Named-Driver Exclusion in Automobile Liability Insurance Policy is Enforceable

In American Service Insurance Company v. Arive, a van driven by Kayla Schultz collided with a bus driven by Denise Arive. Arive later filed an action against Kayla and Marenda Schultz for injuries sustained as a result of the accident.  American Service Insurance Company (“American Service”), insurer of Marenda Schultz, filed a declaratory judgment action against Arive and Kayla and Marenda Schultz, the bus company that operated the bus and the various passengers on the bus during the incident. The policy covered Marenda’s Chevrolet Astro van. American Service argued that it did not have a duty to defend or to indemnify with respect to any claims arising from the accident because Kayla Schultz was an excluded driver on the liability policy. Arive argues that a named-driver exclusion is void if the excluded driver’s name does not appear on the insurance card provided to the insured.

The court reviewed whether an insurer, in order to enforce a named-driver exclusion in an automobile liability policy, must list the names of the excluded drivers on the insurance card it provides the insured. The court looked to Section 7-602 of the Illinois Vehicle Code. The court  reasoned that the plain language of this statute recognized that insurance policies may exclude named drivers from coverage. The court determined that from the “underlying purpose” of Section 7-602, the statute’s requirements, as to the form of an insurance card, are wholly unrelated to the validity of exclusions that appear in the policy. The insurance card is simply a form of “evidence” that is presented by a driver as proof of insurance to a law enforcement officer. An insurance card does not substitute the language of the policy. The underlying purpose of Section 7-602 is to ensure that law enforcement officers have adequate proof of insurance to assess whether a driver is in fact a named insured on the policy. Section 7-602 indicated that the legislature “recognize[d] that insurance policies may exclude named drivers from coverage” and that such exclusions were therefore consistent with the public policy of Illinois. The court noted some public policy rationales for a named-driver exclusion:  (1) protecting all potential claimants from damages resulting from automobile accidents by enabling drivers with family members having poor driving records to obtain affordable insurance; and (2) deterring insured drivers from entrusting their vehicles to unsafe excluded drivers.  Without a clear directive from the legislature that requirements as to the form of an insurance card dictate the enforceability of policy exclusions, the court cannot declare the exclusion here void as against public policy.

Therefore, the court found that the named-driver exclusion was enforceable even though the policy insurance cards did not name the excluded driver. Where it is undisputed that the American Service policy excluded coverage for Kayla Schultz, American Service had no duty to defend or indemnify the Schultzes in the Arive suit.

American Service Ins. Co. v. Arive, 978 N.E.2d 242 (Ill. App. 1st Dist., 2012).