No-fault auto insurance: named driver exclusions

Issued and entered July 3, 1979 by Richard A. Hemmings, Commissioner of Insurance

A no-fault insurance policy must generally cover a vehicle owner, his or her spouse, and any relatives living with the owner. Section 3009(2) of the Insurance Code (Code) provides, however, that at the authorization of the insured, a specified person may be excluded from liability coverages under an automobile insurance policy. If the named excluded person drives the insured vehicle, there is no residual liability insurance in effect, and the owner of the vehicle and those legally responsible for the acts of the driver may be held personally liable for damages and injuries in the event of an accident.

The Michigan Court of Appeals has affirmed a circuit court ruling that named driver exclusions, as provided in Section 3009(2) of the Code, do not violate the No-fault Act, Specifically Sections 3101(1), 3131 and 3135. This informational bulletin is intended to outline the requirements and procedures for the use of named driver exclusions with regard to liability coverages in Michigan and for the filing of named driver exclusion endorsements for approval by the Commissioner of Insurance (Commissioner).

I. PROVISION OF LAW

Various sections of the Insurance Code prescribe requirements for the use of named driver exclusions. The principal provisions are outlined below:

A. NAMED DRIVER EXCLUSION ENDORSEMENTS

Pursuant to Section 2236 of the Code, companies choosing to use named driver exclusions for residual liability coverages must file endorsements providing such exclusions for approval by the Commissioner. The filing of these endorsements should meet current Insurance Bureau requirements for rate and form filings. Excluded driver endorsement forms should require the specification of the names of the driver(s) and the coverage(s) to be excluded under the policy to which endorsement applies. The Commissioner shall not approve any endorsement which would exclude a named driver from personal protection insurance or property protection insurance.

B. AUTHORIZATION FORM

Section 3009(2) provides that a driver may be excluded from residual liability coverages only at the authorization of the insured. Each insurer shall provide an authorization form which includes the following:

1. the specific coverage(s) to be excluded,

2. the name(s) of the excluded driver(s),

3. an explanation of the legal consequences in the event a named excluded driver operates the insured vehicle, including:

a. That there would be no residual liability insurance in effect and the owner and the operator of the vehicle could be held personally liable for any damages in the event of an accident.

b. That the vehicle would be considered uninsured under the no-fault law, and the owner and the operator of the vehicle could be guilty of a misdemeanor and subject to the penalties of Section 3102(2).

c. That under the provisions of Section 3113(b), if the owner or registrant of the vehicle is injured in an accident where the vehicle was driven by a named excluded driver, the owner or registrant would not be eligible for any personal injury protection benefits from any no-fault policy or from the assigned claims plan.

The authorization shall be dated and signed by the insured, and the insured shall receive a copy of the signed authorization. Each insurer's authorization form should be submitted for review by the Commissioner when filing an excluded driver endorsement.

C. RATING RULES

The rating characteristics of the excluded driver(s) may not be considered in calculating the premium for the affected coverages. If the insurer's automobile rating rules manual does not currently contain this provision, the appropriate rule shall not be filed with the filing of the endorsement.

D. NOTICE REQUIREMENTS -- POLICY FORMS

Section 3009(2) provides that a named driver exclusion is not valid unless the following statement is on the face of the policy or the declarations page of the policy:

Warning -- when a named excluded person operates a vehicle all liability coverage is void -- no one is insured. Owners of the vehicle and others legally responsible for the acts of the named excluded person remain fully personally liable.

The face of the policy or the declarations page of the policy showing the use of the warning statement should be submitted for review by the Commissioner when filing an excluded driver endorsement.

E. NOTICE REQUIREMENTS -- CERTIFICATE OF INSURANCE

Section 3009(2) provides that a named driver exclusion is not valid unless the warning language required by section 3009(2) also appears on the certificate of insurance. In addition, the Motor Vehicle Code provides that the certificate of insurance must list the name(s) of any driver(s) whose operation of the vehicle causes the liability insurance to become void, [MCLA 257.1104(2)].

II. UNDERWRITING IMPLICATIONS

The named driver exclusion shall be used at the option of the insured. Making the sale or renewal of a policy contingent upon the exclusion of a particular driver will be considered by the Insurance Bureau to be a refusal or limitation of coverage subject to review under the provisions of Section 2027. Section 3009(2) allows exclusion from liability coverage for a named driver only; this section may not be used to exclude a class of drivers from residual liability insurance. When an excluded driver endorsement is used, the characteristics of the excluded driver may not be used in determining rates and premiums for the affected coverages.

III. APPLICABILITY TO OTHER COVERAGES

The recent court decision stated that persons may not be excluded from no-fault personal injury protection and property protection insurance coverages. The court ruling does not affect current Insurance Bureau policy or procedures regarding exclusions for comprehensive and collision coverages. The Bureau will continue to approve forms and endorsements providing for the exclusion of named drivers from comprehensive and collision coverages, provided that the characteristics of the named excluded driver are not used in determining rates and premiums for such coverages, and that these exclusions are not used to deny coverage to a class of drivers. Any forms containing exclusion provisions for comprehensive and collision coverages remain subject to approval as provided under Section 2236 of the Insurance Code, and other existing guidelines pertaining to rate and form approval.

IV. RIGHTS AND PROCEDURES

In conformity with Section 3(b) of the Administrative Procedures Act of 1969, MCLA 24.203.(6); MSA 3.560(103)(6), these guidelines are a statement of policy which the agency intends to follow which does not have the force or effect of laws, and which binds the agency but does not bind any other person. The Bureau staff shall use these guidelines in reviewing all filings of named driver exclusion endorsements. Any filing which fails to meet the requirements of the Code including this bulletin shall be disapproved pursuant to Section 2236 of the Code, MCLA 500.2236; MSA 24.12236.

This bulletin shall become effective immediately, and shall supersede Bulletins PL 72-1 and PL 71-5. Operation of this bulletin shall not supersede operation of any other Insurance Bureau bulletin which is currently in effect.