Opinion ID: 1928248
Heading Depth: 2
Heading Rank: 2

Heading: The Household Exclusion Clause

Text: Mrs. Smalls contends that the household exclusion clause in her husband's insurance contract is contrary to public policy as embodied in the No-Fault Act, and should therefore be held invalid. Specifically, she argues that the No-Fault Act (1) contains no exceptions for coverage of injured third parties based on their legal status within a particular insured's policy; (2) speaks in terms of liability instead of party standing, so that the term third party is merely a transactional phrase relevant only within the context of an automobile accident; and (3) prohibits any insurance policy from containing provisions that waive statutory coverage requirements. In response, State Farm contends that by omitting any language requiring coverage for bodily injuries to multiple parties classified as insured (in this case, Mr. and Mrs. Smalls), the Act implicitly allows insurers to exclude coverage for injuries incurred by such insureds under the same policy. State Farm also maintains that this interpretation is buttressed by the fact that Mr. Smalls had the option (of which he took advantage) to purchase additional PIP coverage for any injuries that he himself might suffer in an automobile accident. We see nothing in the arguments presented by either party which would warrant reversal of the trial court's judgment. The stated purpose of the No-Fault Act is to provide adequate protection for victims who are injured in the District or who are injured while riding in motor vehicles registered or operated in the District. D.C.Code § 35-2101(b). In furtherance of this purpose, the Act mandates that insurers provide, and vehicle owners possess, third-party liability policies [4] which shall provide that any liability of an insured to pay for injury arising from an accident within or outside the District of Columbia, in accordance with applicable law, shall be paid by the insurer up to the amount established in the policy. D.C.Code § 35-2106(c). [5] See also D.C.Code §§ 35-2103(a) (requiring every owner of a motor vehicle registered in the District to maintain insurance required by § 35-2106) and 35-2106(a)(1)(D)(ii) (requiring every insurer selling motor vehicle insurance in the District ... to offer insurance which shall provide at least all minimum benefits required by this chapter with respect to ... third-party personal liability). The Act also requires insurers to offer, along with third-party liability coverage, optional personal injury protection (PIP) coverage which an insured may also elect to purchase. D.C.Code § 35-2104(a)(1). If purchased, such coverage would apply only to a victim who is an insured or an occupant of the insured's vehicle or of a vehicle which the insured is driving. Id. It is settled law that when a court interprets a statute, [t]he words of the statute should be construed according to their ordinary sense and with the meaning commonly attributed to them. Davis v. United States, 397 A.2d 951, 956 (D.C.1979) (citation omitted). Given this basic rule, and in light of the remedial purpose of the No-Fault Act, we hold that the trial court correctly interpreted the term third party to refer to any person injured by the insured tortfeasor. In the first place, the language requiring automobile owners to purchase third-party liability insurance does not limit coverage to a particular class of victims. See D.C.Code §§ 35-2102, 35-2106(c). Moreover, State Farm's reliance on Mr. Smalls' purchase of additional PIP coverage is of no help to its case, since that purchase was entirely optional on Mr. Smalls' part. [6] Finally, the Act itself states that while insurance policies containing the mandatory minimum amounts of protection may provide terms more favorable to named insureds than are required by this chapter ... no policy shall contain any provision which waives any of the requirements of this chapter. D.C.Code § 35-2109( l ). If we were to accept State Farm's argument, we would be saying that the household exclusion clause may lawfully do exactly what this section of the Act forbids. We agree with the trial court that, although the household exclusion clause conflicts with the No-Fault Act, it is invalid only to the extent of that conflict. Generally, parties are free to enter into whatever contractual agreements they wish. That freedom is curtailed by the courts only when such contracts, or contractual provisions, run contrary to public policy. Wisconsin Avenue Associates v. 2720 Wisconsin Avenue Cooperative Ass'n, 441 A.2d 956, 964 (D.C.), cert. denied, 459 U.S. 827, 103 S.Ct. 62, 74 L.Ed.2d 64 (1982). As State Farm notes in its brief, household exclusion clauses are not invalid in and of themselves. The principal purpose of such clauses is usually to protect insurers against collusive lawsuits. Because this is a legitimate goal, household exclusion clauses have been upheld by the courts of many states when they have not been in conflict with statutory requirements. [7] In the present case, we hold that as long as the minimum insurance requirements of section 35-2106(c) are met, the household exclusion clause in Mr. Smalls' policy, limiting further third-party liability above and beyond the statutory minimum, is not inconsistent with the Act's remedial purpose. The Maryland Court of Appeals has reached the same conclusion. In Jennings v. Government Employees Insurance Co., 302 Md. 352, 488 A.2d 166 (1985), the court first held that an identical household exclusion clause in an automobile liability policy was invalid because it conflicted with Maryland's compulsory insurance statute. One year later, however, the same court, employing the same reasoning that we apply in this case, expanded its ruling in Jennings by holding household exclusion clauses in automobile insurance policies to be valid with respect to amounts above the minimum coverage required by statute. State Farm Mutual Automobile Insurance Co. v. Nationwide Mutual Insurance Co., 307 Md. 631, 643, 516 A.2d 586, 592 (1986). Mrs. Smalls argues that Maryland case law is inapposite because the relevant portions of that state's automobile insurance statute differ significantly from those of its District of Columbia counterpart. A comparison of the two statutes, however, demonstrates that they are essentially the same in all material respects. See MD. ANN. CODE Art. 48A, § 541 (1995 Supp.); MD. TRANSP. CODE ANN. § 17-103(b)(1) (1992). In sum, D.C.Code § 35-2106(c) requires third-party personal liability coverage for the minimum amounts of $25,000 per person and $50,000 for all persons injured in any one accident. Additionally, section 35-2109( l ) allows insurers to provide coverage above these minimum amounts, but not below them. Although the household exclusion clause in Mr. Smalls' insurance policy cannot nullify the minimum coverage mandated in section 35-2106(c), there is no bar to enforcement of the clause with respect to amounts greater than the minimum statutory requirements. The trial court was correct in so holding, and its judgment is in all respects Affirmed.