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Household Exclusions: Will Your Family’s Injuries Be Covered?

August 1, 2014 By Abby V. Uzupis

While driving back from vacation on the Eastern Shore, Jim is looking at family pictures on his cell phone and fails to see that the car in front of him has come to a stop. Jim rear-ends the car, causing injuries to Jim and his family.  After all the initial “dust” has settled – police reports, visits to the hospital, car repairs – Jim decides that he wants to make a claim for both his and his family’s injuries under his liability insurance within his auto policy. Upon reviewing his policy, Jim sees the following exclusion: “Household Exclusion: The liability insurance of this policy does not cover bodily injury to an insured or any family member of an insured residing in the insured’s household.” Confused as to whether his and his family’s injuries will be covered, Jim calls his claim representative, Sally, and asks about coverage. Sally, a very curious claim representative, calls her go-to law firm, DeCaro Doran, and asks the following questions:

  1. Will the household exclusion apply?
  2. What if Jim and his family lived in Maryland, would the exclusion still apply?
  3. What if Jim’s family files suit against Jim in Maryland, what then?   

After carefully considering Sally’s questions, the attorney at DeCaro Doran gave Sally the following answers:

Question 1Yes. To answer Sally’s question, an attorney must look to the law of the state in which the policy was issued.  Many states prohibit household exclusions because it would leave many drivers and passengers without insurance coverage when the driver – a family member – is responsible for their injuries.  Arkansas, the state in which Jim and his family live, does not prohibit household exclusions.  Therefore, because Arkansas allows the exclusion, Arkansas law applies, and Sally could deny coverage.

Question 2No.  The Maryland Court of Appeals has held that household exclusions that exclude all liability coverage for injuries to the insured and members of the insured’s household violate public policy.  More specifically, excluding coverage to the insured and the insured’s household members would violate Maryland’s requirement that all Maryland drivers maintain auto policies with at least $30,000/$60,000 in liability coverage.   However, the Court of Appeals has also held that household exclusions will be valid only if the insurance policy provides more than the minimum coverage, and only for the amount of liability coverage above $30,000/$60,000.  In other words, an insurance company is not required to provide more than $30,000/$60,000 in liability coverage for injuries sustained to the insured and the insured’s household members.

Question 3Yes.  While the Court of Appeals has held that household exclusions that exclude all liability coverage are invalid, the Court has made an exception for when an out-of-state family member files suit in Maryland against the insured-family member.  If Jim’s family filed suit against Jim in Maryland, the Maryland court would still uphold the exclusion. Here’s why: per the Court’s exception, where the vehicle involved in the accident was registered in another state and the insurance policy covering the driver of that vehicle was issued, sold, and delivered in that other state, Maryland’s compulsory insurance requirement is no longer implicated.  As such, a Maryland court can permit an insurance company to deny coverage.

Note for Insurers: When considering a policy issued in Maryland, make sure the policy contains an endorsement that brings the household exclusion into compliance with Maryland law.  While a Maryland policy cannot exclude all coverage for members of an insured’s household, the policy only needs to provide “household” liability coverage up to the amount required by Maryland law – $30,000 per person and $60,000 per occurrence.