State laws and insurance companies policy terms and definitions may differ however in general a named driver exclusion is an endorsement added to an insurance policy that states a specifically named driver that has access to your insured vehicle will NOT be covered by the insurance provider to drive the vehicle as long as the vehicle remains covered under the terms of your car insurance current policy.
So this endorsement would be added to an automobile policy and specifically exclude from all coverage losses involving a named individual. It is usually attached when the underwriter is aware of a problem driver who might be allowed to use an insured automobile (e.g., the child of the named insured) in the absence of this endorsement. A problem driver may be that the person has a suspended license, DUI conviction, etc.
Some insurers may request that the driver be excluded or the risk that they pose as a driver is enough to cancel your policy. Or the policyholder may not want their rates to be affected due to a household driver that has multiple convictions, a DUI, etc that would raise the premiums too high and thus choose to exclude the person from their auto insurance policy.
The wording of the exclusion can vary but here are some examples of how the document would be written: No insurance is provided by this policy while any automobile is being driven by or under the direct control of [named driver].
Another longer version is:In consideration of the premium charged for the policy to which this endorsement is attached, it is agreed that the [insurance company's name] shall not be liable for damages, losses or claims arising out of operation or use of your insured car, or any other automobile to which the terms of this policy are extended, either with or without expressed or implied permission of the named insured(s) by the driver(s) listed below as excluded.
Thus basically a named driver exclusion is an endorsement to an auto insurance policy which the policyholder signs acknowledging that the person(s) named on the exclusion form will not be afforded any insurance coverage if they operate the vehicle(s) listed on the policy. This does not take away liability from the excluded driver or car owner if the excluded driver does operate the vehicle.
If the excluded driver does operate the vehicle and gets into an accident, he or she as well as the car owner (who has vicarious liability for who they allow to drive their car) can be held personally responsible for and damages the driver causes. This means if the excluded driver causes minor or serious bodily injuries and/or property damage to others that the insurance on the car will not cover the accident and the expenses of the accident will be the responsibility of the driver AND car owner. This can be quite costly and so anyone that excludes a driver should not let that driver operate the car, even in an emergency since no insurance coverage will be extended to the situation at all.
So no, the car owner is not eliminated from being held liable from the actions of someone that is listed as excluded that drivers the car. State laws differ however if the excluded driver took the car without permission then the owner may be able to not be held personally responsible but that likely would be something that the courts would decide. Otherwise both the excluded driver and the car owner can be held responsible, the named driver exclusion is not a way for a car owner to get liability taken off of them for the acts of a driver.
Remember for a person to be excluded from auto insurance coverages they should be listed on the exclusion form. If a car owner lets a friend borrow a car then normally insurance coverages would extend to this friend since they are not listed as an excluded driver from the policy.