A California Court of Appeals addressed the issue of whether a nonrelative resident exclusion provision in an insurance policy should be upheld or struck as contrary to public policy. In the case, the driver and his college roommate, a passenger in the vehicle, were involved in a motor vehicle collision. The roommate brought a personal injury claim against the driver and the other motorist as a result of the injuries he sustained in the accident. The driver’s insurance company filed a complaint for declaratory relief, alleging that the roommate was defined as an “insured” under the policy and did not have a duty to indemnify the driver for the amount awarded to the roommate. The superior court found in favor of the insurer, and the parties appealed.
After reviewing the entirety of the record, the Court of Appeal reversed, concluding that the insurance policy provision excluding the roommate from coverage was an overbroad expansion of a statutorily permitted exclusion for relative residents, and it was also contrary to public policy.
California law allows insurers to exclude claims for bodily injuries brought by an insured, with one of its goals to prevent fraud against insurance companies. In the case, the driver’s insurance policy defined insured to include residents who inhabit the same dwelling as the named insured. The policy thus excluded the driver’s roommate from coverage. In analyzing the law with respect to the insurance policy at issue, the Court of Appeal interpreted the relevant California statutory provisions together, holding that while they do provide authority for an insurer to exclude an insured, that person must have an insurable interest to be excluded.