One issue that has arisen has been the policy forms that have been used
to serve this market. Many states no longer regulate the forms that are
being used. Standard policies are no longer mandatory. As a result, insurers
serving the substandard market have created forms that heretofore did not
exist. The purpose of many of these forms was to identify more precisely the
risks and individuals who were being underwritten and to ensure that only
those risks and individuals received coverage from the policies.
Many insurers have resorted to the use of "named driver" policies
limiting the coverage afforded to only those drivers identified in the
policy. Under the typical personal auto policy, the named insured, residents
of his or her household, and anyone operating the vehicle with permissive
use would be covered under the policy.
Texas Joins the Fray
Effective January 1, 2014, Texas (through S.B. No. 1567) passed laws
limiting the use of a "named driver policy." This bill places several
requirements on not only the insurer but also the agent who is issuing the
policy. First, section 1952.0515 of the Texas Insurance Code prohibits an
agent or insurer from delivering in the state a personal automobile policy
unless it provides the minimum coverage specified by the Financial
Responsibility Statute. This amount is currently $30,000/60,000 for "bodily
injury" and $25,000 for property damage. These requirements would apply to
all personal auto policies regardless of whether they are a "named driver
policy."
The statute goes on to define a "named driver policy" as an "automobile
insurance policy that provides coverage only for drivers specifically named
on the policy and not for all individuals residing in a named insured's
household, and that may or may not provide coverage for drivers using a
vehicle covered by the policy with permission and not residing in the
insured's household. The term includes an automobile insurance policy that
has been endorsed to provide coverage only for drivers specifically named on
the policy."
Under S.B. 1567, before accepting a premium for a "named driver policy,"
the agent or
insurer must make the following
disclosures both orally and in writing
to the applicant or the insured:
WARNING: A NAMED DRIVER POLICY DOES NOT PROVIDE COVERAGE FOR
INDIVIDUALS RESIDING IN THE INSURED'S HOUSEHOLD THAT ARE NOT NAMED ON THE
POLICY.
The bill goes on to provide that, before accepting a premium or fee for a
named driver policy, the agent or insurer must receive a copy of the
disclosure addressed above that has been signed by the applicant or the
insured. The bill also requires that an agent or insurer that delivers or
issues a named driver policy specifically include in the policy and
conspicuously identify on the front of any proof of insurance document
issued to the insured the required disclosure mentioned above. Finally, the
statute requires that the agent or insurer require that the applicant or
insured confirm contemporaneously in writing the provision of oral
disclosure referenced above.
Unanswered Questions
This statute and the way it is drafted will no doubt create several
unanswered questions for insureds, agents, and insurers. First, the statute
requires that this disclosure be made orally and in writing before accepting
"any" premium for the policy. That just means that if the insured is paying
the premium under an installment plan, a disclosure must be provided each
time.
Second, the statute requires that the disclosure be made both orally and
in writing. No doubt, some questions will arise as to whether the oral
disclosure was given. However, the statute does require that there be a
written confirmation of the oral disclosure, which hopefully should
eliminate many of those issues.
Third, the statute does not provide any indication that it is limited to
the initial issuance of the policy as opposed to any renewal of the policy.
Will the agent or insurer have to provide the same oral and written
disclosures for renewals of the original policy?
Finally, the bill is silent as to what is the effect of the failure to
make such oral and written disclosures. Are the remedies administrative? Is
the limitation of "who is an insured" in the policy invalid? These are some
of the many questions that are created by this statute and will have to be
resolved by either the courts or the Texas Department of Insurance.