Manditory Liability Coverage and Household Exclusions

# MONTANA STATE AUDITOR MONICA J. LINDEEN STATE AUDITOR COMMISSIONER OF INSURANCE COMMISSIONER OF SECURITIES ## ADVISORY MEMORANDUM TO: Motor Vehicle Liability Insurers FROM: Monica J. Lindeen State Auditor and Commissioner of Insurance DATE: March 23, 2009 SUBJECT: Mandatory Liability Coverage and Household Exclusions In 1997, the Montana Supreme Court held that an exclusion for household members from underinsured motorist coverage was a valid exclusion because underinsured motorist coverage is optional, and in dicta stated "[a]lthough this Court may indeed invalidate a household exclusion clause which violates Montana's mandatory insurance law, there is no statutory mandate for underinsured motorist coverage in Montana." Stutzman v. Safeco Ins. Co. of America, 284 Mont. 372, 380-381, 945 P.2d 32, 37 (1997). Recently, the Montana Supreme Court decided the case Newbury v. State Farm Fire & Casualty Ins. Co. 2008 MT 156, 343 Mont. 279, 184 P.3d 1021(2008). In Newbury the Court affirmatively stated the rule derived from Stutzman as follows: In Montana, parties to an insurance contract may include provisions that exclude coverage without violating public policy if the exclusion applies to optional, rather than mandatory, coverage. Mandatory coverage in Montana consists of liability limits for bodily injury of $ 25,000.00 per person and $ 50,000.00 per accident, and a liability limit of $ 10,000.00 for injury to or destruction of property. Sections 61-6-103(2) and 301(1), MCA. Newbury, 2008 MT ¶ 36, 343 Mont. at 288, 184 P.3d at 1027 (citing Stutzman, 284 Mont. at 380-381, 945 P.2d at 37). , rather than mandatory, coverage. Mandatory coverage in Montana consists of liability limits for bodily injury of $ 25,000.00 per person and $ 50,000.00 per accident, and a liability limit of $ 10,000.00 for injury to or destruction of property. Sections 61-6-103(2) and 301(1), MCA. Newbury, 2008 MT ¶ 36, 343 Mont. at 288, 184 P.3d at 1027 (citing Stutzman, 284 Mont. at 380-381, 945 P.2d at 37). According to Montana statute, a motor vehicle owner who operates a registered motor vehicle in Montana must provide the mandatory coverage set forth in Section 61-6-103(2) and 301(1), MCA to insure against loss resulting from liability imposed by law as against the owner or permissive operators of the vehicle for bodily injury or death or damage to property suffered by any person as a result of the maintenance or use of the vehicle. Eg., Section 61-6-301(1)(a), MCA. The only exception to this rule is the specifically named family member exclusion exception set forth in Section 61-6-301(1)(b). Phone: 1-800-332-6148 / (406) 444-2040 / Fax: (406) 444-3497 840 Helena Ave., Helena MT 59601 Website: www.sao.mt.gov E-Mail: stateauditor@mt.gov Therefore, a valid household exclusion must specifically name the family member. General family member exclusions are invalid as against public policy in Montana. The Montana Insurance Department will apply the law as interpreted above. An as example, an invalid general family member exclusion may include the following or similar language: an exclusion for “property damage to any property owned by, rented to, being transported by, used by, or in the charge of an insured person or a person residing in your household.” ALL INSURANCE FORMS, INCLUDING BUT NOT LIMITED TO POLICIES, CERTIFICATES, AND RIDERS, MUST CONFORM TO MONTANA LAW AS SET FORTH HEREINABOVE. general family member exclusion may include the following or similar language: an exclusion for “property damage to any property owned by, rented to, being transported by, used by, or in the charge of an insured person or a person residing in your household.” ALL INSURANCE FORMS, INCLUDING BUT NOT LIMITED TO POLICIES, CERTIFICATES, AND RIDERS, MUST CONFORM TO MONTANA LAW AS SET FORTH HEREINABOVE. All insurers that have forms currently in use in Montana that do not conform to Montana law and this memorandum must revise those forms and resubmit them for approval to this Department no later than July 30, 2009. Once the forms have been approved, the correct version must be mailed to all policyholders and certificate holders within 60 days following approval. All claims must be processed in conformity with Montana state law and this memorandum. Please submit any questions and revised forms to Rosann Grandy, Forms Bureau Chief, 840 Helena, Avenue, Helena, MT 59601; rgrandy@mt.gov; (406) 444-2040. 2