UNIVERSITY OF PUGET SOUND LAW REVIEWVolume 6, No. 2SPRING 1983
CASENOTES
Mutual of Enumclaw Insurance Company v. Wiscomb: Excluding the Family Exclusion Clause
Janice L. Campton
In Mutual of Enumclaw Insurance Co. v. Wiscomb,(fn1) the Washington Supreme Court invalidated a family exclusion clause(fn2) in an automobile insurance policy. Though noting the Financial Responsibility Law's(fn3) purpose of assuring protection to innocent victims of automobile accidents, the court, nevertheless, limited its holding to family exclusion clauses not consciously bargained for by the named insureds. By prohibiting unbargained for family exclusion clauses, the court furthered the policies exemplified in the Financial Responsibility Law and the Underinsured Motorist Statute(fn4) and acted consistently with its decision abrogating intrafamily tort immunity. But by suggesting it would uphold truly bargained for family exclusion clauses denying coverage to named insureds, the court ignored its own pronouncement declaring such clauses against this state's policy of assuring compensation for the protection of innocent victims of negligent motorists.
Mrs. Wiscomb suffered serious injuries requiring amputation of her foot when the motorcycle she was riding collided with an automobile her husband was driving. Mrs. Wiscomb brought a negligence action against her husband, who tendered his defense to Mutual of Enumclaw, the insurer of both family vehicles. Mutual of Enumclaw refused to provide Mr. Wiscomb's defense, contending that the family exclusion clause in the Wis-combs' automobile policy provided no liability coverage for Mrs. Wiscomb's injuries. The family exclusion clause stated: "This policy does not apply . . . (1) to bodily injury to the insured or any member of the family of the insured residing in the same household as the insured."(fn5) (Emphasis added.) The trial court rendered a declaratory judgment relieving the insurer from any duty to defend Mr. Wiscomb or to pay damages to Mrs. Wiscomb, and Mrs. Wiscomb appealed.(fn6) The court of appeals reversed, declaring the family exclusion clause void as against public policy.(fn7) Strongly endorsing the reasoning of the court of appeals, the supreme court affirmed (Wiscomb I)(fn8) and, on rehearing, reaffirmed (Wiscomb II).(fn9)
Wiscomb I relied primarily on two theories: the judicial abrogation of the interspousal immunity doctrine(fn10) and the purpose behind Washington's Financial Responsibility Law.(fn11) The court examined two earlier decisions, Freehe v. Freehe,(fn12) which abrogated interspousal tort immunity,(fn13) and Borst v. Borst,(fn14) which severely limited the scope of parent-child immunity,(fn15) and found that both decisions rejected the risk of fraud and collusion among family members as a justification for intrafamily immunity.(fn16) Because the family exclusion clause is premised on the same discredited fraud and collusion rationale, consistency compelled the court to again reject the rationale as an adequate reason for allowing insurers to circumvent the Freehe holding.(fn17)
The Wiscomb I court also rested its decision on the incompatibility between the family exclusion clause and the financial responsibility statute.(fn18) The Financial Responsibility Law indicates legislative intent to ensure compensation for innocent victims of negligent motorists.(fn19) Failure to compensate an innocent victim, even if a member of the tortfeasor's family, is contrary to that intent.
On rehearing,(fn20) though reaching the same conclusion, the supreme court adopted a substantially new posture regarding the family exclusion clauses. Once again the court rejected the threat of fraudulent and collusive suits as justification for the clause.(fn21) Additionally, the Wiscomb II court responded to the insurer's argument that the insurance contract was a valid private contract. The court agreed that, "unless inconsistent with public policy or some statutory provision,"(fn22) the insurer may limit its liability. After examining Washington statutes, the court pronounced the clause inconsistent with the public policy of compensating innocent victims of automobile accidents.(fn23) The court, however, limited its holding, intimating that it would uphold freely bargained for clauses, though only those clauses excluding coverage for the named parties to the bargained for contract.(fn24) Nonetheless, because the Wiscombs could not purchase an automobile liability policy in Washington without the clause,(fn25) the court determined that this family exclusion clause was not the product of free bargaining between the parties. The court, therefore, rejected the insurer's freedom of contract argument that the Wiscombs had bargained for the clause, and refused to invoke that theory to uphold the clause. Moreover, noting that the majority now recognized that the Financial Responsibility Law allows various methods of demonstrating financial responsibility, Justice Dolliver, dissenting in Wiscomb I from the view that insurance was the only means to comply with financial responsibility laws, concurred in Wiscomb II. He preferred the view that denying family members insurance coverage via the family exclusion clause contravened public policy mandating invalidation even when the parties bargained for such clauses.
To explain its invalidation of the family exclusion clause in Wiscomb II, the court relied on two sources of policy.(fn26) First, the court examined the state's Financial Responsibility Law. That statute requires proof of financial responsibility when a person has been involved in an automobile accident resulting in bodily injury or death of any person or property damage of $300 or more.(fn27) Once an accident has been reported by any injured person, the other party must demonstrate financial responsibility for potential victims in the future in one of four ways: (1) file a certificate of insurance, (2) post a bond, (3) deposit securities in the amount of $60,000, or (4) provide a certificate of self-insurance.(fn28) By providing for both past and potential victims, the statute suggests a legislative intent to assure compensation to those injured through another's negligent use of our highways.(fn29)
Second, the court recognized that the same public policy pervades the Underinsured Motorist Statute.(fn30) That statute gives an insured a right to purchase coverage for injuries caused by an uninsured or an inadequately insured motorist.(fn31) While the statute allows the insured to opt out of uninsured motorist coverage and thus avoid the increased premiums for such protection,(fn32) the statute, nevertheless, assures the victim an opportunity to recover damages from his own insurer when the tortfeasor's insurance is inadequate.(fn33)
The court properly recognized that the family exclusion clause strikes at the heart of the public policy of assuring compensation to highway victims.(fn34) On one hand, the Financial Responsibility Law and the Underinsured Motorist Statute assure compensation to victims of negligent drivers. The family exclusion clause, on the other hand, denies compensation to a class of innocent victims most exposed to the negligence of the insured driver. The exclusion denies coverage not on the basis of any act peculiarly associated with the insured driver, but instead depends strictly on the identity of the victim, the person who has no control over the vehicle's operation.(fn35)
The Wiscomb II court also rejected protection of the insurer from fraudulent and collusive suits as a justification for the family exclusion clause.(fn36) Citing Hartford Accident and Indemnity Co. v. Novak,(fn37) the court noted that the threat of fraud and collusion had not prevented invalidation of the "physical contact" requirement for uninsured motorist coverage.(fn38) The court also noted its basis for rejecting the threat of fraud and collusion as a justification for the now abandoned doctrine of intrafamily tort immunity.(fn39)
The fraud or collusion rationale argues that the availability of insurance proceeds induces persons to file fraudulent claims or exaggerate legitimate claims in situations where the reward for such claims may inure to the insured.(fn40) In the context of intrafamily tort immunity, insurers argue that their deep pocket provides a great temptation for dishonest families to take advantage of their insurance companies, particularly since not only the injured party but the entire family will share in the recovery.(fn41) Supporters of the immunity doctrine and of the family exclusion clause contend that this risk of fraud or collusion and the supposed general jury predisposition toward plaintiffs when jurors suspect that the real defendant is an insurance company(fn42) make an intrafamily lawsuit extremely difficult to defend successfully. Courts, however, have concluded that greater opportunity for fraud and collusion among family members does not justify denying recovery to all.(fn43) Courts and juries, the argument goes, can effectively "ferret out the meritorious from the fraudulent in particular cases."(fn44)
In rejecting the fraud or collusion rationale as support for intrafamily tort immunity and the physical contact requirement, the courts have replaced an earlier solicitude for the plight of the insurer with a policy supporting compensation of innocent tort victims.(fn45)...
