A recent South Carolina Court of Appeals case analyzed when an insurer may deny coverage and if that denial is against public policy.
Nationwide v. Walls
In the case of Nationwide v. Walls, several folks were riding in a vehicle when the police initiated a traffic stop. The vehicle fled and subsequently crashed, killing one and severely injuring others. The normal policy limit was $300,000, however, the contract had a provision that stated that they would not pay out above minimum limit if the "act" involved fleeing from the police. Walls did not receive the $300,000 but rather the $50,000 minimum.
Section 38-77-142 is a straightforward area of law that requires auto policies to insure certain people at certain minimum amounts. It also includes a section that states: "(C) Any endorsement, provision, or rider attached to or included in any policy of insurance which purports or seeks to limit or reduce the coverage afforded by the provisions required by this section is void."
The supreme court held in Williams that a "step-down" provision in an auto policy violated 38-77-142(c). In that case, the normal coverage was $100,000, however, if the injured party was a family member, then the coverage was $15,000. The court held that this was indiscriminate and violated Section C because it went against common sense and thus violated public policy (Section C).
56-9-20 & Public Policy
Section 56-9-20 allows for auto policies to insure more than the minimum coverage.
And finally there is public policy in general, which follows more of an arbitrary and capricious standard.
The court of appeals in this case held that the "fleeing felon" provision in the auto policy did not violate any of the three areas of law stated above. This provision did not go against 38-77-142 because it was not distinguishing between different people but between different acts. The court reasoned that the denial of coverage is not based on the relationship to the insured, but rather on foreseeable and preventable acts.
The court also found that because 56-9-20 allows for additional coverage, it makes sense that the insurer can limit what it covers. The court used the same reasoning from 38-77-142 for its public policy argument - exclusions like these can help prevent undesirable behavior while at the same time protect innocent victims.