Nodak Mutual Ins. Co. v. Koller – Beware “Step-Down” Car Insurance Clause

You care about your family. That’s why you make sure the auto insurance policy you choose will allow for adequate coverage of injury in the event of a serious accident.noatvs

But one provision you need to watch for is called the “step-down” provision. There are many different variations, but the intended purpose to reduce the amount of insurance coverage from the policy minimums to the state-mandated minimums. This is true no matter how severe the severity or how negligent the driver or how much insurance you purchased in the first place.

Take the recent North Dakota Supreme Court case of Nodak Mutual Ins. Co. v. Koller. This was a tragic accident that involved a young mother who was killed when her boyfriend, who also died, lost control of an all-terrain vehicle (ATV) he was operating. 

The traffic ATV accident happened in 2011. The vehicle was owned by decedent driver’s mother and insured by a policy purchased by decedent driver’s step-father.

The policy allowed for up to $100,000 per incident for any “family member” of the named insured. That coverage would also have been available to anyone injured as a result of that family member’s negligence in operating the vehicle.

But here was the problem: The policy contained a “step-down” endorsement that reduced the limits of the policy to $25,000 total if the vehicle was driven by someone who was not a “family member” of the insured.

Undoubtedly when the stepfather purchased the policy, he assumed “family member” meant his stepson, who was related to him by marriage.

However the insurance company, of course, defined it differently. The policy did indicate that a family member is a person related by blood marriage or adoption, including a ward or foster child. However, the policy also specified that a “family member” is someone who is a resident of the household.

After the crash, the insurance company sued decedent’s mother as representative of her son’s estate seeking a declaration that it was only liable to pay the lower-tier $25,000 limit. Insurer argued that because decedent driver had not been a resident of his stepfather’s household, he was not a “family member” per the policy language.

Both the mother and the guardian of the decedent mother’s young child filed a countersuit against the insurer, arguing decedent driver was indeed a resident of his stepfather’s home.

The answer hinged on how the courts should define “resident.” Decedent had moved out of his stepfather’s home a year earlier. He had his own apartment. He didn’t have a key to his mother and stepfather’s home. He hadn’t been claimed on their income taxes as a dependent.

However, that summer, he stayed with them regularly while he worked at a nearby resort. His mother often babysat his girlfriend’s young child, and his own belongings, as well as those of his girlfriend and her child were at his parents’ home.

The lower court agreed that this meant he was, in fact, a resident for auto insurance purposes. However, before the decision was formally entered, the state supreme court entered a judgment on a similar case in which it broke down the criteria for “residence” of family members in auto insurance policies.

Among the considerations that must be made:

  • Intent of the parties;
  • Intent of the parties;
  • Formality of the relationship between the person in question and other members of the household;
  • Permanence or transient nature of the person’s residence;
  • Absence or existence of another lodging for that person;
  • Age of self-sufficiency.

Based on these factors, trial court granted summary judgment to insurance company on this issue, and the state supreme court affirmed.

Contact the Carolina injury lawyers at the Lee Law Offices by calling 800-887-1965.

Additional Resources:

Nodak Mutual Ins. Co. v. Koller, February 2016, North Dakota Supreme Court

More Blog Entries:

Gores v. Miller – Liability Release in Crash Settlement, Feb. 28, 2016, Asheville Accident Lawyer Blog

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