New Maryland law permits one type of car insurance stacking on July 1

A new offering will potentially result in better recoveries for the victims of some car accidents.

Beginning on July 1, 2018, when an insurance company sells a private passenger automobile policy in Maryland that covers privately owned vehicles, including motorcycles, the insurer will be required to offer a new type of insurance called enhanced underinsured motorist coverage or EUIM. EUIM is alternative kind of coverage that will meet the current state requirement that a private car insurance policy include uninsured motorist coverage, also called UM.

Current UM and the gap theory

UM provides coverage when the insurance coverage of an at-fault driver in an accident is not sufficient to pay for the victim's injury and property damages (or is completely uninsured). UM also kicks in when the at-fault driver leaves the scene of the accident and is not located, so his or her policy is not available to provide coverage for the victim's losses.

Currently, UM (or underinsured motorist coverage or UIM) and liability coverage are required in Maryland in every private passenger policy at the minimum level of 30/60/15 per accident ($30,000 per person/$60,000 per accident for injury/$15,000 per accident for property damage) or a $75,000 combined limit for injury and property damage per accident.

A policyholder can purchase higher levels of liability coverage and if he or she does so, the UM levels of coverage must increase the same amount, unless the policyholder specifically chooses less UM coverage. If UM coverage less than liability coverage is elected, it still cannot drop below the minimum requirements.

Currently in Maryland, in an accident with an at-fault driver who is underinsured, a "gap theory" formula applies. This means that the victim (or potential plaintiff in a personal injury suit) is limited in recovery to the level of his or her own UM limit, even when the at-fault driver or potential defendant has some coverage that will kick in.

Consider a simplified example in which the plaintiff's losses were $150,000, but the defendant only had $30,000 in liability coverage, leaving a gap in coverage of $120,000. If the plaintiff's UM coverage was $100,000, that would be the limit of total recovery, which means that the victim could collect $30,000 under the defendant's policy and $70,000 under the plaintiff's policy for a total of $100,000, the amount of the plaintiff's UM coverage. This means that $50,000 in losses would not be reimbursed.

The new EUIM stacking option

EUIM will not be subject to the gap theory that limits recovery to the victim's UM level. Instead, EUIM will stack on top of the at-fault driver's policy limit. In our example, after the plaintiff gets $30,000 from the defendant's liability policy, the plaintiff can stack the entire amount of his or her EUIM (assuming the same $100,000 level) on top of that, for a total recovery of $130,000, a significantly higher award.

Insurer requirements

Under the new law, the mandatory offer of EUIM that must be made when a private policy is sold must be made via an official form written by the Maryland Insurance Administration or MIA. The agency already has collected public comments about the form, incorporated relevant input and released the form in an official bulletin.

The form requires that the policy buyer opt in to the EUIM option in writing. Otherwise, he or she must specifically choose UM either at the level of liability coverage or at a lower level with a specific waiver.

Policies with EUIM will keep that kind of coverage automatically with renewals unless the policyholder makes a change.

This introduces a very complex new stacking law that can be explained in detail by a personal injury lawyer.