Progressive Casualty Insurance v. Jester

Williams, C.J.

(dissenting) — As I understand the majority's "freedom of contract" rationale, an insurance policy that excluded coverage for all blond, blue-eyed individuals would be enforceable simply because the driver had bargained for the exclusion. I believe that an exclusion clause that arbitrarily denies coverage for an innocent victim, whether it be a family member, passenger, or pedestrian, ought to be unenforceable as against public policy. The majority's freedom of contract analysis allows the insurance company and its insured to evade the public policy of this state, and thereby effectively overrules Mutual of Enum-claw Ins. Co. v. Wiscomb, 97 Wn.2d 203, 643 P.2d 441 (1982). I therefore dissent.

As we noted in Wiscomb, the provisions of the financial responsibility act, RCW 46.29, do not become mandatory until the driver is involved in an accident causing injury or damage of $300 or more. RCW 46.29.060; Wiscomb, at 206. Nevertheless, once the provisions do become mandatory, the driver must present proof of financial responsibility sufficient to satisfy any judgment resulting from any future accident. RCW 46.29.070(1); see also RCW 46.29.090(1) (requiring minimum coverage of $25,000 for each 1-person accident, $50,000 for each 2-person accident). Thus, to the greatest extent possible without actually requiring across-the-board, mandatory insurance, the Legislature has demonstrated a strong policy of ensuring that drivers have adequate insurance to pay for the damage they cause. As we stated in Wiscomb: "Quite simply, the statute creates a strong public policy in favor of assuring monetary protection and compensation to those persons who suffer injuries *84through the negligent use of public highways by others." Wiscomb, at 206; see also LaPoint v. Richards, 66 Wn.2d 585, 590, 403 P.2d 889 (1965). The underinsured motorist statute, RCW 48.22.030, reflects the same policy. Wiscomb, at 207-08; Touchette v. Northwestern Mut. Ins. Co., 80 Wn.2d 327, 333, 494 P.2d 479 (1972). While particular provisions of these statutes may not apply in a particular case, the public policy implicit in these statutes should guide us in interpreting and enforcing insurance contracts "affected with the public interest". Touchette, at 332.

Turning to the insurance contract in this case, it is clear that the passenger exclusion clause violates public policy in the same way that the family exclusion clause did so in Wiscomb. Unlike other exclusion clauses we have upheld, this clause focuses "not on the risk associated with who is driving the vehicle, but on which parties are injured." Wis-comb, at 209. If Progressive Casualty had shown that the passenger's presence made the motorcycle more unstable or dangerous, I would agree that the clause is valid on the ground that the insurer may limit or exclude coverage to reflect increased risks. Cf. Royse v. Boldt, 80 Wn.2d 44, 491 P.2d 644 (1971) (upholding clause excluding coverage for accident in which automobile was operated by one other than the named insured); St. Paul Fire & Marine Ins. Co. v. Circle Bar J Boys' Ranch, Inc., 1 Wn. App. 377, 461 P.2d 567 (1969) (upholding clause excluding coverage for drivers under 25 years of age). But Progressive Casualty did not make such a showing. This exclusion clause focuses not on the driver, but on who is injured. It "is directed at a class of innocent victims who have no control over the vehicle's operation and who cannot be said to increase the nature of the insurer's risk", Wiscomb, at 209, and under the authority of Wiscomb it should be unenforceable.

The majority sidesteps this analysis from Wiscomb, arguing that it "does not apply” to this case. Majority opinion, at 81. It states that the "essential difference" between this case and Wiscomb is that in this case Jester actually bargained for the exclusion at the lower rate. *85Majority opinion, at 80. In so doing, the majority plainly misreads the freedom of contract discussion in Wiscomb. The point of that discussion was that the exclusion clause might be valid if the named insureds consciously bargained for exclusion of coverage for themselves or other named insureds. Here, however, as in Wiscomb, the contract excluded coverage for an unnamed third party who had no part in the negotiations. Ms. Wendt did not "intelligently choose to add [this] exclusion," Wiscomb, at 212, and as such the freedom of contract discussion in Wiscomb cannot be invoked to save this exclusion.

This conclusion is clear from the Wiscomb opinion. One of the evils in Wiscomb was that the insured was faced with a take-it-or-leave-it proposition: either buy the insurance excluding coverage, or buy no insurance at all. We concluded that in this situation there was no real freedom of contract or equality of bargaining power. We then stated:

A different question would be presented if the policy provided this coverage and the individual insureds and insurers contract for the exclusion.

Wiscomb, at 212. The "different question" we envisioned, however, was one in which the named insureds consciously bargained for exclusion of coverage for themselves or other named insureds in the family. See Wiscomb, at 212 & n.2. That question is not presented in this case. The question here, as stated above, is whether the named insured could validly exclude coverage for an unnamed, third party passenger. Wiscomb clearly states that such an exclusion is invalid:

Under any circumstances, exclusion clauses which purport to deny coverage to children of the insured or any person not a party to the insurance contract are viola-tive of this state's public policy. We reserve for a later date the question of the validity of exclusions which are consciously bargained for by the insurer and named insureds in the manner described above.

Wiscomb, at 213. To repeat, the "manner described above" was the situation in which the named insured consciously *86bargained away coverage for himself or another named insured. If the contract excludes coverage for "any person not a party to the contract", it is unenforceable.

The majority, of coúrse, dismisses this as merely dicta. Majority opinion, at 81. This "dicta", however, was central to the reasoning in Wiscomb. The reasoning was that insurance policies must be consistent with this state's public policy of protecting innocent highway users from the negligence of others. A policy in which the named insureds knowingly bargain away coverage for themselves is not inconsistent with this policy. In such a case the named insured could make an intelligent choice to limit or exclude coverage in return for lower rates. They are not innocent victims, because they consciously bargained for the exclusion. But the insurance policy in this case excludes coverage to one who did not participate in the negotiating process and probably had no reason to know of the exclusion clause.

In short, the fact that Kelly Jester bargained for this exclusion is irrelevant. The "freedom of contract" between Mr. Jester and Progressive Casualty in no way furthers the public policy of protecting innocent victims on the highways. To the contrary, this very freedom of contract allows an insurance company and its insured to thwart this public policy; it allows market forces, not the Legislature or the courts, to determine public policy. The majority's rationale could conceivably sanction an insurance contract that excluded coverage for passengers, pedestrians, and people walking on the left side of the street, simply because the insured had bargained for these exclusions at a lower rate. Such an insurance contract, although appearing to provide protection against the insured's negligence, would actually provide only minimal coverage. I think such a contract, like the contract in this case, violates the principle set out in Wiscomb: an exclusion that arbitrarily focuses on who is injured, not the nature of the insurer's risk, is unenforceable as against public policy.

Finally, I am not as confident as the majority that, as a *87result of the Insurance Commissioner's Bulletin, these exclusion clauses will not be used in the future. The Commissioner's decision to withdraw approval of these forms was based entirely on Mutual of Enumclaw Ins. Co. v. Wiscomb, 97 Wn.2d 203, 643 P.2d 441 (1982). The Bulletin begins by stating that Wiscomb "has raised doubts as to the validity of [motorcycle passenger exclusion clauses]." Insurance Commissioner Bulletin No. 82-9. Now that the majority has resolved these doubts, I can see no reason for the Commissioner to continue to disapprove of the clauses. Cf. RCW 48.18.110 (listing the grounds on which the Commissioner may disapprove insurance forms). To the contrary, I expect the use of these forms to resume as soon as the majority opinion is filed.

In sum, I would hold this clause unenforceable. It excludes a whole class of victims who, for all the record shows, do not increase the nature of the insurer's risk. I think this clause violates public policy in the same way that the family exclusion clause did so in Wiscomb. I therefore dissent.

Rosellini, Brachtenbach, and Dore, JJ., concur with Williams, C.J.

Reconsideration denied August 21, 1984.