October 5, 2005
AUTO INSURANCE: OTHER DRIVERS IN THE HOUSEHOLD
By: Janet L. Kaminski, Associate Legislative Attorney
You asked if (1) an automobile insurance company has the right to demand information from a policyholder on other drivers in the household, (2) there is policy language regarding this, (3) there are ramifications for a policyholder who withholds such information, and (4) the insurer will pay a claim if the driver was not a named insured but lives in the household.
Automobile insurers do request information from an insurance applicant about other drivers in the household during the underwriting process. This information is evaluated along with other information received to determine the risk the company would take on should it issue a policy to the applicant. If the company agrees to issue the policy, it will consider other drivers in the household when developing the premium charged for the policy.
There is not a specific reference to this in the policy since it is part of the underwriting process, which occurs before a policy is issued. An insurer may include a general provision in the policy excluding coverage for fraud or misrepresentation (e.g., a statement that the policy is issued in reliance upon the information provided by the policyholder).
If an applicant withholds information on other drivers, the insurer may say that the lack of disclosure was a material misrepresentation. State law allows an insurer to cancel a policy that has been in effect for less than 60 days with at least 10 days notification to the insured. Otherwise, an insurer may deny payment of a first party claim (e.g., damage to the insured vehicle) because of the misrepresentation. Due to public policy considerations, an insurer is less likely to deny payment of a liability claim to prevent harm to innocent third-party accident victims.
A typical personal automobile insurance policy pays claims for bodily injury or property damage for which an “insured” becomes legally responsible because of an accident, subject to the limits and exclusions specified in the policy. The “insured” is defined in the policy, and usually includes any family member or other person using the vehicle that the policy covers. A policy often defines “family member” as a person living in the named insured's household who is related to him by blood, marriage, or adoption.
Since a policy provides coverage for the named insured and other drivers who live in the same household, an insurer will request information on such other drivers from a prospective insured when considering his request for insurance. During its underwriting process, an insurer assesses the risk presented and determines whether it wants to write that risk (i.e., issue the policy). If an insurer decides that it is willing to write the risk, it calculates the premium to be charged for the policy.
Other drivers living in the household impacts the insurer's underwriting evaluation. The insurer needs to know how the vehicle to be insured will be used before deciding to issue a policy. For example, if a driver in the household has a poor driving record, the insurer may (1) not want to issue the policy, (2) issue the policy with an increased premium, or (3) issue the policy with a “named driver exclusion,” which excludes coverage if the particular driver uses the vehicle. Whether the other driver owns and insures his own vehicle may also impact the insurers' risk evaluation.
A general principle in insurance law is that an applicant for insurance has an affirmative duty to disclose to the insurer all facts material to the risk. A material fact is one that would influence the insurer's decision on whether to issue the policy at all or issue it only for a certain premium. A person makes a “misrepresentation” when he makes an inaccurate disclosure.
An insured has an obligation to (1) correct a representation made on an application that becomes untrue prior to the policy's effective date and (2) disclose material information that comes to his attention that was not previously disclosed (Stipcich v. Metropolitan Life Insurance Co., 277 U.S. 311 (1928).
Policy Cancellation Due to Misrepresentation
Under common law insurance principles, if an applicant knowingly makes a statement that is (1) untrue or misleading, (2) material to the risk, and (3) relied upon by the insurer in agreeing to issue the policy at a certain premium, the insurer may void the policy or deny claim payment, asserting a misrepresentation.
Under state law, if a motor vehicle insurance policy has been in effect for less than 60 days, the insurer may cancel the policy because of the insured's material misrepresentation. The insurer must give the insured (1) a cancellation notice at least 10 days before cancellation and (2) a statement specifying the reason for cancellation (CGS § 38a-343).
Because state law trumps common law, the cancellation is not retroactive to the initial policy effective date. By enacting CGS § 38a-343, the legislature appears to have contemplated possible harmful ramifications to innocent third-party accident victims of allowing retroactive policy cancellations, even for intentional material misrepresentations (Munroe v. Great American Insurance Co., 234 Conn. 182 (1995)).