North Carolina Supreme Court Rules Stacking of UIM Coverage Is Not Permitted When Determining Whether a Vehicle is Underinsured

In N.C. Farm Bureau Mut. Ins. Co. v. Herbert, the North Carolina Supreme Court held that UIM policies cannot be stacked when determining whether a tortfeasor’s vehicle is underinsured. The decision upends almost 30 years of precedent in this state.

In Herbert, the underlying claim arose out of a motor vehicle accident in which multiple parties were injured. Corbett, the at-fault party, was driving a vehicle owned by Herbert. Herbert, Hawley, and Hicks were passengers in the vehicle when it collided with another vehicle operated by Coats. As a result of the collision, Corbett and Hicks died, and Herbert, Hawley, and Coats were injured.

The vehicle being driven by Corbett at the time of the accident was insured under a policy issued to Herbert by North Carolina Farm Bureau Mutual Insurance Company with liability limits of $50,000 per person and $100,000 per accident for bodily injury. This policy also provided UIM coverage with limits of $50,000 per person and $100,000 per accident. Herbert was also a named insured under a separate policy issued by Farm Bureau to Herbert’s parents with UIM limits of $100,000 per person and $300,000 per accident.

Following the accident, Farm Bureau tendered the $100,000 per accident limit of liability coverage, which was allocated among the four claimants as follows:

Herbert $100

Estate of Hicks $49,500

Hawley $49,500

Coats $900

After deducting the $100 payment to Herbert under the liability coverage, Farm Bureau paid Herbert an additional $99,900 under his parents’ UIM policy. Farm Bureau maintained that Herbert was not entitled to UIM coverage from his own policy because Herbert’s vehicle – the at-fault vehicle – was not underinsured. The North Carolina Court of Appeals disagreed. It concluded that the UIM limits under Herbert’s own policy could be “stacked” with the UIM limits under his parents’ policy to determine whether his vehicle was underinsured.

The North Carolina Supreme Court, in an opinion written by Chief Justice Newby, reversed. It held that Herbert could not stack all UIM policies available to him, regardless of their connection to the car involved in the accident, before comparing his UIM limits to the at-fault vehicle’s liability limits. The court concluded that this “stack and compare” rule, which was first established in N.C. Farm Bureau Mut. Ins. Co. v. Bost, 126 N.C. App. 42, 483 S.E.2d 452 (1997), contravenes the plain language of the UIM statute, which defines an “underinsured highway vehicle” as:

a highway vehicle with respect to the ownership, maintenance, or use of which, the sum of the limits of liability under all bodily injury liability bonds and insurance policies applicable at the time of the accident is less than the applicable limits of underinsured motorist coverage for the vehicle involved in the accident and insured under the owner’s policy.

N.C. Gen. Stat. § 20-279.21(b)(4) (emphasis added).This language, according to the court, “clearly and unambiguously means that subdivision 20-279.21(b)(4)’s activation provision is concerned with the claimant’s UIM coverages that pertain to the vehicle involved in the accident, not all UIM policies for which the UIM claimant is personally eligible.” As such, the court held that “the only UIM limits that may be considered at the activation stage are those ‘for the vehicle involved in the accident and insured under the owner’s policy.’” It went on to explain that while the statute does not allow inter-policy stacking of UIM coverage when making the initial determination of whether UIM coverage is activated, it does permit stacking when calculating the amount of UIM payments ultimately owed to the claimant. See N.C. Gen. Stat. § 20-279.21(b)(4) (“if a claimant is an insured under the underinsured motorist coverage on separate or additional policies, the limit of underinsured motorist coverage applicable to the claimant is the difference between the amount paid to the claimant under the exhausted liability policy or policies and the total limits of the claimant’s underinsured motorist coverages as determined by combining the highest limit available under each policy”).

The Supreme Court’s decision in Herbert was based on the current version of N.C. Gen. Stat. § 20-279.21(b)(4). The North Carolina General Assembly recently passed legislation that makes significant amendments to portions of this statute, including the definition of an “underinsured highway vehicle.” The amendments become effective for policies issued or renewed on or after January 1, 2025. For policies issued or renewed prior to that date, the no-stacking rule set forth in Herbert will apply.