Protect Your Family: Beware of the “Step-Down” Auto Insurance Clause

The family “step-down” provision reduces liability coverage to $20,000, regardless of the circumstances.

michigan-auto-insurance-policyAll of us want nothing but the best for our families. Part of taking care of our families means obtaining adequate amounts of auto insurance to protect them from disaster. And there is perhaps no greater disaster than one of us doing something that hurts a loved one.

But what if you learned that you may have an auto insurance policy that effectively eliminates coverage for your loved ones if they are hurt by you or another family member?

Behold what personal injury lawyers call the family “step-down” provision. These provisions apply when one family member pursues an auto negligence claim against another family member. The purpose of the provision is to reduce liability insurance coverage to the state-mandated minimum of $20,000, regardless of how severe the injury, how negligent the driver or the amount of insurance purchased in the first place.

For example, take the case of Ruzak v USAA Insurance Agency, where the plaintiff suffered serious personal injuries in an auto accident when her husband lost control of his vehicle and collided with a tree. The wife made a claim under her husband’s insurance policy that provided $300,000 in liability coverage. The insurance company denied nearly all the wife’s claim, citing an exclusion in the policy that allowed for no more than $20,000 in coverage for claims by “family residing in the covered person’s household.”

The trial court in Ruzak refused to uphold the step-down provision, calling it “repugnant, reprehensible, and unconscionable.”  However, the Michigan Court of Appeals disagreed, noting the auto insurance policy still provided $20,000 in coverage and the husband and wife could have bought insurance from a different carrier.

We believe the trial court judge in the case was correct: family step-down provisions are repugnant and reprehensible. Think about this: why should a child who is catastrophically injured in an auto accident caused by a parent driver’s negligence be treated differently than a child who is catastrophically injured in an auto accident caused by a stranger driver’s negligence?

Unfortunately, many insurance companies have no problem hiding step-down provisions in their policies. At Sinas Dramis, we have seen these provisions in “standard” policies issued by Progressive, Farm Bureau and Grange, just to name a few. What’s even sadder is that families who suffer injury or death do not learn what step-downs mean until it’s too late.

It has become apparent that relief from the step-down problem will not come from the courts. After all, in Defrain v State Farm, 491 Mich 359 (2012), the Michigan Supreme Court upheld State Farm’s decision to deny uninsured motorist benefits to a hit-and-run victim who was rendered comatose. Why were benefits denied? Because the insured did not comply with the strict terms of the policy and did not provide timely notice.

So it looks like Michigan consumers are on their own. As informed consumers, we should reach out to our friends and family members, and tell about auto insurance step-downs provisions, and ask them if that’s a risk they are willing to take.

If you have any questions about your Michigan auto insurance policy, especially as it relates to family “step-down” provisions, contact our Michigan auto accident lawyers today for a free initial consultation.


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