Because a substantial number of owners and operators of cars and trucks fail to carry sufficient insurance coverage or operate their vehicles without any insurance coverage at all, auto insurance policies often contain underinsured motorist provisions, sometimes abbreviated UIM, and uninsured motorist provisions, sometimes abbreviated UM. These policy provisions are intended to give insured persons and innocent third parties some of the insurance protection they would have enjoyed if an underinsured or uninsured driver had been carrying an adequate amount of insurance coverage at the time of an accident, and underinsured and uninsured motorist coverages are therefore sometimes described as substituting for or supplemental to the other types of coverage afforded under a policy.
Underinsured motorist and uninsured motorist provisions in auto insurance policies often contain language stating that the underinsured or uninsured motorist coverage will not become available until the policy limits of all insurance policies that are applicable to the accident have been exhausted by the payment of judgments or settlements. Such exhaustion requirements are included in the policy because of the substitute or supplemental nature of the coverage and the understandable desire of the insurer to assure that all other available coverage has been applied before it is obligated to pay benefits under the underinsured or uninsured motorist provisions of the policy.
The business of insurance in the United States, including motor vehicle insurance, has historically been governed by the law of each of the states rather than by a single unified system of federal law. As a result, the answers to questions about application of the exhaustion requirements of underinsured and uninsured motorist coverage will vary from state to state, and will be found in both the state statutes regulating the insurance business and the decisions of the courts in cases involving disputes about insurance.