Protecting Your Family with Car Insurance: Buyer Beware

June 7, 2011  |  John T. Buchman

In the past, I have recommended that you review your insurance coverages, particularly your homeowner’s and car insurance, and increase them when appropriate. This blog post addresses an unexpected exclusion found in some automobile policies that actually deprive you of coverage to your injured family members under certain circumstances. At least two insurance companies have an exclusion known as a “drop down” limitation that dramatically lessens the insurance coverage available to you and your family members if another family member’s driving conduct was a cause of their injuries. This is particularly relevant as we enter the summer family vacation and driving season.
Two recent cases, one by the Minnesota Court of Appeals and one by the Eighth Circuit Federal Court of Appeals[1] have both enforced a “drop down” limitation that restricts claims by injured family members to the minimum amount of coverage mandated by Minnesota law, which is $30,000 per person and $60,000 per accident. In both cases, family members were either killed or seriously injured and suffered losses far in excess of these minimum limits. I’m sure that neither of the parents who purchased the insurance ever envisioned that their own family members would be hurt by this unexpected limitation.
In the Frey case, the 17 year-old son was driving a car with the rest of the family. He lost control and crashed. The boy’s father and his sister’s fiancé were killed and his sister and mother were injured. The deceased father had purchased car insurance from USAA with limits of $300,000 per person and $500,000 per accident. These are pretty good limits for which he paid extra premiums to protect himself and his family. I’m sure it was unknown to him when he purchased the insurance, that the policy contained an exclusion stating that under these circumstances, the total amount that USAA would have to pay out for all of the victims of this tragic crash was $60,000 rather than the $500,000 that he had purchased. USAA writes policies in Minnesota and caters mainly to families of our armed services members. It’s hard to understand why the insurance company would target family members who are tragically injured or killed as the result of the driving conduct of another family member. In 2008, the Court of Appeals ruled that this exclusion was valid and enforceable (but did not apply to the claims of the daughter, Aven, for other reasons).
In 2009, the Federal Eighth Circuit Court of Appeals, which has jurisdiction over cases filed in federal court in Minnesota confirmed the Frey ruling in a case where a father purchased insurance, including a $1 million umbrella policy for his son, who lived in Minnesota. The son caused a collision that ended up killing his wife. Again, rather than obtaining up to the $1 million in coverage that he had purchased, the people harmed by the loss of the son’s wife could only obtain $30,000 in coverage. (The son, who caused the death, would not be entitled to any proceeds in any event) (Babinski vs. American Family Insurance Group).
So what should you do? You should ask your agent whether such exclusions exist in your policy and whether there are any other exclusions you should be aware of. If you have insurance through American Family or USAA you should ask that they eliminate this exclusion or, if they do not, buy insurance from another company. The car insurance industry is very competitive at this time and you will likely find similar coverage without the exclusion at the same or lesser price. Many of the major auto insurers in Minnesota do not contain such “drop down” limits. If you have any questions, you can e-mail me at or call me at 763-783-5121.
[1] Frey v. USAA, Minnesota Court of Appeals, 01/08/08; Babinski v. American Family Insurance Group, 8th Circuit Court of Appeals, 06/18/09.