* This bulletin was repealed by 08-05

To:           All Property & Casualty Insurers Writing Automobile Insurance

From:      Susan M. Schulte, Chief, Property & Casualty Section, Missouri Department of Insurance

Re:          Named Driver Exclusions

Date:       November 12, 1998

Introduction

The Missouri Department of Insurance (Department) has learned through its market conduct examinations that some insurers are not following the recent court ruling in Ingram v. Shelter Mutual Insurance Company, 922 S.W. 2d 854 (Mo.App. S.D. 1996). The Ingram case held that certain types of "named driver exclusion" endorsements to Missouri automobile liability polices are unenforceable because they violate the public policy behind the state's Motor Vehicle Financial Responsibility Law. That public policy, as outlined in Chapter 303 of the Revised Statutes of Missouri, is to assure that persons harmed by negligent vehicle operators can be reimbursed for their injuries, up to certain statutory dollar limits.

The argument made by insurers to the Department's market conduct examiners for not conforming to the Ingram decision has been that the decision only applies to the geographic territory of the Southern District Court of Appeals, the court that rendered it. Such an argument would mean that the decision would be inapplicable to the remaining two-thirds of the state outside the jurisdiction of the Southern District, including the states two most populous metropolitan areas.

This argument fails to recognize the weight given to prior court decisions under the legal doctrine of stare decisis. Under the stare decisis doctrine, a principle of law which has become settled by a series of court decisions is generally binding on other courts and should be followed in subsequent cases which are similar. 21 C.J.S. 163. Thus, in the case of U.S. Life Title Insurance Co. v. Brents, 676 S.W. 2d 839 (Mo. App. 1984), the Missouri Court of Appeals decided that where the same or analogous issue has been decided in a prior case, that case stands as authoritative precedent and is to be followed unless and until overruled, even where some authority or argument was not considered in that case.

Also, it is a general rule that a court should adhere to a principle announced by a court of coordinate (i.e. equal) jurisdiction which is not clearly in error until the principle is settled differently by a higher court. In the Missouri case of Forsthove v. Hardware Dealers Mutual Fire Insurance Co., 416 S.W. 2d 208, the Missouri Court of Appeals held that when a ruling of one court of appeals is supported by decisions of the Supreme Court, another court of appeals is absolutely bound by the first court's ruling.

The Ingram decision restricting named-driver exclusions is such a case. It is in accord with the prior Missouri Supreme Court case of Halpin v. American Family Mutual Insurance Co., 823 S.W. 2d 479 (Mo. Banc 1992), wherein the court stated the following:

"The plain purpose of the 1986 amendment is to make sure that people who are injured on the highways may collect damage awards, within limits, against negligent motor vehicle operators. This protection extends to occupants of the insured vehicle as well as to operators and occupants of other vehicles and pedestrians."

The 1986 amendment referred to above was the statutory change enacted by the Missouri General Assembly which made the purchase of automobile liability insurance compulsory for most Missouri motor vehicle owners. (Note: various alternatives to traditional insurance coverage, such as the posting of a bond or obtaining the authorization from the Department of Revenue to self-insure, are also available under the law to satisfy its "financial responsibility" requirements.)

The legislative change enacted in 1986 amended Chapter 303 of the Revised Statutes of Missouri. Previously, Chapter 303 had required that, after being involved in an accident resulting in more than $500 in damage, the owner of a motor vehicle provide proof of his financial responsibility, under pain of suspension of his operators license. (Halpin, at page 480). The key section of the new, amended language mandates that the motor vehicle owner purchase insurance (or an authorized alternative) before operating a vehicle and therefore, before any accident. Section 303.025, RSMo provides the following:

"No owner of a motor vehicle registered in this state, or required to be registered in this state, shall operate the vehicle, or authorize any other person to operate the vehicle, unless the owner maintains financial responsibility as required in this section."

The section goes on to state that its mandate may be satisfied through a "motor vehicle liability policy." Such a policy is later defined in Section 303.190, RSMo, which includes a requirement that the policy provide liability coverage of at least $25,000 for the bodily injury or death of one person in any one accident, $50,000 coverage for the bodily injury or death of two or more persons in any one accident, and $10,000 for property damage on any one accident. This minimum level of coverage is frequently referred to as 25/50/10 coverage.

Ultimately, the Supreme Court in Halpin decided that household exclusion clauses of automobile liability policies were unenforceable, at least insofar as they failed to provide the minimum 25/50/10 coverage. While the Halpin decision dealt with household exclusions and the Ingram decision dealt with named driver exclusions, the principle is essentially the same: except for the two limited exceptions which will be discussed below, a named driver exclusion is in violation of the public policy of Missouri to the extent it excludes insurance for the minimum 25/50/10 liability coverage level for a named driver.

The Department recognizes that ongoing case law developments make the development of acceptable named driver endorsements somewhat complicated. The Department also recognizes that insurers would like to know, in advance, what conduct may be engaged in without the possibility of enforcement or disciplinary action by the Department. Therefore, the Department is willing to set forth several "safe harbors" of conduct for issuing and applying certain named driver exclusions; the Department will not challenge exclusions of named drivers which fall within such safe harbors, absent extraordinary circumstances.

(Note: Some insurers may interpret these "safe harbors" as defining the limits of the named driver exclusions which are permissible under Missouris insurance laws. This view, however, is incorrect, in that the inclusion of certain conduct within a safe harbor is not meant to imply that conduct falling outside the safe harbor is likely to be challenged by the Department. Rather, the safe harbor encompasses only a subset of the named driver exclusions that the Department is unlikely to challenge under the insurance laws. The extent to which the Department is likely to challenge a particular named driver exclusion that falls outside the safe harbor will depend on the Departments analysis of a number of factors, including the degree of potential harm to the insurance-buying public posed by the endorsement and the requirements of the relevant case law, including decisions handed down after this Bulletin.)

Exception No. 1: Limitations of Coverage for Suspended or Revoked Drivers

The first limited exception to providing minimum 25/50/10 coverage concerns the issue of the named driver who has had his drivers license suspended or revoked. While the Ingram decision makes a fairly broad public policy pronouncement regarding the goals behind the new compulsory insurance law, the case does not address the existence of Section 379.116, RSMo, which was not repealed with the passage of the 1986 legislation and which, contrary to Ingram, in fact allows certain exclusionary endorsements. Section 379.116, RSMo provides:

"Any insurer may at any time refuse to write a policy of automobile insurance or may cancel or refuse to renew such a policy if the operator's or chauffeur's license of the applicant or named insured has been suspended or revoked. If the operator's or chauffeur's license of any member of a policyholder's household has been suspended or revoked, an insurer may issue an exclusion providing, by name, that coverage will not be provided under the terms of the policy while such person is operating the insured vehicle during any period of suspension or revocation."

Even under the doctrine of stare decisis, it is recognized that if a decision is in conflict with a previously enacted statute to which the decision makes no reference, and which is made without reviewing or construing that statute, then the decision has no precedential value on that point. 21 C.J.S. 175. The Ingram decision declaring certain named driver exclusion clauses unenforceable presented the court with no public policy issues as to Section 379.116, RSMo. The legal file of the case reveals that the driver in question did have a valid driver's license in the state of Missouri. As such, the Department feels that Section 379.116, RSMo is still "good law" and must be reconciled with the courts interpretation of Chapter 303 under the Ingram decision. Two different approaches suggest themselves, and both will be permitted unless or until the courts or the General Assembly determine otherwise.

Safe Harbor No. 1:

The first approach attempts to harmonize the application of Section 379.116, RSMo with the pronouncements in Halpin and Ingram of the states public policy of providing at least a minimum of 25/50/10 liability coverage. Under this approach, named driver exclusions can be used for suspended or revoked drivers of the named insureds household, but only to exclude coverage in excess of the 25/50/10 level which Halpin requires.

Safe Harbor No. 2:

The second approach adheres to the wording of Section 379.116, RSMo and thereby allows insurers to exclude any member of a policyholder's household whose operator's license has been suspended or revoked from any coverage under the policy while operating the insured vehicle during any period of suspension or revocation. Such blanket exclusions for suspended or revoked drivers have, in fact, been allowed in Missouri by the Department in the years following the passage of the compulsory insurance requirement without apparent disapproval by the courts or the General Assembly. In addition, allowing such blanket exclusions for suspended or revoked drivers has the effect of making coverage more readily available to other persons in the suspended or revoked driver's households, for whom it might otherwise be unavailable or unaffordable if coverage also had to be provided to that driver.

Caveats for Safe Harbors No. 1 and 2:

The limited-coverage approach to dealing with suspended or revoked drivers of Safe Harbor No. 1 is more consistent with the trend in recent court decisions than is the second, blanket-exclusion approach of Safe Harbor No 2. However, in theory, the first approach will also expose insurers to greater losses because of the additional coverage provided. While the Department feels either approach is permissible, the Department is interested in assuring that policyholders receive an appropriate premium reduction for any named driver exclusions applied, including those making blanket exclusions for suspended or revoked drivers. Therefore, the Department will require insurers to provide an actuarial justification for any unique premium debits, credits or other adjustments associated with named driver exclusion endorsements, whichever types are used, in order to meet the standards under Section 379.470, RSMo, that rates not be unfairly discriminatory.

Exception No. 2: Multiple Policies

The second, limited exception to providing the minimum 25/50/10 coverage was discussed but not resolved by the Ingram decision. It concerns whether a blanket named driver exclusion is enforceable as to one liability policy where liability coverage is available under another policy. While the Ingram court said it need not decide the issue, based on the public policy goal of providing at least a minimum of 25/50/10 coverage to injured person(s), it would seem to follow logically that if a second policy provided such coverage to the injured person(s), a named driver exclusion as to the first policy would be permissible. The Department is aware of at least one Circuit Court decision which has reached this same conclusion, after pointing out that the Ingram decision noted that Section 303.190.10 permits the financial responsibility requirements of Chapter 303 to be met by one or more insurance policies.

Safe Harbor No. 3:

As such, named driver exclusions as to all liability coverage under a motor vehicle liability insurance policy will be permitted, for the time being, where the endorsement language indicates this total exclusion is limited to situations where alternative minimum liability insurance coverage is available from another source, say, the named person's own liability policy.

Model Endorsement Forms

The Department has developed three endorsement forms as models for insurers wishing to limit coverage as to named persons. The first form is identified as a "Coverage Limitation Endorsement" to more accurately communicate that it limits only that coverage in excess of the 25/50/10 minimum; it can be used in all situations to provide limited liability coverage, including limited coverage for suspended or revoked drivers. The second is a traditional named driver "Exclusion Endorsement" which provides a complete limitation on coverage during any period of suspension or revocation of a named persons driver's license. The third form is a hybrid of the first two, in that it provides the minimum 25/50/10 coverage except for suspended or revoked household members. All three endorsements require the signatures of both the named "excluded" person(s) and the named insured(s), which helps make it clear to the parties at the outset that there are restrictions being placed on the right of the named person(s) to operate the insured vehicle. The Department suggests that insurers use these endorsements, or ones substantially similar to them. While any of the three endorsements is considered acceptable, the "Coverage Limitation Endorsement" is more in line with the trend of recent court cases and is preferred by the Department.

Note: During the preparation of this Bulletin, the Department was asked several relevant questions which deserve comment. First, the Department was asked whether endorsements relating to named drivers must be re-executed upon the renewal of a policy. The Department recommends that such endorsements be re-executed on a regular basis, preferably annually, to help re-establish the intent of the parties regarding the continued use of an endorsement.

Second, the Department was asked whether coverage under a named driver endorsement must reimburse for any defense costs of the "named" person. Missouri courts have determined that such reimbursement is not required under Chapter 303's Motor Vehicle Financial Responsibility Law. See State Farm Fire & Casualty Co. v. Metcalf by Wade, 861 S.W. 2d 751 (Mo. App. S.D. 1993) and State Farm Mutual Automobile Insurance Co. v. Ballmer, 899 S.W. 2d 523 (Mo. Banc 1995). The sample endorsements attached attempt to make clear that any coverage provided under the endorsements is only that which is required under Section 303.190, RSMo (i.e., 25/50/10 coverage). The same would apply for other optional coverages under a policy.

The Department hopes that this Bulletin will serve the dual purposes of providing advance regulatory certainty to insurers issuing named driver exclusions to motor vehicle liability policies and advancing the public policy behind the Motor Vehicle Financial Responsibility Law. The Department welcomes comments regarding this Bulletin and may revise this Bulletin in response to such comments. Unless revised in writing in the future, however, this Bulletin represents the Department's position regarding enforcement of the insurance laws in the context of named driver exclusions in motor vehicle liability policies.

NAMED DRIVER COVERAGE LIMITATION ENDORSEMENT (MISSOURI)

THIS ENDORSEMENT CHANGES THE TERMS OF YOUR POLICY

PLEASE READ IT CAREFULLY AND KEEP IT WITH YOUR POLICY

This endorsement changes certain terms of motor vehicle liability insurance policy number __________ issued to the Named Insured(s) listed below by Insurance Company. This endorsement becomes effective at the same time and date of that policy, unless a different time and date are listed below.

Coverage Limitation: In consideration of the premium charged for the motor vehicle liability insurance policy listed above, it is agreed that the coverage provided by Insurance Company and liability of Insurance Company under the "Coverage A - Liability" portion of the policy is limited whenever the motor vehicle described in the policy, or any other auto to which the terms of the policy are extended, is driven or operated by a Named Driver listed below. In such cases, coverage under the "Coverage A - Liability" portion of the policy: a) is limited to damages due to injuries or death to others or to damage or destruction of property, and b) is limited to Missouris statutory minimums of:

$25,000 because of bodily injury to or death of one person in any one accident and, subject to said limit for one person, $50,000 because of bodily injury to or death of two or more persons in any one accident, and $10,000 because of injury to or destruction of property of others in any one accident. (Section 303.190, RSMo).

Such minimum coverage will not be provided, however, to the extent that other insurance coverage is available which provides the statutory minimum levels of liability insurance coverage to the Named Driver for damages caused by the Named Driver.

This agreement shall be binding and shall apply to all future renewals, reinstatements and changes to this policy unless mutually agreed to by Insurance Company and Named Insured(s).

 Alternative Effective Time and Date: This endorsement becomes effective ________________________.

NAMED DRIVER EXCLUSION ENDORSEMENT

(MISSOURI)

THIS ENDORSEMENT CHANGES THE TERMS OF YOUR POLICY

PLEASE READ IT CAREFULLY AND KEEP IT WITH YOUR POLICY

This endorsement changes certain terms of motor vehicle liability insurance policy number __________ issued to the Named Insured(s) listed below by Insurance Company. This endorsement becomes effective at the same time and date of that policy, unless a different time and date are listed below.

In consideration of the premium charged for the motor vehicle liability insurance policy listed above, it is agreed that Insurance Company shall not be liable and no liability and no obligation of any kind shall attach to Insurance Company under the "Coverage A - Liability" portion of this policy for bodily injury, loss or damage while the motor vehicle described in the policy or any other auto to which the terms of the policy are extended is driven or operated by a Named Driver listed below during any period of the suspension or revocation of the drivers license of that Named Driver.

This agreement shall be binding and shall apply to all future renewals, reinstatements and changes to this policy unless mutually agreed to by Insurance Company and Named Insured(s).

Alternative Effective Time and Date: This endorsement becomes effective ________________________.

NAMED DRIVER COVERAGE LIMITATION ENDORSEMENT

(WITH FULL EXCLUSION OF COVERAGE DURING PERIODS OF SUSPENSION OR REVOCATION)

(MISSOURI)

THIS ENDORSEMENT CHANGES THE TERMS OF YOUR POLICY

PLEASE READ IT CAREFULLY AND KEEP IT WITH YOUR POLICY

This endorsement changes certain terms of motor vehicle liability insurance policy number __________ issued to the Named Insured(s) listed below by Insurance Company. This endorsement becomes effective at the same time and date of that policy, unless a different time and date are listed below.

Coverage Limitation: In consideration of the premium charged for the motor vehicle liability insurance policy listed above, it is agreed that the coverage provided by Insurance Company and liability of Insurance Company under the "Coverage A - Liability" portion of the policy is limited whenever the motor vehicle described in the policy, or any other auto to which the terms of the policy are extended, is driven or operated by a Named Driver listed below. In such cases, coverage under the "Coverage A - Liability" portion of the policy: a) is limited to damages due to injuries or death to others or to damage or destruction of property, and b) is limited to Missouris statutory minimums of:

$25,000 because of bodily injury to or death of one person in any one accident and, subject to said limit for one person, $50,000 because of bodily injury to or death of two or more persons in any one accident, and $10,000 because of injury to or destruction of property of others in any one accident. (Section 303.190, RSMo).

Coverage Exclusion: However, the coverage set forth in the Coverage Limitation provision above will not be provided: a) during any period of the suspension or revocation of the drivers license of the Named Driver, or b) to the extent other insurance coverage is available which provides the statutory minimum levels of liability insurance coverage to the Named Driver, for damages caused by the Named Driver.

This agreement shall be binding and shall apply to all future renewals, reinstatements and changes to this policy unless mutually agreed to by Insurance Company and Named Insured(s).

Alternative Effective Time and Date: This endorsement becomes effective ________________________.