Article
Enforceability of Step-Down Provisions in Automobile Insurance Policies
Mitchell Hamline Law Review
(2022)
Abstract
A driver who purchases automobile insurance with bodily injury and property damage liability coverage of $300,000 per occurrence and subsequently suffers extensive damages from an automobile accident does not expect to face a post-injury lawsuit from her insurer seeking an order that a “step-down” provision in her policy means the insurer only has to pay $50,000 per occurrence (the statutory minimum coverage amount required). However, that is exactly what happened to Sharmin Walls after she and two friends took a ride in her car together with a third friend who was driving. Despite the friends’ pleas, the driver refused to stop for a police blue light, a chase ensued, and ultimately the car crashed killing one of Sharmin’s friends and seriously injuring Sharmin and her remaining friend. When Sharmin and her friends each sought the individual maximum policy of $100,000 per person, the insurer sued for an order that it was not required to pay anything more than $25,000 per person up to a total of only $50,000 for all three claims arising from the accident.
The insurer from whom Sharmin bought $300,000 in coverage asked the court to enforce what is commonly called a “step-down” provision. Step-down provisions allow an insurer to reduce (or “step-down”) its total coverage from what was in the declarations of the policy to a lower number, usually the minimum insurance the state requires for any driver.
In Sharmin’s case, the South Carolina Supreme Court refused to apply the step-down provision. The decision was based upon application of state insurance laws that require all policies to provide coverage for the named insureds and permissive users “against liability for damage incurred ‘within the coverage of the policy.’”
Courts across the country struggle with the enforceability of step-down provisions. Many courts reject step-down provisions as unfair, against public policy, or as ambiguous terms that upon examination do not warrant enforcement. Other court decisions focus on the freedom to contract and many approve the provisions based on specific language of state insurance statutes.
This Article presents a brief history of these provisions, then surveys various judicial decisions attempting to put the different rulings in context with one another. Concluding, the authors suggest decisions like the South Carolina Supreme Court’s decision in Sharmin’s case are correct because sound public policy and the reasonable expectations of an insured are not served by allowing the provisions to limit coverage.
Keywords
- step-down provision,
- automobile liability insurance
Disciplines
Publication Date
Spring 2022
Citation Information
Constance A. Anastopoulo. "Enforceability of Step-Down Provisions in Automobile Insurance Policies" Mitchell Hamline Law Review (2022) ISSN: 0270-272X Available at: http://works.bepress.com/constance_anastopoulo/14/