered by the right type and amount of insurance until after an accident, when it’s too late to change their policy to cover the damages from that accident. That’s when the lawyers get involved and see all the bad stuff that inadequate insurance “creates”—or perhaps more accurately—“fails to correct.”

Insurance agents, insurance adjusters and lawyers typically get involved in the insurance process at different times. Insurance agents sell the policy at the beginning, before anything goes wrong. Insurance adjusters deal with the claim in the middle, after something goes wrong. And lawyers fight at the end over who gets what and how much. Interestingly, one has to see the end result (lawyer) to understand the importance of how to avoid the problems from the beginning, when the policy is being purchased. It sounds goofy, but the ideal insurance agent is one who has witnessed first-hand the mess that the wrong insurance creates when it’s truly needed—after the accident. If insurance were an animal, agents would be its head, adjusters its body, and lawyers would be, well, you get it.

Unfortunately, most insurance agents are removed from the claims process. If you want proof, call your insurance agent next time you have a claim. Your agent will refer you to the claims department—who will then take over. Your agent most likely will not be involved with any part of the claim process, or any litigation that may follow if you and your insurance company can’t agree on coverage or the amount of your claim. This is by no means a knock on insurance agents. Because I see first-hand the financial devastation inadequate coverage can cause, I often refer my friends and clients back to their insurance agents to review their types and amounts of coverage. And no, I don’t get a commission so don’t go there.

One last thing, because this is a national publication and each state has different laws, this article will touch upon the fault system that exists in most states and will not cover “no-fault” states which comprise approximately ¼ of the U.S. In most states, auto and motorcycle insurance function under a traditional fault-based system. Insurance companies make payments based on each person’s degree of fault in an accident. As a result of long and costly court battles often required to determine who is at fault in many accidents, some states have adopted an alternative no-fault system of insurance. In these no-fault states, insurance works differently. Suffice to say that there is some cross-over because there are no “pure” no-fault states. Even the no-fault states inject an element of fault for which people can and should insure. Armed with the concepts learned in this article, you should be able to speak intelligently with your agent whether you live in a fault or no-fault state.

I am licensed with the California and Arizona State Bars. Because California is a fault-state (like the vast majority of states) and has the largest number of motorcycle riders, let’s use California as an example.

Getting back to the three general insurance options, let’s say you live in California and you decide you’re going to go without insurance altogether. Setting aside the fines and penalties for getting pulled over without valid insurance, what happens if you get in an accident—even if it’s not your fault? In 1996, California passed Proposition 213 which states basically that if you get in an accident and have no liability insurance on the involved vehicle, you cannot recover non-economic damages. Non-economic damages are your pain and suffering damages. They are often a larger component of a judgment than economic damages, which are property damage, medical bills, loss of earnings and loss of earning potential. But possibly a larger “penalty” of carrying no insurance is that you will have no uninsured (UM) or underinsured (UIM) motorist coverage. So if you get hit by another uninsured driver who had the same “foresight” as you did for not getting insurance, you will get nothing. Sure you can sue them personally; but even if they have assets, you may never collect on your judgment if they file bankruptcy. Major bummer. As will be explained in more detail below, carrying high UM/UIM limits is among the best insurance coverage to have.

Using the same example as above, instead of not insuring at all, assume you get the cheapest insurance you can buy. In California, the minimum limits of liability insurance are 15/30/5, which means that your liability insurance must pay for damages you cause up to a maximum of $5000 property damage, $15,000 bodily injury to one person, or $30,000 to more than one person. So if you injure four people, they would have a pool of no more than $30,000 to divide among the four of them. This is lousy coverage in my opinion for many reasons. First, California’s minimum limits were established in the 1970s and have not changed since. In the ‘70s, $15,000 went a heck of a lot farther than now. A 1972 Corvette convertible was $5300. A base 2011 Corvette is now $50,000, and that’s not even for a convertible. That’s roughly ten times the price. Assuming similar purchasing power for insurance, 15/30/5 in 1972 dollars is 150/300/50 in today’s insurance dollars. Should you carry $150,000 of insurance coverage if it’s available? In my opinion, absolutely! Here is why.

If you injure someone, their medical bills will fast exceed your minimum 15/30 minimum coverage. Skyrocketing medical costs mean that one ambulance ride, an emergency room visit, a few follow-up doctor visits and some physical therapy now often exceed $15,000. Even if they don’t, when you factor in the person’s non-economic damages (pain and suffering), their claim will fast exceed your limits of insurance coverage. And that’s just a soft-tissue claim—no broken bones or herniated discs. If you factor in more serious injuries, as they say in New York: “Fuggedaboutit.” After that point, they will be looking to you personally for contribution. You say, “So what, I don’t have much, I will file bankruptcy push comes to shove.” Not so fast, under the new federal bankruptcy laws, if you make more than a certain amount per year, you may not be able to wipe off the debt. Even if you qualify for bankruptcy, if you have items beyond your main vehicle that you use for transportation (most likely your car), bankruptcy may not protect non-exempt property, for example, your motorcycle(s). If you own a home with enough equity, you could lose it as well. The net effect is that the injured party may take your home, your bike(s) and garnish your wages to enforce their judgment, irrespective of your BK filing. That sucks.

Just as importantly (if not more), in California (and I suspect many other states), a person generally cannot obtain more UM/UIM coverage than their limits of liability insurance. Remember uninsured (UM) and underinsured (UIM) motorist coverage is your “best insurance friend.” Why? If you buy the minimum 15/30 liability coverage and have the foresight of obtaining UM/UIM coverage, your UM/UIM coverage will be 15/30. That means that if you get hit by an uninsured or underinsured driver and you have UM/UIM coverage, your insurance company will step into the shoes of the uninsured or underinsured driver and insure your damages up to your UM/UIM limits of 15/30. As I mentioned before, given the high costs of healthcare, $15,000 will barely cover your medical bills, especially in a motorcycle accident where the chances of significant injury are much higher than in a four-wheeled vehicle (car, SUV, truck) collision. Now that’s better than a sharp stick in the eye; but there is a better way.

This leads to the third option: Carry solid insurance with the highest limits you can’t afford to go without. Many reputable insurance companies offer higher limits of liability such as 100/300 or 250/500 that can be matched with the same UM/UIM limits. So if you are hit by an uninsured driver or an insured driver with lower limits than you (e.g. 15/30 or 25/50) and your injuries are grave, you can collect on their policy limit and have your insurance UM/UIM coverage pay for the difference, up to your UIM limits. In the case of an uninsured driver, you can collect directly from your own UM insurance up to your policy limits for the negligent acts of the uninsured driver.

Another benefit of obtaining higher limits of coverage is that many reputable insurance companies offer “umbrella” coverage. Umbrella coverage is an “excess” coverage over-and-above your liability limits. So for example, if you carry 250/500 in liability and UM/UIM coverage, the insurance company can write you an additional $1 million (or more) umbrella policy.

Now here is the cool kicker. Many of these companies can match UM/UIM limits to your umbrella coverage. So if you are hit by an uninsured driver and have the policy outlined above, you would seek damages from your own UM motorcycle coverage first up to the $250,000 limit; and then collect another $1 million on your UM umbrella policy, assuming your injuries are that serious. In motorcycle accidents, injuries worth that much are not uncommon. Paralysis, or closed head injuries, or loss of limb can rise to these limits when you look at the related past and future medical bills and loss of earnings.

You may be thinking, “That’s nice but who can afford these premiums, especially in this economy.” Call your agent because you might be surprised at how inexpensive it is to obtain higher limits of coverage. You can often increase your limits for just a few more bucks a month. The same goes for umbrella coverage. It is cheaper than you think. And depending on your own personal life situation, family, income, assets, savings, etc., it might be foolish not to carry it. The point is, it’s worth looking into.

Remember what I said about obtaining the highest limits you can’t afford to go without. If you’re injured severely by an uninsured or underinsured driver, having that insurance coverage could mean all the difference in easing your burden and your family’s burden during the time you may be off work, receiving medical care and taking the time to heal. I have represented injured motorcycle riders who took years to get back to work.

There are a few insurance types I have left out of this article. I have not covered them in depth because they are not what I would call “life changing” insurance coverage. The liability and UM/UIM insurance discussed above will change your life if you don’t have enough of it. Not having the other types of insurance coverage discussed below will inconvenience your life, but not to the point of drastically altering it. What are they? There is comprehensive and collision coverage. Comp and Collision are nice to have if you want to cover your motorcycle in the event of theft, vandalism or crash, no matter whose fault. Then there is Medical Payments (MedPay) coverage which pays for your medical bills up to the amount of coverage, irrespective of fault. Regarding MedPay, the general recommendation is to match your MedPay limit to your health insurance deductible. So if you’re injured in a crash, you use MedPay to cover medical expenses up to your health insurance deductible, and then your health insurance covers the rest—ideally.

Let’s face it. We ride because we love it. But it’s not without dangers. No matter how good the rider, we are still at the mercy of other larger vehicles. This is not golf where if you miss a shot, you can take a Mulligan. If you get taken out by a car, you may be hospitalized for months. That’s a fact we can’t ignore. Many of us have families and loved ones who depend on us. We want our families to feel secure when we’re out riding that we’re mitigating the risks. Part of that is using the right protective gear.

Think of insurance as protective gear. I’m sorry, but if you ride without a helmet, then insurance is probably the least of your worries. But if you take your safety and the financial safety of your family seriously, than insurance should be viewed like protective gear. Use the right kind and never ride without it.