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Is There a Way Around Step-Down Clauses in Auto-Insurance Policies?

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Every day, insurance companies seem to find new and devastating ways to pay the minimum amount on accident claims or avoid paying them at all. One troublesome trend that has been working its way through the industry is the inclusion of step-down clauses in the fine print of auto-insurance policies. Here's what a step-down clause is, how it can hurt your accident case, and top options for getting around this provision.

Stepping Down Your Compensation Limit

A step-down clause is a provision in your policy that essentially lets the insurance provider limit the amount of coverage certain parties can receive to the minimum state-mandated level, regardless of what your policy limits actually are.

For example, you get into an accident where your spouse—who's a passenger—is injured in the crash. Even though you have $100,000 in liability coverage, the step-down clause in the policy limits your spouse to collecting a max of $20,000, which is the minimum amount of coverage the laws in your state requires.

Insurance companies include this clause to save money, and it is often applied to anyone who is not the primary driver. This means passengers in the vehicle and other family members who drive the car may be subjected to the step-down clause. Only the amount stated would be paid by the insurance company, and any damages or losses you suffer above and beyond that limit would come out of your own pocket.

Defeating a Step-Down Clause

Getting around a step-down clause is difficult because it's part of your policy. By signing the coverage contract, you agreed to be bound by the terms, even if you didn't actually read the small print or like what you read.

However, people have managed to defeat the step-down clauses in their contracts. In Ruzak vs. USAA Insurance Agency, this was due to the plaintiff having a sympathetic judge. The plaintiff in the case ran into a tree. His wife, who was a passenger, suffered injuries as a result.

When she filed a claim for damages against the insurance policy, the company told her the step-down clause limited her to collecting a maximum of $20,000 (the minimum liability required by Michigan) even though the policy allowed for $300,000 worth of liability coverage. The judge in the case determined the step-down clause was unconscionable and threw it out, letting the woman collect what she was owed.

Unfortunately, not all judges are so accommodating. As noted previously, your insurance policy is a contract, and courts are likely to uphold the provisions it contains as long as the contract itself meets the minimum legal requirements.

Therefore, another possible way of eliminating a step-down clause is to challenge the legality of the clause or the entire contract. For instance, in Missouri, companies can put this type of provision in their policies as long as doing so doesn't create any type of ambiguity. If the clause is not clearly stated or is hidden in a part of the contract no reasonable person would be expected to read (e.g., the page of definitions), then the judge may toss the provision out and award you the amount of money you're owed.

Step-down clauses can severely limit your ability to collect compensation for an accident or ensure an injured party is fully paid for his or her damages and losses. If you find your insurance policy has this clause hidden amongst the legalese, it's critical you consult an attorney as soon as possible. An auto-accident lawyer may be able to come up with a strategy that helps you defeat the clause and force the insurance company to settle the case in good faith.

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