To Tell or Not To Tell an Insurer About a Young Driver
Question from a member: The age-old question… client adds a third car… child just got licensed…
- Are we obligated to add the child?
- If they refuse to add the child, are they covered?
- Do we have to notify the carrier if the client refuses to add the child?
- Is there an errors and omissions (E&O) liability exposure?
- Does our obligation vary by carrier?
Answer: I’ll answer the questions in order.
Obligated to add the child. Since the insurer is accepting the risk of loss, it should be informed of any factor that affects that risk. That would include the new presence in the household of a licensed driver.
If you are an appointed agent of the insurer, legally the insurer is presumed to know what you know. Your contract with that insurer may also require you to inform them of any exposure changes. Therefore, you should notify the insurer.
Once the insurer learns of the driving child’s existence, it’s not a question of adding or not adding them. The insurer is legally permitted to charge a premium for its exposure to loss. The New York State Department of Financial Services has written that an insurer is permitted to retroactively charge an additional premium earned as of the date the child became licensed.
Coverage. I have never seen a personal auto policy that did not provide liability coverage for both the named insured and a resident family member for the use of any auto. Physical damage coverage is for the benefit of the vehicle’s owner. The New York Personal Injury Protection Coverage endorsement and the New York and Connecticut Uninsured Motorist Coverage endorsements automatically cover resident family members of the named insured. Therefore, coverage for a newly licensed family member is automatic, regardless of whether the insurer is informed of that driver.
Obligated to tell about refusal. It’s hard to think of an easier way for an insured to get their insurer to non-renew the policy than to deliberately conceal the presence of a licensed driver in the household. I don’t know that you are obligated to tell the insurer of the insured’s refusal, but underwriters generally distrust insureds who are not truthful with them.
E&O. The E&O exposures might include legal action against the agent for withholding information about the exposure (imagine them having to pay policy limits for a loss involving a member of the household they didn’t know about). Another exposure might be the insured trying to hold the agent responsible for an additional premium billed retroactively for three years. That action might fail, but it would still incur defense costs and likely a deductible.
Obligations vary by carrier. Agency-insurer contracts may vary somewhat in terms of the specific language used. However, I expect that virtually all insurers expect their agents to inform them of all loss exposures that they insure.
I raised three sons. I know car insurance is expensive when teen drivers are in the household. However, the insurer is entitled to charge for its exposure to loss, and the insured always has the option to shop for a less expensive policy. They should tell the insurer about all household drivers.
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