Auto Insurance Step-Down Clauses and How They Hurt Michigan Families

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Family In Car During Road Trip

Every motorist in Michigan is expected to carry auto insurance. Most believe that their policies will protect themselves and any family members who are injured in a wreck. But not so fast — if your auto insurance policy has a step-down clause, you may find that your family members have far less coverage than you think.

A step-down clause — also known as an “intra-family limitation clause” or “intrafamily exclusionary clause” — is tucked away in the language of some Michigan auto insurance policies. Essentially, these clauses prohibit family members from collecting the full amount of injury coverage if they are hurt in a wreck, instead reverting to the state bodily injury limit of $50,000. Meanwhile, anyone else injured in the car (who is not a family member) would have access to the full amount of insurance coverage that was actually purchased.

Do I Have a Step-Down Clause?

Most consumers are unaware of whether their car insurance policies have step-down clauses. At Christensen Law, we highly recommend that you find out.

Look for language like this:

“Part I – Bodily Injury and Property Damage Liability Exclusions: … excludes coverage for bodily injury or property damage to you or a resident relative. This exclusion applies only to damages in excess of the minimum limit mandated by the motor vehicle financial responsibility law of Michigan…”

Or it may look like this:

“Coverage under this Part I, … 12. bodily injury to you or a relative. This exclusion applies only to damages in excess of the minimum limit mandated by the motor vehicle financial responsibility law of Michigan.”

At last check, these insurers included step-down clauses in their policies:

  • AAA
  • Farm Bureau
  • Geico
  • Grange
  • Progressive
  • USAA

These companies did not:

  • Allstate
  • Auto-Owners/Home-Owners
  • Citizens
  • Liberty Mutual
  • State Farm

If you find that you do have a step-down clause in your policy, it’s highly recommended that you change insurers. Serious injuries in a car accident can easily exhaust the Michigan $50,000 minimum. That will leave your family member on the hook for any expenses that exceed those policy limits.

Real-World Example

Enough of the legal jargon. Let’s see the damage that a step-down clause can really cause.

You’re driving your son and his best friend to soccer practice. You have $250,000 coverage in your Ford Fusion and a step-down clause. Then the worst happens. You cause an accident, seriously injuring both children. Logic might lead you to believe that both victims will be able to make a claim up to the $250,000 limits in your policy.

Wrong. Because of the step-down clause, the most your son would be able to recover would be $50,000, the minimum amount under state law. By contrast, your son’s best friend (who is not a family member or “resident relative”) can file a claim up to the full $250,000 policy limits.

Hardly fair, right? But unfortunately, Michigan courts uphold that step-downs are binding.

Case in Point

Take the case of Ruzak v USAA Ins Agency, Inc. In 2004, Cindy Ruzak was severely injured when her husband Jim dozed off behind the wheel and struck a tree. He had $300,000 in liability insurance coverage from USAA. However, the step-down clause in his policy limited the amount of coverage to $20,000 for “family residing in the covered person’s household.” (Michigan’s insurance minimum was $20,000 at the time. It was raised to $50,000 in 2020.)

Although the trial court agreed that the Ruzaks were wronged by USAA’s policy, the Michigan State Court of Appeals ruled that there was no evidence that the provision was against the law. They lost at the Supreme Court level, too.

What’s the Point of Step-Down Clauses?

Insurance companies claim that step-down clauses can prevent fraudulent claims. But in reality, they’re unnecessary, as committing insurance fraud is a crime in Michigan. (See MCL 500.5411(1))

Other states already recognize that step-down clauses are unfair. In the Midwest, Illinois and Wisconsin prohibit the provisions. However, other neighboring states like Ohio and Indiana still allow them in their auto policies. Until the courts or the Michigan Insurance Commissioner decides otherwise, consumers have to be on the lookout for step-down clauses in their policies.

What You Can Do

Let’s be honest. We’ve all skimmed over the fine print in contracts from time to time. Don’t do it with your auto insurance policy. There’s too much at stake. You absolutely need to take the time to read it carefully, and if you don’t understand something, get clarification.

Here are some tips:

  • If you don’t know, ask. Talk to your insurance agent about the terms of your auto policy. You can also ask a lawyer to review the terms to look for hidden language that could trip up any future injury claims you or a loved one may need to file.
  • Spread the word. Tell friends and family members about the dangers of step-down clauses. If you handle the affairs for your elder family members, offer to look over their policy to make sure they understand the terms of their coverage.
  • Stuck with a step-down clause? Change insurers. You are far more likely to be injured in a car wreck with a family member as your passenger compared to a friend or non-relative. If your policy has a step-down clause, your loved ones are financially vulnerable if a wreck occurs.

Not sure if you’ve got the answers you need? A Detroit car accident lawyer from David Christensen Law can review your car insurance policy for you. Our law firm is committed to educating Michiganders about the auto insurance pitfalls that can limit their ability to recover compensation if they’re ever hurt in a wreck.

Call or contact us today for a free consultation.