6.7.1 Omnibus Insureds

• Jurisdiction: Arizona

Arizona's Financial Responsibility Act authorizes, indirectly, policy clauses that reduce coverage from the limits set forth in the policy declarations page to the minimum limits required by the Act. These types of clauses are valid when applicable to omnibus insureds (permissive users) and can be valid as to named insureds where adequate notice of the reduction clause is provided.

The legislature has indirectly authorized coverage reduction clauses under A.R.S. Sec. 28-4009(D), which provides:

A policy that grants the coverage required for a motor vehicle liability policy may also grant lawful coverage in excess of or in addition to the coverage specified for a motor vehicle liability policy, and the excess or additional coverage is not subject to the provisions of this chapter. With respect to a policy that grants the excess or additional coverage, the term "motor vehicle liability policy" applies only to that part of the coverage which is required by this section.

(Emphasis added.) The above statute states that the restrictions associated with the Financial Responsibility Act ("FRA") apply only to, and only up to, the minimum FRA coverage limitations, i.e., $15,000/$30,000 BI and $10,000 PD. The Arizona courts interpreted former A.R.S. Sec. 28-1170(G) (now Sec. 28-4009(D)) as permitting less coverage for an omnibus insured than for the named insured if the liability limitation is expressed in the policy of the insured and is an amount sufficient to satisfy the FRA requirements.

In Rocky Mountain Fire & Casualty Co. v. Allstate Insurance Co.,^[121] Rocky Mountain issued a garage liability policy to Ray's Auto Body Shop with a face amount of $100,000. The policy contained an exclusionary clause that purported to limit the amount of insurance, with respect to individuals using loaner vehicles, to the financial responsibility limits of $10,000.^[122] Subsequently, Ray's Auto Body Shop provided a loaner vehicle to a customer while that customer's car was being repaired. The customer was later killed in an automobile accident while driving the loaner vehicle. At the time of the accident, the customer was insured by Allstate with an excess policy. Rocky Mountain filed a declaratory judgment action to determine, among other things, the validity of the exclusionary clause and to define the liabilities of both Rocky Mountain and Allstate.

The court in Rocky Mountain held that "the Financial Responsibility Act does permit less coverage for an omnibus insured than for the named insured if the liability limitation is in the policy of insurance and it is in an amount sufficient to satisfy the Financial Responsibility Act requirements."^[123] Accordingly, the supreme court held that Rocky Mountain was primarily liable for the statutory amount, and no more, and Allstate was liable up to the limits of its policy for damages awarded in excess of the statutory amount. The court reviewed former A.R.S. Sec. 28-1170(G) (now...