Most automobile insurance polices have traditionally excluded liability coverage for injuries caused to the insured and members of the insured's household. The family exclusion rarely mattered in Oregon before the legislature repealed the guest passenger statute for motor vehicle accidents in 1979 and the court abolished the inter family immunity in 1988. 1979 Or Laws Chap. 866 § 7 and Heino v. Harper, 306 Or 347, 759 P2d 253 (1988).

The family exclusion has been the source of much litigation in the last twenty years. The Supreme Court held that an automobile insurance policy could not completely exclude coverage for injury to the insured or the insureds family members. Dowdy v. Allstate Insurance Co., 68 Or Ap 709, 685 P2d 444 (1984). The Financial Responsibility Law (FRL) requires that an insurance policy provide minimum limits for all losses except those few casualties expressly excluded by statute. ORS 806.060 through 806.080. In Dowdy, the court held that where the policy completely excluded coverage to family members, the minimum limits of the FRL applied. All motor vehicle insurance policies issued in Oregon must meet the FRL requirements. Viking Ins. Co. v. Petersen, 308 Or 616,621, 784, P2d 437 (1989).

In Collins v. Farmers Ins. Co., 312 Or 337, 822 P2d 1146 (1991), a sharply divided court held by a four to three margin that the FRL limits apply, not the higher policy limits, even where the insurer had issued the policy knowing that the family exclusion expressly violated Oregon law. The court held that the family exclusion, buried in the fine print of the policy, governed even though the declarations page and the invoice paid by the insured provided higher limits.

Justice Units, writing in the dissent, noted that the majority sanctioned insurers to bait the public with a higher limit and then switch to a lower limit buried in the fine print. Justice Unis argued for a "functional" or "reasonable expectation" analysis because insurance policies "are largely contracts of adhesion, where the insurance company, in preparing a standardized printed form, has the superior bargaining position, and the insured has to accept such a policy in a 'take-it-or-leave-it' basis if the insured wants any form of insurance protection." Id. at 363.

The Oregon Supreme Court has accepted review in tow cases where the insureds have asked the court to adopt the reasonable expectations doctrine with respect to the interpretation of insurance policies articulated the Collins dissent. North Pacific Insurance Co. v. Hamilton, 153 Or AP 332, 957 P2d 165 (1998), rev. allowed, 327 Or 553, 971, P2d 409 (1998); Fleming v. United Services Automobile Association, 144 Or App 1, 925 P2d 140 (1996), rev. denied, 327 Or 305, 966 P2d 219 (1998), previous order denying petition for review dated June 16, 1998 vacated and rev. allowed, 327 Or 448, 964 P2d 1030 (1998).

North Pacific v. Hamilton, involves the family exclusion. The Supreme Court's denial of review in Fleming and its subsequent decision to allow review coupled with the grant of the petition for review in Hamilton suggests that the court is revisiting the debate aired in Collins. Time will tell.

"Reprinted by permission of the Oregon State Bar. This paper was originally published in 49 Practical Solutions to Real Problems in Insurance Cases (Oregon CLE 1999) Chapter II. Copies of this publication are available from the Oregon State Bar, 5200 SW Meadows Road, Lake Oswego, OR 97053. (530) 684-7413."