Can insurer exclude criminal conduct?
On July 11, 2008, Sharmin Walls, Randi Harper, and Christopher Timms were passengers in a vehicle owned by Walls and being driven by Korey Mayfield. When a state highway patrol officer attempted to stop the vehicle for speeding, Mayfield ignored the passengers’ request to pull over and instead accelerated down the highway. Mayfield led the officer on a high-speed chase—at one point reaching a speed of 109 miles per hour—before exiting the highway and speeding down a residential road. The officer then terminated his pursuit.
Approximately one mile from where the chase ended, Mayfield lost control of the vehicle and crashed into a group of trees. Timms was killed in the collision, while Mayfield, Harper, and Walls suffered catastrophic injuries. Mayfield ultimately was charged with and pled guilty to reckless homicide.
At the time of the crash, Walls was insured under a Nationwide Mutual Fire Insurance Company automobile policy with liability limits of $100,000 per person and $300,000 per accident.
With respect to the liability coverage, the policy contained the following provision:
This coverage does not apply, with regard to any amount above the minimum limits required by the South Carolina Financial Responsibility Law (MVFRA) as of the date of the loss, to:
…
6. Bodily injury or property damage caused by:
a) you;
b) a relative; or
c) anyone else while operating your auto;
(1) while committing a felony; or
(2) while fleeing a law enforcement officer.
Relying on this provision, Nationwide tendered the minimum coverage of $50,000 each to Walls, Harper, and the estate of Timms for their injuries. They received an additional $50,000 each from Mayfield’s liability insurer. Walls’s policy did not include underinsured motorist coverage.
Nationwide subsequently instituted a declaratory judgment action against Walls, Harper, and the Timms estate, contending that the exclusions prevented them from receiving coverage in excess of $50,000 because their injuries occurred while Mayfield was fleeing law enforcement. Walls, Harper, and the Timms estate filed an answer, asserting that the exclusions were unenforceable, were ambiguous, and/or violated public policy.
At trial, Nationwide presented evidence that established that Mayfield was fleeing law enforcement at the time of the accident and had pled guilty to a felony as a result. The court agreed that Mayfield’s conduct fell within the ambit of the exclusions but concluded that Walls, Harper, and the estate of Timms were entitled to the full coverage of $100,000 per person as stated on the policy’s declarations page. The court reasoned that the provisions at issue were unenforceable because (1) Nationwide failed to inform Walls of the exclusions or otherwise place them conspicuously on the policy; (2) the exclusions were ambiguous; and (3) the exclusions violated the state’s public policy of protecting innocent insureds, namely the three passengers who were deemed not at fault in causing the collision.
Soon after the trial court issued its order, the state supreme court decided a case (Williams v. Government Employees Insurance Company [GEICO]), holding that a family “step-down” provision violated a section of the state insurance code because it reduced the insured’s coverage from the amount stated on the policy’s declarations page to the statutory minimum limit.
Nationwide filed a motion to reconsider, arguing that the trial court made multiple findings of fact unsupported by the evidence and asserting that the exclusions were reasonable because they applied only to criminal conduct. Furthermore, Nationwide argued that the case against GEICO was factually distinct from the case at hand because it addressed an arbitrary and capricious family member exclusion, not a criminal conduct exclusion such as those in Nationwide’s policy.
The trial court denied the motion. Relying on the GEICO decision, the court found that Nationwide’s exclusions were unenforceable because they similarly reduced coverage from the amount stated on the face of the policy to the minimum amount required by law. Nationwide appealed.
On appeal, the court said it did not believe that Nationwide’s exclusions for flight from law enforcement and felony conflicted with state statutes or public policy. Unlike the step-down provision at issue in Williams, the court said, Nationwide’s exclusions did not simultaneously reduce the insured’s voluntary coverage. Instead the exclusions are triggered only in the event that an insured seeks coverage for injuries sustained while engaging in certain acts. The policy’s coverage remains intact so long as the injury is not the result of foreseeably dangerous conduct that the insured can reasonably avoid.
Finally, the court said there was no basis for a finding that the flight from law enforcement and felony exclusions were arbitrary and capricious. The decision of the trial court was reversed.
Nationwide Mutual Fire Insurance Company v. Walls-Court of Appeals of South Carolina-August 22, 2019-No. 2016-000679.
