It is common for many New Jersey insurance holders to have only a basic understanding of their insurance policies, the benefits, and special or exclusionary provisions.
One little known and understood provision is what is called a step-down provision. This provision can have a potentially negative impact on car accident claims submitted by family members with different car insurance policies who are residents of the same household.
In New Jersey, motor vehicle drivers are required to purchase uninsured motorist coverage with minimum coverage thresholds of $15,000 per person and $20,000 per accident. Additionally, the insurer must offer for purchase uninsured/underinsured motorist coverage with split limits of $250/500,000 or a single limit of $500,000.
A typical car insurance policy will contain language that states UM/UIM coverage is available to three classifications of persons:
The named insured and spouse,
Resident family members without their own, personal policies,
Occupants in the insured vehicle.
How a Step-Down Provision Can Limit a Claim
A step-down provision is intended to limit a claimant’s share of a car accident award from the uninsured and underinsured motorist benefits section of the auto insurance policy of an insured party (such as vehicle occupants and resident family members) who is not a named insured party. These clauses stipulate that if the step-down claimant is not the named insured on the policy, the amount of UM/UIM coverage available to the claimant cannot exceed the policy limit on their personal or family policy.
Recent New Jersey Case Highlights How the Step-Down Provision is used by Insurance Carriers
A recent case in New Jersey involving an adult daughter with her own auto insurance policy, who was denied additional coverage under her father’s policy even though they live in the same household, is an example of how the step-down clause can be used to limit car accident claims in New Jersey.
In the case of the young woman who was involved in a car accident, she first settled with the other driver under her personal dollar policy where she was named as the primary insured, which had a $100,000 limit on underinsured motorist coverage. She then made a claim under her father’s policy which had a $500,000 underinsured motorist coverage limit. Her second claim was subsequently denied by the insurance company by invoking the step-down clause which was contained within the father’s policy.
Insured but Not Covered if Not Named Insured
Essentially, the father’s policy contained a step-down provision that excluded anyone who was not a “named insured” on the policy. The language of the provision was written in such a way as to exclude anyone who was covered under the policy if they were not a “named insured” on the policy. While our state statutes require insurance carriers to offer policies with UM/UIM coverage with various limits, up to a single limit of $500,000, they do not authorize the insurance carriers to create different classes of coverage that differentiate between named insureds and insureds.
