During the 1981 Session, the General Assembly adopted House Joint Resolution No. 322, which requested the Bureau of Insurance of the State Corporation Commission to study a proposal permitting the exclusion of coverage for certain named drivers under motor vehicle insurance policies approved for use in Virginia.

The Resolution stated in part that (1) there are many occasions under current Virginia law when a higher insurance premium is charged solely due to the poor driving record or other characteristics of another driver in the household; (2) several states do not prohibit insurance companies from excluding coverage under the policy for a particular named driver; and (3) it appears that many insured Virginians would benefit by being able to obtain lower priced motor vehicle insurance policies if Virginia law were amended to permit the exclusion of coverage for a driver named on an exclusion endorsement.

The Bureau began its study by conducting a survey soliciting information and opinions on the use of named driver exclusions from the fifty insurance companies writing the most motor vehicle liability insurance in Virginia, from national and state trade associations of insurance companies and agents, and from other interested parties. The report analyzes the responses to this survey. Of those responding, two-thirds favored the use of named driver exclusions and one-third opposed their use.

The report contains a synopsis of current Virginia law pertaining to named driver exclusions. Such exclusions are presently prohibited by virtue of mandatory omnibus coverage provisions in both the Virginia Insurance Code and the Motor Vehicle Safety Responsibility Act.

The positions of the other states on named driver exclusions are then analyzed in the report. Thirty-six states presently permit named driver exclusions. Fifteen states do not permit the exclusions.

The report continues with a survey of court cases from selected states on named driver exclusions. The general trend of the cases is that such exclusions will be upheld where agreed to by the insured and expressed in a clear and unambiguous written endorsement attached to the policy.

After listing and discussing the advantages and disadvantages of permitting the exclusion of named drivers, the report considers a wide range of options, including continued prohibition of named driver exclusions, authorization of named driver exclusions subject to a variety of restrictions, and authorization of named driver exclusions without restriction.

As a result of this study, the Bureau recognizes that there are well-founded arguments on both sides of the named driver exclusion issue. Therefore, the Bureau does not find compelling justification on either side which overrides the concerns raised on the opposing side.

The question whether to permit use of named driver exclusions involves a trade-off between competing goals of maximizing the percentage of financially responsible motorists in Virginia and providing increased availability of coverage in the voluntary market at a lower premium. To permit use of named driver exclusions would provide greater availability of coverage in the voluntary market, yet would probably result in an increase in the number of motorists without insurance to pay for losses resulting from an automobile accident.

Virginia has a very effective and workable system for dealing with the problem of uninsured motorists. The system strongly encourages but does not require motorists to purchase insurance. This system strikes a reasonable balance between governmental intrusiveness into individual affairs, protection of innocent victims of automobile accidents and cost to policyholders.

The system permits people who do not purchase insurance to pay an annual $200 uninsured motorist fee. This fee helps hold down the cost of uninsured motorist coverage. Also, by mandating availability of higher limits of uninsured motorist coverage and of underinsured motorist coverage, the system affords a person the opportunity to protect himself from the uninsured motorist, rather than having to rely on governmental enforcement.

The Bureau is concerned that widespread use of named driver exclusions would place undue pressure on Virginia's system for dealing with the problem of uninsured motorists. Therefore, the General Assembly may well consider retaining the present prohibition against use of named driver exclusions.

However, the Bureau recognizes that there may be instances where the use of named driver exclusions would be appropriate. Also, over two-thirds of the states, as well as the preponderance of the insurance industry, favor the use of named driver exclusions. Should the General Assembly decide to follow the majority view by permitting use of named driver exclusions, the Bureau believes that the following conditions should be imposed on their use:

1) Named driver exclusions should not be permitted for policies issued under the Virginia Automobile Insurance Plan. It would be inappropriate to exclude drivers from coverage in the market of last resort.

2) Named driver exclusions should not be permitted for policies certified under the financial responsibility law. To allow otherwise would be to thwart the purpose of the financial responsibility law.

3) Named driver exclusions should not be permitted as to the individual named on the declaration sheet of the policy. Because coverage of others is derivative, an exclusion as to that person would amount to a cancellation of the policy.

4) Named driver exclusions should be permitted only on an individual named basis. The Bureau is concerned that otherwise named driver exclusions might be applied in such a way as to exclude all youthful drivers from coverage on a class basis.

Outside of these constraints, the Bureau feels that the insurer and the policyholder should have maximum flexibility and freedom of contract. The Bureau also feels that use of this exclusion should be optional rather than mandatory.

The Bureau is concerned that excluded drivers may be allowed to drive an automobile in contravention of the exclusion. The policyholder may not fully understand the implications of use of the vehicle by a named excluded driver. To assure the maximum possible safeguard in the use of named driver exclusion, the Bureau recommends certain disclosure requirements.

The exclusion should be implemented by a clear and unambiguous endorsement which should be attached to the policy and which should contain the signed consent of the policyholder and the excluded driver. Finally, the endorsement should contain a warning informing the policyholder of the consequences of allowing an excluded driver to operate the vehicle.

To fully accomplish the intent of named driver exclusions, the Bureau recommends that any proposed statute contain a provision excluding coverage for imputed negligence to the policyholder arising out of use of the insured vehicle by the excluded person. Also, the Bureau recommends that the insurance companies be required to maintain records showing the names of all excluded drivers and full particulars underlying the use of each exclusion. This information should be available at the request of the Bureau and would enable the Bureau to monitor use of the exclusion.