Uninsured Motorist Coverage and Umbrellas

Uninsured Motorist Coverage Not Required For Umbrella Policies

The article below explains Chapter 825 of the Public Acts of 1996. The law removed the requirement that umbrella policies had to provide UM limits equal to the liability limits unless otherwise requested in writing by the insured. 

Uninsured Motorist Law:    Be wary of potentially serious E&O exposure

On July 1, 1996, the uninsured motorist law changed and may result in a dramatic reduction in coverage for some insureds ... and a dramatically increased E&O exposure for you.

The prior law, § 56-71201(a)(3) stated, "Any umbrella insurance policy that includes automobile liability insurance shall comply with the provisions of this section so long as the underlying limits of Uninsured motorist coverage are equal to the underlying limits of automobile liability insurance."

In plain English, what the old law meant was an umbrella carrier usually had to offer UM limits equal to the umbrella limits. For example, if the insured had an auto policy with $300,00O liability and UM limits, and purchased a $1,000,000 umbrella, the insurer had to provide $1,000,000 in UM coverage if the insured wanted such limits.

Under the current law, the provision above has now been replaced by, 'No uninsured or underinsured motorist coverage need be provided in this state by an excess or umbrella policy of insurance."

Due to a quirk in our insurance code, if a company intends to non-renew or restrict coverage under even a personal umbrella, it must comply with Tennessee's commercial risk non-renewal law, rather than the laws governing personal risk insurance.  Since a personal umbrella policy does not meet the statutory definition of "personal risk insurance", it falls into the category of "commercial risk insurance" and related laws.  Therefore, to remove UM coverage when renewing a personal umbrella, the carrier must provide at least 60 days notice to the insured, according to the Tennessee Department of Insurance.