South Dakota Court Rules Against “Owned-But-Not-Insured” Exclusion
January 3, 2013: “Burke’s Law,” a monthly column featured on www.claimsjournal.com, recently reviewed the South Dakota Supreme Court’s decision in Wheeler v. Farmers Mut. Ins. Co. of Neb., 2012 S.D. 83. With the decision, South Dakota joined a number of other states in invalidating “owned-but-not-insured” exclusions appearing in uninsured motorist policies.
Uninsured motorist policies often exclude coverage when the insured person is occupying a vehicle he or she owns but the vehicle is not insured by the insurer providing the uninsured motorist coverage. A number of states have determined that such provisions are contrary to public policy and have invalidated the exclusions. Other states, recognizing the right of the insurer to limit the terms and conditions of coverage, have upheld the exclusion. Before its decision in Wheeler, South Dakota had not had an opportunity to address the issue.
In Wheeler, the Court focused on the statutory provisions outlining the requirements for uninsured and underinsured motorist coverage. Noting the inclusion of language allowing insurers to limit underinsured motorist coverage but the conspicuous absence of such language from the uninsured motorist statute, the Court felt obligated to give effect to the absence of such limiting language and determined that insurers may not limit uninsured motorist coverage. The decision invalidated the “owned-but-not-insured” exclusion. One concurring justice observed the potential inconsistencies and problems that could stem from the decision and appealed to the legislature to clarify the uninsured motorist statute. The decision marks another state ruling against the exclusion and is a reminder to insurers and consumers to take note of the statutory limitations on uninsured and underinsured motorist coverage.