Squeezing Blood From the Uninsured Turnip

Subrogating against uninsured drivers is one of the less glamorous aspects of automobile insurance subrogation. It is the pariah of our industry and could easily be featured on the Discovery Channel series, Dirty Jobs. Initiating subrogation against uninsured and judgment-proof drivers is often nothing more than an exercise in futility, and frequently involves nothing more than watching good money fall bad into the abyss. However, it can be a lucrative and rewarding subrogation endeavor if handled appropriately and with the right tools.

The idiom, “you can’t squeeze blood from a turnip,” is a reference to the fact that you cannot squeeze from someone something they don’t have, especially money. However, in today’s debtor-protecting legal environment, it isn’t so much that the debtor doesn’t have money − it’s that he doesn’t have money that you are able to access. One of the subrogation industry’s strongest and most effective collection tools is the potential to have a debtor’s driver’s license suspended when they are involved in an accident while not being properly insured. In the final analysis, it’s all a matter of what the debtor wants to avoid more − paying a damage claim, even if in installments over time, or the freedom to drive an automobile to and from work without fear of being arrested. Understanding when and how such an effective collection tool is available is a necessity for successful subrogation in these instances.

Until recently, the only states which did not require automobile liability insurance were New Hampshire and Wisconsin. New laws passed under Governor Scott Walker in 2011 changed that in Wisconsin, so New Hampshire now stands alone. Florida does not require bodily injury liability insurance, but does require property liability insurance. That all but one state requires liability insurance should not be surprising seeing as most Americans believe that car owners should be required to purchase insurance to cover the damages and injuries caused to other drivers when their vehicle is involved in an accident. The minimum liability limits mandated vary from state to state, but most minimum limits are below those of coverages recommended for most households with assets – $100,000/$300,000 – with the most common state minimums at $25,000/$50,000. Despite these laws, it is becoming increasingly common to find negligent tortfeasors driving without the minimum insurance required by law.

Worsening the epidemic and contributing significantly to the number of uninsured drivers is the steady rise of illegal immigrants in the country. Ten states, including California, Colorado, Connecticut, Illinois, Maryland, Nevada, New Mexico, Utah, Vermont, and Washington, have passed laws which allow illegal immigrants to obtain driver’s licenses, using the dubious logic that they will drive anyway and that this will encourage them to obtain insurance. In Utah, New Mexico and Washington, undocumented immigrants can obtain legal driving privileges. Utah has a special driving privilege card. New Mexico and Washington allow those who can merely show proof of residency to get licenses. Unfortunately, a recent study from the Insurance Research Council (IRC) shows that, not surprisingly, this initiative is not producing the desired results.

Robberies and murder may grab the headlines, but, according to Police Chief Rod Foley of Youngstown, Ohio, the number one crime in Youngstown is people driving without insurance. He calls it an “epidemic.” Ohio is ranked only 7th among U.S. states for the number of uninsured drivers it has. Across the country, the chances are one-in-seven that your insured will sustain damage and/or injuries at the hands of an at-fault uninsured driver. According to the IRC, the five states with the lowest uninsured driver estimates are Maine (4 percent), Vermont (6 percent), Massachusetts (6 percent), New York (7 percent), and Nebraska (8 percent). The highest are Mississippi (26 percent), Alabama (25 percent), and California (25 percent). The result is that responsible drivers with adequate liability insurance bear the burden of paying for injuries and damages caused by drivers who do not.

Chances are good that the problem is even worse than revealed by the IRC numbers. Their estimates are based on the study of accidents – specifically the relation of the frequency of claims paid under uninsured motorist insurance with the bodily injury claims paid under liability insurance. Other estimates of uninsured rates have been made by matching states’ drivers’ registration databases against data from insurers on drivers that carry liability coverage. Still, other estimates, such as those done in New Mexico by the National Association of Insurance Commissioners (NAIC), estimate the uninsured rate at 60 percent. The Insurance Information Institute (III) estimates it at 50 percent.

Most states believe that there is no such thing as a right to drive. Surely, no such right is found in the U.S. Constitution. Instead, they believe that driving a motor vehicle is a privilege, one that can be taken away or restricted based on certain conduct such as drunk driving (DWI), driving under the influence (DUI), or driving while uninsured. Many of the procedural and constitutional safeguards do not apply in regards to driving a motor vehicle following a DWI arrest or after causing an injury or damage while driving without insurance.

A war against uninsured drivers is being waged. States are raising minimum limits and enacting stiff fines and/or jail time for driving without insurance. Many states are considering the creation of databases that make it easier to enforce these laws. Fourteen states allow jail sentences for a first offense, and an additional six states allow jail sentences for a second offense. Thirty-two states allow for the possibility of license suspension for a first offense. In fourteen of these states, the suspension could continue even after the driver has obtained insurance. Thirty-three states have possible fines of $500 or more for a first offense with four additional states having possible fines of $500 or more for a second offense. In West Virginia, the possible maximum fine is $5,000. Seven states allow for first time offenders to be jailed, have their license suspended, and be fined $500 or more. Five states allow uninsured drivers to be jailed and be fined at least $500. Fifteen states allow them to have their license suspended and be fined at least $500. Sadly, according to the Consumer Federation of America, even these harsh penalties haven’t made a dent in the growing number of uninsured drivers. Despite these efforts, the war against uninsured drivers is being lost. The economic downturn has caused an increase in the percentage of uninsured drivers beginning in 2008 and a recent study from the IRC reveals that there hasn’t been much ground gained in the battle to reduce the number of uninsured motorists on the road.

When subrogating against an uninsured driver, the more familiar you are with the tools available to you, the better your chances are at squeezing out a recovery – even if it’s over time. Even drivers reckless enough to drive without liability insurance mandated by law must pay their bills and get to and from work in their car. If you are able to suspend a defendant’s driver’s license and wield the power to reinstate the license, your chances of getting the defendant to enter into an installment agreement which begins to repay your subrogation interest is exponentially increased.

Each state has different requirements, procedures, and prerequisites which must be met before you can effectuate the suspension of the driver’s license of an uninsured tortfeasor whose negligence has caused personal injury or property damage during the operation of a motor vehicle. These procedures can change suddenly and without notice. Different states allow suspension of a driver’s license for different reasons. In Alabama, for example, Ala. § 13A-12-290 allows for suspension of a driver’s license for a laundry list of reasons.

Matthiesen, Wickert & Lehrer, S.C. just published on their website a new chart detailing the driver’s license suspension laws, regulations, and procedures for all 50 states, which can be found at http://www.mwl-law.com/wp-content/uploads/2013/03/00158564.pdf

This chart only focuses on suspending a driver’s license after having been involved in an automobile accident while uninsured—both administrative suspensions (where the state suspends the license of the uninsured driver automatically, and suspensions at the request of an injured or property-damaged party or judgment debtor such as a subrogated auto carrier).

Experts may disagree as to the causes of and solutions for the high rate of uninsured drivers, but insurance companies must make practical business decisions and use every tool at their disposal in order to remove the burden of damages caused by uninsured drivers from the responsible people who follow the law and put it onto the backs of those who do not. Pulling the driver’s license of the uninsured is an effective tool to accomplish this.