8.2 Statutory Requirements

• Library: Insurance Law in Virginia (Virginia CLE) (2020 Ed.)

8.2 STATUTORY REQUIREMENTS

8.201 In General. Sections 38.2-2200 through 38.2-2234 of the Virginia Code contain requirements generally applicable to motor vehicle liability insurance policies. Section 38.2-2218 requires the SCC to issue standard forms for motor vehicle insurance "whenever it believes" that a policy or rider "is so extensively used that a standard form is desirable." Automobile liability forms are, of course, extensively used. Title 46.2 also sets forth a scheme for requiring "financial responsibility" from certain high risk drivers, including "certified" (SR-22) policies.

8.202 Insurance Is Not Mandatory. Virginia is not a compulsory insurance state. Virginia motorists are free to choose whether or not to purchase liability insurance. ¹⁷ According to the Virginia Supreme Court, Virginia

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decided to "pioneer" the concept of uninsured motorist law rather than to mandate insurance for all drivers. ¹⁸ Virginia does encourage owners to purchase insurance by requiring a $500 "uninsured motorist fee" at the time of registration of an uninsured motor vehicle. ¹⁹ Eighty percent of these fees collected are paid into an "Uninsured Motorists Fund." ²⁰ Additionally, certain high-risk drivers, while still not required to have insurance, are required to furnish "proof of financial responsibility" before they are licensed. ²¹

8.203 Minimum Limits Not Required. Contrary to popular belief, there is no statutory requirement of minimum limits for Virginia liability insurance policies. Only "certified policies" issued pursuant to sections 46.2-472 through 46.2-482 of the Virginia Code ²² are required to have minimum limits. As a practical matter (probably for purposes of limiting uninsured and underinsured exposure), the so-called "statutory minimum" limits of section 46.2-472(3) ($25,000 per person, $50,000 per accident, and $20,000 property damage) seem to be universally adopted by insurers who issue policies in Virginia. ²³

8.204 Section 38.2-2204—The Omnibus Statute. ²⁴

A. In General. If a policy is (i) "issued or delivered" in Virginia to a motor vehicle owner or (ii) issued or delivered by any insurer licensed in Virginia upon a motor vehicle principally garaged or used in Virginia at the time of the issuance of the policy, section 38.2-2204 of the Virginia Code, the omnibus statute, applies to that policy. ²⁵ In fact, whether or not the language

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of the omnibus statute is contained in the policy, it will be read into the policy. Every automobile liability policy issued in Virginia will be considered to contain an omnibus clause extending the said coverage to one legally operating the car with the owner's permission, express or implied. ²⁶

The omnibus statute controls all policies and contracts of bodily injury and property damage liability insurance arising from the "ownership, maintenance or use of any motor vehicle, aircraft, or private pleasure watercraft garaged or used in Virginia." The omnibus statute "is by force of its provisions made a part of a liability policy, and is to be liberally construed to accomplish its intended purpose." ²⁷

B. The Named Insured, Consent, Per-Incident Limits, and Nonowned Vehicles. Under section 38.2-2204(A), all contracts of motor vehicle insurance must contain a provision

insuring the named insured, and any other person using or responsible for the use of the motor vehicle . . . with the expressed or implied consent of the named insured, against liability for death or injury sustained, or loss or damage incurred within the coverage of the policy or contract as a result of negligence in the operation or use of such vehicle . . . by the named insured or by any such person. ²⁸

Section 38.2-2204(A) further provides that (i) an insurer is permitted to limit its liability to its coverage limits for any one accident or occurrence or for any one person, no matter how many insureds are listed on the policy (preventing intra-policy stacking) ²⁹ and (ii) any policy that contains an

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endorsement for the use of a nonowned vehicle "shall be construed to include permission or consent of the custodian." Notably, nothing in the omnibus statute (or in any Virginia statute) requires coverage of nonowned vehicles. ³⁰ However, if such coverage is provided, that coverage must comply with the omnibus statute.

C. Umbrella and Excess Policies. Section 38.2-2204(B) of the Virginia Code covers umbrella and excess policies and states that "[n]otwithstanding any requirements in this section to the contrary, an insurer may exclude any person from coverage under a personal umbrella or excess policy, if the exclusion is requested in writing by the first named insured and is acknowledged in writing by the excluded driver." Presumably, this allows an insured to obtain a lower premium on an excess or umbrella policy in exchange for the insured's consent to exclude a particular driver.

D. Cooperation. ³¹ Section 38.2-2204(D) lays out the law of "cooperation" and says that the failure of an insured to cooperate with his or her insurer can only void an insurance agreement if the failure to cooperate "prejudices

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the insurer in the defense of the action." If an insurer has actual notice of service of a motion for judgment, the "mere failure" of the insured to forward suit papers to the insurer is not a defense.

E. Contrary Endorsements. Section 38.2-2204(E) simply states that "any endorsement, provision or rider attached to or included in any such policy of insurance which purports or seeks to limit or reduce the coverage afforded by the provisions required by this section shall be void." Exceptions to this requirement are granted only to policies covering certain state and federal employees.

F. Peer-to-Peer Vehicle Rental Legislation. As this book goes to press, the 2020 legislature is considering a statute to regulate peer-to-peer vehicle rentals. Currently, these companies are unregulated in the commonwealth, so the pending legislation would address such issues as taxation, insurance coverage, and record-keeping requirements for the participants.

8.205 Other Requirements of Chapter 22 of Title 38.

A. Insolvency or Bankruptcy of the Insured. Section 38.2- 2200(1) of the Virginia Code mandates a provision in all liability policies stating that the insolvency or bankruptcy of the insured or his or her estate does not relieve an insurer of its obligation to pay a judgment creditor. Additionally, polices must contain a provision allowing a judgment creditor to maintain a direct action against the company if an execution against an insured has been returned as "unsatisfied." ³² This action is limited to the amount of the judgment not exceeding the coverage limits of the policy.

B. Cancellation of the Policy. ³³ Section 38.2-2208 imposes specific notification requirements upon insurers who cancel or refuse to renew a policy and requires an insurer to retain a copy of the cancellation or nonrenewal notice or evidence of electronic transmittal or receipt of the notification for one year. ³⁴ Notification of any change of electronic address is the sole responsibility of the named insured. ³⁵ Section 38.2-2210 also requires policies to contain a warning about the possibility of policy cancellation, including the right of an insurer to cancel a policy without cause during the first 60 days in which the policy is in effect. Grounds and procedure for cancellation

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are provided in section 38.2-2212. Section 38.2-2212(C)(1) prohibits denial of insurance renewal "solely" for a long list of reasons including race, sex or national origin, marital status, certain claims and accidents, or credit report information. ³⁶

C. Notice to the Claimant of a Policy Breach by the Insured. ³⁷ Section 38.2-2226 requires insurers to notify the claimant or his or her counsel of any breach of the terms or conditions of the policy by the insured within 45 days of the discovery of the breach or within 45 days of the claim, whichever is later. ³⁸ Similarly, if a nonwaiver of rights is executed between the insurer and the insured or if the insurer issues a reservation of rights letter on account of the insured's breach of the terms or conditions of the policy, the insurer must also notify the claimant within 45 days. Failure to notify the claimant within the required time limit results in a waiver of the policy defense.

Section 38.2-2226 serves to give an injured claimant prompt notice of a problem with a policy so that the claimant can notify his or her uninsured carrier or take other action. The statute does not control a noncoverage situation, so there is no duty to inform a claimant when a loss is excluded by a policy. ³⁹

Section 38.2-2226 requires insurers to provide additional notice of reservation of rights in the event that a civil action has been filed by a claimant. This notice must be provided to the claimant, or to his or her counsel if the claimant is represented, not less than 30 days before the date of trial. The court may allow shorter notice "for good cause shown," but failure to give the required notice will generally result in waiver of the policy defense. ⁴⁰ Again, the purpose of this provision is to give a claimant the opportunity to seek out other coverage (uninsured coverage) or to challenge the reservation of rights by means of a declaratory action or other method.

The United States District Court for the Western District of Virginia has held that the notification required by section 38.2-2226 before its

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July 2001 amendment was required to be sent to a Virginia resident even if the policy was made and delivered in another state to a resident of that other state. ⁴¹ The basis of the decision was that the statute was held to be...