A court case decided by the Iowa Supreme Court at the end of June has some potentially significant implications for drivers who are injured in auto accidents.

In the case, Karen Robinson was seeking compensation from her insurer for medical expenses that arose nearly four years after the initial car accident took place. Robinson tried to get reimbursed for her medical expenses through the underinsured motorist (UIM) portion of her policy, but the court ended up upholding a portion of her car insurance contract that limited coverage to claims filed within two years of a crash. The central question in the case was how Robinson could have known within that two-year window that she would need significant medical attention another two years down the road.

How Underinsured Motorist Coverage Works

First, a breakdown of how UIM works. Anyone who purchases an auto insurance policy in Iowa gets UIM coverage unless they specifically reject it in writing. It pays the policyholder when he or she is the victim in a crash in which the responsible party doesn’t have enough coverage to pay for all the resulting damages.

Here’s an example: Driver A causes an accident, leaving Driver B with $100,000 worth of medical expenses. Since Driver A is responsible, his bodily injury liability insurance pays for Driver B’s medical costs. However, Driver A only has $75,000 worth of coverage, which doesn’t totally cover the damages. If Driver B has a UIM policy, then he could file a UIM claim with his own insurer for the remaining $25,000 worth of medical bills.

Coverage Conundrum

When Robinson got in her accident, she immediately filed a claim with the responsible party’s insurance company, State Farm. Robinson originally asked for $40,000, but State Farm ended up offering $20,000, both of which are sums well within the $100,000 worth of coverage that the policy provided. But negotiations between Robinson and State Farm broke down, and after three years there still was no settlement. Robinson later found out after surgery, however, that her condition was more serious than had been expected. After it came to light that she may have pain from the accident for the rest of her life, State Farm offered her the full $100,000 provided in the policy.

Following that, Robinson filed a claim under the UIM portion of her policy to get expenses above the $100,000 limit covered. But because the claim was filed well past the window outlined in the policy, her insurer denied it. So is UIM coverage worthless when it comes to latent conditions like Robinson’s? Not so, said the court.

According to the court, Robinson should have filed a UIM claim with her own insurer at the same time she filed a claim with the responsible party’s insurer, despite the fact that she didn’t know that her medical expenses would exceed the other driver’s policy limits. According to the opinion published by the court, this is a common practice in Iowa. The justices basically said that an insurer would likely put the claim on hold until the initial claim with the responsible party’s insurer was resolved.

So when it comes down to it, you don’t have to predict what all your future medical expenses may be in order to file a UIM claim. You can simply preemptively file one early on to avoid having to pay out of pocket for expenses that could get out of control.

The bottom line for Iowans: Consider filing a UIM claim with your own insurance provider when you file a bodily injury claim with the responsible driver’s insurer. It could prove to be an incredibly smart financial decision.