Insurance Claim Family Exclusions

What Every Car Owner Should Know about the Insurance Company's "Intrafamily Exclusion"

As so often happens, it's only after a tragedy that some of the worst laws or legal loopholes are exposed, when the damage to consumers or even victims of accidents or crime have suffered.

One accident that claimed the life of a 2-year-old girl and caused personal injuries in the remaining members of her family of five has caused many auto insurance holders to go back to their insurance policies to see if their agreement contains the dreaded words "family exclusion."

The Calhoun family of Cleveland, Ohio were involved in an auto accident in 2003 that left the family devastated: not only was their 2-year-old daughter Isabelle dead, but their other two children were severely injured. As the medical bills began to pile up, the Calhouns were not thinking about having to cover them because of the premium auto insurance they had purchased, the best they could find.

However, a little-known loophole in their insurance policy resulted in a $5,000 check from the insurance company, nowhere near the amount needed to cover the hundreds of thousands of dollars in medical treatments that the children's injuries required. The letter from the company read, "we do not provide liability coverage...for bodily injury to you or any family member."

And so, despite the Calhoun's expensive, full-coverage policy, the fact that injury victims were related to the driver made it impossible for them to collect the usual benefits for such a severe accident under the plan's underinsured motorist or uninsured motorist provision. The insurance term for the contract clause is the "household exclusion," "intrafamily exclusion" or just "family exclusion"; typically, the exclusion limits coverage to a percentage of the typical coverage afforded, or, rather, caps the coverage at a small amount. It appears in more than just auto insurance, and can be a part of insurance policies for any type of motor vehicle, including boats and motorcycles.

The purpose of the "intrafamily exclusion" is preventing two insured family members from colluding to take advantage of two different insurance policies by inflating damages. It's a provision against the risk of people gaming the system, in other words. However, whenever insurance companies hedge against risk, it always comes at the price of failing to cover individuals who need coverage.

In the case of the Calhouns, their policy's intrafamily exclusion meant that because the children were passengers in the insured vehicle, they could not gain compensation because their father, the policyholder, was driving.

Some court cases have sought to reverse the power of this exclusion, but most have been futile, as courts have deemed the exclusion to be a contract issue. If you sign the contract, then you must abide by the denial of coverage. The glaring problem with this perspective is that insurance companies typically do not provide coverage to offset the intrafamily exclusion - those seeking to gain coverage find themselves with little to no options.

However, the Calhouns may have some hope of reaching more compensation for their losses due to the fact that Ohio is a state in which courts generally find in favor of coverage for auto accidents. There is no indication yet that they will file suit, however.

If you or someone you know has been injured in an auto accident and an insurance company has either denied coverage or has limited coverage under the intrafamily exclusion, you may want to speak with a personal injury attorney about negotiating for a settlement or filing a lawsuit to gain more compensation for your medical bills, lost income and other losses.

Injury lawyers can help. To find and speak with a personal injury attorney in your area, complete our free personal injury case evaluation form or call 877-288-7564 to receive a free case evaluation from a local personal injury attorney.