National County Mutual Fire Insurance Co. v. Johnson

OPINION

HIGHTOWER, Justice.

This cause involves the validity of a family member exclusion in a Texas automobile liability policy. Randall Johnson filed a declaratory judgment to determine his rights under an automobile policy containing a family member exclusion. The issuer of the policy, National County Mutual Fire Insurance Company (National County), counterclaimed. The trial court held the family member exclusion invalid. The court of appeals affirmed. 829 S.W.2d 322. For the reasons explained herein, we affirm the judgment of the court of appeals.

While driving his truck, Johnson collided with another automobile. Johnson’s wife, a passenger in the truck, was injured in the .collision and later brought suit against her husband seeking compensation for her injuries. Johnson requested that National County unconditionally defend him in the suit and National County refused. Instead, National County contended that the family member exclusion1 in the policy precluded coverage for the claim by Johnson’s wife and offered to defend Johnson subject to a reservation of its rights to deny coverage and payment of any judgment rendered against him. Johnson filed a declaratory judgment to determine his rights under the policy and National County filed a counterclaim for declaratory relief asking the court to determine the validity of family member exclusion.

The trial court rendered judgment for Johnson holding the family member exclusion invalid and National County liable for Johnson’s defense and coverage under the policy. The trial court found the family member exclusion 1) conflicts with the Texas Motor Vehicle Safety-Responsibility Act, 2) *2has no rational justification supporting its adoption by the State Board of Insurance, 3) contravenes the public policy of the state and, 4) fails to serve the interests of the people of Texas. The court of appeals affirmed the trial court’s decision holding that the family member exclusion violated the Safety-Responsibility Act’s mandate requiring liability insurance for “all sums which the insured shall become legally obligated to pay.”

I.

National County argues that the family member exclusion is a valid exclusion which is consistent with the public policy underlying the Texas Motor Vehicle Safety-Responsibility Act. We disagree.

The Texas Motor Vehicle Safety-Responsibility Act (the Act) originated in 1951 and was enacted for the benefit of “all citizens of this state.” Acts 1951, 52 Leg. p. 1227, ch. 498. Amendments to the Act in 1982 effectively mandate automobile liability insurance by requiring “[p]roof of ability to respond in damages for liability, on account of accidents ... arising out of the ownership, maintenance or use of a motor vehicle.” TEX.REV. CIV.STAT.ANN. art. 6701h § 1(10) (Vernon Supp.1993).2 In addition, the statute requires that

no motor vehicle may be operated in this State unless a policy of automobile liability insurance in at least the minimum amounts to provide evidence of financial responsibility under this Act is in effect to insure against potential losses which may arise out of the operation of the vehicle.

Id. § lA(a) (emphasis added). This section of the Act makes it clear that the legislature’s purpose in amending the Act was to protect claimants from losses by requiring all drivers to be responsible for damages arising out of their use of an automobile.3

This court has recognized that the public policy behind the Texas Motor Vehicle Safety-Responsibility Act is to protect all potential claimants from damages resulting from automobile accidents.

There is no question in our minds that the compulsory insurance requirement of the Texas motor vehicle safety law implies that all potential claimants for damages resulting from automobile accidents are intended as beneficiaries of the statutorily required automobile liability coverage. See the Texas Motor Vehicle Safety-Responsibility Act, TEX.REV.CIV.STAT.ANN. art. 6701h, §§ l(10).lA.2(b), 5 and 32(f) (setting out the definitions and mandatory minimum liability requirements for automobile insurance as well as the fines and penal sanctions for failure to have general automobile liability coverage.)

Dairyland County Mut. Ins. v. Childress, 650 S.W.2d 770, 775 (Tex.1983).

We must consider whether the family member exclusion is consistent with the legislative purpose of ensuring that every motor vehicle is covered by an automobile liability policy that will protect all claimants against losses which arise out of the operation of the vehicle. We hold that it is not.

*3“When the Legislature specifies a particular extent of insurance coverage any attempt to void or narrow such coverage is improper and ineffective.” Unigard Security Ins. Co. v. Schaefer, 572 S.W.2d 303, 307 (Tex.1978). Actions by the State Board of Insurance must be consistent with, and in furtherance of, expressed statutory purposes. If the Board approves a clause which conflicts with the statute, the Board’s approval is ineffective. American Liberty Ins. Co. v. Ranzau, 481 S.W.2d 793, 797 (Tex.1972); see also Railroad Comm’n v. Lone Star Gas Co., 844 S.W.2d 679 (Tex.1992); Gerst v. Oak Cliff Savings & Loan Ass’n, 432 S.W.2d 702, 706 (Tex.1968) (the provisions of an agency’s rules must be in harmony with the general provisions of the Act involved). Here, the Board’s approval of the family member exclusion4 results in a situation in which a claimant for damages resulting from an automobile accident is not allowed to recover damages under an automobile liability insurance policy that the legislature statutorily requires to protect such claimants from losses. The exclusion prevents a specific class of innocent victims, those persons related to and living with the negligent driver, from receiving financial protection under an insurance policy.5 Such a result is clearly contrary to the express legislative mandate. The Board’s action in approving a family member exclusion providing for such scenarios is inconsistent with the statutory purpose of the Act, and thus their approval of the exclusion is ineffective.6

The majority of jurisdictions with mandatory insurance laws hold family member exclusions invalid because they are contrary to public policy. Arceneaux v. State Farm Mut. Auto. Ins. Co., 113 Ariz. 216, 550 P.2d 87 (1976); Meyer v. State Farm Mut. Auto. Ins. Co., 689 P.2d 585 (Colo.1984); State Farm Mut. Auto. Ins. Co. v. Wagamon, 541 A.2d 557 (Del.1988); Stepho v. Allstate Ins. Co., 259 Ga. 475, 383 S.E.2d 887 (1989); Farmers Ins. Group v. Reed, 109 Idaho 849, 712 P.2d 550 (1985); DeWitt v. Young, 229 Kan. 474, 625 P.2d 478 (1981); Bishop v. Allstate Ins. Co., 623 S.W.2d 865 (Ky.1981); State Farm Mut. Auto. Ins. Co. v. Nationwide Mut. Ins. Co., 307 Md. 631, 516 A.2d 586 (1986); State Farm v. Sivey, 404 Mich. 51, 272 N.W.2d 555 (1978); Transamerica Ins. Co. v. Royle, 202 Mont. 173, 656 P.2d 820 (1983); Estate of Neal v. Farmers Ins. Exch., 93 Nev. 348, 566 P.2d 81 (1977); Kish v. Motor Club of America Ins. Co., 108 N.J.Super. 405, 261 A.2d 662 pet. denied, 55 N.J. 595, 264 A.2d 68 (1970); Estep v. State Farm Mut. Auto. Ins. Co., 103 N.M. 105, 703 P.2d 882 (1985); Hughes v. State Farm Mut. Auto Ins. Co., 236 N.W.2d 870, 885 (N.D.1975); State Farm Mut. Ins. Co. v. Schwartz, 933 F.2d 848, 851-52 (10th Cir.1991) (interpreting Oklahoma law); State Farm Fire & Casualty *4Co. v. Jones, 306 Or. 415, 759 P.2d 271 (1988); Jordan v. Aetna Cas. & Surety Co., 264 S.C. 294, 214 S.E.2d 818 (1975); Cimarron Ins. Co. v. Croyle, 479 N.W.2d 881 (S.D.1992); State Farm Mut. Auto. Ins. Co. v. Mastbaum, 748 P.2d 1042 (Utah 1987); Mutual of Enumclaw Ins. Co. v. Wiscomb, 97 Wash.2d 203, 643 P.2d 441 (1982); Allstate Ins. Co. v. Wyoming Ins. Dep’t, 672 P.2d 810 (Wyo.1983). But see Cook v. Wausau Underwriters Ins. Co., 299 Ark. 520, 772 S.W.2d 614, 616 (1989) (mandatory insurance law specifically provided that it was not intended to affect the validity of any policy provisions, exclusions, exceptions of limitations); Florida Farm v. Government Employees Ins. Co., 387 So.2d 932 (Fla.1980) (holding family exclusion clauses valid absent some explicit statutory prohibition); Transamerica Ins. Co. v. Henry, 563 N.E.2d 1265,1266-67 (Ind. 1990) (upholding family exclusion and explaining that the legislature had not expressed an intent to void the exclusions by revising the statute); Thompson v. Mississippi Farm Bureau Mut. Ins. Co., 602 So.2d 855, 857, 863 (Miss.1992) (majority opinion reaffirming previous decision upholding household exclusion; dissenting opinion arguing the exclusion is unenforceable because it violated the state’s mandatory liability insurance statute).7 Seven of those jurisdictions hold that the exclusion is only invalid up to the statutorily required minimum liability amounts and valid above those minimum amounts.8 Two additional jurisdictions reach that same conclusion, but do so because of express language in their financial responsibility statutes which addresses coverage in excess of the statutorily required mínimums.9 Of the remaining jurisdictions which hold the exclusion invalid, six specifically refuse to limit recovery to the minimum amounts required by statute and instead allow recovery for the amounts of coverage provided by the policy.10 Six more jurisdictions hold that family member exclusions are invalid but do not determine whether recovery is limited to the statutorily required minimum liability *5amounts.11 We join those jurisdictions which reason that because the family member exclusion violates public policy, the provision is completely void.

The family member exclusion makes drivers uninsured for claims against them by their own family members, despite the statutorily mandated requirement that all drivers carry liability insurance to “to respond in damages for liability on account of accidents” and “ensure against potential losses which may arise out of the operation of the vehicle.” 12 Thus, we hold that the family member exclusion is completely void because it conflicts with the Texas Motor Vehicle Safety-Responsibility Act as well as with the public policy underlying the Act.13 Accordingly, we affirm the judgment of the court of appeals.

DOGGETT, GAMMAGE and SPECTOR, JJ., join in this opinion. Concurring and dissenting opinion by CORNYN, J. Dissenting opinion by ENOCH, J., joined by PHILLIPS, C.J., and GONZALEZ and HECHT, JJ.

. The exclusion is known as “Endorsement 575” and provides "We do not provide Liability Coverage for you or any family member for bodily injury to you or any family member.”

. Effective January 1, 1986, the statutorily required minimum liability amounts are "Twenty Thousand Dollars ($20,000) because of bodily injury to or death of one person in any one accident, and, subject to said limit for one person, Forty Thousand Dollars ($40,000) because of bodily injury to or death of two (2) or more persons in any one accident, and Fifteen Thousand Dollars ($15,000) because of injury to or destruction of property of others in any one accident.” TEX.REV.CIV.STAT.ANN. art. 670 lh § 1(10) (Vernon Supp.1993). A bond or deposit may be filed in lieu of carrying automobile liability insurance in certain limited instances. See TEX.REV.CIV.STAT.ANN. art. 670 lh § lA(b)(3), (6) (Vernon Supp.1993). Despite this exception, most vehicles meet the requirements of the Act by carrying the required automobile liability insurance.

. Section 21(b) of the Act, which concerns proof of financial responsibility for the future, also requires liability insurance which will pay “all sums which the insured shall become legally obligated to pay as damages arising out of the ownership, maintenance or use of such motor vehicle.” TEX.REV.CIV.STAT.ANN. art. 6701h § 21(b) (Vernon Supp.1993). Although not applicable in this case because the record fails to indicate that Johnson's policy was proof of financial responsibility for the "future," this section further demonstrates the Act's prevailing theme of protection of all claimants from those damages arising out of the use of a motor vehicle.

. Apparently the purpose of the family member exclusion was to protect insurers from being victimized by fraudulent or collusive lawsuits between members of the same family. Annot., Validity, Construction, and Application of Provision of Automobile Liability Policy Excluding from Coverage Injury or Death of Member of Family or Household of Insured, 46 A.L.R.3d 1024, 1029-32 (1972). See State Farm Mut. Auto. Ins. Co. v. Traycik, 86 Mich.App. 285, 272 N.W.2d 629, 630 (1978). However, this court has rejected this argument. Whitworth v. Bynum, 699 S.W.2d 194, 197 (Tex.1985) ("We refuse to indulge in the assumption that close relatives will prevaricate so as to promote a spurious lawsuit.").

. The family member exclusion creates an inequity by stripping family members of coverage under an automobile liability policy but allowing coverage for everyone else.

[Tjhere is something wanting in a system of justice which permits strangers, friends, relatives and emancipated children to recover for injuries suffered as a result of their driver’s negligence but denies this right to the driver’s spouse and minor children who are also passengers in the same vehicle.

Immer v. Risko, 56 N.J. 482, 267 A.2d 481, 488 (1970).

.The dissent protests that the cotut abrogates a contractual provision of an insurance policy. However, this court and several courts of appeals have previously declared clauses or provisions in insurance policies invalid. See Stracener v. United Serv. Auto. Ass’n, 777 S.W.2d 378, 384 (Tex.1989); American Liberty Ins. Co. v. Ranzau, 481 S.W.2d 793, 797 (Tex.1972); Fontanez v. Texas Farm Bureau Ins. Companies, 840 S.W.2d 647, 649-50 (Tex.App.—Tyler 1992, no writ); Briones v. State Farm Mut. Auto. Ins. Co., 790 S.W.2d 70, 74 (Tex.App.—San Antonio 1990, writ denied); Hamaker v. American States Ins. Co. of Texas, 493 S.W.2d 893, 898 (Tex.Civ.App.—Houston [1st Dist.] 1973, writ ref'd n.r.e.). See also Bowen v. Aetna Cas. and Sur. Co., 837 S.W.2d 99 (Tex.1992).

. The dissent overlooks the fact that of the 25 jurisdictions with mandatory automobile insurance laws which have considered the validity of family member exclusions, 21 jurisdictions found that family member exclusions are invalid because they are contrary to public policy.

. Arceneaux v. State Farm Mut. Auto. Ins. Co., 113 Ariz. 216, 550 P.2d 87, 89 (1976) (exclusionary clause is viable beyond the amounts required by statute); DeWitt v. Young, 229 Kan. 474, 625 P.2d 478 (1981) (household exclusion void only up to minimum coverage required by the statute); Bishop v. Allstate Ins. Co., 623 S.W.2d 865 (Ky.1981) (language infers that exclusion is void only below minimum levels); State Farm Mut. Auto. Ins. Co. v. Nationwide Mut. Ins. Co., 307 Md. 631, 516 A.2d 586 (1986) (provision invalid only if it excludes less than the prescribed statutory minimal liability required by law); State Farm Mut. Auto. Ins. Co. v. Mastbaum, 748 P.2d 1042 (Utah 1987) (exclusion void only up to statutory mínimums), Allstate Ins. Co. v. Wyoming Ins. Dep’t, 672 P.2d 810 (Wyo.1983) (family member exclusion void to the extent of minimum security required); Stepho v. Allstate Ins. Co., 259 Ga. 475, 383 S.E.2d 887 (1989).

. Cimarron Ins. Co. v. Croyle, 479 N.W.2d 881 (S.D.1992) (when the plain language of the statute provides that excess coverage is not subject to the provisions of the state’s statutes on financial responsibility, court held exclusion only valid up to the statutory minimum amounts required); Estate of Neal v. Farmers Ins. Exch., 93 Nev. 348, 566 P.2d 81 (1977) (household exclusion viable beyond minimum security levels in light of statutory provision providing that every contract of liability insurance in the state includes the required minimum security for tort liabilities).

. See Meyer v. State Farm Mut. Auto. Ins. Co., 689 P.2d 585 (Colo.1984) (when the household exclusion clause has been invalidated because it violates the Act, the limit of the carrier’s liability are those provided by the policy and not the lesser limits required by the statutory standard); State Farm Mut. Auto. Ins. Co. v. Wagamon, 541 A.2d 557, 561-62 (Del.1988) (rejects idea of limiting coverage to minimum amounts mandated by statute and reasons the exclusion is separable and “can be severed from the policy without rendering the remaining provisions unenforceable”); Farmers Ins. Group v. Reed, 109 Idaho 849, 712 P.2d 550, 552, 555 (1985) (completely invalidates exclusion and allows recovery for in-trafamily actions up to the limits of the automobile liability insurance policy); Kish v. Motor Club of America Ins. Co., 108 N.J.Super. 405, 261 A.2d 662, 666, pet. denied, 55 N.J. 595, 264 A.2d 68 (1970) (exclusion void and insurer not relieved from the full monetary limits of coverage stipulated in its policy); Estep v. State Farm Mut. Auto. Ins. Co., 103 N.M. 105, 703 P.2d 882 (1985) (voids exclusion on public policy grounds and allows recovery at the stated limits of the policy and not the minimum limits required by law); Hughes v. State Farm Mut. Auto Ins. Co., 236 N.W.2d 870, 885 (N.D.1975) (court voids exclusion completely and allows recovery for the amounts of coverage provided by the policy).

. See State Farm v. Sivey, 404 Mich. 51, 272 N.W.2d 555 (1978); Transamerica Ins. Co. v. Royle, 202 Mont. 173, 656 P.2d 820 (1983); State Farm Mut. Ins. Co. v. Schwartz, 933 F.2d 848, 851-52 (10th Cir.1991); State Farm Fire & Casualty Co. v. Jones, 306 Or. 415, 759 P.2d 271 (1988); Jordan v. Aetna Cas. & Surety Co., 264 S.C. 294, 214 S.E.2d 818 (1975); Mutual of Enumclaw Ins. Co. v. Wiscomb, 97 Wash.2d 203, 643 P.2d 441 (1982).

. Under the dissent’s analysis, one would be unable to acquire automobile liability coverage for injuries one family member causes another to the same extent as coverage obtainable against third parties. Hence, if a family purchased liability coverage with limits of $300,000, family members would not be protected for injuries caused to each other. Under the concurrence’s analysis, one would be unfairly restricted in family member liability coverage to no more than the statutorily required minimum amount. Hence, if a family purchased liability coverage with limits of $300,000, family members would only be protected up to $20,000 for injuries caused to each other.

. The dissent laments that this "court has not evaluated, nor does it have the resources to evaluate, this impact.” 879 S.W.2d at 9 (Tex.1993) (Enoch, J., dissenting). Most, if not all, of this court's cases have an impact. However, this court has not refrained from deciding all of the other cases.