Farmers Ins. Exchange v. Call

• Citation: 712 P.2d 231
• Decision Date: 10 December 1985
• Docket Number: No. 18677,18677
• Parties: FARMERS INSURANCE EXCHANGE, a Reciprocal or Interinsurance Exchange, Plaintiff and Appellant, v. Ilene N. CALL, Defendant and Respondent.
• Court: Supreme Court of Utah

Page 231

712 P.2d 231

FARMERS INSURANCE EXCHANGE, a Reciprocal or Interinsurance

Exchange, Plaintiff and Appellant, v. Ilene N. CALL, Defendant and Respondent.

No. 18677.

Supreme Court of Utah.

Dec. 10, 1985.

Frank Roybal, Bountiful, for plaintiff and appellant.

Lyle W. Hillyard, Logan, for defendant and respondent.

DURHAM, Justice:

Farmers Insurance Exchange ("Farmers"), the plaintiff in the declaratory judgment action below, seeks reversal of a summary judgment. The trial court ruled that a household exclusion clause in an automobile liability insurance policy is void as to the minimum coverage requirements of the Utah Automobile No-Fault Insurance Act (as it incorporates qualifications of insurance policies under the Utah Safety Responsibility Act), but is enforceable as to coverage in excess of those amounts. Therefore, Farmers is required to pay, defend, or indemnify the insured under the policy. The defendant Ilene N. Call ("Mrs. Call") cross-appeals from the judgment, seeking a reversal of the lower court's order insofar as it ruled the household exclusion clause to be valid beyond the minimum coverage and denied her attorney fees and costs. We affirm the appeal and reverse in part the cross-appeal.

In July 1980, John Adam Call, a minor child, was injured as he walked by an automobile driven by his mother, Mrs. Call. Thereafter, an action was filed on his behalf by his father, as guardian ad litem, naming Mrs. Call as the defendant, seeking damages of $120,000 for medical services, medication, and hospitalization, and seeking general damages in the sum of $1,500,000. Farmers had issued a standard automobile liability insurance policy covering Mrs. Call as an insured. The policy contains the following exclusion:

This policy does not apply under Part I:

...;

(12) to the liability of any insured for bodily injury to (a) any member of the same household of such insured except a servant....

Farmers states that this household exclusion clause relieves it of any obligation to pay, defend, or indemnify Mrs. Call from any claims arising out of the accident involving her son. Farmers argues that the household exclusion clause serves to protect insurers from collusion that might arise in intrafamily suits.

Mrs. Call specifically alleged in her answer that neither she nor her husband, who purchased the policy, ever received a copy of the policy. Further, she alleged that neither she nor her husband was aware of the exclusion clause and that the insured's agent never discussed or mentioned the exclusion clause. The application for insurance signed by Mr. Call did not mention or refer to any exclusions from coverage.

Three issues are presented on appeal: first, whether a household exclusion clause in an automobile insurance policy is valid as to the required statutory minimum coverages; second, whether a household exclusion policy is valid as to insurance in excess of the statutory minimum; and third, whether Mrs. Call should be awarded attorney fees.

I.

The trial court determined that the household exclusion is void as to required statutory minimum coverages, relying on Allstate Insurance Co. v. United States Fidelity & Guaranty Co., Utah, 619 P.2d 329 (1980). In Allstate, we held that the Utah Automobile No-Fault Insurance Act, U.C.A., 1953, §§ 31-41-1 to -13, incorporates section 41-12-21 of the Utah Safety Responsibility Act, thereby mandating minimum liability coverages for all insurance policies used as security for the registration and operation of motor vehicles in Utah. Allstate, 619 P.2d at 332-33. See also Dairyland Insurance Corp. v. Smith, Utah, 646 P.2d 737, 739 (1982).

Farmers argues that the public policy reasons supporting the household exclusion provision are different from those upon which the named driver exclusion in Allstate depended, and therefore Allstate is not dispositive. Farmers by this argument suggests that protecting an insurer from possible household collusion outweighs the legislative mandate to provide mandatory protection for victims of automobile accidents. We do not agree.

An insurer has the right to contract with an insured as to the risks it will or will not assume, as long as neither statutory law nor public policy is violated. Thus an insurer may include in a policy any number or kind of exceptions and limitations to which an insured will agree unless contrary to statute or public policy. 2 G. Couch, Couch on Insurance 2d § 15:48 (rev. ed. 1984). See also Marriot v. Pacific National Life Assurance Co., 24 Utah 2d 182, 185-86, 467 P.2d 981, 982-83 (1970). Prior to the enactment of the no-fault insurance laws, the general rule upheld the validity and application of household exclusionary clauses. Annot., Validity, Construction, and Application of Provision of Automobile Policy Excluding from Coverage Injury or Death of Member of Family or Household of Insured, 46 A.L.R.3d 1024, 1029 (1972). Utah followed that rule. See, e.g., State Farm Mutual Auto Insurance Co. v. Kay, 26 Utah 2d 195, 487 P.2d 852 (1972); Kay v. Kay, 30 Utah 2d 94, 513 P.2d 1372 (1973). However, the enactment of the Utah Automobile No-Fault Insurance Act, U.C.A., 1953, §§ 31-41-1 to -13, and the requirement of mandatory security necessitate a fresh look at the public policy questions having to do with the household exclusion clause.

The starting point for this analysis must be the Utah Automobile No-Fault Insurance Act. Section 31-41-4(1) of the Act requires every resident owner of a motor vehicle to maintain security on the vehicle throughout the registration period. This section substantially changed the public policy of this state by mandating that all Utah automobiles be covered by certain types of security. According to section 31-41-5, each automobile insurance policy used as security must qualify under the Safety Responsibility Act, U.C.A., 1953, §§ 41-12-1 to -41. "Thus by reference to the Safety Responsibility Act the legislature has established a mandatory minimum liability coverage requirement for insurance policies presented as security under 31-41-5." Allstate, 619 P.2d at 333. At the time of loss in 1980, section 41-12-5(e) of the Safety Responsibility Act required minimum liability insurance of $15,000 for the bodily injury of one person.

The No-Fault Act authorizes specific allowable exclusions from coverage. Under the Act, an insurer may exclude benefits to any injured person only "if such person's conduct contributed to his injury under any of the following circumstances: (i) Causing injury to himself intentionally; or (ii) While committing a felony." § 31-41-10(b). There is no household exclusion permitted. The statute therefore directs that no automobile insurance policy may exclude household members to the extent of minimum liability coverage. This legislative action reflects a public policy requiring minimum coverage to protect innocent victims of automobile accidents.

The household exclusion clause has been invalidated by a majority of the decisions in other jurisdictions which have addressed the validity of the exclusion clause after the enactment of mandatory automobile liability insurance. Meyer v. State Farm Mutual Automobile Insurance Co., Colo., 689 P.2d 585, 590 (1984); Jennings v. Government Employees Insurance Co., 302 Md. 352, 488 A.2d 166, 170 (1985) (citing Dewitt v. Young, 229 Kan. 474, 625 P.2d 478 (1981); Bishop v. Allstate Insurance Co., Ky., 623 S.W.2d 865 (1981); State Farm Mutual Insurance Co. v. Sivey, 404 Mich. 51, 272 N.W.2d 555 (1978); Transamerica Insurance Co. v. Royle, Mont., 656 P.2d 820 (1983); Estate of Neal v. Farmers Insurance Exchange, 93 Nev. 348, 566 P.2d 81 (1977); Kish v. Motor Club of America Insurance Co., 108 N.J.Super. 405, 261 A.2d 662 (1970), cert. denied, 55 N.J. 595, 264 A.2d 68 (1970); Hughes v. State Farm Mutual Auto Insurance Co., N.D., 236 N.W.2d 870 (1975); Jordon v. Aetna Casualty and Surety Co., 264 S.C. 294, 214 S.E.2d 818 (1975); Allstate Insurance Co. v. Wyoming Insurance Department, Wyo., 672 P.2d 810 (1983)). See also State Farm Mutual Auto Insurance Co. v. Traycik, 86 Mich.App. 285, 272 N.W.2d 629 (1979); Dowdy v. Allstate Insurance Co., 68 Or.App. 709, 685 P.2d 444 (1984), rev. denied, 298 Or. 172, 691 P.2d 481 (1984). But see Farmers Insurance Exchange v. Cocking, 29 Cal.3d 383, 173 Cal.Rptr. 846, 628 P.2d 1 (1981). Those jurisdictions which invalidate the exclusion interpret their mandatory insurance statutes to require liability insurance subject only to specific statutory exclusions and construe the legislative policy to require minimum coverage to victims of automobile accidents. For example, the Supreme Court of the State of Kentucky invalidated a household exclusion clause and traced a statutory history similar to the history in Utah, stating:

By enacting the MVRA [Motor Vehicles Reparations Act] the legislature established for the first time a system of compulsory insurance for the owners and operators of motor vehicles in Kentucky....

... [The statutory scheme] specifies the minimum amounts of coverage that a motor vehicle owner or operator must carry to fulfill these requirements....

... [W]hen the legislature stated the policy behind the MVRA and set forth its requirements it specified no exclusions from minimum coverage.

....

An exclusionary clause in an insurance contract which reduces below minimum or eliminates either of these coverages [basic reparations benefits and minimum liability coverage] effectively renders a driver uninsured to the extent of the reduction or elimination. Because the stated purpose of the MVRA is to assure that a driver be insured to a minimum level, such an exclusion contravenes the purpose and policy of the compulsory insurance act.

Bishop v. Allstate Insurance Co., Ky., 623 S.W.2d 865, 865-66 (1981) (citations omitted).

The Washington Supreme Court reached a similar result based upon a public policy analysis when it stated:

This clause prevents a specific...