Reduced UM Policy Entitled to Set-Off Regardless of Priority of Payment Rules

Donovan v. State Farm Mutual Automobile Insurance Company, A14A1248, involved three separate UM carriers, two providing coverage in excess of any available liability insurance, and one, State Farm, providing difference-in-limits or traditional “reduced” coverage.

The liability carrier paid its limits of $25,000, and State Farm, claiming that it was entitled to the $25,000 set-off, sought summary judgment. The trial court agreed and granted summary judgment for State Farm. Donovan appealed, listing as her sole enumeration of error “that the trial court erred in holding that State Farm is entitled to a set-off for the $25,000 in liability coverage she received from McMillon’s insurer.” Donovan.

The Court of Appeals held that

[T]he trial court was not required to apply the priority of payment rules, because this case involves only one insurance carrier- State Farm – who is entitled to set-off for the $25,000 that Donovan received from McMillon’s liability insurance carrier. Neither Grange nor GMAC are entitled to a set-off because they provide excess UM coverage.

Donovan. (Citation omitted)

This outcome is not a big surprise as the Georgia Automobile Insurance Law handbook, by Frank Jenkins, III and Wallace Miller, III, has long argued that this is only logical outcome. The Court of Appeals agreed, citing Jenkins and Miller’s book, and holding that when stacking multiple UM policies involving both reduced and excess coverage, the set-off is applied to the only policy eligible for the set-off, i.e. the policy providing reduced coverage.

This is important as normally the last carrier in priority of payments is entitled to the set-off. The Court of Appeals, in Donovan, has therefore confirmed that the set-off does not somehow disappear merely because the UM policy last in priority provides excess coverage. Rather, it can go a policy not last in priority if it is eligible for the set-off.

While there was only one reduced policy in play in Donovan, this case provides support for the argument that the normal rules governing the priority of payments remains the same when stacking both reduced and excess policies and the set-off for any liability payments goes to the reduced policy last in line to pay.