Recently, the South Carolina Supreme Court held that a “step-down” clause within an automobile liability policy was void. In Nationwide Mutual Fire Insurance Co. v. Walls, _____ S.E.2d _____, 2021 WL 908511 (S.C. 2021) the insured was in the process of committing a felony while fleeing from law enforcement. Nationwide’s automobile liability policy had a criminal act exclusion. Under the facts of the case, the insured allowed a permissive user to drive her vehicle. The permissive driver was speeding, reaching speeds in excess of 100 mph while being pursued by police. The permissive user continued to drive recklessly, then crashed into another vehicle. Nationwide acknowledged coverage under its automobile liability policy up to the statutorily prescribed limit amount of $50,000 per accident and took the position that the full policy liability limits of $300,000 were unavailable because of a criminal act exclusion which Nationwide believed applied to any injuries sustained in the commission of a felony or while fleeing from a law enforcement officer.
The trial court agreed that the permissive user committed a felony and was fleeing from law enforcement prior to the accident. The trial court held that the criminal act exclusion was unenforceable, even to amounts above South Carolina’s statutory limit requirement. The South Carolina Court of Appeals held that Nationwide had correctly offered the minimum liability limits required by the statute and that the exclusion was enforceable to liability coverage above the statutory minimum limit. However, the South Carolina Supreme Court reversed, finding the exclusion void and unenforceable.
In a 3–2 ruling, the South Carolina high court found that the “step-down” limits were unenforceable under a prior decision (Williams v. Geico, 762 S.E.2d 705 (S.C. 2014). The Court held that step-down clauses limiting coverage for injuries to “household” members was unconscionable. The majority of the South Carolina court found that the legislature had not amended the mandatory insurance provisions in response to the prior decision (Williams) and, therefore, the holding was de facto approved.
The dissent disagreed, arguing that the majority of the court was legislating from the bench. The dissent (two justices) would have found that Nationwide provided all the coverage required by the statute, i.e., the minimum per accident limit, and nothing in the statutory language required it to cover liability in excess of the statutory limit. The dissent would have found that the contracted parties were free to negotiate any terms they wished beyond the minimum limits prescribed by the UM/UIM statute.