TAGS
Some families have a mix of good and bad drivers. One may have no accidents and citations while the other has several accidents and citations. An insurer is entitled to charge premium based upon the risk of loss presented by the proposed insured. The poor driver will invariably be charged a higher premium than the good driver.
Auto insurance policies, can, with the agreement of the insured and the insurer, exclude specific persons from coverage to allow the named insured to obtain insurance at a lower premium than would have been charged had a high risk driver remained a covered person.
In Normand v. Grayson, — So.3d —-, 2014 WL 4537486 (La.App. 1 Cir. 9/15/14), an excluded driver caused an accident. The insurer refused coverage because the driver was an excluded driver. The Plaintiff sought coverage based on the allegation that the named insured had negligently entrusted the excluded driver with the vehicle and was, therefore, covered for the injuries caused.
FACTS
Plaintiff, Lacey L. Normand, filed a petition for damages for the injuries she sustained in an automobile accident that occurred on October 16, 2004, with a vehicle owned by defendant, Cheri Grayson, and driven by her husband, Stephen. The Grayson vehicle was insured by a vehicle insurance policy issued to Cheri by USAgencies Casualty Insurance Company, Inc., (USAgencies) but Stephen was an expressly excluded driver. The trial court denied a motion for summary judgment filed by USAgencies, reasoning that Cheri was potentially liable to Normand for her negligent entrustment of her vehicle to Stephen. USAgencies appealed.
USAgencies filed a motion for summary judgment, urging entitlement to dismissal from the lawsuit since Stephen, a specifically excluded driver under the policy it issued to Cheri, was operating the vehicle at the time of the accident. The trial court granted summary judgment on this basis but also concluded that Normand could pursue her claims against USAgencies as a result of Cheri having negligently entrusted her vehicle to Stephen.
In this review, USAgencies contends the named-driver exclusion precludes coverage to the named insured for negligently entrusting a covered vehicle to an explicitly excluded driver. Normand asserts that as a separate independent tort arising out of ownership of a vehicle, USAgencies cannot exclude negligent entrustment claims from coverage under.
STATUTORY SCHEME
The statutory scheme provided by the Louisiana Motor Vehicle Safety Responsibility is intended to attach financial protection to the vehicle rather than the operator. Accordingly, Louisiana’s automobile insurance law requires omnibus coverage in favor of any person using an insured vehicle with the permission or consent of the name insured. In 1992, the legislature created an exception to the general rule of omnibus coverage which permits a named insured to exclude from coverage a resident of his household. The statute provides, in pertinent part: “[A]n insurer and an insured may by written agreement exclude form coverage the named insured and the spouse of the named insured. … It shall not be necessary for the person being excluded from coverage to execute or be a party to the written agreement.”
The statute grants the automobile insurer and the insured the statutory authority to contractually exclude a resident of the insured’s household from coverage under the automobile policy. The purpose of the statute is to allow the named insured the option of paying a reduced premium in exchange for obtaining an insurance policy that affords no coverage for an accident while a covered vehicle is being operated by an excluded driver.
In this case, the insurance policy provided coverage to Cheri from May 1, 2004 to October 31, 2004. It is undisputed that her husband Stephen was a resident of Cheri’s household and was an excluded operator under the policy. Additionally, the policy provides that “Excluded Persons” are classified as “persons that live in my household and I request in writing to exclude these persons from any benefit of this policy, (i.e. repair of listed vehicle, any investigation of an accident, or any lawsuit brought against me or the excluded person) USAgencies Casualty Insurance Company will not be responsible for any damage caused by an excluded person or non-listed household resident not found on this application.”
ANALYSIS
The statutory language at issue clearly allows the insured and insurer to exclude from coverage any person the parties specifically name in the exclusion and does not limit or restrict the ability of the parties to the contract to exclude coverage for a named person based on the age of the driver. The sole purpose of this type of exclusion is premium reduction. Therefore, an excluded driver endorsement can enable an insured, who would otherwise have difficulty obtaining insurance coverage for a vehicle, to obtain insurance at a reasonable rate.
As such, where an excluded driver endorsement has been validly executed, refusing to recognize the validity of the exclusion results in the imposition on the insurer of a coverage obligation not commensurate with the premium paid and, thus, defeats the purpose of the omnibus coverage exception provided for in the statute. Allowing coverage under the theory of negligent entrustment would unjustly deprive the insurer of the benefit of its bargain by allowing an insured to purchase a vehicle liability policy with an excluded driver endorsement, permit the excluded driver to drive the insured vehicle, and reap the benefits of the policy. By enacting the statute the legislature permitted the exclusion of high-risk drivers from coverage in exchange for a reduced premium. Accordingly, the policy issued to Cheri Grayson does not afford coverage for negligent entrustment of her insured vehicle to her husband Stephen, an explicitly excluded driver.
The trial court’s denial of USAgencies’s motion for summary judgment on the issue of Cheri Grayson’s alleged negligent entrustment of her vehicle to her husband, Stephen, could not withstand appellate review. Judgment was, therefore, rendered in favor of USAgencies Casualty Insurance Company, Inc., granting summary judgment based on a finding that the named-driver exclusion in a vehicle liability insurance policy has the effect of also precluding coverage to the named insured for any claims of negligent entrustment of the covered vehicle to an explicitly excluded driver.
Sometimes, even the absolutely obvious exclusion, fails before a trial court where the best intentions of the trier of fact is to protect the injured. In this case plaintiff’s counsel had a creative argument that he was not suing for the negligent driving of the operator of the vehicle but was suing his wife for negligently entrusting her husband – a less than perfect driver – with the vehicle. The argument, although it might gain a tort judgment against the spouse who entrusted the vehicle, cannot create insurance coverage where none existed and would defeat the purpose of such an exclusion.
© 2014 – Barry Zalma
Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.
He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.
Look to National Underwriter Company for Mr. Zalma’s new books: the ; ; and
The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book which is presently available.
Mr. Zalma e-book, “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;” “Random Thoughts on Insurance” a collection of posts on this blog; “Zalma on Diminution in Value Damages – 2013,”“Zalma on Insurance,” “Heads I Win, Tails You Lose,” “Arson for Profit” and others that are available at
Mr. Zalma’s reports on web based television programing,or at the bottom of the home page of his at
.
