Normally a passenger that was injured while a driver excluded from the auto insurance policy of the vehicle that was being operated would not be covered under the car owner's insurance. When a person is excluded from an auto insurance policy it means that if that individual drives the vehicle(s) which they are excluded from and are in an accident that there is not insurance coverage in place for the damages or injuries they cause.
Insurance does not extend coverage when an excluded driver operates the vehicle thus if they damage someone else's car or injures someone in another car, or in their own vehicle, the car owner's policy is not in effect for them and would not accept claims.
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.
State laws do differ and sometimes cases end up going to court where the court will decide if the exclusion form precludes coverage or not in certain situations. In general though if you are an excluded driver and cause an accident which injures your passenger they cannot make a claim against the car owner's Bodily Injury Liability, Medical Payment or Personal Injury Protection (PIP) coverages since there are not coverages in place when the excluded driver operates the vehicle, they are basically driving uninsured.