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An appellate court in Texas has ruled that a family member exclusion in a Texas personal auto policy and a similar provision in a personal liability umbrella policy were not void as against public policy.

The Case

In July 2008, Laurenne Krystean Hall was killed in an automobile accident while a passenger in a vehicle driven by her stepfather, David McDonald. Mr. MacDonald also died in the accident. At the time, Ms. Hall was 18 and lived with Mr. MacDonald and her mother, Kristina MacDonald.

Mr. MacDonald was insured by a Texas personal auto policy and a personal liability umbrella policy issued by State Farm Mutual Automobile Insurance Company and State Farm Fire and Casualty Company.

After the accident, John Kidd, individually and as wrongful death beneficiary on behalf of Ms. Hall's estate, sued Mr. MacDonald's estate, and obtained a final judgment in the amount of $427,347.40.

Mr. Kidd then made a demand on State Farm for payment of the judgment and accrued interest.

State Farm tendered a check for $25,000, contending that the family member exclusion in the auto policy excluded coverage except to the extent of $25,000, the minimum limit of liability coverage required at the time by Article 6701h of the Texas Motor Vehicle Safety Responsibility Act.

State Farm also denied coverage under the umbrella policy, asserting that the policy's family member exclusion precluded coverage as well.

Mr. Kidd refused the $25,000 tender and sued State Farm and Mr. MacDonald's estate, alleging that he was entitled to payment in the full amount of the judgment.

The trial court granted summary judgment in favor of State Farm, and Mr. Kidd appealed.

Mr. Kidd contended that the auto policy's family member exclusion did not apply in this case because the policy term “you” referred only to Mr. McDonald and, as a stepparent, he was not related to Ms. Hall by blood, marriage, or adoption.

Mr. Kidd also argued that the umbrella policy's family member exclusion was void as against public policy because, by excluding coverage for personal injury to, among others, a household resident under the age of 21 and under the “care of a person named above” (which included Ms. Hall), it protected strangers to the auto policy up to the policy's limits of liability but limited an innocent adult stepchild living with the insured to the $25,000 state minimum.

The State Farm Auto Policies

The State Farm auto policy contained standard form endorsement 593E with the following family member exclusion:

We do not provide Liability Coverage for you or any family member for bodily injury to you or any family member, except to the extent of the minimum limits of Liability Coverage required by Texas Civil Statutes, Article 6701h, entitled “Texas Motor Vehicle Safety-Responsibility Act.”

The State Farm umbrella policy also contained a family member exclusion provision that precluded coverage for:

personal injury to the named insured, spouse, or anyone within the meaning of parts a. or b. of the definition of insured.

The umbrella policy defined “insured” as:

a. the named insured;

b. the following residents of the named insured's household:

(1) the named insured's relatives; and

(2) anyone under the age of 21 under the care of a person named above.

The Appellate Court's Decision

The appellate court affirmed.

In its decision, the appellate court explained that the auto policy's family member exclusion precluded coverage for “you or any family member for bodily injury to you or any family member” except to the extent of the statutory minimum limits. The appellate court noted that “you” and “your” was defined as both the named insured shown in the declarations – that is, David and Kristina MacDonald – and the spouse, if a resident of the same household.

Thus, the appellate court reasoned, “you” and “your” in the auto policy's provisions referred to either David MacDonald or Kristina MacDonald.

Moreover, the appellate court continued, the auto policy defined a “family member” as “a person who is a resident of your household and related to you by blood, marriage or adoption.” It then said that Ms. Hall, as a resident of David and Kristina MacDonald's household and related by blood to her mother Kristina MacDonald, fell within the auto policy's definition of “family member.”

Applying these definitions to the family member exclusion, the appellate court ruled, the auto policy “unambiguously” excluded coverage for Mr. MacDonald for bodily injury to Ms. Hall except to the extent of the statutory minimum limits.

The appellate court was not persuaded by Mr. Kidd's contention that “you” applied only to Mr. MacDonald for purposes of the family member exclusion because he was “the named insured and at-fault party (driver)” and, unlike his wife, he was not related to Ms. Hall by blood, marriage, or adoption. The appellate court pointed out that nothing in the auto policy limited the definition of “you” to an at-fault insured.

In any event, the appellate court ruled, even if “you” in the “family member” definition referred only to Mr. MacDonald, it disagreed with Mr. Kidd's position that he was not related to Ms. Hall by blood, marriage, or adoption. According to the appellate court, Mr. MacDonald “became related to [Ms.] Hall by marriage, or affinity, when he married [Ms.] Hall's mother.”

Finally, the appellate court rejected Mr. Kidd's challenge to the umbrella policy, explaining that family member exclusions in auto policies had been upheld where the insurer provided the minimum statutory limits required by state law.

The case is Kidd v. State Farm Mutual Auto. Ins. Co., No. 05-16-01387-CV (Tex. Ct.App. April 12, 2018).

Steven A. Meyerowitz, Esq., is the Director of FC&S Legal, the Editor-in-Chief of the Insurance Coverage Law Report, and the Founder and President of Meyerowitz Communications Inc. As FC&S Legal Director, Mr. Meyerowitz, a member of the team that conceptualized FC&S Legal, provides daily analysis and commentary on the most significant insurance coverage law decisions from courts across the country and news regarding legislative and regulatory developments. A graduate of Harvard Law School, Mr. Meyerowitz was an attorney at a prominent Wall Street law firm before founding Meyerowitz Communications Inc., a law firm marketing communications consulting company.