What happens if an excluded driver on my car policy has an auto accident and my insurance has denied the claim?

Since your insurer denied the claim, you are personally liable and responsible for repairs to the other car and any personal injury claims of the occupants of the other vehicle.

If you give your car to someone who is specifically listed as an excluded driver on your auto policy, and she or he is involved in a car accident, your insurer does not have to pay costs related to that accident. That’s what “excluded” means, after all: that person is excluded from being covered on your insurance.

Remember, an insurance policy is a contract. As with any contract, the obligations of each party (e.g. your insurer) are those stated in the contract—no more and no less. If the contract by its terms specifically disclaims or denies certain obligations, then there is no need to do those things—so if the policy states that the insurer does not need to pay for accidents involving a certain person, because they are excluded, the insurer does not need to pay.

This news will not make you happy. Not only is the named excluded driver not covered, you are not covered since the policy is in your name. You are liable to the extent the excluded driver was liable, since a car’s owner is responsible for the actions (and accidents) of those whom he/she allows to drive his/her car. Therefore, you may have to pay out of your own pocket for the property damage (cost of repairs to the other car) as well as any bodily injuries suffered by the occupants of the other vehicle. Assuming you do not voluntarily pay these amounts (or settle the case for some mutually agreeable amount), you can be taken to court and sued for the other party’s (e.g. the other driver’s) losses, injuries, damage, or costs, since you are the registered owner of the at-fault vehicle.

When you buy car insurance, you have the option to add a named driver exclusion as an endorsement attached to the policy. It will specifically state that a named household member who uses your insured vehicle will not have insurance coverage while driving the car. (Such an exclusion applies generally in situations where the individual has less than a stellar driving record, is irresponsible, drives on a suspended license, has a plethora of speeding tickets, has a DUI or drug conviction, or has health conditions that impair driving. From the insurance side of the street, underwriters view these drivers as adding additional risks, and hence capable of creating serious losses.) Excluding a driver can save you money by reducing your premium, but as the old saying goes, “there ain’t no free lunch”—you “pay” for your savings by accepting the risk that if the excluded driver has an accident in your vehicle, you will personally have to pay for it.

(The named driver exclusion is not the same as “permissive use.” If offered by your insurance company, permissive use provides coverage for those times you temporarily lend your car to someone who is not listed on your auto policy and he or she cause an accident. Permissive use coverage does not apply, however, if the driver has been explicitly excluded from your auto policy.)  

To repeat, if the driver who is specifically listed by name as excluded on your existing auto policy takes the car out for a spin, with or without your permission, there is no coverage whatsoever should an accident happen. Moreover, you as the policyholder are not covered and can be held personally responsible for any damages caused to others in the accident. This can be catastrophic financially, should the injury result in death or long-term disability.