Halpin v. American Family Mut. Ins. Co.

• Decision Date: 28 January 1992
• Docket Number: No. 73684,73684
• Citation: 823 S.W.2d 479
• Parties: Donald E. HALPIN, et al., etc., Plaintiffs-Appellants, v. AMERICAN FAMILY MUTUAL INSURANCE COMPANY, Defendant-Respondent.
• Court: Missouri Supreme Court

Page 479

823 S.W.2d 479

Donald E. HALPIN, et al., etc., Plaintiffs-Appellants, v. AMERICAN FAMILY MUTUAL INSURANCE COMPANY, Defendant-Respondent.

No. 73684.

Supreme Court of Missouri En Banc.

Jan. 28, 1992.

Rehearing Denied Feb. 25, 1992.

Robert E. Fulton, John Reid II, Fredericktown, for plaintiffs-appellants.

Jeffrey S. McGuire, Cape Girardeau, for defendant-respondent.

Michael A. Dallmeyer, Jefferson City, for amicus curiae, Mo. Ins. Coalition.

BLACKMAR, Judge.

Appellants Donald and Rebecca Halpin contracted with respondent American Family for liability insurance on a motor vehicle owned by the Halpins. On May 12, 1990, their two minor children, appellants Jessica and John Tyler Halpin, were riding in the insured vehicle, with Rebecca driving, when it collided with another car. In response to an inquiry by the attorney representing the children, the insurer stated that it would deny coverage of a claim by the children for injuries caused by Rebecca's negligence on the authority of a contract exclusion reading as follows:

This coverage does not apply to:

* * * * * *

10. Bodily injury to:

a. You, a relative or any other person injured while operating your insured car;

b. Any person related to you and residing in your household; or

c. Any person related to the operator and residing in the household of the operator.

Donald and Rebecca then brought an action individually and as next friends for the children, seeking a declaration that the "household exclusion clause" is void as contrary to public policy. The trial court entered judgment for the insurer. The Court of Appeals, Eastern District, affirmed but transferred the case here because of speculation about the effect of supervening legislation on our holding in American Family Mutual Insurance Company v. Ward, 789 S.W.2d 791 (Mo. banc 1990). See Ward, 789 S.W.2d at 796 (Covington, J. concurring). We conclude that the Motor Vehicle Financial Responsibility Law, §§ 303.010-303.370, RSMo 1986, effects a partial invalidity of clauses such as are quoted above, and so reverse the judgment and remand for further consistent proceedings.

It is necessary to consider the history of the governing legislation. The Motor Vehicle Safety Responsibility Law, §§ 303.010-303.370, RSMo 1978, L.1953, p. 569 (as amended §§ 303.010-303.370, RSMo 1986, L.1986, S.B. 424 ), was not a compulsory insurance law. It rather required the owner of a motor vehicle involved in an accident resulting in more than $500 of damages to provide proof of financial responsibility, under pain of suspension of operator's license. Ward held that this law did not have the effect of invalidating household exclusion clauses, even though intervening decisions had abolished the doctrine of spousal immunity.

The Motor Vehicle Financial Responsibility Law was enacted in 1986. It repealed only certain sections of the Safety Responsibility Law. In a way made necessary by the statutory timetable, bound volume three of the 1986 revised statutes shows the repealed sections of the old law side-by-side with the corresponding sections of the new law, unchanged sections of the existing law, and sections added by the new law. The new law, in contrast to the old, requires the owner of a motor vehicle to maintain "financial responsibility" without regard to driving history. The pertinent parts of § 303.025, RSMo 1986, read as follows:

1. No owner of a motor vehicle registered in this state shall operate the vehicle, or authorize any other person to operate the vehicle, unless the owner maintains the financial responsibility as required in this section. Furthermore, no person shall operate a motor vehicle owned by another with the knowledge that the owner has not maintained financial responsibility unless such person has financial responsibility which covers his operation of the other's vehicle.

2. A motor vehicle owner shall maintain his financial responsibility in a manner provided for in section 303.160, or with a motor vehicle liability policy which conforms to the requirements of the laws of this state.

The appellants rely on § 303.190, a part of the old law, which was not changed in any way by the amending legislation. Subsection 2 of that section reads as follows:

Such owner's policy of liability insurance:

(1) Shall designate by explicit description or by appropriate reference all motor vehicles with respect to which coverage is thereby to be granted; and

(2) Shall insure the person named therein and any other person, as insured, using any such motor vehicle or motor vehicles with the express or implied permission of such named insured, against loss from the liability imposed by law for damages arising out of the ownership, maintenance or use of such motor vehicle or motor vehicles within the United States of America or the Dominion of Canada, subject to limits, exclusive of interest and costs, with respect to each such motor vehicle, as follows: twenty-five thousand dollars because of bodily injury to or death of one person in any one accident and, subject to said limit for one person, fifty thousand dollars because of bodily injury to or death of two or more persons in any one accident, and ten thousand dollars because of injury to or destruction of property of others in any one accident.

They contend that public policy requires that a contract of liability insurance provide the coverage indicated in § 303.190 so that the insured will be in compliance with § 303.025. We agree. Section 303.190 specifies the minimum coverage that will comply with § 303.025, as being insurance against "loss from the liability imposed by law...." The Halpins and the insurance carrier undoubtedly intended that the insurance contract would protect the Halpins from sanctions against uninsured drivers provided for in Chap. 303.

The insurance company argues that the financial responsibility law cannot be characterized as a compulsory insurance law because § 303.160 provides alternate methods for supplying evidence of financial responsibility. This section, unchanged by the 1986 amendments, authorizes proof of financial responsibility by such alternative means as a surety bond, deposit of cash or securities, and a certificate of self-insurance. The legislature has invited confusion by blending the old and the new, but it is apparent that the great majority of motor vehicle owners will undertake to maintain financial responsibility by means of motor vehicle liability policies. The anachronistic features of the statute are apparent in that such methods as the posting of bond or the deposit of cash or securities would be appropriate only after an accident occurs, and an owner using these methods would not be in compliance with § 303.025. The statute is, for all practical purposes, a compulsory insurance law. Cf. Transamerica Insurance Company v. Henry, 563 N.E.2d 1265, 1268 (Ind.1990).

Respondent next argues that § 303.190 applies by its terms only to policies "certified" in accordance with the provisions of §§ 303.170 or 303.180. Both of these sections were unchanged by the 1986 amendments. Section 303.190.1 provides as follows:

A "motor vehicle liability policy" as said term is used in this chapter shall mean an owner's or an operator's policy of liability insurance, certified as provided in section 303.170 or section 303.180 as proof of financial responsibility, and issued, except as otherwise provided in section 303.180 by an insurance carrier duly authorized to transact business in this state, to or for the benefit of the person named therein as insured.

This argument also highlights an anachronism in the present law. Under the 1953 law, a motor vehicle owner was not obliged to demonstrate financial responsibility until there had been an accident causing damage in excess of $500. The customary method was by providing a certificate of insurance. Under the present law, the proof of responsibility must antedate the exposure. The statutory scheme no longer permits "one free accident." Section 303.025.2 calls for a "motor vehicle liability policy which conforms to the requirements of the laws of this state." Section 303.190.2 sets forth those requirements. If the provisions were to apply only to certified policies, then the new law would be substantially less effective.

The insurer next argues that the division of insurance "approved" the insurance contract, containing the household exclusion clause, when the contract was filed without challenge by that agency. The insurer points to § 303.025.3, which reads as follows:

Nothing in sections 303.010 to 303.050, 303.060, 303.140, 303.220, 303.290, 303.330 and 303.370 shall be construed as prohibiting the division of insurance from approving or authorizing those exclusions and limitations which are contained in automobile liability insurance policies and the uninsured motorist provisions of automobile liability insurance policies.

Section 375.920 was enacted in 1979 and apparently has never been judicially construed. It does not give the Director of Insurance a roving commission to determine the permissible provisions of insurance policies but simply authorizes that officer to litigate issues about policy language and provisions by petition to the Administrative Hearing Commission. This does not preclude parties to litigation from advancing public policy arguments regarding provisions of insurance contracts. Cameron Mutual Insurance Co. v. Madden, 533 S.W.2d 538 (Mo. banc 1976). Matters of public policy are ultimately for the courts. Section 375.920 does not legitimize all policy exclusions to which the director does not take explicit exception.

The plain purpose of the 1986 amendment is to make sure that people who are injured on the highways may collect damage awards, within limits, against negligent motor vehicle operators. This protection extends to occupants of the insured vehicle as well as to operators and occupants of other vehicles and pedestrians. The...