An Arkansas appeals court has ruled that insurers can lawfully deny coverage to unlicensed drivers under clear policy exclusions.
The decision, handed down on March 18, 2026, by the Arkansas Court of Appeals, marks the first time an Arkansas appellate court has directly addressed whether an unlicensed-driver exclusion in an auto liability policy violates the state's public policy. The court said it does not.
The case arose from a December 2022 car accident. Trexis Insurance had issued a personal auto policy to Arturo Martinez-Araujo, whose policy included a clause excluding liability coverage when a vehicle is operated by someone without a valid driver's license, unless that person was listed on the policy before the accident. Martinez-Araujo gave Julian Trejo permission to drive his car. Trejo did not have a license. He then got into an accident with Marco Soto-Abarca.
Soto-Abarca sued Trejo in the Washington County Circuit Court, and Trexis initially filed an answer on Trejo's behalf. But the insurer then sought a court declaration that it owed no duty to defend or cover Trejo, pointing to the unlicensed-driver exclusion. The trial court agreed, granting summary judgment to Trexis in September 2024.
On appeal, Soto-Abarca argued that Arkansas law requires auto policies to cover anyone driving with the policyholder's permission, and that denying coverage to a permissive but unlicensed driver defeats the purpose of mandatory insurance, which exists to protect accident victims. He pointed to several Louisiana court decisions supporting that view.
The appeals court was not persuaded. It noted that Louisiana has a specific statute declaring that the purpose of all liability policies is to protect all insureds, including permissive users. Arkansas has no equivalent law. The court also pointed to an Arkansas statute that explicitly states the state's compulsory insurance law is not intended to affect the validity of any exclusions, exceptions, or limitations in a motor vehicle insurance policy.
The court drew on a 2008 Arkansas Supreme Court decision, Southern Farm Bureau Casualty Insurance Co. v. Easter, which upheld an exclusion denying coverage to a driver fleeing arrest. In that case, the supreme court found that while compulsory insurance laws require minimum coverage amounts, they do not require every policy to cover every type of accident. The same reasoning applied here.
The appeals court acknowledged that omnibus clauses in auto policies serve a public interest by extending coverage to permissive drivers, helping to ensure accident victims are compensated. But it stressed that those clauses still operate within the terms and conditions of the policy. If the legislature has not specifically prohibited a particular exclusion, the courts will not strike it down on public policy grounds.
The Court of Appeals had attempted to certify the case to the Arkansas Supreme Court, but certification was denied in February 2026.
For insurers, the decision reinforces the enforceability of unlicensed-driver exclusions in auto policies, at least in states where the legislature has not expressly barred them. It also underscores the importance of drafting exclusionary language that is clear and unambiguous, a point the court treated as settled based on an earlier 2023 ruling involving the same Trexis policy language.
The case is a reminder that the scope of permissive-use coverage is not unlimited. Permission to drive, on its own, does not guarantee coverage if the policy contains a valid exclusion that applies to the driver's circumstances. And in Arkansas, the court made clear, the question of whether such exclusions should be banned is one for the legislature, not the judiciary.
