Step-down provisions in auto insurance policies are an increasingly common fixture designed to reduce the liability of coverage in certain situations. The “family step-down provision” in particular has drawn the ire of victim advocates, because it generally holds that liability coverage for an insured person (usually a family member of the named insured) can be capped at a certain dollar amount that is less than the coverage stated in the declaration sheet. Typically, this cap is set at the minimum amount of liability coverage mandated by state law.
Our Manhattan car accident lawyers know that New York is one of those states that has thus far upheld the family step-down provision. However, there is reason to believe that could change, given the recent decision handed down by the South Carolina Supreme Court in Williams v. GEICO.
Prior to this ruling, that state too recognized as valid the family step-down provision. The outcome of this ruling made it void in that state, as justices found it ran contrary to public policy.
The case started with a fatal car crash involving a train in which a married couple, both named insureds on the same auto insurance policy, were killed. A personal representative was appointed to the estate of each, and both representatives sought to recover the $100,000 limit on the insurance policy the pair bought before they died.
The insurance company, however, argued the estates could only receive a collective amount of $15,000, the state’s statutory minimum liability coverage, citing the family step-down provision.
The estates sued. They argued the policy was ambiguous and ran contrary to public welfare. The trial court disagreed, granting summary judgment to the insurer.
In their appeal, the plaintiffs again asserted ambiguity in the policy and a standard that failed to serve the public good. The South Carolina Supreme Court rejected the argument that the policy was ambiguous. The terms of the policy were clear. However, the justices did find the policy was void because it was unfairly injurious to a large swath of the population. In fact, the way the insurer intended the plan, practically everyone who is insured – even named insureds – had the potential to be lumped in as a “family member” for purposes of the step-down clause.
Although the court underscored that insurers have the right to limit coverage within their policies, they can not arbitrarily reduce or limit coverage. Here, the company agreed on a coverage amount of $100,000 for insureds, and then subsequently reduced it to $15,000 based on an “exclusion” within the policy. This, the court found, is unacceptable.
Relying on the reasoning set forth by the Kentucky Supreme Court in Lewis v. West American Insurance Co., the court found that limiting coverage to an injured party solely on the basis of his or her familial relationship is arbitrary and therefore violates public policy.
The earlier summary judgment was reversed, and the case remanded for further consideration of damages.
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Williams v. GEICO, Aug. 20, 2014, South Carolina Supreme Court
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