“Family-Auto Exclusion” Bars UM Coverage Where Plaintiff Was A Resident Relative Of The Uninsured Tortfeasor And Policyholder.

A Minnesota federal court recently applied a family-auto exclusion to bar a resident relative of the policyholder’s claim for uninsured motorist coverage. In Martinez v. State Farm Fire & Cas. Co., CIV. 13-2042 DWF/JJK, 2014 WL 859232 (D. Minn. Mar. 5, 2014), plaintiff, a minor child, sustained injuries when her mother negligently collided with another vehicle. The mother and her vehicle were uninsured. Plaintiff, her mother, and her uncle all lived in the same household. The uncle had a policy with State Farm that provided UM and UIM coverage. State Farm paid the no-fault limits of benefits to plaintiff. Plaintiff then sought uninsured motorist coverage under her uncle’s policy.

State Farm brought a motion for summary judgment on the ground that the policy’s family-auto exclusion excluded UM coverage to plaintiff. The exclusion stated UM coverage did not extend to injury caused by an uninsured motor vehicle “furnished for regular use” by the policyholder, his spouse, or his relatives. State Farm argued the exclusion applied, as the uninsured car was owned and operated by plaintiff’s mother, and therefore “furnished for regular use” by a relative of plaintiff.

U.S. District Judge Donovan Frank ruled the policy did not provide UM coverage. The court rejected plaintiff’s argument she was entitled to UM coverage as a resident relative because neither the policyholder nor plaintiff owned the uninsured vehicle, nor was the policyholder legally liable for her injuries. The court determined that the language of the policy precluded coverage and that such exclusions are permitted in first-party UM/UIM policies. The mother’s car was furnished for her regular use, it was uninsured, and she was a resident relative of the policyholder. The court further reasoned State Farm is permitted under Minnesota law to prevent plaintiff from converting lower-cost, first-party uninsured motorist coverage into third-party liability coverage. As the car did not fall within the definition of an “uninsured motor vehicle” as defined by the State Farm Policy, and to hold otherwise would convert coverage, the court ruled plaintiff could not access the policy.

This case is significant due to its clarification of the limitations of first-party coverage where a resident relative seeks UM or UIM benefits. We will continue to monitor this and other decisions impacting insurance coverage and auto liability. If you have any questions about this, or any other matter, please contact us.