South Dakota (and most every other state) has enacted several laws designed to ensure funds are available to compensate individuals who are injured in motor vehicle accidents. One such statute requires every automobile owner to maintain a form of financial responsibility to cover damages arising out of their use or ownership of the vehicle. This is most commonly accomplished through the procurement of automobile liability insurance.
Failure to maintain a form of financial responsibility on a motor vehicle is a Class 2 misdemeanor. Under existing law, this liability coverage must be a minimum of “25-50-25,” which means up to $25,000 for personal injuries to one person, a total of $50,000 for personal injuries to two or more persons, and $25,000 for property damage. Many folks choose to purchase higher coverage, often in the amount of “100-300-100” ($100,000 for personal injuries to one person, a total of $300,000 for personal injuries to two or more persons, and $100,000 for property damage.) Coverage at higher limits is usually available for a minimal additional premium.
Non-Owned Automobiles
Liability Coverage Extends to Non-owned Automobiles. Automobile liability policies are required, by law, to cover the insured’s use of non-owned automobiles. Thus, if an insured driver drives an automobile owned by someone else (including a rental car company), her policy is available to cover claims by persons injured or killed as a result of her use or operation of the non-owned automobile. (As explained below, this coverage is typically considered secondary to the liability coverage on the automobile itself.)
Permissive Users
Liability Coverage Extends to All Permissive Users. Automobile liability policies are required, by law, to cover all permissive users of the automobile. Thus, if an insured permits another person to drive his car, and someone is injured or killed as a result of the permissive user’s use or operation of the vehicle, the insured’s liability policy will provide coverage – even if the driver is not a “named” insured. This coverage does not extend to persons who operate a motor vehicle without consent of the owner – for example if the vehicle is stolen, there is no liability coverage for the thief. Under some policies, however, liability limits “drop down” to the minimum statutory requirement (25-50-25) when the vehicle is driven by a permissive user, even if the policyholder has secured coverage at higher limits (e.g., 100-300-100).
Household Exclusion. There is a problematic limitation related to permissive users. Under the household exclusion, coverage is not provided where the injured party is a relative residing in the named insured’s household. The existence and ramifications of this exclusion often come as a surprise to policyholders.
Initially, the exclusion arose when insurance companies feared the presentation of collusive claims for injury by family members. In 1992, however, the South Dakota Supreme Court held that household exclusions violated public policy insofar as they clashed with South Dakota’s Financial Responsibility Law. In Cimarron Ins. Co. v. Croyle, 479 N.W.2d 881 (SD1992), two siblings (brother and sister) were in the insured car driven by their brother. A catastrophic accident resulted in death of the driver of another vehicle and caused serious personal injury to the sister. The SD Supreme Court held that the liability policy must provide coverage for the sister’s injuries, finding the household exclusion to be invalid.
Unhappy with the Cimarron decision, the Insurance Lobby quickly took its argument to the South Dakota Legislature, which immediately amended the statute authorizing household exclusions that prohibit coverage for family members who are killed or injured. Today, the fact remains that there have been significant catastrophic injury and/or death cases in South Dakota, not collusively planned, where coverage has been denied because of the household exclusion.
Dual Coverage
If an accident occurs involving a permissive user of a personal automobile owned by another, both the owner’s and the user’s liability insurance policies will provide coverage. The general rule in such a situation is that the policy stemming from ownership of the vehicle is considered “primary coverage,” with the policy of the permissive driver being “secondary.”
Caveat
The above discussion is general in nature and should not be considered legal advice. Variables can come into play for any particular factual scenario. If a person is involved in a motor vehicle accident, he or she should seek legal advice from an attorney knowledgeable in South Dakota’s Motor Vehicle Responsibility laws and Insurance Statutes.
Note: In regard to the preparation of this week’s column, the author would like to thank Attorney Sarah Baron Houy and Claudia Baron for their assistance and input.
Anyone desiring to communicate with the Author, may do so by sending an e-mail to the author at rogermbaron@gmail.com .
Authorities: SDCL 32-35-70; SDCL 32-35-71; SDCL 32-35-113; SDCL 22-6-2; State Farm v. Ragatz, 1997 SD 123, 571 N.W.2d 155; Cimarron Ins. Co. v. Croyle, 479 N.W.2d 881 (SD1992).
Roger Baron is a guest columnist for the Rapid City Post. Opinions expressed may not necessarily represent the views of the Rapid City Post, its affiliates, or advertisers.
