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Insurance – Auto – Family Step-Down Provision – Void – Public Policy

By: S.C. Lawyers Weekly staff//August 22, 2014

Insurance – Auto – Family Step-Down Provision – Void – Public Policy

By: S.C. Lawyers Weekly staff//August 22, 2014

Williams v. Government Employees Insurance Co. (Lawyers Weekly No. 010-096-14, 19 pp.) (Donald Beatty, J.) (Costa Pleicones, J., joined by John Kittredge, J., concurring in part & dissenting in part) Appealed from Richland County Circuit Court (George James Jr., J.) S.C. S. Ct.

Holding: An auto insurance policy’s “exclusion,” which reduces coverage from the amount set out in the declarations to the statutory minimum if the injured party is a family member of the insured, violates this state’s public policy; as a result, this family step-down provision is void and unenforceable.

We affirm the circuit court’s holding that the policy is unambiguous; however, we reverse the circuit court’s holding that the family step-down provision is enforceable.

A married couple was killed when their car was struck by a train, and it was impossible to tell who was driving. Although the couple’s auto insurance policy provided coverage of $300,000 per accident and $100,000 per victim, the defendant-insurer agreed to pay only $15,000 per insured because of an “exclusion” (actually, a family step-down provision) which says, “We do not provide liability coverage, under Exclusions 1, 2, 3 and 8, in excess of the minimum limits of liability required by South Carolina law. We do not provide any liability coverage for the remaining Exclusions.

“1. Bodily injury to any insured or any relative of an insured residing in his household is not covered.”

We agree with the circuit that, read as a whole, the policy is unambiguous. Neither the policy’s inartful wording nor the fact that the parties would need to look up the statutory minimum limits renders the policy ambiguous.

Nevertheless, the family step-down provision is void as against public policy.

S.C. Code Ann. § 38-77-142(A) and (B) require an auto liability policy to insure named insureds and permissive users against liability for damages incurred “within the coverage of the policy.” Section 38-77-142(C) says that no policy provision may limit or reduce the coverage required by this section, which refers to § 38-77-142, or else it is void.

Once the face amount of coverage is agreed upon, it may not be arbitrarily reduced or limited by conflicting policy provisions that effectively retract this stated coverage. Any other interpretation of § 38-77-142(C) would render the section useless. After agreeing on a policy with $100,000 in stated liability coverage for the named insureds, defendant should not be permitted to subsequently reduce it with what it calls an “exclusion.”

To allow an insurer to determine the extent to which an injured party can recover within the insured’s policy coverage based solely on a familial relationship is arbitrary and capricious and violative of public policy. The legislative purpose of affording protection to the innocent victims of motor vehicle accidents is eviscerated by defendant’s reduction in coverage to injured family members, who are no less innocent victims in accidents solely because they are injured by the negligence of a family member.

The family step-down provision is void as against the public policy of this state.

A provision that is against public policy is void ab initio and is incapable of being enforced by courts. We see no reason to depart from this procedure here, as suggested in the concurrence/dissent, as it would be a hollow victory indeed for the prevailing parties if we were to enforce the offending provision here and restrict relief to prospective cases only.

Affirmed in part, reversed in part.

Dissent

(Pleicones, J.) I agree with the majority that the insurance policy is not ambiguous but disagree with the finding that the family step-down provision offends South Carolina’s public policy.

Section 38-77-142(A) and (B) are concerned with the persons who must be afforded coverage under an auto insurance policy, not with the amount of coverage that must be offered. The monetary amount of coverage is the subject of S.C. Code Ann. § 38-77-140.

If we are to change the rules and now prohibit step-down provisions in auto insurance policies, we should do so prospectively. Such a delay would permit both insurers and insureds entering contracts after the date this opinion becomes final to decide what coverage they will offer, and what coverage they will buy.

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