Auto Policy UM Exclusions

As it relates to uninsured motorist (UM) coverage, there are three important exclusions.

Auto policies do not provide UM coverage for any person for bodily injury sustained while occupying or when struck by any motor vehicle owned by the insured or any family member who is not insured for UM coverage under the policy.  This is known as the family member exclusion.  The Courts of Appeals in Houston, Dallas, and Corpus Christi have well written opinions dealing with and upholding this exclusion.  The Dallas Court of Appeals has written that: “It is not the function of UIM coverage to operate as liability insurance and protect family members from their own negligence in owning and operating an underinsured automobile.”

Another exclusion is “settlement without consent” exclusion.  To preserve the carrier’s right to subrogation against the at-fault party, the policy states that it will not provide UM coverage to an insured who settles with the at-fault party, without the carrier’s consent.  The Texas Supreme Court has limited the impact of this rule inasmuch as an insurer has to prove that it was prejudiced by its insured’s breach of this provision in order to void UM coverage.  This is discussed in their 1994, opinion styled, Hernandez v. Gulf Group Lloyds.  After the Hernandez case the carrier must prove that the tortfeasor would have been able to pay the carrier’s subrogation interest.  This standard was applied in the 1997, Houston Court of Appeals [1st Dist.] opinion styled, Davis v. Allstate Insurance Co. where the issue of whether the tortfeasor was judgment-proof presented a question of fact precluding summary judgment on the issue of whether the insured had materially breached the policy by settling without the insurer’s consent.  Because the carrier had not presented sufficient summary judgment evidence to establish the viability of the subrogation right it lost by the insured’s settlement, summary judgment for the carrier was not proper.

This consent to settle requirement does not apply to non-motorist defendant’s, only automobile defendants.

In the 1996, Corpus Christi Court of Appeals opinion, Zamora v. Dairyland County Mutual Insurance Co., the “named driver” exclusion was upheld as valid and enforceable.  The court found the exclusion furthers public policy by enabling drivers with family members having poor driving records to secure affordable insurance.  Moreover, it deters drivers from entrusting their vehicles to unsafe excluded drivers.  The named driver exclusion operates to preclude coverage regardless of whether the use of the covered auto by the excluded driver is authorized by the insured or not.  Additionally, the named driver exclusion bars coverage for negligent entrustment claims against policyholders, according to the 1995, Fort Worth Court of Appeals opinion, Wright v. Rodney D. Young Insurance Co.