Understanding Auto Insurance Policy Exclusions

Auto insurance policy exclusions are clauses within automobile insurance policies that will void coverage under a set of circumstances.  They can appear in both “standard” and “non-standard” automobile insurance policies. For information on what is covered under Texas auto policies, please see the tab on the right titled: “What is covered by a Texas Auto Liability Policy?”

Standard vs Non-Standard Insurance

There are “standard” auto insurance policies and “non-standard” auto insurance policies in Texas. The standard policies are mainly designed for low-risk drivers. They cover every person in the household of the insured typically. They use a standard form that is regulated by the State of Texas. They pay money into in the State Guarantee Fund which means if the company goes bankrupt, the State of Texas’ Guarantee Fund picks up the bill.

Non-standard policies are not as regulated. They tend to be more tailored to fit the needs of the customer and are more open to drivers in high-risk households because they can carve out more restrictions on what things the cover.

There are many different exclusions that can appear in either or both standard and non-standard insurance policies.  Below you will find a discussion of those that tend to appear more often.

What is a Family Member Exclusion Clause?

A Family Member Exclusion is a clause within an auto liability insurance policy that states that the insurance company will not cover damages claimed by one member of the family against another member of the family while both are occupying the insured vehicle.  This type of clause is an attempt to prevent fraud where two members of the same family might collude to cause an accident so that the passenger can make a liability claim against the driver for damages.

Are Family Member Exclusions Enforceable in Texas?

a Family Member Exclusion clause in a Texas auto policy is only enforceable for damages over and above the minimum insurance limits that are required by law. This is because Family Member Exclusion clauses directly conflict with Texas public policy.

Under the Texas Motor Vehicle Safety Responsibility Act, all drivers in the State of Texas are required to carry and maintain proof of the required minimum limits of coverage.  According to the Texas Supreme Court, “the Act makes it clear that the legislature’s purpose in amending the Act was to protect claimants from losses by requiring all drivers to be responsible for damages arising out of their use of an automobile.”  National County Mut. Fire Ins. Co. v. Johnson, 879 S.W.2d 1, (Tex. 1993).  Because full enforcement of a Family Member Exclusion would deprive people of the minimum required amount of insurance coverage, the Texas Supreme Court held them void to the extent they conflict with the Texas Motor Vehicle Safety Responsibility Act (formerly known as the Texas Safety Responsibility Law). Thus, the Family Member Exclusion is enforceable, but only for those amounts of damages claimed over and above the required minimum limits.

What is an Intentional Act Exclusion?

An Intentional Act Exclusion is a clause in a liability insurance policy that excludes coverage for injuries intentionally caused by the insured. When an insured tries to cause someone harm, this voids the insurance coverage. The “intent” that is referred to is the intent to cause harm, not the intent to do the act. Tanner v. Nationwide Mut. Fire Ins. Co., No. 07-0760 (Tex. Apr. 21, 2009). Otherwise, every time a driver intentionally ran a red light or drive in excess of the speed limit, this would void coverage and too many drivers would be considered uninsured. For more on applicability, please see the tab on the right entitled: “Will automobile liability insurance cover intentional acts?”

What is a Named Driver Exclusion?

A Named Driver Exclusion is a clause in an auto insurance policy that specifically identifies a person or several person(s) for which there is no insurance coverage provided if they are permitted to drive the vehicle and they cause an accident. These clauses are most commonly found in nonstandard insurance policies where there are known high-risk drivers living in the same home as the named insured on the vehicle.

Even an unnamed person can be covered by an insurance policy if the owner negligently entrusts the vehicle to the driver. Thus, when a standard insurer is aware that an insured lives with an unsafe driver, the insurer will sometimes charge a higher premium to account for the additional risk. Thus, in order to keep the premiums affordable, some insurers will issue a policy that specifically calls out the high risk driver and excludes coverage if they are allowed to drive.

What is an Owned-But-Unlisted-Vehicle Exclusion?

An Owned-But-Unlisted-Vehicle Exclusion is a clause in an auto insurance policy that exempts from coverage any vehicles that an insured owns or uses regularly but does not own, but which he fails to list as insured vehicles on the insurance policy declaration. The more vehicles an insurance policy covers, the higher the premium will be. Thus, if you own a car or keep a vehicle for regular use even though you do not own it, your insurance policy may exclude coverage of that vehicle under an owned-but-unlisted-vehicle clause.

What is an Act of God Exclusion?

An Act of God Exclusion (also known as a Catastrophe Exclusion) is a provision in an insurance policy that excludes coverage for events that are caused by the forces of nature and cannot be prevented such as hurricanes, floods, tsunamis, tornadoes or hail. If you live in an area particularly prone to natural disasters, you should read this clause very carefully.

What is a Punitive Damages Exclusion?

A Punitive Damages Exclusion is a clause in a liability insurance policy that limits coverage for damages by excluding any award for punitive or exemplary damages that a jury might award. Sometimes they are worded in different ways such as an exclusion for the driver’s recklessness, gross negligence, malicious acts or exemplary damage award. These clauses only voids coverage for that part of the damages that reflect the punitive damages award. For example, if an insured driver were to cause a wreck while intoxicated and go to trial, the jury might award punitive damages on top of actual damages. The insurance policy would exclude the amount awarded for punitive damages but cover the amounts awarded for other damages.  Punitive damages exclusions tend to be common in many umbrella and excess insurance coverage policies including auto uninsured/underinsured motorist policies.Standard vs Non-standard Insurance