La. Parents’ Liability Limit Clause Ended

As of Wednesday, an obscure provision that allowed dozens of Louisiana insurance companies to limit their liability in homeowners’ policies was outlawed according to a Wednesday report by The Baton Rouge Advocate.

The story said state insurance regulators estimated about 50 of the state’s 170 property and casualty insurance firms included the little-known “vicarious parental liability” clause, which capped homeowners’ benefits to between $3,000 and $10,000 from the acts of their minor children, regardless of where the damage occurred. If a child injured another person in a fight, for example, the clause would have limited the parents’ benefits.

“This is not good public policy,” state Insurance Commissioner Jim Brown told the newspaper. Brown’s office was alerted to the situation late last year by Independent Insurance Agents of Louisiana according to the article. “We had a couple of agents who had customers with vicarious parental claims and, ‘Oops!’ there’s no coverage. The agents asked if I knew about it, and I didn’t. I looked it up, and there it was,” IIAL Executive Vice President Jeff Albright was quoted as saying. “We immediately went to the department and said this is not a reasonable provision. The greatest personal liability is probably something kids might do. This was potentially huge liability.”

The state’s Department of Insurance ordered in November that all insurance companies submit copies of policies. The department found about 50 companies were including the parental liability cap. Brown told the Advocate he was surprised to learn that industry compliance personnel, insurance agents and his own regulatory staff were unaware any insurance companies were using the language.

In March, the department held a public hearing on the issue. Some industry representatives urged regulators to keep the provision, claiming that ending it might lead to rate increases and that competitiveness would be damaged. But Brown told the Advocate regulators rejected those arguments.

“The fact that the three major writers of homeowners’ insurance in Louisiana do not have this limitation in their policies implies otherwise,” Brown told the paper. DOI required the companies to submit updated plans by today. “We’re going to take strong action against anyone who tries to use this,” Brown said.

Albright said his cursory research of the vicarious liability clause indicates the provision is probably a holdover from antiquated legislation, although no one seemed certain of its origins in Louisiana. Decades ago, he said, tort liability was quite different from what it has become.

“People didn’t sue as frequently as they do today,” he said. “At some point, somebody argued that kids are not liable for damage, but parents are because they should’ve been watching, and vicarious liability was created.”

Albright said his research indicated a rush among state legislatures early in the 20th century to pass laws limiting vicarious liability, usually to about $10,000. Over the years, the statutes were often updated and vicarious liability tort was replaced, yet the language remained in many policies. “You have to understand insurance professionals work with lots of pages with lots of legal words and somehow, this just got by each other,” he said.

Topics Louisiana