What constitutes a reasonable explanation in UIM coverage waivers? Lopez v. United Auto. Ins. Co. Explained

In Lopez v. United Auto. Ins. Co., the Utah Supreme Court addressed a critical question for insurance practitioners: what constitutes a “reasonable explanation” of underinsured motorist (UIM) coverage under Utah Code § 31A-22-305.3?

Background and Facts

Maria Lopez was injured as a passenger when another vehicle struck her car from behind. The at-fault driver’s insurer paid its $25,000 policy limit, but Lopez claimed additional damages. She sued United Automobile Insurance Company, arguing that their UIM waiver was invalid because it failed to provide the statutorily required “reasonable explanation” of UIM coverage. The waiver simply stated that UIM coverage “provides payment of certain benefits for damages caused by the owner or operator of uninsured/underinsured motor vehicles.”

Key Legal Issues

The court addressed two main issues: (1) whether the court of appeals correctly construed the meaning of “reasonable explanation” under the UIM statute, and (2) whether the court of appeals erred in directing entry of judgment for a specific amount without determining actual damages.

Court’s Analysis and Holding

The Utah Supreme Court held that a “reasonable explanation” requires insurers to provide sufficient information to allow consumers to make informed decisions about UIM coverage selection. The court found United’s waiver deficient for three reasons: (1) it failed to define “underinsured,” (2) it conflated UIM with uninsured motorist coverage without distinguishing between them, and (3) it inadequately explained the benefits and applicability of each coverage type.

However, the court reversed the court of appeals’ instruction to enter judgment for $25,000, holding that while Lopez was entitled to UIM coverage, the district court must first determine her actual damages beyond those already paid by the at-fault driver’s insurer.

Practice Implications

This decision provides crucial guidance for insurance companies drafting UIM waiver forms. Waivers must clearly define technical terms like “underinsured,” distinguish between different types of motorist coverage, and explain specific benefits rather than using vague language about “certain benefits.” The ruling also reinforces that entitlement to coverage does not automatically equal entitlement to judgment—actual damages must still be proven.