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Car Insurance Household Exclusions

Household exclusions in insurance policies are based on clauses that limit or deny insurance coverage for claims involving individuals who are members of the insured’s household. These exclusions are often found in various insurance policies, including automobile and liability insurance policies.

The primary purpose of household exclusions is to mitigate the risk of insurance fraud and to limit the insurer’s liability for claims involving family and people living together. The concern—and it is a legitimate one, truth be told—is that these close relationships might lead to collusive or fraudulent claims, where family members might stage or exaggerate injuries to receive insurance payouts.

How a Household Exclusion Works

At common household exclusion will state that the policy does not cover injuries sustained by any family member who resides with the insured if the injury occurs during a car accident involving a vehicle covered by the policy. This means that if a family member is injured in a car accident, and another family member is at fault or the driver, the policy might not cover medical costs or damages for the injured family member due to this exclusion (or the recovery will be limited to the minimum policy limits in the state, as we talk about below).

Maryland Law on Household Exclusions

Let’s look at the critical Maryland cases on household exclusions:

De Macedo v. Auto. Ins. Co.

The case originates from a tragic car accident in Montgomery County, Maryland, where a father, while driving his family, was involved in a severe collision that resulted in the deaths of his spouse and one child and left another child with significant injuries. The surviving family members sought compensation under two insurance policies: a primary automobile liability policy and a personal umbrella policy with a household exclusion clause—this exclusion aimed to restrict coverage for claims involving injuries to household members.

Trial Court Supports Household Exclusion

In response to the accident, the surviving family members initiated legal action against the father’s estate and other parties, including claims of negligence, wrongful death, and survivorship. Crucially, they sought a declaratory judgment to challenge the validity of the household exclusion in the umbrella policy, arguing it was contrary to public policy and specific Maryland statutes that regulate motor vehicle insurance.

The lower courts upheld the exclusion, affirming its applicability and rejecting the family’s claim that it violated Maryland law. This decision was affirmed on appeal, leading to further scrutiny of Maryland’s legal and statutory framework governing such insurance policies.

Appellate Court Affirms

The appellate court delved into a detailed analysis of Maryland’s statutes related to motor vehicle liability and insurance coverages, mainly focusing on applying household exclusions in umbrella policies. The central issue was the interpretation of Section 5-806 of the Maryland Code, which limits the application of the parent-child immunity doctrine and certain insurance policy provisions in the context of motor vehicle accidents.

The appellants contended that this statute should render the household exclusion in the umbrella policy void, thus permitting children to claim against the policy for injuries caused by a parent’s driving. However, the court unfortunately found this statute ambiguous when read in conjunction with the broader legislative framework governing motor vehicle and insurance regulations. It emphasized that the statutory intent was primarily focused on regulating primary auto insurance coverages, not umbrella policies that offer broader liability coverage.

Conclusion and Implications of Macedo

The court affirmed that the household exclusion in the umbrella policy did not contradict Maryland’s statutory directives or public policy. It held that such exclusions are enforceable under Maryland law and are limited to the scope of primary auto insurance policies. This decision underscored the legal distinction between primary and umbrella insurance policies and clarified the non-applicability of specific statutory protections to umbrella policies.

Stearman v. State Farm

Stearman v. State Farm, 381 Md. 436 (2004), is a Baltimore County, Maryland, case that deals with whether an insurance company in Maryland can exclude or limit auto insurance coverage in an action brought by one family member against another in the event of a car accident. We also look at co-employee exclusions. These cases are still good Maryland law in 2024.

This situation frequently arises because passengers have a tort cause of action against the driver in an auto accident, regardless of whether the passengers and drivers are family members.

Without a statute, provisions of auto insurance policies that exclude members of the insured’s family or household from coverage have generally received approbation from most courts.

The stated rationale is that insurance companies have the same right as individuals to limit their liability and to impose upon their obligations whatever conditions they please, provided they are not inconsistent with public policy. The courts have no right to add anything to their contracts or to take anything from them.

Family v. Family – Suing Mom

The household exclusion aims to prevent “claims stemming from one whose natural ties and pulls are likely to favor a claimant who lives in the same household….” State Farm Mut. Auto Ins. Co. V. Briscoe, 245 Md. 147, 151, 225 A.2d 270, 271 (1967).

Family members suing family members in traffic collision cases is odd, particularly to Maryland jurors who see the family loves each other and are not told there is car insurance. But it happens all the time.

Jennings v. Geico

But in Jennings v. Government Employees Ins., 302 Md. 352, 488 A.2d 166 (1985), the Maryland Court of Appeals found that the “household exclusion” clause of an auto liability insurance policy was not valid because it was contrary to the public policy expressed in Maryland’s compulsory auto liability insurance law.

Unfortunately, the following year, the court clarified in State Farm Mut. Auto. Ins. Co. v. Nationwide Mut. Ins. Co., 307 Md. 631 (1986), that this public policy override of the policy language in auto accident cases in Maryland applies only to the mandatory limits outlined in Chapter 73. These limits are 20/40; in other words, the insurance company’s liability is limited to $20,000 per person and $40,000 per accident (if more than two family members bring a claim).

Stearman v. State Farm Facts and Holding

In this case, a woman, a passenger in her husband’s vehicle, was seriously injured as a result of her husband’s negligence. She suffered a broken rib, a broken collarbone, and a collapsed lung. The only vehicle involved in the collision was the vehicle driven by her husband.

The State Farm insurance policy at issue provided bodily injury liability coverage of $100,000 per person, with an exclusion if the person injured was the insured or a member of the insured’s family; in this case, the statutory minimum coverage, $20,000, applied. The wife contended that this provision was void as against public policy.

The Maryland Court of Appeals disagreed by a 5-2 decision. The court found that the Maryland General Assembly prohibited liability coverage of less than the minimum amounts required by the Transportation Code.

The court found that a “household exclusion” violated public policy only to the extent that it operated to prevent this mandatory minimum coverage. The court reasoned that if the Maryland legislature intended to require complete auto insurance coverage for injured spouses, it would have said so or increased the mandatory minimum liability limits.

In a dissent, Chief Judge Bell argued what we at Miller & Zois and many other attorneys believe: that the law of Maryland should not allow insurers to implement policy language to avoid auto insurance coverage in these instances. Judge Bell argued that to “hold the household exclusion invalid insofar as husband and wife are concerned does no violence, whatsoever, to the right of an insurer to contract with its insured, consistent with public policy.

In this case, public policy favors permitting one spouse to sue the other for negligence and to recover for injuries caused by that spouse’s negligence. That public policy is contravened when the insured, by contracting with the insurer, can limit his or her spouse’s recovery. This is so because, in effect, such a contract, at least partially, nullifies the court’s prior abolition of interspousal immunity.

To be sure, such a holding would and does, as the majority says, interfere with the insurer’s right to contract; however, it does so consistent with, and in the same sense that the requirement of mandatory minimum insurance coverage does. As such, it goes only as far as the law permits and no further.

Wilson v. Nationwide Mutual Insurance Company, 395 Md. 524 (2006)

Two years after Stearman, the Court of Appeals looked again at the validity of exclusions from the liability coverage of motor vehicle insurance policies that limited the liability coverage in Wilson v. Nationwide. In the case, the court sustained lower liability coverage limits under a “fellow employee” exclusion that applied when an employee sued a co-worker.

Like Stearman, the exclusions expressly provided that they applied only above the statutory minimum coverage limits, so the liability coverage for the prescribed exclusions was limited to the Maryland statutory minimum coverage (then $20,000, now $30,000 per individual).

The “Take Home Message”

Just before this case was decided, the Maryland General Assembly passed SB 460, which implemented Section 19-504.1 of the Insurance Article. This new law requires an insurer to offer an insured liability coverage for claims made by a family member in the same amount as the liability coverage for claims by a non-family member under the insurance policy.

The new legislation applies to insurance policies issued or renewed on or after Jan. 1, 2005. The statute requires the insurance company to offer this coverage in 10-point bold type font so that it cannot hide this offer in small print. A common question we get in situations like this is, “Can the insurance company deny me coverage if I demand a policy that takes advantage of this new requirement?”

In this case, the statute explicitly states that “an insurer may not refuse to underwrite a first-named insured because the first-named insured requests or elects the liability coverage for claims made by family members in an amount equal to the coverage provided for claims made by non-family members.”

In other words, the insurance company cannot deny you coverage because you seek policy language that does not have the family member exclusion. But if you do not seek this coverage, which will increase your premiums slightly, you may be limited to a $20,000/$30,000 recovery if you are claiming that policy against a family member as the result of an auto accident.

Relevant Household Exclusion Links

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