What are Vehicle Liability Insurance Company Step-Downs?

Some insurance companies try to limit the amount they must pay when a vehicle accident happens. One way to limit insurance coverage when a driver causes an accident is through a “step-down” clause or provision. Generally, car owners in North Dakota must have specific minimum insurance requirements for bodily injury to one or victims and damage to another vehicle. Many liability insurance buyers purchase more than the minimum coverage because the damages for a broken bone (let alone a catastrophic injury) can be much higher than the state minimum coverage.

What is step-down coverage?

There are two basic ways in which a step-down policy can limit coverage:

An unnamed driver causes an accident

A step-down provision provides that if someone whose name is not on the insurance policy causes an accident (when that person has permission from the owner to use the car), the liability is reduced (stepped-down) to the state insurance minimum coverage. In other words, the car owner must ensure that anyone who uses their car must be named on the insurance policy as a covered driver. Including a covered driver usually means the car owner must pay a higher insurance premium.

This type of step-down provision applies in several ways:

• If the driver causes an accident, the driver’s liability coverage covers accident victims—only up to the state minimum coverage. For example, if your bodily injury case is worth $100,000 and the driver who hit you only has step-down coverage, you will only receive the state minimum of $25,000—even if you would receive $100,000 if the car owner caused the accident.
• If another driver causes an accident, your car’s driver (the person who uses your car with your permission but is not named as a driver) can use your UM/UIM coverage – but only up to the state minimum coverage.

A family member causes an accident

Another way that step-down coverage applies is when family members are injured in a car accident when another family member drives. Normally, if you cause an accident, every family member can file a personal injury claim against you, and your insurance carrier must pay each person’s claim.

However, if your liability policy has a step-down provision, then your family members can only receive the North Dakota minimum insurance amounts even if they are severely injured.

Insurance companies argue that step-down clauses prevent fraudulent claims. Opponents of step-down clauses say there are other ways for insurance companies to deny fraudulent claims (including criminal actions) and that the clauses are just a way to avoid protecting accident victims.

Many policyholders are unaware that their vehicle liability insurance policy has a step-down provision.

What is the state minimum vehicle liability coverage in North Dakota?

According to the North Dakota Insurance Department, car owners and drivers must have the following minimum coverage:

• Bodily injury liability. Bodily injury coverage pays a victim’s medical bills, lost income, pain and suffering, and scarring and disfigurement. The minimum coverage is $25,000 for one accident victim and $50,000 for multiple victims in one accident.
• Property damage liability. Property damage generally includes the cost of repairing or replacing the vehicle that the driver damages. The minimum coverage for property damage is $25,000 worth of property damage liability.
• Personal injury protection. Drivers in North Dakota must also have a minimum of $30,000 worth of personal injury protection (PIP) per person. PIP coverage generally pays for a victim’s medical bills and lost income (but not their pain and suffering) regardless of fault.
• Uninsured/underinsured (UM/UIM) coverage. A driver and other qualified people, such as household family members, can use this coverage to pay for their personal injury damages if the liable driver does not have enough insurance coverage or any coverage to pay your damage claim. You can also use UM/UIM coverage if a hit-and-run driver causes an accident that causes your injuries.

How does step-down coverage work in North Dakota?

While an insurance policy with a step-down clause may be cheaper, you will end up paying more if a family member gets injured in an accident that occurs while you’re driving. Finding cheaper car insurance isn’t worth it if your policy includes a step-down clause.

Generally, step-down clauses are legal in North Dakota. According to The Pierce County Tribune, a recent attempt to pass legislation to make step-down clauses illegal passed in the North Dakota House of Representatives but was not able to garner enough votes to pass in the North Dakota Senate.

Representative Randy Schobinger, R-Minot, who proposed HB 1448, which would outlaw step-down provisions, said that step-down clauses could endanger families. For example, if a child uses the family car while the child is home from college (but isn’t named as a driver), the family could face huge bills if the child causes an accident. Representative Schobinger offered another example – an older neighbor gives a younger neighbor permission to use the car to run errands for the senior.  If the young neighbor causes an accident, the older neighbor’s insurance will only pay the state minimum.

Another example of where step-down clauses are problematic/unfair is when an employee uses a company vehicle but isn’t named on the employer’s policy.

Generally, the vehicle owner(s), such as parents, are liable for any accident their child causes. Much of the dispute about the legislation revolved around when and how often step-down insurance comes into play.

According to the Pierce County Tribune, only a few insurance companies in North Dakota offer step-down clauses in return for lower premiums.

At Larson Law Injury & Accident Lawyers, we recommend purchasing as much liability and PIP insurance as you can reasonably afford. Our Minot car accident lawyers also recommend that you avoid step-down insurance. We fight for all the compensation you deserve. If you are involved in any vehicle accident in Minot, Fargo, or Bismark, please call us or fill out our contact form to schedule a free consultation. We handle car accident claims on a contingency fee basis.