Legal Definitions - gap theory

Gap theory is an insurance principle that addresses situations where an at-fault driver's liability insurance coverage is insufficient to fully compensate an injured party, even if that coverage meets the minimum legal requirements.

Specifically, gap theory allows an injured party to access their own underinsured motorist (UIM) coverage when the at-fault driver's liability limits are less than the injured party's UIM limits. This principle helps to "bridge the gap" between the amount the at-fault driver's insurance pays and the total damages suffered by the injured party, up to the injured party's own UIM policy limits.

Here are some examples illustrating how gap theory applies:

• Example 1: Medical Bills Exceed At-Fault Driver's Coverage

  Maria is severely injured in a car accident caused by John. Maria's medical bills, lost wages, and pain and suffering total $120,000. John carries the state minimum liability insurance of $30,000, which is legally adequate. Maria, however, has her own UIM coverage with limits of $100,000.

  How gap theory applies: John's $30,000 liability coverage is less than Maria's $100,000 UIM coverage. Under gap theory, Maria can first recover the $30,000 from John's insurance. She can then make a claim against her own UIM policy for the remaining damages. Since her total damages are $120,000 and she received $30,000 from John, she can claim up to an additional $70,000 ($100,000 UIM limit - $30,000 paid by John's policy) from her own UIM coverage to help cover her losses.

• Example 2: Significant Property Damage and Personal Injury

  David's new luxury car is totaled, and he suffers a broken arm and concussion after being hit by Sarah. David's total damages, including vehicle replacement, medical expenses, and lost income, amount to $180,000. Sarah's liability insurance policy has a limit of $50,000. David's own UIM policy has limits of $200,000.

  How gap theory applies: Sarah's $50,000 liability coverage is less than David's $200,000 UIM coverage. Gap theory allows David to collect the $50,000 from Sarah's insurer. He can then claim the remaining $130,000 ($180,000 total damages - $50,000 from Sarah) from his own UIM policy, as his UIM limits are sufficient to cover this difference.

• Example 3: Multiple Injured Parties with Limited At-Fault Coverage

  A family of four (two parents and two children) is involved in a serious accident caused by a driver named Alex. The family's combined medical expenses, lost wages, and other damages exceed $500,000. Alex's liability insurance policy has a maximum payout of $100,000 per accident. The family's own UIM policy has limits of $300,000 per accident.

  How gap theory applies: Alex's $100,000 liability coverage, while potentially meeting state minimums, is significantly less than the family's $300,000 UIM coverage. Under gap theory, the family can first exhaust Alex's $100,000 policy. They can then claim an additional $200,000 ($300,000 UIM limit - $100,000 paid by Alex's policy) from their own UIM coverage to help cover their extensive damages, as their total losses far exceed this amount.