Opinion ID: 2351107
Heading Depth: 1
Heading Rank: 2

Heading: Financial Responsibility and Compulsory Insurance

Text: ¶ 15 In its petition in error, AFR urged that the named driver exclusion is consistent with the compulsory insurance law as pronounced in Pierce v. Oklahoma Property & Casualty Ins. Co., 1995 OK 78, 901 P.2d 819. Pierce held that a named driver exclusion which is based on the poor driving record of the excluded individual is consistent with our compulsory insurance laws. 1995 OK 78 at ¶ 15, 901 P.2d at 823. The poor driving record in Pierce was critical to the validity of a named driver exclusion from compulsory insurance. This is so because it is the fault-based financial responsibility statute, [4] 47 O.S.2001 § 7-324, that authorizes the named driver exclusion from a motor vehicle liability insurance policy. The compulsory insurance statutes [5] do not expressly authorize any exclusions, although they recognize exclusions authorized by existing law. 47 O.S.2001 § 7-600. ¶ 16 The fault-based financial responsibility statutes 1) require owners or operators of motor vehicles involved in an accident to deposit security for the damages, 47 O.S.2001 §§ 7-201, et seq., as amended; and 2) upon conviction of an offense under the motor vehicle laws or bond forfeiture or upon failure to pay a judgment for damages arising out of the use of a vehicle, require the person to provide proof of financial responsibility. 47 O.S.2001 §§ 7-301, et seq., as amended. Proof of financial responsibility may be a motor vehicle liability insurance policy. 47 O.S.2001 § 7-320(1). [6] ¶ 17 Section 7-324 of the fault-based financial responsibility statutes requires that a motor vehicle owner's liability insurance policy must provide coverage for the named insured and all permissive drivers. Section 7-324 sets the minimum amounts of required coverage at $25,000.00 for bodily injury to or death of one person, $50,000.00 for bodily injury to or death of two or more persons, and $25,000.00 for injury to or destruction of property of others. [7] 47 O.S.Supp.2004 § 7-324(B). ¶ 18 Section 7-324 permits specific exclusions from the liability insurance. The named driver exclusion was added in 1980 as a new subsection (c) to § 7-324, [8] which was renumbered as subsection (b)(3) in 1994. [9] Section 7-324(b)(3) provides that the owner's policy may include a separate endorsement between a named insured and the insurer to exclude any person or persons designated by name from coverage under the policy. [10] ¶ 19 The underlying legislative intent of the fault-based financial responsibility statutes is to protect the public from persons who have previously been at fault in accidents or have poor driving records by requiring the owner and operator to maintain liability insurance and by requiring the insurer to cover all permissive uses of the insured vehicle. Hibdon v. Casualty Corp. of America, Inc., 1972 OK CIV APP 3, ¶ 14, 504 P.2d 878 (Approved for Publication by the Oklahoma Supreme Court). The fault-based financial responsibility law allows some premium-cost containment with the named driver exclusion and the reimbursement provisions in § 7-324. [11] However, as will be seen, Oklahoma's compulsory insurance statutes are not fault-based and do not provide for premium-cost containment separate and apart from the fault-based financial responsibility law. ¶ 20 Originally enacted in 1976 [12] and extensively amended in 1982, [13] the compulsory insurance statutes, 47 O.S.2001 §§ 7-600 et seq., as amended, require liability insurance in conjunction with the operation of a motor vehicle in this state. [14] Like the fault-based financial responsibility statutes, the compulsory insurance statutes require that the motor vehicle owner's liability insurance policy must provide omnibus coverage for all permissive uses. Unlike the fault-based financial responsibility statutes, the compulsory insurance statutes do not authorize any specific exclusions from the omnibus coverage, but the definition of the owner's policy does allow exclusions in accordance with existing law. Section 7-600 provides in part: 1. Owner's policy. An owner's policy of liability insurance: a. shall designate by explicit description or by appropriate reference all vehicles with respect to which coverage is thereby to be granted, b. shall insure the person named therein and insure any other person, except as provided in subparagraph c of this paragraph, using an insured vehicle with the express or implied permission of the named insured, against loss from the liability imposed by law for damages arising out of the ownership, maintenance, operation or use of such vehicle, c. may provide for exclusions from coverage in accordance with existing laws, and d. shall be issued by an authorized carrier providing coverage in accordance with Section 7-204 of Title 47 of the Oklahoma Statutes. 2. Operator's policy. An operator's policy of liability insurance shall insure the named person against loss from the liability imposed upon him by law for damages arising out of the operation or use by him of any motor vehicle not owned by him, subject to the same limits of liability required in an owner's policy. 47 O.S.2001 § 7-600(1) and (2) (emphasis added). ¶ 21 The Legislature enacted our current compulsory insurance scheme in the 1982 amendments. It created the security verification form, defined it, [15] required every operator to carry an owner's or operator's security verification form while using the motor vehicle, [16] required the owner to surrender a security verification form to the motor license agent when registering the motor vehicle, [17] and made the failure to produce a security verification form to appropriate law enforcement a misdemeanor. [18] The 1982 amendments provided that the owner's policy must include a statement or endorsement that the policy is issued in accordance with the Compulsory Insurance Law of Oklahoma. [19] ¶ 22 The legislative mandate of compulsory liability insurance on every motor vehicle operated on the highways of Oklahoma was clear in the 1976 enactment and the 1982 amendments. From its inception this Court refused to weaken the compulsory insurance mandate by applying the fault-based financial responsibility statutes to the compulsory insurance statutes. Beavin v. State ex rel. Dept. of Public Safety, 1983 OK 34, ¶ 14, 662 P.2d 299, 302; Young v. Mid-Continent Casualty Co., 1987 OK 88, ¶ 11, 743 P.2d 1084, 1087. ¶ 23 This Court has often pronounced that the clearly articulated public policy underlying Oklahoma's compulsory insurance law is to establish a comprehensive compulsory liability insurance law for the benefit of the innocent victims of the negligent operation or use of motor vehicles in this state. Beavin v. State ex rel. Dept. of Public Safety, supra .; Young v. Mid-Continent Casualty Co., supra ; Thomas v. National Auto Casualty Ins., 1994 OK 52, 875 P.2d 424; Tapp v. Perciful, 2005 OK 49, 120 P.3d 480; and Ball v. Wilshire Ins. Co., 2009 OK 38, 221 P.3d 717. We have often determined that provisions in a liability insurance policy which deny coverage to the general public are void as contrary to this statutorily articulated public policy, such as 1) excluding drivers under 25 years of age, Young v. Mid-Continent Casualty Co., supra ; 2) excluding coverage outside a 200-mile geographical radius, Equity Mutual Ins. Co. v. Spring Valley Wholesale Nursery, 1987 OK 121, 747 P.2d 947; 3) excluding a named insured as a passenger, Hartline v. Hartline, 2001 OK 15, 39 P.3d 765; 4) excluding business automobiles, Tapp v. Perciful, supra .; and 5) excluding loaned automobiles. Ball v. Wilshire Ins. Co., supra . We have determined that the clearly articulated public policy of our compulsory insurance law overrides contrary private agreements that restrict the insurance coverage up to the statutory minimum limits of coverage: The legislatively-declared imperative behind the Compulsory Liability Insurance Law is that a minimum amount of liability insurance be available for the protection of the general public. Ball, 2009 OK 38 at ¶ 14, 221 P.3d at 722. ¶ 24 The statutory requirements of a motor vehicle liability insurance policy under the fault-based financial responsibility law are different from those in the compulsory insurance law. [20] Because the compulsory liability insurance law does not specifically authorize the exclusion of named drivers as insured persons as does the fault-based financial responsibility law, these statutes dealing with motor vehicle liability insurance must be construed, as far as practical, to give an intelligent effect to each. Sharp v. Tulsa County Election Bd., 1994 OK 104, ¶ 11, 890 P.2d 836, 840. Any construction of these statutes must be consistent with the underlying public policy to protect innocent third parties from the negligent uses of motor vehicles upon the public roadways. ¶ 25 Even though the compulsory insurance law provides no specific exclusions from the required omnibus liability insurance coverage, it expressly allows for exclusions provided in existing law, 47 O.S.2001 § 7-600(1)(c), and requires any person excluded from coverage to be named on the owner's security verification form. 47 O.S.2001 § 7-602.1. [21] The existing fault-based financial responsibility law allows exclusion of a named person by endorsement to an automobile liability insurance policy. 47 O.S.Supp. 2004 § 7-324(b)(3). A reading of these provisions to give intelligent effect to each in light of the underlying public policy is to say that any owner's policy under § 7-324 that has an endorsement excluding a named driver from coverage may satisfy the requirements of an owner's policy under the compulsory insurance law; and if so, the excluded named driver must be identified on the owner's security verification form. [22] ¶ 26 In Young v. Mid-Continent Casualty Co., 1987 OK 88, 743 P.2d 1084, the Court expressly held that an automobile liability insurance policy exclusion based on the age of the driver was contrary to a public policy that protected innocent victims from the negligent operation of a motor vehicle. In Young coverage was excluded for the operation of the insured vehicle if operated by any person under the age of twenty-five (except the named insured) who was not a relative and a resident of the same household as the named insured. Id. 743 P.2d at 1084-1085. In Young the insurance carrier argued that the under-age exclusionary clause was bargained for, effective, and enforceable. Id. 743 P.2d at 1087. [23] ¶ 27 We later relied on Young when we explained that compulsory liability insurance was for the public purpose of protecting innocent drivers from the use of automobiles by financially irresponsible persons who operate vehicles in a negligent manner. Thomas v. National Auto. Casualty Ins., 1994 OK 52, 875 P.2d 424, n. 14, 427. We stated the following. Oklahoma's Financial Responsibility Act [Act] requires that owners maintain liability insurance for their automobiles. The compulsory liability insurance article in the Act mandates that all vehicle owners keep in force liability insurance or other authorized security at not less than the minimum required by § 7-204 unless a vehicle is exempt by statute. The Act's principal purpose is to protect the public using the highways from financial hardship which may result from the use of automobiles by financially irresponsible persons. Any vehicle operating on the Oklahoma highways must hence be secured against liability to innocent victims of the negligent operation of insured vehicles. This clearly articulated public policy of our compulsory insurance law plainly overrides contrary private agreements that restrict coverage whenever the contractual strictures do not square with the purpose of the Act. Thomas v. National Auto. Casualty Ins., 1994 OK 52, 875 P.2d 424, 427 (notes and authority omitted and emphasis in original). ¶ 28 In the case before us today, the insurance carrier argued that teenagers, as a class of drivers, could be excluded from the compulsory coverage because, as a class, they are a high-risk category. Teenagers, as a class, are not well-known for their financial responsibility. So then, the essence of AFR's argument is that a class of drivers with a higher degree of negligent operation of motor vehicles and a greater degree of financially irresponsibility may be excluded from a compulsory law designed to protect innocent drivers from financially irresponsible and negligent drivers. AFR argues this result is permissible because law ( Pierce ) permits a bargained-for exclusion. In summary, AFR contends that since teenagers, as a class, have a poor driving record when compared to non-teenagers, then a specifically named driver may be excluded solely on the basis of membership in that age-based class. ¶ 29 Hank Neal and AFR agreed that Benjamin Neal would not be covered by Hank's insurance on the 1992 GMC Sierra truck, and similarly, Diann Neal and AFR agreed to exclude Benjamin Neal from her liability coverage. These private insurance policies were issued under the compulsory insurance scheme which has a primary purpose to protect members of the public from the disastrous financial consequences of using the roadways in our automobile-dependent society. Harkrider, 2000 OK 94 at ¶ 18, 24 P.3d at 829-830. Our compulsory insurance scheme has effectively transformed what was a private insurance arrangement into a quasi-public obligation. Id. 24 P.3d at 830. ¶ 30 In Hartline v. Hartline, 2001 OK 15, 39 P.3d 765, we stated that [e]ven in the absence of a violation of a law's express provision, an exclusion may nonetheless be invalid for nonconformity to the policy of the law. Id. at ¶ 16, 39 P.3d at 771. In Tapp v. Perciful, 2005 OK 49, 120 P.3d 480, we noted that the scope of Pierce is a very narrow exclusion ... of a specifically named driver. Id. at ¶ 20, 120 P.3d at 483. We have refused to extend the Pierce holding to exclude an unlicensed driver when the named insured did not disclose that the unlicensed driver was living in her household. Harkrider v. Posey, 2000 OK 94, ¶ 17, 24 P.3d 821, 829. More recently, we said that Pierce recognized a very narrow exception to the rule that every vehicle operated in this state shall be secured against liability to innocent victims of the negligent operation of insured vehicles. Ball v. Wilshire Ins. Co., 2009 OK 38 at n. 21, 221 P.3d at 721-722. ¶ 31 Our express holding in Pierce states that We hold that a named driver exclusion which is based on the poor driving record of the excluded individual is consistent with our compulsory liability insurance laws. Pierce, 901 P.2d at 823 (emphasis added). The bargained-for exclusion was tied to particularized conduct of a specific individual which had an impact upon the insurer's risk. In the case before us, the exclusion is not based upon particularized conduct of Benjamin, but on Benjamin's membership in a class of drivers of a certain age. [24] ¶ 32 The protection of the public from the financial hardship which may result from the use of automobiles by financially irresponsible persons requires that any vehicle operating on the roads of this state must be secured against liability to innocent victims in the event harm occurs from its negligent operation. Hartline v. Hartline, at ¶ 16, 39 P.3d at 771-772 (emphasis in original and citations omitted). Due to the public policy of protecting innocent drivers from the use of automobiles by financially irresponsible persons who operate vehicles in a negligent manner, we decline to extend the holding of Pierce to allow a bargained-for exclusion based solely upon a named driver's age when that driver is under eighteen years of age. ¶ 33 AFR's position is, essentially, that parents of teenagers should be allowed to purchase motor vehicle insurance without also paying for insurance to cover their teenage children as drivers. We agree hypothetically that responsible parents of teenagers should be allowed to purchase motor vehicle insurance without also paying for insurance to cover their teenage children as drivers when the teenagers are not drivers. A teenage licensed driver between the age of sixteen and eighteen years of age has that license because his or her parent, legal custodian, or guardian has expressly allowed that teenager to obtain a driver's license. [25] Diann Neal had custody of Benjamin when the collision occurred, and as a responsible parent could have objected to Benjamin having a driver's license without the required insurance. [26] But we also note that cases have come before our appellate courts showing all too well that there are parents of teenagers who act irresponsibly by providing a motor vehicle to a teenager to drive without the required insurance for that teenager as a driver. In issuing and purchasing compulsory liability insurance, the contracting parties do not enjoy the full range of freedom-of-contract principles. Harkrider, at ¶ 19, 24 P.3d at 830. Public policy requires innocent victims of unemancipated negligent teenage drivers to be protected from such drivers by the compulsory insurance law. The private motor vehicle liability insurance contract may not defeat the mandated public protection. The insurer cannot escape its liability for the minimum amount of liability insurance mandated by the compulsory insurance law when an innocent third party is negligently injured by an insured or an insured motor vehicle, and a parent purchasing insurance cannot escape his or her responsibility from purchasing insurance for his or her unemancipated child under eighteen years of age who drives a motor vehicle in this State. We decline to act today as a Legislature and determine under what conditions an unemancipated teenager with a driver's license could be properly excluded from the parent's motor vehicle insurance policy. ¶ 34 We conclude that the named driver exclusions in this case are inconsistent with the clear public policy in Oklahoma's compulsory insurance law. We hold that the named driver exclusion in the Hank Neal policy and in the Diann Neal policy may not be enforced against plaintiffs/appellees to defeat compulsory omnibus coverage up to the minimum amount required by law. ¶ 35 Our conclusion and holding herein leaves the narrow exclusion in Pierce intact. Relying on Pierce, the Court of Civil Appeals has upheld named driver exclusions similar to the exclusion here, but those opinions are not instructive. [27] We refuse to extend the narrow holding in Pierce, and we specifically limit the application and effect of our holding in Pierce to those named driver exclusion endorsements under Section 7-324(b)(3) of Title 47 of the Oklahoma Statutes.