6.5 Named Insured Exclusion

• Jurisdiction: Arizona

The Arizona courts have recognized the validity of named insured exclusions.^[87] The exclusion is specifically designed to exclude coverage for bodily injury to the named insured in return for a lower premium rate.^[88]

The seminal case upholding the validity of the exclusion is New York Underwriters Insurance Co. v. Superior Court,^[89] where the court stated:

This court has previously defined the purpose of the Arizona Financial Responsibility Act. In Schecter v. Killingsworth,93 Ariz. 273, 380 P.2d 136 (1963), we stated:

"The Financial Responsibility Act has for its principal purpose the protection of the public using the highways from financial hardship which may result from the use of automobiles by financially irresponsible persons."

In light of that stated purpose, the question is whether or not the statute is intended to restrict the privilege of an individual to contract with his insurance carrier to exclude his own personal recovery under the policy terms in the event of his own injury. We read nothing in the statute which states such a restriction nor do we find ourselves compelled by public policy to so construe this statute.

In the absence of any legislative mandate to the contrary, the rule is generally well settled that policies containing clauses which specifically exclude from coverage injuries sustained by the named assured, are effective to preclude the company's liability to such named assured.^[90]

In Farmers Insurance Co. v. Norden, the court of appeals acknowledged the holding in New York Underwriters, and stated: "The rationale of New York Underwriters is that the purpose of the Financial Responsibility Act is to protect the public using the highways from financial hardships, and that the named insured is not part of that public."^[91]

Although the policy exclusion at issue in New York Underwriters did not limit itself to the "named insured"-it referred to "the insured"-the court held that the exclusion "as limited to the named insured himself" was not contradictory to the provisions of A.R.S. Sec. 28-1170, and was not illegal or void.^[92] The insurance policy considered by the court in Schwab v. State Farm Fire & Casualty Co.,^[93] excluded liability coverage for bodily injuries of "any insured." The insured argued that the phrase "any insured" did not specifically exclude the named insured and, therefore, the exclusion did not conform to the ruling in New York Underwriters. The court of appeals rejected this argument and held that the exclusion, as applied to the named insured, was valid.^[94]

The named insured exclusion does not preclude coverage for omnibus insureds. In State Farm Mutual Automobile Insurance Co. v. Transport Indemnity Co.,^[95] the court held that the carrier's policy did not exclude coverage for claims made by permissive users even though the policy excluded claims for bodily injury to individuals designated as insureds and the policy definition of "insureds" included permissive users. The court recognized the wide-reaching implications of a contrary ruling:

If we permitted such an exclusion, there is no limit to the number of people who could be excluded. As a practical matter, every person in the state, by merely taking the wheel of the [insured vehicle] with permission, would be excluded by the policy's wording if we were to accept [the carrier's] argument.^[96]

The court also noted that the omnibus insured did not enter into the insurance contract with the carrier and did not receive a premium reduction for the diminished coverage.^[97]

The named insured...