Exclusions discussed below are found in the 2011 Insurance Services Office (ISO) homeowners, the ISO 2018 personal auto policy (PAP), and American Association of Insurance Services (AAIS) homeowners.

Topics covered:

Erosion of common law gave rise to exclusion

Provision found in personal lines policies

Household exclusion in homeowners policies is generally upheld

The household exclusion in automobile policies

Language not ambiguous

Current climate

Erosion of Common Law Gave Rise to Exclusion

 Originally, insurance policies did not contain a family or household exclusion because principles of common law did not allow legal actions between intimate family members. The familial immunity doctrine, including parental and interspousal immunity, prevented legal actions between children and their parents and spouses against each other. At the base of the doctrine is the avoidance of collusive acts (a moral hazard in insurance terms) and the promotion of family harmony (a public policy).

 The doctrine was first articulated by the Mississippi Supreme Court in the case of Hewellette v. George 9 So. 885 (Miss. 1891) when it stated that "the peace of society, and the families composing society and a sound public policy, designed to subserve the repose of families in the best interests of society, forbid to the minor child the right to appear in court in the assertion of a claim … for personal injuries suffered at the hands of the parent."

 Parental and interspousal immunity began to be eroded in the middle of the 20th century; the result of which was the overturning or limiting of these common law doctrines in many jurisdictions. Courts took the attitude that in any given situation a court should be able to recognize and ferret out collusive fraud and that the rights of innocent parties should not be hampered by restrictive doctrines. Additionally, the family harmony issue was considered less significant in modern life (possibly because of the existence of insurance). The law shifted to recognize that family members could be liable for negligent acts resulting in injury to other family members. The case Glaskox By and Through Denton v. Glaskox Supreme Court of Mississippi. 614 So.2d 906 (October 29, 1992) abrogated Hewellette v. George.

 As legal theory began to move away from the purposes underpinning parental and interspousal immunity, insurance companies added household or intrafamily exclusions to personal lines insurance forms, not wanting to pick up an exposure that had not existed under the original common law. The family exclusion in insurance policies gave effect to the now obsolete common law of intrafamily immunity in insurance policies and courts generally had no problem regarding the validity of the exclusion.

 Statutes such as financial responsibility and uninsured motorists laws enacted by many states put the household exclusion in conflict with the law and brought the clause under judicial attack. A majority of courts that considered the issue have found the intrafamily clause in automobile forms to be contrary to public policy, and therefore invalid, as the exclusion conflicts with uninsured motorists and financial responsibility laws.

 For example, an automobile policy exclusion of liability coverage for an insured whose negligent act results in bodily injury to a family member riding as a passenger in the insured's car is in opposition to financial responsibility statutes, which require that all drivers maintain a certain level of liability insurance. The driver in such a situation would be classed as legally uninsured and therefore in violation of the law. The same is true regarding uninsured, underinsured, and no-fault statutes.

 There is no family or household exclusion in the current personal auto policy, although, as noted below, one can be added by endorsement in states that have not found a conflict between state law and the exclusion. And, as will be seen, other states allow household exclusionary language to apply to coverage not mandated by statute.

 Provision Found in Personal Lines Policies

 The family exclusion clause is found in personal liability insurance policies, such as homeowners, comprehensive personal liability, and personal umbrella forms. Although there is no comparable provision in the unamended or unendorsed standard personal automobile policy, the provision may be included by endorsement in states not having invalidated the provision and whose insurance commissioners have approved the endorsement for use. Today, many states follow some form of parental immunity doctrine, and therefore allow a household exclusion, except in cases where operation of a motor vehicle, watercraft, or aircraft is involved, or in cases where sexual abuse or molestation are alleged. Other states uphold the exclusion in cases involving simple negligence, but not willful or wanton misconduct. In others, there is no parental immunity where the conduct arises out of the parent's business activities, since these are usually distinct from the parent's role as a parent.

Before considering the family exclusion, we must first look at the definition of an insured. An insured is defined in the ISO 2011 homeowners forms as the named insured (which includes the spouse if resident of the same household), resident relatives (a relative is someone related through blood, marriage, or adoption), and persons under the age of twenty-one in the care of one of those. A student living away from home if under age twenty-four, provided the student was a resident relative in the named insured's household prior to leaving to attend school is also an insured, as is an individual who is 21 and in the care of the named insured or a resident relative of the household.  See Resident Relatives for a discussion of the meaning of "resident relatives" under the homeowners policy. AAIS defines insured a little differently, and older forms did not make the exception for students 24 and under who are away at school. Only those under the age of 21 and under the care of the named insured or resident relatives are considered insureds. The current 2008 AAIS form makes an exception for relatives under the age of 25 years who are financially dependent on the insured, are students enrolled in school full time as defined by the school, and were residents of the home just before moving out to attend school. 

 In AAIS homeowners forms, the household exclusion is stated as Section II exclusion 2.a., relating to Coverage L Personal Liability. (Note, therefore, that the exclusion does not apply to Coverage M—Medical Payments to Others. However, exclusion 3.a. in this section eliminates medical payments coverage for bodily injury to any person regularly residing on any part of the insured location except for domestic employees, unless workers compensation coverage applies.)

 The older AAIS exclusion eliminates coverage for "'bodily injury' to 'you', and if residents of 'your' household, 'your' relatives and persons under the age of 21 in 'your' care or in the care of 'your' resident relatives."  The 2008 AAIS exclusion is similar to the 2011 ISO homeowners exclusion where coverage is eliminated for "'bodily injury' to you or an 'insured' as defined….This exclusion also applies to any claim made or suit brought against you or an 'insured' to repay, or share damages with, another person who may be obligated to pay damages because of 'bodily injury' to an 'insured'." 

 This latter wording regarding application of the exclusion is no doubt intended to clarify that coverage for bodily injury to an insured is precluded even if the person causing the injury is not another insured. Most courts hold that claims for contribution are derived solely from the bodily injury claim, and thus not covered. The court in Kalus v. Merrimack Mutual Fire Insurance Co., (Superior Court of Mass. 1996) addressed this issue. Steven and Kelly Kalus attempted to install a refrigerator; during the course of the installation Kelly was injured and she sued the manufacturer, alleging negligence and breach of express warranty. The manufacturer subsequently filed third-party complaints against Steven claiming contribution based on his negligence.

 The court found no prior Massachusetts appellate court decisions on the issue as to whether the household member exclusion included claims for contribution based on a household member's negligence, and so turned to other jurisdictions. The court concluded that "to exempt contribution claims from the household member exclusion clause as argued by Kalus is not consistent with the clear objective of the household member exclusion clause to bar coverage arising out of a personal injury to an insured." Regarding the insured's attempt to argue that the severability clause gave back coverage, the court said that the exclusion would be rendered meaningless by the severability clause, and that was not the intent of the policy.

 Household Exclusion in Homeowners Policies is Generally Upheld

 As states changed their common law to allow actions between family members and the family exclusion as it appeared in the personal automobile policy was held invalid in many jurisdictions, several cases regarding the validity of the exclusion in homeowners forms were brought before the courts. Simply stated, the general rationale of such cases was that if the common law regarding familial immunity was to be abandoned and the clause held invalid in many automobile liability policies, then the provision should also be found invalid in homeowners policies.

 Courts have generally not adopted this reasoning, and household exclusions in homeowners policies have rarely, if ever, been invalidated.

 An example of a case from a state where family immunity rules were abandoned, but that held the homeowners household exclusion valid, is Hahn v. Berkshire Mutual Insurance Co., 547 N.E.2d 1144 (Mass. Ct. of App. 1990). Here, a child sued his brother (by way of their father, the insured) for damages arising out of an injury to the eye, negligently inflicted when the brother threw a ball of plaster. The father's homeowners insurance company was included as a defendant in the action because the child qualified as an insured under the policy.

 The court noted that in Massachusetts no doctrine of intrafamily immunity protects siblings against suit by other siblings. The plaintiffs argued that because the brother could be held liable for negligence, then the policy exclusion should be held void as against public policy.

The court disagreed, stating the plaintiff's case was based on "the quite illogical conclusion that insurers must provide protection, so that there may actually be a source of funds to respond to the tort claims unshielded by immunity." The court noted with approval a statement from Foley v. Foley, 414 A.2d 34 (N.J. 1980): "[a] decision by a court that there can be liability for a tort action cannot be construed as a holding that public policy requires the responsible party to be covered by insurance or that an insurance company cannot exclude liability for that particular action…[T]he family exclusion clause does not reinstate the common law immunity but rather excludes insurance proceeds as a source of recovery when the insured has purchased a policy with such an exclusion."

 Absent the considerations that caused courts to invalidate the household exclusion in personal automobile policies—i.e., conflicting state laws such as financial responsibility and uninsured motorists statutes—courts are not apt to find a household exclusion in homeowners policies invalid.

 Court decisions coming to the same finding—upholding the validity of the family exclusion in homeowners policies—are Neil v. Allstate, 549 A.2d 1304 (Pa. Super. Ct. 1988) and Shannan v. United Services Automobile Ass'n., 442 N.W.2d 25 (Wis. 1989). The Neil decision is interesting for its outright denial of plaintiff's public policy argument. The insured contended that the social policy of Pennsylvania is one of compensation to injured family members, "and that when insurance companies insert family exclusion clauses into their policies, they are interfering with this policy, and the clauses should be declared void." The supreme court ruled that the situation under homeowners policies was not analogous to that under automobile policies, where state laws come into direct conflict with policy provisions, requiring the provision to be deemed invalid. Instead, the court found no legislative enactment requiring insurance companies to provide a specified level of insurance coverage to homeowners.

 As noted in the summary, there have been creative attempts to force coverage. In the case of Salviejo v. State Farm Fire and Casualty Co., 958 P.2d 552 (Haw. App. 1998) the insured's daughter was injured while playing at a McDonald's play space. The daughter was in the care of her grandfather, who resided with the family. The parents sued McDonald's and the manufacturer of the playground equipment, one of whom filed a third-party complaint against the grandfather. The policy language precluded coverage for bodily injury to any insured (within the definition) and also for any claim against any insured to share damages with or repay someone else obligated to pay damages because of the bodily injury. At court, the Salviejos argued that the exclusion violated public policy established by case law rejecting the doctrines of parent-child and interspousal immunity; a similar exclusion in an auto policy was against public policy; and the exclusions deprived them of a defense they could not afford and thought they had purchased when they purchased the policy. However, the court upheld the exclusion as not violating public policy and therefore enforceable.     

 Two boys resided with their divorced mother. One of the boys shot and killed the other while playing with their mother's rifle. The divorced father brought suit for negligence in storing the rifle safely and in supervising the children. The father argued that the exclusion for bodily injury to an insured only applied to the sons as insureds, and not to injuries sustained by him as a noninsured. The court, however, said the father's claim arose solely from the son's bodily injury; because the son's bodily injury was excluded, the father's claim was also excluded. This case is Cincinnati Indemnity Co. v. Martin, 710 N.E.2d 677 (Oh. 1999).

The Household Exclusion in Automobile Policies

 The liability coverage exclusion endorsement (PP 03 26) eliminates liability coverage "for any 'insured' for 'bodily injury' to you or any 'family member'." You, of course, refers to the named insured; family member is defined as a person related to the named insured by blood, marriage, or adoption who is a resident of the named insured's household, and specifically includes wards and foster children. See Resident Relatives for elaboration of the meaning of resident relatives.

 Endorsement PP 03 26 is used to add a family exclusion to the personal automobile policy. Note that this endorsement is not approved for use in 41 jurisdictions: Arizona, California, Colorado, Connecticut, Delaware, District of Columbia, Georgia, Hawaii, Idaho, Illinois, Kansas, Kentucky, Louisiana, Maine, Maryland, Michigan, Minnesota, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, and Wyoming. It is only used in Alabama, Arkansas, Guam, Iowa, Indiana, Mississippi, and Tennessee.  

 However, this is not to say that the auto forms in use in these states do away with the family exclusion. For example, Arizona has not approved endorsement PP 03 26, but the mandatory special provisions PP 01 67 exclude coverage for bodily injury to an insured in excess of the Arizona Financial Responsibility Law. And in Colorado, the mandatory special provisions PP 01 61 preclude coverage for bodily injury to an insured.

 For an example of a Colorado case, see Schlessinger v. Schlessinger, 796 P.2d 1385 (Col. 1990). The court addressed whether a minor child could bring action against a parent for personal injuries sustained in an auto accident allegedly caused in part by the parent's negligent operation of an auto. The issue was whether the Auto Accident Reparations Act (Colo. Rev. Stat. 10-4-701-723) was in conflict with the parental immunity doctrine. The child's mother brought action against her husband and the driver of the other vehicle. The husband sought to have judgment against him overturned on the strength of the parental immunity doctrine. The court held that any change in the Act or the parental immunity doctrine was a matter for legislation, not for judicial action. Therefore, the decision of the appellate court overturning the district court's dismissal was reversed; there was no coverage for bodily injury to the son.

Generally, however, a significantly different result can be found when the household exclusion in an automobile policy is relied upon to deny recovery for bodily injury to family members injured by the negligent acts of insureds than when the provision is contained in a homeowners policy.

 The majority rule in this area is that the exclusion is invalid, although a minority position exists in states where intrafamily immunity has not been legally abandoned or the provision does not conflict with state law. As previously noted, Insurance Services Office (ISO) dropped the exclusion from the unamended or unendorsed automobile policy, presumably in response to the judicial climate surrounding its use. While it may be added by endorsement in some jurisdictions, most states do not allow automobile policies to contain a family exclusion.

 Language Not Ambiguous

 Although occasionally the exclusion has been attacked as ambiguous (rather than as contrary to state law or public policy), the courts have generally not been swayed by such arguments. For example, see Safeco Ins. Co. v. Gibson, 259 Cal. Rptr. 206 (Cal. Ct. App 1989). In this case, an automobile policy insured had joint custody with his ex-wife of a minor child. The child was killed in an automobile accident while a passenger in his father's car. The ex-wife, as the child's survivor, sued the father and the insurance company relied on the policy's family exclusion to deny coverage.

 Because of the shared custody arrangement, the plaintiff attacked the family exclusion as ambiguous as to the meaning of resident. Although under California law a person can have but one residence, the court held the child was a resident of whichever parent's household had custody of him at the time. Finding no ambiguity in the provision, the court upheld the exclusion's denial of coverage.

 The plaintiffs in Stutzman v. Safeco Ins. Co. of America, 945 P.2d 32 (Mont. 1997) attempted to find coverage through holding: that the word relative was ambiguous; that the exclusionary language violated public policy; and that their reasonable expectations were that their loss would be compensated. At the time of an auto accident, Stutzman was married to Tercotte and a passenger in a vehicle owned by him. He rolled the car, and Stutzman was injured. The auto policy paid the full liability limits, but Stutzman's injuries exceeded that amount. She attempted to claim further damages under uninsured motorist coverage. The policy stated that an uninsured motor vehicle did not include any vehicle owned by the named insured or any resident relative. Stutzman argued that she was a named insured but the vehicle was not owned by her. Further, the language could have included "spouse" as a relative; since it did not, it was ambiguous. Further, Montana public policy allowed liability coverage for auto accidents, and her reasonable expectations were that her injuries should be compensated. The court held that any reasonable person would conclude that a spouse was a relative. Montana law governed only mandatory auto liability, not uninsured motorist coverage, which was optional. Further, "reasonable expectations" could not include something obviously excluded.

In Zacarias v. Allstate Ins. Co., 168 N.J. 590, the husband negligently injured his wife in a boating accident and she sued for her injuries. The policy contained a clear intra-family exclusion laid out in bold type in the policy. The court found the language to be unambiguous and that the exclusion was enforceable.

 Current Climate

 The primary reason that courts invalidate the household clause in automobile policies is one of public policy. According to the courts' reasoning, such exclusions prevent an innocent class of victims who are related to and living with the negligent insured driver from receiving financial protection that is mandated by law, i.e., by financial responsibility, no-fault, uninsured motorists, or underinsured motorists statutes. What follows is a sampling of judicial thinking with regard to personal auto, since that is the area of greatest dispute.

In a minority of jurisdictions, the family exclusion will be held a valid bar to recovery, either because the common law doctrine of intrafamily immunity remains in force in the state or because the court holds the provision does not violate public policy or state statute. In the case of Gbye v. Gbye, 503 S.E.2d 434 (N. C. App. 1998) the appellant father brought a wrongful death action against his wife when she rolled a car and their daughter was killed. North Carolina had specifically abolished parental immunity in cases involving motor vehicle accidents, but Alabama had not. Because the accident took place in Alabama, the rule of lex loci deliciti (the law of the place where the accident occurred) applied to bar the father's claim.

 Some states allow application of the doctrine of parental immunity on a case-by-case basis. In Sedgwick v. Halfpenny, 2000 Conn. Super. (unpublished opinion) the plaintiffs sued the defendants on behalf of their minor child, injured in an auto accident. They then amended the complaint to include a second count based on their independent claims for past and future medical expenses for the child's injuries. The defendants' second defense alleged negligent parental supervision. When the plaintiffs moved to strike the second defense on the grounds of the doctrine of parental immunity, the court said the doctrine could not be applied because the plaintiffs could obtain a double recovery: once for themselves and once for the child. (However, the doctrine could apply on a case-by-case basis.)

 Often when the family exclusion has been held invalid in the face of conflicting state law the provision may be held invalid as to that portion of damages equal to the state's mandatory liability limits, but valid where exceeding the liability limits as mandated by statute.

 Thus, the household exclusion was not a complete bar to coverage in the case of Walther v. Allstate Insurance Co., 575 A.2d 339 (Ct. App. Md. 1990). However, the insurer's liability was limited to the statutory minimum. (The current Maryland amendment of policy provisions PP 01 68 states: "We do not provide liability coverage for any 'insured': For 'bodily injury' to you or any 'family member' to the extent that the limits of liability for this coverage exceed the limits of liability required by the Maryland Vehicle Laws—Required Security.") The wife was injured attempting to exit a vehicle while the husband was accelerating. The wife sought more coverage than the statutory minimum. The Walthers argued that the interspousal immunity doctrine was no longer applicable in Maryland; therefore, the wife should be entitled to sue her husband for full damages and that the limitation imposed by the policy violated public policy. The court disagreed, saying the limit was valid and in accordance with Maryland statute, and added that nothing prevented the wife from suing her husband for damages in excess of the insurance policy limits.

 But in another state with a statutory minimum liability, the court held that the wording of the particular policy was unenforceable. In the case of Wright v. State Farm Mutual Auto Ins., 22 P.3d 744 (Ore. 2001), the insureds son was killed while a passenger in an owned vehicle. The parents had an auto policy with bodily injury liability limits of $100,000/$300,000, uninsured/underinsured limits of $100,000/$300,000, and an umbrella with $1,000,000 liability and UM/UIM limits. The insurer offered $25,000 as required by the Oregon financial responsibility statute. The insureds sued for the policy limits. The supreme court ruled for the insureds, ordering the insurer to tender the limits as indicated on the declarations page of the auto policy. The reason the court found the exclusion unenforceable was that it referred to the minimum required by law without telling the insured what the minimum was or directing him to the law in question. (The Oregon amendment PP 01 94 now states "We do not provide liability coverage for any 'insured' for 'bodily injury' to you or any 'family member' to the extent that the limits of liability for this coverage exceed the following limits, as required by the Oregon Financial Responsibility Law: 1. $50,000 for each person/$100,000 for each accident if this policy has been certified as proof of financial responsibility because the 'insured' has been convicted of driving under the influence of intoxicants; or 2. $25,000 for each person/$50,000 for each accident in all other cases.")

 However, the court found the wording of the personal umbrella clearly precluded coverage for bodily injury to any insured as defined, and thus the umbrella policy was not called upon to provide additional coverage.

 Although as noted earlier many states do not allow the use of endorsement PP 03 26, there are states that do allow insurers to exclude a driver from liability coverage altogether while driving, say, the family auto. These exclusions are often used because the excluded driver has a poor driving record and therefore is only eligible for a nonstandard insurer or state auto plan with state minimum limits. (Some states will not permit this practice because the personal auto policy provides family coverage; use of the exclusion takes away coverage often without a premium discount.)

 One such state allowing a named driver exclusion but not the household exclusion is Louisiana. In the case of Williams v. Watson, 798 So. 2d 55 (La. 2001), the insured's son was driving a rented vehicle when he hit another party. The son was an excluded driver on his mother's auto policy while he resided with her. He moved out, and the injured party argued that the move voided the exclusion. The court held, though, that the exclusion generated a premium reduction and remained in force because the insurer was never notified that the son had moved and the exclusion should be removed from the policy. If the exclusion had been removed, the insured would have received a notice of premium due. Therefore, the exclusion was upheld.

 Finally, we conclude with a recent homeowners case in which the household exclusion was upheld, but only as an aside. Although earlier we noted that the family or household exclusion was generally upheld in homeowners forms, coverage determinations become difficult when more than one household is involved. Some jurisdictions hold that a person can maintain a household without living in it—see, for example, Erie Insurance Exchange v. Stephenson, 674 N.E.2d 607 (Ind. Ct. App. 1996). In this case, a grandson moved into his grandmother's home when she moved in with her daughter. However, the grandmother continued to own the home and pay taxes on it. When the grandson injured a friend at the home, the court held that the definition of household did not require all family members to live under one roof. The court said it was "possible to maintain two households or live as a member of one household and still be the 'domestic head' of a separate household."

 Applying Minnesota law, the court looked to this case when determining coverage in State Farm fire and Casualty Company v. Ewing, 269 F.3d 888 (U.S. 8th Cir. 2001). Burton Ewing, who suffered from bipolar affective and schizoaffective disorders, resided in a cabin owned by his mother. His mother also owned a condo, in which she resided along with Burton's sister. The mother had insurance policies covering the cabin and condo, and a personal umbrella. Burton had a tenant homeowners policy. While in a psychotic state, believing he had been directed to kill his mother, he came to the condo and killed his sister. He sought coverage under the tenant homeowners, his mother's policy on the cabin, and her umbrella.

The court looked to Stephenson and said a "long-standing familial bond linked the persons to a household." Ewing was financially and emotionally dependent on his mother, and was therefore a member of her household, even though they did not reside together. He was therefore also an insured. The court found that because of his mental illness the killing was an occurrence by definition (an accident).

 Finally, the court addressed the household exclusion. The court found it was inapplicable because the sister resided in the condo, and the policies under which coverage was sought were those for the cabin and umbrella. Because of the severability of insurance provisions, the court said coverage was only precluded if brother and sister resided in the same household at the time of her death. This appears a bit of a stretch, but remember the court determined that a person could maintain two households. Thus, the mother maintained two households; the brother and sister each resided in one. The brother was a member of his mother's household, but it did not follow that he was also a member of his sister's.