Legal Definitions - excess theory

Excess theory is an insurance principle that comes into play when an individual or entity responsible for causing harm (known as the "tortfeasor") has insufficient liability insurance to fully compensate the injured party for their losses.

Under this theory, the tortfeasor is considered "underinsured" if the total amount of damages suffered by the injured party (which can include medical bills, lost wages, property damage, and pain and suffering) exceeds the maximum payout available from the tortfeasor's liability insurance policy. When this situation arises, the excess theory allows the injured party to utilize their own underinsured motorist (UIM) coverage to recover the remaining portion of their damages, up to their own policy limits, thereby helping them achieve more complete financial recovery.

• Example 1: Significant Medical Expenses from an Auto Accident

  Imagine Maria is severely injured in a car accident caused by John, who ran a stop sign. Maria's medical bills, rehabilitation costs, and lost income total $200,000. However, John's auto liability insurance policy only provides a maximum coverage of $50,000 per person. Under the excess theory, John is considered underinsured because Maria's damages ($200,000) far exceed his policy's payout limit ($50,000). This principle allows Maria to file a claim under her own underinsured motorist (UIM) coverage to seek the remaining $150,000, assuming her UIM policy has sufficient limits.

• Example 2: Combined Property Damage and Bodily Injury

  Consider a scenario where Robert's new luxury SUV, valued at $80,000, is totaled by a distracted driver, Lisa. In addition to the vehicle's loss, Robert also sustains a broken arm and whiplash, leading to $40,000 in medical expenses and lost work. Lisa's liability insurance has a property damage limit of $25,000 and a bodily injury limit of $50,000 per person. Robert's total damages are $120,000 ($80,000 for the car + $40,000 for injuries). Lisa's available liability coverage for Robert is $75,000 ($25,000 property + $50,000 bodily injury). Because Robert's damages ($120,000) exceed Lisa's available coverage ($75,000), the excess theory applies. Robert can then use his own underinsured motorist (UIM) coverage to recover the $45,000 difference, provided his policy covers both types of losses and has adequate limits.

• Example 3: Multiple Injured Parties Exceeding Policy Limits

  A family of three – a mother, father, and their child – are all seriously injured when their vehicle is struck by a commercial delivery van driven by Sarah. Their combined medical expenses, lost wages, and pain and suffering amount to $600,000. Sarah's commercial auto liability policy has a maximum payout of $250,000 per accident, regardless of the number of injured parties. In this situation, the family's total damages ($600,000) significantly exceed Sarah's liability coverage ($250,000). The excess theory dictates that Sarah is underinsured relative to the total harm caused. Each family member can then individually or collectively invoke their own underinsured motorist (UIM) coverage to seek compensation for the remaining $350,000 in damages, up to their respective policy limits, to help cover their substantial losses.