Strategies, Challenges, and Answers

Nevada Requires An Owner’s Auto Policy To Provide Minium Limits Coverage To Any Permitted Driver, Even If The Policy Specifically Excludes That Person By Name

An insurance company that has been writing policies in Nevada for just a few years asks the Nevada Law Blog if it can deny third-party liability coverage to a permissive driver who was excluded by name from the policy.  Nevada answered that question over two decades ago in the case of Federated American Ins. v. Granillo, 108 Nev. 560, 835 P.2d 803 (1992).

Federated American Ins. v. Granillo, Nevada Coverage Law, Nevada Bad Faith Law, Mills & Associates Nevada Insurance and Coverage Lawyers, Las Vegas Insurance and Coverage Lawyers 702-240-6060Mr. Granillo bought auto insurance from Federated American Insurance.  The company told Granillo that if he were the only driver of the insured vehicle, his premium would be $552.00.  However, if he added his son Bernardo to the policy, the rate would more than double to $1,170.00.  Granillo agreed to exclude his son and get the lower rate.

Even so, Granillo let Bernardo drive the car. Bernardo caused an injury accident.  When the injured driver filed a claim to Federated, it denied Bernardo coverage noting that the policy excluded him by name.  The opposing driver’s UM stepped up and paid its insured’s injury claim and then went after Federated for what it had paid.

The Court struck down the named-driver exclusion and ordered Federated to pay explaining:

In Hartz v. Mitchell, 107 Nev. 893, 896, 822 P.2d 667, 669 (1991), we acknowledged that “Nevada has a strong public policy interest in assuring that individuals who are injured in motor vehicle accidents have a source of indemnification. Our financial responsibility law reflects Nevada’s interest in providing at least minimum levels of financial protection to accident victims.” Based on this interest in protecting accident victims, we do not think that an insurance company should be able to circumvent the requirements of Nevada’s financial responsibility law by excluding coverage to permissive drivers.

108 Nev. 563

The Nevada Coverage and Bad Faith Law Blog is aware that because of the Granillo decision many non-standard carriers no longer offer named-driver exclusion discounts.  Additionally, many standard carriers who may still offer discounts for named-driver exclusions have beefed up their Step-Down language to make sure that they are not paying more than the minimum bodily limits of $15,000 per person, $30,000 per occurrence mandated by NRS 485.3091.

My closing question is whether any carriers who somehow find themselves in Federated’s predicament have ever sued the policyholder for breach of contract for permitting the excluded driver from using the vehicle?  If so, what was the outcome of the action?  And what are the damages?  Can the company get back what it paid to the third-party?  Or can it recover the premiums that should have been paid but weren’t?  Interesting questions all.

Mills & Associates Nevada Coverage Lawyers 702-240-6060