Progressive Gulf Ins. Co. v. Faehnrich – Update Auto Insurance Following Life Events

Apr 1, 2014 - Car Accidents, Tuscaloosa by Cross & Smith

If there is any chance that an auto insurance company can find grounds on which to deny a claim, you can bet they are going to try.
Our personal injury lawyers in Tuscaloosa know one element that can make it tougher to win your claim is if the policy is outdated. When your policy fails to accurately reflect your living situation with regard to residency and household members, it can create problems when it comes time to file a claim. This was what happened in the recent case of Progressive Gulf Ins. Co. v. Faehnrich.

This Nevada Supreme Court ruling reveals why it is so important to revisit your auto insurance policy in the event you move, divorce, have a licensed teen driver in your home, or experience other relevant life events. You want to make sure your loved ones are going to be covered in the event of a serious crash.

Here, a married couple in Mississippi secured auto insurance for themselves and their household members. The policy listed Mississippi as their state of residency, and indicated that Mississippi was the state statutory law the policy would incorporate. Any disputes, the policy indicated, would be resolved by the law of that state.

Eventually, the two divorced. The wife moved to Nevada with the couple’s two sons. The day after moving, the wife was in a vehicle co-owned by her and her ex-husband – still registered in Mississippi with Mississippi plates – when she was involved in a one-car crash in which the vehicle rolled over. Her sons sustained serious injuries.

The insurance policy provided bodily injury liability coverage at up to $100,000 per person and $300,000 per crash. However, the policy contained a household exclusion that indicated that the liability coverage would not apply to injuries incurred by the policy holder’s household members or relatives. (The pair had also declined uninsured/underinsured motorist coverage.)

These household exclusions are often written into policies to help insulate insurers from fraud that may occur when a family member claims injury against the insurance policy of another household member.

The father presented a claim to the insurance company for the boys’ injuries. However, the insurance company denied the claim, citing the household exclusion. The insurance company then brought a declaratory judgment action in Nevada, followed by motion for a summary judgment, asking for an order declaring the household exclusion valid.

These kinds of household exclusions have been upheld previously by the Alabama Supreme Court, in particular with the case of State Farm Mutual Automobile Ins. Co. v. Hanna.

In this case, the insurance company conceded that the policy as written failed to afford the minimum bodily injury coverage required under Nevada law ($15,000 per individual and $30,000 for household), but argued that the policy was written in Mississippi, and complied with Mississippi law.

The district court denied the insurance company summary judgment, and held that because the household exclusion violated state public policy, it was unenforceable in Nevada – even if Mississippi law validated such exclusions.

Progressive appealed, but because the denial of summary judgment didn’t resolve the case the appellate court declined to hear it because there was no final, appealable judgment.

A stipulation converted the summary judgment denial to a final judgment, and both parties thereafter agreed that if Mississippi law was applicable, there would be no coverage. However, if Nevada law prevailed, the insurance company would have to pay the statutory minimum – $15,000 for each child.

The appellate court then accepted the case and certified the question to the Nevada Supreme Court.

The state supreme court noted that at the time of the crash, the boys were Nevada residents. However, there was a question as to when the mother became a Nevada resident, as the license, registration, license plates and insurance policy all still reflected residence in Mississippi. Technically, the court found, Nevada had no control over the policy, and therefore, Mississippi law was allowed to prevail – even when that meant the boys would receive no compensation, as required under Nevada law.

Again, this underscores the fact that it is important not only to obtain coverage that fits the needs of your family, but also that you regularly revisit it to determine whether it is still appropriate. Emergency contact and beneficiary information are examples of other critical information policyholders too often fail to update in response to changing life events.

Additional Resources:

Progressive Gulf Ins. Co. v. Faehnrich, March 27, 2014, Nevada Supreme Court

More Blog Entries:

Alabama Car Accidents & Disproving Contributory Negligence, March 6, 2014, Tuscaloosa Car Accident Lawyer Blog