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How a Drop Down Provision Could Affect Your Insurance Coverage After a Crash

signing name to insurance paperworkYou are probably not surprised to learn car insurance companies like to insert a variety of provisions or clauses into their insurance contracts to try to protect their interests.

A common example of this is a drop down provision, which is also known as a household exclusion or step down provision. If a family member or someone else who lives in your house files a claim for uninsured or underinsured motorist coverage, a drop down provision may lower coverage to the state minimums, even if you bought more coverage.

Unfortunately, these types of clauses may hold up in court when challenged. That is why it is so important to review insurance policies carefully before signing up for coverage.

How Drop Down Provisions Work

The terms of drop down provisions may vary. These clauses could apply to liability coverage and underinsured/uninsured motorist claims.

Drop Down Provisions for Liability Coverage

This is coverage for crashes caused by the policyholder. Victims of these crashes can file claims to try to obtain compensation from this coverage.

If someone buys a policy with a drop down provision and causes a crash, but the victim is related to and lives with the policyholder, he or she may only be able to recover compensation up to the minimum limits required by state law. The drop down provision may say family members or people living in the policyholder’s household are excluded from the full liability coverage in the policy.

This could be a significant reduction in coverage, as many people buy more than the minimum required coverage.

There was a case in Minnesota where $1 million in liability coverage was knocked down to the state minimum for a married couple that was killed in a 2006 car crash. The father of the driver had purchased $1 million in liability coverage, but when the wife’s survivors sued for wrongful death, the insurance company enforced the drop down provision.

Unfortunately, the Eighth Circuit Court of Appeals allowed this clause to be enforced, because the woman killed in the crash was classified as a household member. The policy said coverage does not apply to bodily injury to:

  • Anyone injured while operating your insured car
  • The policyholder or anyone related to you and living in their household
  • Anyone related to the operator and residing in the operator’s household

The minimum required liability coverage in Minnesota is just $30,000 per person and $60,000 per accident.

Drop Down Provisions for Uninsured/Underinsured Motorist Coverage

The minimum amounts for uninsured/underinsured motorist coverage are $25,000 per person and $50,000 per crash. These coverages may apply if you get injured in a crash with an uninsured driver or one who does not have enough coverage for your damages.

If your policy contains a drop down provision, and you get hit by an uninsured or underinsured driver, passengers in your car may only get the minimum coverage. For example, even if you purchased more coverage, it might not apply to your children if they were in the car with you when the crash happened.

This is an unwelcome surprise, as policyholders buy extra coverage just in case they need it. Once people buy extra coverage, there is much less concern about having enough if the unthinkable happens.

In a serious crash, the minimum coverage probably will not be enough to cover the damages suffered. Victims or their loved ones will need to pay for medical care and other damages out of their own pockets, unless they have other insurance coverage to turn to, such as an umbrella policy.

When crash victims are left trying to pay out of pocket, they may skip treatment, or go deep into debt to pay for it. Most people do not have the financial ability to pay for ongoing treatment for a serious injury. 

Unfortunately, Minnesota law does not require insurance agents to know everything about the policies they are selling. Our state also does not require drop down provisions to appear on an insurance policy declarations page. These clauses are often hidden in dense policy language that many policyholders do not sift through.

If you discover such a provision, contact your insurance company to have it removed or buy insurance from a different company. If the clause is there, the insurance company will use it. Their goal is to pay out the least possible amount on a claim. Even though you are the policyholder, the insurance company is committed to its interests.  

Contact TSR Injury Law for Legal Help After a Crash

Crash victims do not need to try to pursue compensation on their own. You have the right to hire an attorney for help. However, your choice of attorney is important. You need an experienced lawyer with a track record of success who is prepared to go to court to fight for full compensation.

At TSR Injury Law, our Bloomington-based car accident lawyers have secured $300 million on behalf of our clients, including victims of motor vehicle crashes. There are no upfront fees or legal obligations with our services. We have extensive knowledge of the law and a record of success battling insurance companies looking to underpay claims.

Experienced attorneys. Proven results. Call (612) TSR-TIME

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