Exclusion Endorsement in Auto Policy Found Enforceable

The South Carolina Supreme Court recently held that an endorsement excluding coverage to the named insured’s husband was clear and unambiguous and was not in violation of any statute or public policy.[1]  

Nationwide Insurance Company of America issued an automobile policy to Kristina Knight (“Knight”), including liability coverage, uninsured motorist (“UM”) coverage and underinsured motorist (“UIM”) coverage.  Knight signed an exclusion, titled “Voiding Auto Insurance While Named Person is Operating Car,” as an endorsement to the policy.  The exclusion listed her husband, Danny Knight (“Danny”) as the excluded driver.  The policy referenced the endorsement and further provided, “The following driver(s) are excluded from all coverage and all vehicles on the policy: Danny Knight.” 

Danny was killed in a motor vehicle accident.  The estate recovered UIM coverage under Danny’s motorcycle insurance policy and additional UIM coverage under a separate policy insuring a different vehicle Danny Knight owned.  Knight then filed a claim with Nationwide to recover additional UIM coverage under her insurance policy.  Nationwide denied the claim and subsequently filed a declaratory judgment action asking the trial court to declare Nationwide did not have to pay UIM coverage because Danny was excluded from all coverages under the policy.  The parties filed cross-motions for summary judgment.  The trial court granted Nationwide’s motion for summary judgment, holding “’all coverages’ in the Nationwide policy were ‘not in effect’ at the time of the accident and [Danny] was specifically excluded and [Knight] is not entitled to collect UIM coverage from Nationwide.”  The Court of Appeals affirmed which was subsequently affirmed by the Supreme Court.

The Supreme Court initially held that policy exclusion was clear and unambiguous and provided that the coverages in the policy were not in effect while Danny was operating any motor vehicle.  The Court then turned to whether the exclusion violated any statute and public policy.  In discussing section 38-77-340[2] of the South Carolina Code, the Court held the language of the statute is not “crystal clear,” but stated that the public policy was “clear enough”—that being, “to promote the use of an exclusion such as the one in Knight’s policy because it both enables good drivers to purchase economically-priced insurance and requires excluded drivers to turn in their driver’s license or secure separate insurance.  In addressing additional statutory provisions Knight maintained were violated by the exclusion endorsement, the Court held, “No statute prohibits the exclusion.”  

The Court’s recent opinion is just another in a long line of South Carolina jurisprudence in that stands for the proposition that insurance companies and insureds are generally free to contract for exclusion or limitations on coverage.  Despite the lack of “crystal clear” statutory language allowing for the exclusions, the Court relies upon the public policy behind the statute.  

[1] Full Opinion can be found at https://sccourts.org/opinions/HTMLFiles/SC/28028.pdf

[2] The statute provides, in relevant part, that the insurer and named insured must agree—by terms of a written amendatory endorsement—that coverage under such a policy of liability insurance shall not apply while the motor vehicle is being operated by a natural person designated by name.  The Statute further states that “no natural person may be excluded unless the named insured declares in the agreement that (1) the driver’s license of the excluded person has been turned in to the Department of Motor Vehicles or (2) an appropriate policy of liability insurance has been properly executed in the name of the person to be excluded.”


About Kelsey J. Brudvig
Senior Shareholder

Kelsey Brudvig is a Shareholder practicing in the areas of retail & hospitality law and professional liability. She defends national and regional leaders in the retail, hospitality, and entertainment sectors doing business in South Carolina in claims involving premises liability, loss prevention, food adulteration, third party torts, and alcohol liability. Kelsey can be reached directly at kbrudvig@collinsandlacy.com.