The South Carolina Supreme Court recently considered an automobile policy stepdown clause in relationship to criminal misconduct. In Nationwide Mutual Fire Insurance Co. v. Walls, 433 S.C. 206, 858 S.E.2d 150 (S.C. 2021) an automobile accident occurred as a result of a high speed chase between the driver of the insured vehicle and law enforcement. At the time of the crash, the vehicle was occupied by three passengers. One of the passengers owned the vehicle that was involved in the crash. The driver of the vehicle had refused to pull over at the command of law enforcement. The vehicle passengers told the driver to stop the car, but the driver refused. A high speed chase with law enforcement then ensued. At the time of the collision, Nationwide insured the vehicle with limits of $100,000 per person/$300,000 per occurrence. The policy had a stepdown clause stating that the policy did not provide coverage above South Carolina’s Financial Responsibility Law minimum limits whenever bodily injury or property damage occurred when a driver of the insured vehicle was committing a felony with the vehicle or while the driver was fleeing from law enforcement. The stepdown provision reduced the coverage available under the Nationwide policy to $50,000 in the aggregate, which represented South Carolina’s minimum Financial Responsibility Law limits. Nationwide paid its $50,000 and then filed a declaratory judgment action, asserting that Nationwide did not owe more than the $50,000 aggregate limit.
The trial court in Walls ruled that the driver of the vehicle was a non-permissive user at the time of the high-speed chase, and that Nationwide’s stepdown clause was unconscionable and void as against public policy. As such the trial court reinstated the full non-stepdown limits of the policy. After the trial court’s ruling, the South Carolina Supreme Court decided Williams v. GEICO, 409 S.C. 586, 762 S.E.2d 705 (S.C. 2014). The trial court then altered its prior order finding, on the one hand, that the driver of the vehicle was committing a felony and fleeing from police at the time of the accident while also finding, on the other hand, that the Williams decision prohibited stepdown provisions in those situations where the policy’s declarations page purported to provide a higher amount of coverage to specific classes of insureds. The South Carolina Court of Appeals reversed, upholding Nationwide’s stepdown provision.
The South Carolina Supreme Court reversed the appellate court decision, upholding the stepdown clause. The Court found that the mandatory coverage provisions of South Carolina’s Financial Responsibility Law (South Carolina Code, §38-77-142(C)) prohibited insurers from reducing the coverage required by the law once the policy was issued. Like the Supreme Court’s decision in Williams, which involved a family stepdown provision, the Supreme Court reasoned that Natiowide’s stepdown clause was void for similar reasons. Of note to the majority ruling was that South Carolina’s legislature had not amended the mandatory financial responsibility law after the Court had decided Williams. Two justices dissented, however. The dissenting justices would have permitted the stepdown provision when the driver is committing a felony or while fleeing law enforcement.