Auto Policies and Exclusions: Dirty Secrets Insurance Companies Don't Want You To Know

It's about time that the auto insurance industry's use of under radar, fine print "exclusions" to deny coverage under "full coverage" auto policies is exposed to the light of day. Recently, The Ohio Association For Justice (OAJ) issued a comprehensive report (authored by yours truly) highlighting how companies are inserting "interfamily exclusions" in auto policies to deny coverage for family members who are occupying the family vehicle and injured by a fellow family member's negligence. As a result, the Cleveland Plain Dealer and The Dayton Daily News wrote about the unfairness of these exclusions in recent articles. Two examples of this exclusion in real world situations shine a spotlight on how unfair and ridiculous this exclusion is.

Example no 1: You and your family (wife, two minor children) are taking a family vacation in your fully insured family car. You fall asleep at the wheel, and seriously injure your spouse and children. Your "full coverage" auto policy has "medical payments" coverage of only $5,000 per person. But it also includes $500,000 in liability coverage and an equal amount in "uninsured/underinsured motorists' coverage.

Result: your family has no right to make a claim under the liability portion of the policy for your driving negligence, due to the "family exclusion." Similarly, the injured family members have no right to make a claim under the uninsured/underinsured motorists' provision of your policy because of a similar exclusion. Translated: all your insurance company owes is the $5,000 per person limits, for a total of $15,000, even if the family's total medical bills are $250,000, for example, and even though your "full coverage" policy has $500,000 in coverage.

Example No 2: You are driving your "fully insured" vehicle on a golf or fishing or shopping trip with friends. You allow one of your friends to drive your car and he/she negligently wrecks the car, seriously injuring you. Your medical bills are over $100,000 and you've lost your yearly wages of $50,000 due to your injuries. You come to learn afterwards that your friend has minimum liability limits (a paltry 12,500 in Ohio), making him "underinsured" to cover all your injuries.

But you're not concerned. You have a "full coverage" auto policy that includes $500,000 of underinsured motorists coverage that your agent said would protect you if injured by an "underinsured motorist."

Result: you can't collect anything other than your $5,000 medical payment limits from your "full coverage" auto policy. Why? Your liability coverage with the "family" exclusion prohibits you from recovering under the liability portion of the policy. But wait, you say, doesn't your "underinsured motorists" coverage allow you to collect up to your $500,000 limits if injured by an "underinsured motorist," i.e. your friend with minimum limits? Not under Ohio law--your "underinsured motorists" coverage exclusion says that your own vehicle can't be considered an "underinsured" vehicle. Therefore, you have NO coverage under your "full coverage" policy for any losses over $5000.

Does this make any sense at all? Are you sufficiently confused at this point? You should be--and that's the point. There's no way for the public to know about or even comprehend these exclusions when they buy auto insurance. Before 2001, these exclusions were unenforceable. However, a recent legislative change to Ohio law has allowed insurance companies to re-insert these (and other) one sided exclusions into auto policies with impunity. Insurance companies are now allowed to make these policies as onerous and one sided as they please, and the Ohio Supreme Court has upheld certain exclusions under this 2001 law.

Now here's where these exclusions REALLY get ridiculous and downright bizarre. In the "family vacation" example, if you took a family friend on the family vacation and he was injured, he could collect up to the $500,000 liability limits--even though your family members, whom you paid coverage for, could not! And in the "friends outing" example, any other non-driving friends injured in your vehicle could recover up to the limits of your $500,000 liability coverage for your friend's driving mistake while driving your vehicle. In fact, if you picked up a HITCHIKER on your trip, he would be covered as well, but you and your family members would have no coverage!

No consumers in their right mind would expect that their family would not be covered while injured in the family car, while friends or strangers injured in the same vehicle would be covered. Were you told this by your agent or friendly online "customer service representative" when you were sold your "full coverage" policy? This tangled web of insurance double speak and confusion proves that the industry's use, and the public's understanding of, a "full coverage auto policy" has become a garbage, meaningless term. It has become an oxymoron, like "jumbo shrimp" or "hot water heater." And you're paying hundreds or thousands in premuims for this "coverage." The bottom line is that you as a consumer are not getting the coverage you paid for when you need it the most: to protect yourself and your family.

It is OAJ's hope that these "rigged game" exclusions are brought to the attention of the public and The Ohio Legislature, and some corrective legislation gets rid of them once and for all.