You have a clean driving record. But what if your spouse doesn't? Or what if your young adult child (who still lives at home) has a proven tendency to get in accidents? Your good auto insurance karma would be canceled out by the less-than-stellar driving records of those who have access to your car.
In such cases, some drivers turn to what's called a "named driver exclusion."
What is a named driver exclusion?
Auto insurance companies base your rate on how likely it is that the insured car will get in an accident. So they will want to know who, besides you, will be driving the car. Policyholders have an obligation to let their insurers know about any high-risk drivers in their households, according to a 2005 research report from the Connecticut General Assembly. If they don't (and one of those drivers gets in an accident), the insurer might refuse to pay the claim, citing a "lack of disclosure," according to the report.
Named driver exclusions come into play when those high-risk drivers make it impossible -- or expensive -- for those with good driving records to get insurance. A named driver exclusion is a clause within an auto insurance policy. Essentially, the policyholder and the insurer have reached an agreement: The insurer will provide coverage to the policyholder with the good driving record -- but it won't cover any injuries or property damage caused by certain other drivers in the household. Some policyholders might opt for named driver exclusions to lower their premiums, while others might agree to them because the insurer would refuse coverage otherwise.
Named driver exclusions might seem straightforward. But complications arise when accidents happen.
For example, named drivers could be involved in accidents that aren't their fault. In those cases, they might learn that the named driver exclusion applies to not just liability insurance -- but to personal injury protection (PIP), medical payments coverage and uninsured motorist coverage as well, leaving them to foot the bill for accidents they didn't cause.
A 1996 case (Robinson v. GEICO General Ins. Co.) dealt with this scenario. Gloria Robinson bought an auto insurance policy and named her son as an excluded driver. Her son was driving the car when it was hit by an uninsured driver. Because the other driver had no insurance, Robinson turned to the medical payments coverage she had on her own policy to pay for her son's hospital bills. Citing the named driver exclusion clause, GEICO refused to pay. Robinson argued that the named driver exclusion applied only to liability coverage -- not to medical payments coverage, which is supposed to pay for the driver's injuries regardless of who is at fault. The Oklahoma Civil Court of Appeals sided with GEICO.
Another complication arises when victims try to get compensation after being hit by a driver that is excluded from a policy. This is what prompted an Illinois case, St. Paul Fire and Marine Insurance Co. v. Allen Smith. Smith had a named driver exclusion for his son, who had been convicted of driving under the influence.
Because of the son's record, Smith's insurance policy had required him to sign a named driver exclusion agreement -- or lose coverage. In 1996, the son caused an accident that killed him and the occupants of the other car. The victims' family went after Smith, but Smith's insurer claimed it did not have to pay for court costs because of the named driver exclusion. An Illinois district court first ruled that the named driver exclusion was invalid because it violated Illinois public policy, but that ruling was overturned by an appellate court.
Is a named driver exclusion worth it?
A named driver exclusion could save you money. Auto insurers can't actually force someone to obtain a named driver exclusion, but they can decline to issue or renew a policy unless the policyholder agrees to the exclusion. They also can charge higher premiums.
Yet it's important to remember that even though your insurer won't pay for damage caused by the excluded driver, the victims still likely will want to be compensated for their losses. That could leave your family to pay the victims' medical bills and any resulting court costs. In other words, an excluded driver operating a vehicle is essentially driving without insurance at all.