Family Member Exclusions – Where The Family Member Lives

Mineral Wells attorneys who handle underinsured motorist claims need to read this Austin Court of Appeals opinion.  It is styled, Johnson v. State Farm Automobile Insurance Company.

This suit arises from a suit brought by Jerry Johnson seeking declarations construing the terms of two insurance policies following an automobile accident in which Jerry’s son, Jacob, was injured while Jerry was driving.

In 2008, Jerry and Jacob were traveling in Colorado in a rented car driven by Jerry when Jerry caused an accident which severely injured his 11 year old son. Jacob.  Jacob lived with his parents at the time of the accident and remained in the home until May 29, 2015, when he permanently moved out of the residence.  Jerry had an auto policy and an umbrella policy with State Farm.  The auto policy contains a provision, the “family member exclusion,” that excludes from liability coverage bodily injury to “any family member, except to the extent of the minimum limits of Liability Coverage required” by the Texas Motor Vehicle Safety-Responsibility Act, which was $25,000 at the time.  “Family member” is defined as “a person who is a resident of your household and related to you by blood, marriage, or adoption.”  The umbrella policy has a similar provision.  Jerry sought coverage under both policies.  State Farm refused coverage beyond the $25,000.00 minimum.

Jerry made the same claim under the underinsured motorist coverage (UIM), which had essentially the same exclusions and definitions.

In the lawsuit filed against State Farm, Jerry sought a declaration that to the extent the family exclusions are valid, they apply only so long as Jacob is a member of Jerry’s household.

All parties to the lawsuit filed motions for summary judgment.  The trial court ruled the family member exclusion was valid and that the application of the family member exclusion occurs at the time of the accident, that coverage for Jacob’s bodily injuries under the auto policy is limited to the statutory minimum, and that Jacob is not covered under the policy’s UIM coverage.

The Texas Motor Vehicle Safety-Responsibility Act defines “family member” as “a person who is a resident of your household and related to you by blood, marriage, or adoption.”  Jerry argues that the use of the verb “is” in the definition of family member means that the determination of whether an injured party is a family member — or “resident” of the policyholder’s household — is determined at the time the claim is made, not at the time of the accident.  He cites the rule that, when interpreting an exclusionary clause, a court must adopt the construction urged by the insured as long as that construction is not unreasonable, even if the construction urged by the insurer appears to be more reasonable or a more accurate reflection of the parties’ intent.

In applying various auto policy provisions, Texas courts have determined residency at the time of the accident.

Further, Jerry’s interpretation of the family member exclusion is unreasonable.  Under Jerry’s construction, a policyholder could defeat application of the exclusion and create coverage simply by moving the family member out of the home after an accident but prior to filing a claim, rendering the family exclusion meaningless.  A Court considers the entire writing, harmonizing and giving effect to all the contract provisions so that none will be rendered meaningless.  Based on the plain language of the family member exclusion and guided by the Texas Supreme Court decisions in the past, this Court concluded that Jerry’s interpretation is unreasonable.