Household Exclusion Upheld

Federal Court May Not, and Will Not Change the Law of a State

Aug 27, 2021

FACTS

Godfrey was seriously hurt when she was thrown from her husband, Ryan Novaczyk’s, boat. Godfrey and Novaczyk filed claims for her injuries with State Farm, who insured the boat, and GEICO, who sold Novaczyk an umbrella insurance policy. Both policies had household exclusions that caused them to decline coverage for injuries to the insured or members of the insured’s household because Godfrey and Novaczyk were married and lived together.

Godfrey sued Novaczyk, GEICO, and State Farm. GEICO removed the case to federal court, and Novaczyk was realigned as a plaintiff. Godfrey agreed that the household exclusions applied to her claim, but she argued that they violated Minnesota public policy. The district court granted summary judgment to the insurers because the exclusions were not prohibited by statute or Minnesota public policy.

ANALYSIS

Because the Eighth Circuit was called upon to interpret Minnesota law, it was bound by the decisions of the Minnesota Supreme Court, and if the Minnesota Supreme Court has not spoken on a particular issue, the Eighth Circuit was required to attempt to predict how the Minnesota Supreme Court would decide it and may consider relevant state precedent, analogous decisions, considered dicta, and any other reliable data.

Godfrey suggests that the question of umbrella and boat owner’s liability insurance coverage arising from spousal negligence creates a novel question of law that we should certify to the Minnesota Supreme Court. The construction of insurance contracts’ permits parties to contract as they desire, and so long as coverage required by law is not omitted and policy provisions do not contravene applicable statutes, the extent of the insurer’s liability is governed by the contract entered into.

The State Farm and GEICO household exclusions bar recovery here. Although, under the current Minnesota no-fault automobile insurance act, family and household members are included in the statutory definition of ‘insureds. Minnesota has not passed a similar law for boat or umbrella insurance. In fact, Minnesota consistently enforces household exclusions when the controlling statutes do not prohibit such exclusions, nor do they require homeowner’s policies to provide liability coverage for claims made by one resident of a household against another. The authority to change this rule lies with the Minnesota legislature. If the rule is wrong, the Legislature has ample power to change it. It is the duty of the courts to enforce the law as it exists.

The Eighth Circuit was unable to find any language in Minnesota statutes addressing mandatory coverage or household exclusions beyond Minnesota’s statutory mandates for automobile liability insurance.

The Eighth Circuit refused to expand its judicial role to expand Minnesota law to invalidate household exclusions. As a federal court sitting in diversity, it cannot extend Minnesota law. In addition, the Eighth Circuit found no issue of unsettled law. The Minnesota Supreme Court addressed this and declined to revisit the question in several different cases. Godfrey dids not present a close question of state law, so the Eighth Circuit refused to certify the question to the Minnesota court.

The district court’s grant of summary judgment was affirmed.

ZALMA OPINION

That there is a good reason for a household exclusion is axiomatic in every state because of potential collusion and fraud. The language of the exclusions are clear and unambiguous and clearly enforceable. Ms. Godfrey, without a contractual right, tried to convince the court to create a public policy against such exclusions because the state did so with regard to auto accidents but not other types of injuries, like falling off a boat. The Eight Circuit wisely recognized that the issue is one for the Legislature not a court.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders.

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at

http://www.zalma.com

and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/ The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/ podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

Household Exclusion Upheld

Federal Court May Not, and Will Not Change the Law of a State

FACTS

ANALYSIS

ZALMA OPINION

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