— By Joanne M. Tucker
A New Jersey Superior Court, Appellate Division, held in the case Swarnlata Khandelwal vs. Zurich Insurance Co. that an intra-familial exclusion rule included in Budget Rent-A-Car of North Brunswick’s supplemental liability insurance (SLI) policy was void since the exclusion did not meet New Jersey public policy for automobile insurance. Intra-familial exclusion means that the insured’s family would not be covered for injury claims resulting from the insured’s use of that vehicle.
While the court recognized that there have been other cases in which intra-familial exclusion rules in insurance policies were upheld, the case opinion stated that New Jersey courts and Legislature have continuously agreed that intra-familial exclusions are not permitted in regards to automobile insurance.
The opinion, which was published in late May and can be viewed in full here, reversed a trial court’s ruling in 2011 that was in favor of the car rental company and its insurance provider Zurich.
Complying with State Insurance Requirements
“The advice I give to all clients is that you need to look carefully at how you’re describing the products you’re selling and to make sure that your descriptions match state law,” said Wesley Hurst, a Los Angeles attorney experienced in rental car company litigation and representation, after reviewing the case.
Hurst added that while SLI policies have added value, where the claimant is a third-party such as a pedestrian or a driver of another vehicle, the product still must meet automobile insurance requirements outlined by state law.
And in the case of Swarnlata Khandelwal vs. Zurich Insurance Co., even though the SLI policy was in excess to the rental car company’s legally required basic insurance coverage — which is secondary in the state — the same rule applies. As well, the SLI policy said that while basic insurance is secondary, if SLI is purchased, then both the SLI policy and the basic insurance coverage become primary.
The court opinion stated that as a result, the driver, Lalitkumar Khandewal, who is married to Swarnlata and has two children, “is entitled to coverage under the basic insurance coverage that came with the rental agreement.” In regards to his family, the court said that they are covered by the SLI policy, in which the provisions are “automatically amended to comply with New Jersey law.”
Furthermore, Budget’s insurance policy brochure also stated that the policy “automatically conforms to the provisions and/or requirements of any state law.”
Lalitkumar Khandewal, who was accompanied by Swarnlata and their two children, rented a vehicle from Budget Rent-A-Car of North Brunswick in 2007. Lalitkumar was concerned about traveling with his family, and according to him, was encouraged by the Budget employee to purchase SLI.
While Lalitkumar claimed that the employee misled him to believe SLI included familial coverage, the appeals court did not address this issue due to lack of material evidence, since Lalitkumar admitted that the employee never directly said the SLI policy included claims for familial injuries nor did he ask the employee if this coverage was included.
Lalitkumar also stated that the coverage exclusions were not explained to him when the policy was offered, which after the court examined the employee “highlights” script, it found no mention of the intra-familial exclusion, though it was outlined in the policy paperwork given to Lalitkumar.
The accident occurred while Lalitkumar was driving the rental vehicle in New York State.