410.4-2

ISO '05 ED. PERSONAL AUTO POLICY COVERAGE FORM ANALYSIS

(September, 2007)

Insurance Services Office's (ISO) latest edition (2005) of the PAP claims to continue the goals to provide a policy that is easier to understand and to express a clear coverage intent. For an overview of the differences between the ‘05 edition of the PAP and its predecessors, please refer to PF&M Section 410.3, Comparing The Latest Editions of the PAP.

The PAP comes in six sections:

Part A	Liability Coverage
Part B	Medical Payments Coverage
Part C	Uninsured Motorists Coverage
Part D	Coverage for Damage to Your Auto
Part E	Duties After An Accident or Loss
Part F	General Provisions

The basic structure of the PAP remains the same in the '05 edition. This analysis, where applicable, will comment on significant differences between the two latest editions of the form.

Definitions

This opening section continues to define the terms that are critical to understanding how the policy responds to eligible losses. The definitions section of the '05 edition of the PAP is different in a couple of areas when compared to the '98 edition. The following is a summary of the defined terms:

A. The policy uses the terms "you" and "your" in reference to the "named insured" shown in the declarations and the named insured's spouse (if the spouse lives in the same household).

Once a spouse is in a different address or location, he or she still qualifies under the definitions of “you” and “your” until either:

· they have been out of the household for 90 days

· the former spouse gets their own policy where they are the named insured, or

· the policy period ends.

Example: An insured and her spouse are insured under a PAP with a policy term of 5/2/07 to 5/2/08. On 7/5/07, the couple split up, with the husband leaving (the wife was the named insured). On 10/25/07, the husband buys a used Chevy Malibu and insures it in his name. The husband no longer qualifies under the definition of “you” or “your” when (choose one of the following options):

· he leaves the household on 7/5/07?

· he insures his car on 10/25/07?

· his wife’s policy’s renewal date of 5/2/08?

· he’s been out of the household for more than 90 days; in this case, 10/6/07?

The answer is the last option since that is the earliest event of the three options provided by the latest edition of the PAP.

Note: A spouse who becomes a named insured on his or her own auto policy is no longer an insured under their former resident spouse’s coverage. It is possible that this item creates some ambiguity.

Example: Kris and Tina Notugether split up nearly a month ago. While Kris was left numb, Tina immediately joined the household of her “new” best friend, Fred. Fred listed himself and Tina as co-owners on his second car (as a gift) and even listed her as its primary driver on his PAP. Two weeks later, Tina, while talking to Fred on a cell phone, caused a serious chain collision. Tina provided information to her victims stating that she was an insured under both Fred and Kris’s policy. Tina may have an argument on her hands since she was listed as an operator; but not a named insured, on Fred’s policy and she had been out of Kris’s household less than 90 days. Finally, Tina was operating a vehicle in which she has part-ownership.

B. The terms "our," "us" and "we" mean the company that issues and maintains the personal auto policy coverage.

C. The latest edition of the PAP considers any private passenger type of auto to be an owned vehicle if there is a written lease that covers a period of six months or longer.

D. "Bodily injury" refers to sickness, disease, or bodily harm. This definition even includes death if it is a direct result of sickness, disease or bodily harm.

Example: Klarence is insured under a PAP. Two months ago, while in a hurry to see his girlfriend, he ran a stoplight and crashed into an SUV, injuring several persons. Today Klarence gets a notice from the injured family's lawyer. The family is suing him for medical treatment, vehicle damage and other expenses. Klarence turns in the information to his insurer. The company's claims expert tells Klarence to send any additional paperwork on the loss to her immediately. Three weeks later, Klarence gets another notice. The father of the family died from infections to wounds suffered in the collision. The complaint has been amended for additional damages.

For more information on the necessary relationship between an accident and related injuries, please refer to PF&M section 410_C006, “Bodily Injury From Physical Attack After Auto Accident Not Covered” in Court Cases.

E. "Business" means any trade, profession or occupation. In other words, it is any regular activity that generates income.

Example: Jay Humerguy has been busy this past weekend. He’s spent Saturday and Sunday transporting older members of his church between their homes and the annual church festival. Jay collects a $10 fee for each trip. While driving one couple home, Jay hits the rear of a car of another church-member who was also leaving the festival. Jay’s adjuster from Grinch Mutual denies coverage for the loss because Jay was transporting people for money. The company changes its mind when they later discover that Jay had, before even making his first trip, arranged for all of the money to go to his church as a donation.

F. A "family member" is any person who is a relative by blood or by marriage. Any persons who are adopted, wards or foster children qualify as "family members," but only for as long as they reside in the same household as the named insured or spouse.

G. "Occupying"

'05 Change: In the '98 edition, this term referred to getting in, getting upon, getting out of, or getting off of a vehicle as well as being in, or on a vehicle. In the '05 edition, the definition was changed. It now considers a vehicle that someone is in, upon, getting in, getting on, getting out or getting off, as occupying a vehicle. It is likely that lawsuits will determine whether the definition is any clearer.

Example: While driving, Jenny’s car gets a flat tire. She parks her car and attempts to get her spare “temporary” tire out of the trunk. The spare is very difficult to unload and Jenny begins to tug on the tire with all of her strength. Suddenly, the tire comes free; Jenny falls backwards and lets go of the spare; the spare rolls onto the sidewalk and knocks down a toddler who’s walking with her mom. The child’s fall results in a couple of deep facial cuts and a broken arm. While this is a use of a vehicle, it doesn’t fall within the meaning of “occupying.”

Further, the PAP definition doesn't mention whether being under a vehicle is occupying it. It doesn't appear that the '05 Edition's tweaking of this definition answers a situation such as this, nor does it address the situation in the following scenario.

Example: Fred’s '05 Mazda’s engine light went on while he was driving to pick up his fiancee for dinner. Fred stops the car and gets out. He sees a pool forming under his car. He gets his tools from the trunk and crawls under the car. He sees where the oil filter has cracked and is leaking oil. Fred tries to stop the leak. After a few minutes at the futile effort, Fred yells a loud curse and flings a wrench. This happens just as a car is passing by the Mazda. The loud profanity and the clanging of the wrench near her car startles Samantha, who slams on her brakes, skids in the leaked oil and causes a collision.

For another illustration of the difficulty involved in defining this term, please refer to PF&M section 410_C032, Injured Party On Median Is Covered As Car's Occupant in Court Cases.

H. "Property damage" means the loss of use of, damage to or destruction of tangible property.

Note: Inclusion of loss of use in its “Property Damage” definition requires that the loss must be related to some physical contact.

Example: Natasha’s ’06 Jetta is with her dealer, awaiting repairs. A few days earlier, it was damaged during an ice storm when Natasha slid off the road and hit a utility pole. Natasha has rented a car from EZ-Ride Rental. She agrees to rent the car for a week and, at the end of the rental period, Natasha is able to pick up her own car. However, Natasha doesn’t return the rental until two days later. Natasha also drops off the rental after hours and she leaves the car’s radio on. When EZ Ride opens, an employee finds that the rental’s battery is dead and has to be replaced after repeated attempts to charge the battery fail. The car has to be towed to another branch of EZ-ride so the car is not available for rental for another full day. The rental agency sends Natasha a bill for four additional days’ rental and for the costs of labor and material getting the rental back into operation. Natasha turns the huge additional bill over to her insurer for payment. Her insurer tells her that the bill has no connection to her covered loss and it isn’t insured.

Of course eligible auto losses do need a direct connection to a covered vehicle’s use or operation. In any case, a lack of physical involvement makes coverage questionable.

Example: Jack and Gemma Drivesafe's household includes a 17-year-old driver. They are covered by a personal auto policy. One Saturday afternoon, Junior is cruising around town, looks up and notices that the stoplight is red and jams on his brakes. He stops in time, but the screeching brakes startle a woman carrying groceries. The woman drops her groceries. A heavy bottle in one of the bags shatters and cuts her ankle. She also breaks her foot as she falls to the sidewalk. While Junior should be held responsible for the loss of the woman’s groceries and injuries, the losses would not qualify for coverage under the PAP. (Of course, nothing would stop the injured pedestrian from suing Junior. However, the PAP would not be obligated to respond to the lawsuit.)

I. "Trailer" is any vehicle made to be pulled by a private passenger auto, pickup or van. The definition includes a farm wagon or farm implement while towed by a private-passenger auto, pickup or van. Note that farm implements and farm wagons qualify as trailers ONLY for the time that they are being towed by an eligible vehicle (which includes SUVs).

Examples:

· a child is hurt when he falls off a boat trailer that’s parked in an insured’s driveway - covered by PAP

· a child is hurt when he falls off a manure spreader that’s parked in an insured’s driveway - NOT covered.

· an insured is towing a small trailer that is loaded down with vacation luggage. The insured swerves back into his lane after attempting to pass a vehicle; the trailer swings out and hits a passing van - covered.

· an insured is towing a large grass mower attachment on a trailer. The insured swerves back into his lane after attempting to pass a vehicle; the trailer swings out and hits a passing van - covered.

· an insured is towing a large grass mower attachment on a trailer. The trailer is usually towed by the insured’s personal vehicle and the mower attachment is used for the insured’s very large yard. However, since his wife is using his pick up, the trailer was hitched to a small truck that is used in the insured’s landscaping service. The insured swerves back into his lane after attempting to pass a vehicle; the trailer swings out and hits a passing van – NOT covered since the towing vehicle is not a covered vehicle.

J. The definition of “your covered auto” refers to:

· Vehicles that are described in the PAP declarations

· Autos that an insured acquires after the beginning of the policy period (called "newly acquired autos")

· Trailers that are owned by any insured

· Trailers or other vehicles that, while not owned by an insured, are used as a substitute for a covered vehicle. However, the substitution has to be due to the other vehicle being serviced, repaired, lost or destroyed.

Following are situations that would qualify as covered vehicles under a PAP’s liability coverage.

Examples:

· a ‘03 Chrysler the insured borrowed from his neighbor while his car is having its brakes inspected

· the ‘06 Dodge Ram that is a “loaner” from the body shop which is removing rust spots and re-painting the insured’s custom van

· an ‘05 Taurus a dealer lends to the named insured’s spouse because her regular car is having its transmission replaced

· an ‘07 Hyundai which an insured rents after a severe oil leak stops his own car’s engine.

If the operator caused an accident during the above situations, this would qualify as a covered vehicle for injury or damage caused to other parties. It is important to note that the auto definition section on substitute vehicles (definition J.4) does not apply to “Coverage For Damage To Your Auto."

The exception for situations involving “Coverage For Damage To Your Auto” is very important. If an insured is using a car that he or she DOES NOT own and that car suffers a loss that normally is covered under either Collision or Other than Collision coverage, then that loss does not qualify for protection as a “covered auto.”

Example: Sara and Cindy are roommates who are transporting their belongings to a new apartment on the other side of town. Sara’s car suddenly breaks down on the freeway. She pulls it over to the breakdown lane and puts on her flashers. Cindy sees this and pulls up behind Sara. Since Sara knows the town better, Cindy says she’ll stay with Sara’s car while Sara drives Cindy’s car to a garage to get a tow truck. While turning into a towing service that’s just a few miles away from the freeway, Sara doesn’t apply the brakes hard enough and runs Cindy’s car into a cement barrier. The barrier is fine, but the front end of Cindy’s car is heavily damaged. This damage would NOT be covered by Sara’s policy.

In the above example, although Cindy’s car is a substitute for Sara’s car and would be covered if, while using Cindy’s car, she caused bodily injury or property to someone else or their property; there is no coverage for damage suffered by the vehicle she is using. Such coverage would have to be provided by Cindy’s policy. Note: This should be considered to be a fair application of coverage. If Cindy carries “Coverage For Damage To Your Auto” on her policy, the damage to her car is covered. If Cindy only carries liability coverage under her policy, the result is that she doesn’t acquire broader coverage if a person she allows to drive her car damages that car.

K. “Newly acquired auto”

1. This term applies to a private passenger auto pickup, or van that any insured obtains possession of during the policy period (but after the policy period's inception date). However, van and pickup eligibility is subject to a weight and a use restriction. Pickups and vans are ineligible as covered autos if they are used for business activities. The policy makes an exception for incidental business use (as part of a repair or maintenance business). It also allows covered auto status for such vehicles that are used on a farm or ranch business. The weight item was slightly changed. Though not specifically referenced, SUVs are treated as private passenger autos and are subject to the following weight restriction.

'05 Change: In order to be eligible, a pickup or van has to have a Gross Vehicle Weight of less than 10,000 lbs. In the '05 PAP program, the policy uses Gross Vehicle Weight Rating of less than 10,000 lbs. ISO states that the use of GVW rating rather than just GVW makes the term conform with what is used in the U.S. Government's vehicle classification manual. The change does not affect vehicle eligibility.

Example: Joe Karluver has a brand new PAP policy with a policy period of February 10, 2007 to August 10, 2007 and it covers an ‘04 Taurus. Given this information, which of the following qualifies as a “newly acquired auto”?

· An ‘04 Chrysler Joe buys on 03/16/07 - qualifies

· A ‘03 Chevy 2-ton truck Joe buys on 06/10/07 - doesn’t qualify

· An ‘05 Buick which Joe’s grandfather left to him in a will on 07/20/07 - qualifies

· An ‘98 Chevy pickup that Joe gets by trading a boat and trailer to his neighbor on 05/03/07 - qualifies

· An ‘98 Chevy pickup that Joe gets by trading a boat and trailer to his neighbor on 05/03/07 AND the pickup is hired out to a couple of businesses for making deliveries - doesn’t qualify

· A '07 Explorer that Joe buys on 02/02/07, but doesn’t list on his new policy - doesn’t qualify.

However, even if an additional car, pickup or van clears the vehicle type, vehicle use and date of acquisition hurdles, there are other requirements. Part K.2. covers the issue of when to report an additional vehicle to the insurance company. The timing of reporting the vehicle has a direct impact upon coverage.

Note: The required reporting period varies according to the type of coverage involved and whether the vehicle is a replacement.

2. Coverage for a “newly acquired auto” is provided along the basis discussed below. The policy states that, if the insured fails to report a newly acquired auto within the applicable time period requested by the policy, coverage will not begin until the date the late request is made.

a. the insured has to report a new auto no later than 14 days from its acquisition. For that period, the applicable coverage is equal to the broadest coverage existing for an auto that appears on the policy declarations. However, if the new vehicle replaces a vehicle that is listed on the policy, the replacement doe not have to be reported. The automatic coverage without reporting provision only works (applies) for replacement vehicles that only carry liability coverage.

Now this is an area that should be clarified by the policy wording. The implication is that a vehicle would have to be reported by the renewing term because, once the policy renews, the replacing vehicle loses its status as a newly acquired auto. However, since the policy states “If a ’newly acquired auto’ replaces a vehicle shown in the Declarations, coverage is provided for this vehicle without your having to ask us to insure it,” a case may be made that the insured has no obligation to EVER report the vehicle. While there are other portions of the policy which would support an implicit requirement that a vehicle should be reported, it would help matters if the policy specifically stated that such a vehicle would have to be reported at the policy’s renewal.

· a newly acquired ADDITIONAL car qualifies for coverage if it is reported to the insurer within 14 days of the date it is acquired. Within that timeframe, the vehicle is covered for the broadest level of coverage (i.e., highest insurance limits, etc.) that is written under the policy. If the vehicle is never reported, it is not eligible for any coverage after 14 days. If the vehicle is reported after 14 days, coverage applies on the date it is reported.

Example: Dill E. Dally’s PAP covers a ‘99 Mercury, has a policy period of April 15, 2007 to October 15, 2007, and it has the following coverages:

Bodily Injury	$100,000/$300,000
Property Damage	$100,000
Medical Payments	$10,000
Collision	n/a
Other Than Collision	n/a
Uninsured Motorist	$25,000/$50,000

Scenario A: On September 3, 2007, Dill buys a ‘04 Ford Ranger. On September 16, Dill collides with another car when he ignores a stop sign. He causes $22,000 in injuries to the other driver, $4,500 in damages to the other driver’s car and $6,700 in damages to his Ranger. Dill reports the accident to his insurance company on September 18 and that is the same day that the insurance company learns of the new car. Under these circumstances, the soonest that ANY coverage can apply to the Ford is on September 18. Even though the loss occurred within the first 14 days, the car was not reported in time.

Scenario B: On September 3, 2007, Dill buys an ‘04 Ford Ranger. On September 16, Dill collides with another car when he ignores a stop sign. He causes $22,000 in injuries to the other driver, $4,500 in damages to the other driver’s car and $6,700 in damages to his Ranger. Dill reports the accident to his insurance company on September 17 and that is the same day that the insurance company learns of the new car. Under these circumstances, the loss would be eligible for coverage, but only for the injury to the other driver and the damage to the other driver’s car. The damage to Dill’s car would not be covered since the current coverage under his policy does not include coverage for damage to his auto.

b. Collision Coverage is granted for a “newly acquired auto” on the date it becomes an owned auto. HOWEVER, the insured MUST report the auto:

(1) within 14 days of becoming the vehicle's owner when at least one auto on the existing policy lists a car with collision coverage.

(2) within four days after becoming the vehicle owner if no car on the existing policy has Collision Coverage. If you comply within the required timeframe and a loss occurs before the insured requests coverage (reports the auto), a Collision deductible of $500 will apply.

Example: Duhreece Smith’s PAP covers car 1, a ‘03 Volkswagen and car 2, an ‘06 Volvo, and has a policy period of June 5, 2007 to December 5, 2007; it has the following coverages:

Coverage	Car One	Car Two
Bodily Injury	$100,000/$300,000	$250,000/$500,000
Property Damage	$100,000	$250,000
Medical Payments	$10,000	$25,000
Collision	$500 Deductible	$500 Deductible
Other Than Collision	$1,000 Deductible	$1,000 Deductible
Uninsured Motorist	$25,000/$50,000	100,000/$300,000

Scenario A: On October 9, Duhreece’s grandfather gives her his ‘05 BMW. On October 20, she sells her VW (car one), but doesn’t report either action to Poorpay General Insurance Corp. On November 2nd, Duhreece slams against a brick wall while trying to get through an alley that led to a parking area for a jazz club. The brick wall was unscathed but the BMW suffered $1,900 in damages. Later that evening, when Duhreece reports the loss, she’s told that the damages are not covered.

Since the BMW REPLACED the VW, it would qualify for protection against bodily injury, PD, Uninsured Motorist and Medical Payments until the end of the current policy term and for the limits shown for car two. Notice that, even though it replaced car one, the policy entitles it to the broadest coverage appearing on the policy.

In order to qualify for Collision coverage, Duhreece should have reported the acquisition of the BMW by October 23. Even though the BMW eventually replaced the VW which did not have physical damage coverage, she’s entitled to this for 14 days because those coverages do appear for car two. If neither car one nor car two had Collision Coverage, Duhreece could only qualify for full protection if she had requested full coverage by October 13.

c. Other Than Collision Coverage for a “newly acquired auto” is available once the auto is owned by an insured, as long as that insured:

(1) reports the auto within 14 days of acquisition, but only if at least one existing car on the policy rated for Other Than Collision Coverage.

(2) reports the auto within four days of acquisition if no existing (listed) vehicle is rated for Other Than Collision Coverage. If a loss occurs to a car within the reporting timeframe (for instance on day three after acquisition) an Other Than Collision deductible of $500 will apply.

Let’s make use of the Duhreece situation again.

Example: Scenario B: Things are nearly the same as in scenario A. This time, though, the action occurs on October 21 (the day after she sells her VW) instead of on November 2. On that date, two of Duhreece’s friends lose control of a roll-top desk that they are moving into her home. The desk tumbles out of their flailing arms and smashes onto the hood and windshield of the BMW. The heavy desk causes $1,200 in damages. When she reports this loss, the Poorpay adjuster tells her that her loss is covered but, big deal, there’s a $1,000 deductible.

Example: Scenario C: Everything is the same as in Scenario B except Duhreece still has the ‘VW and the roll-top desk is dropped onto the BMW on October 12. When Duhreece reports the loss and the information on the car on October 13th, she’s told that the loss is covered. IRONICALLY, a $500 deductible applies since the loss occurred BEFORE the car was reported within the four day deadline.

The consumer-friendly mechanics of the deductible that applied in scenario C are probably an unintended result of the definition for a “newly acquired auto” which may be handled in future editions of the PAP (though no change appeared in the '05 edition). Of course, a subscribing company may also handle this situation by filing its own endorsement.

The PAP considers pickups and vans eligible vehicles as long as their gross vehicle weight is less than 10,000 pounds and they aren't used commercially. The PAP is intended to provide coverage for personal exposures. Where the language regarding pickups and vans excludes business use of such vehicles (since commercial policies are available), its approach is reasonable, since it makes exceptions for incidental business use and for farming or ranching. The exceptions recognize the fact that such use is still consistent with what an insurer would consider a personal loss exposure. Another qualifier for providing coverage to pickups or vans is that no other coverage applies. Both owned and non-owned "trailers" are defined as covered autos. Finally, if they're pulled by an eligible vehicle, farm wagons and implements are also defined as "trailers," which are eligible for coverage.

It is important to give special attention to situations involving pickups and vans, since their weight, existence of other coverage and use may disqualify them for protection under the PAP. In this case, the disqualification comes from the fact that more appropriate, commercial coverage should be sought in these instances. The premiums related to commercial auto insurance is justified because of larger, more expensive vehicles being used in a manner (commercially) that exposes them to a greater chance of loss (such as delivery trucks rushing through traffic to meet deadlines or that are driven more frequently – rather than primarily to and from work).

PART A - LIABILITY COVERAGE

INSURING AGREEMENT

The PAP covers both "bodily injury" and "property damage" for which a covered person is legally obligated to pay because of an auto accident. The agreement also obligates an insurer to defend a claim or lawsuit. However, once the policy's limit of liability has been exhausted, the insurer's obligation to continue paying to legally defend an insured ends.

Example: Phil Drivewrong is being sued for hitting a car at an intersection after running a red light. Phil’s insurer defends his suit and dutifully pays lawyer fees and court costs. Phil’s policy has a combined single liability limit of $100,000. The claimant is suing for $300,000 in damages and her claim is bolstered by a very credible group of expensive, expert witnesses. After a careful evaluation of the case, Phil’s insurer determines that it would take an equal number of expensive experts to refute the amount of damages being claimed. The insurer also believes that fighting expert with expert could not guarantee a victory. The insurer decides that, rather than pay astronomical defense costs, it would be in their best interest to pay out the full policy limits. The claimant accepts their payment, but continues the suit for the additional damages. The cost of continuing any defense is now Phil’s responsibility.

The fact that an insurer can decide to settle a claim when facing very high defense costs may not seem fair, but it is necessary. The PAP contains the potential of an unlimited defense obligation. The PAP has no specific monetary limit on the amount paid to defend a covered person. However, the policy does allow a company to have some control over their financial duty to protect a covered person in a given claim. Of course, a natural control against an insurer’s unlimited obligation to defend an insured is that a company does not have to provide a defense under ALL situations. An insurer doesn’t have to defend any "bodily injury" or "property damage" loss that isn't covered by the policy.

Example: Billie Roadmaster is quite an aggressive driver and he’s usually in a big hurry. One morning he lost his “patience.” He was late for work and was enraged at a driver who slowed him down by traveling the posted limit. When he got a chance, Billie sped by the “slow” driver, made a u-turn and then rammed his antagonist head-on. Billie’s mood wasn’t helped when, later, his insurer tells him that his PAP will not pay for any claim NOR defend him in court.

The PAP is designed to pay for accidents which Webster’s Encyclopedic Unabridged Dictionary defines as: 1. an undesirable or unfortunate happening, unintentionally caused and usually resulting in harm, injury, damage or loss. If an insurance policy protected an insured against ANY action, it would no longer be insurance...and it could not be provided as a viable product.

Under Part A - Liability Coverage, an insured includes:

1. You, any "family member,"

2. Any person using "your covered auto."

Example: Yannick Petrie’s ‘01 Toyota pickup is insured under a PAP. One day, his neighbor, Jeri, asks to use his truck to pick up some building materials for a wood deck. On the way back from Goodluk Builder’s Paradise, Jeri rear ends a car at a stoplight and the building material spills out of the pickup bed. The spilled materials not only damage the car in back of Jeri, they also fall onto the road, causing a chain collision. Since Jeri is a permissive operator of Yannick’s pickup, Yannick’s policy would cover the losses (up to its limit).

The PAP also considers other persons and organizations to be covered persons in certain circumstances.

3. Other persons or organizations are eligible for coverage against damages which they cause, but for which a named insured, a resident spouse or a "family member" is responsible because of their acts or omissions in providing the vehicle.

4. Other persons or organizations also are covered for their acts or omissions in providing a vehicle to a named insured, a resident spouse or a "family member" who causes damages with that vehicle (including a trailer).

Example: A member of your church asks you to drive some children to a church picnic using a van provided by another church member. On the way to the park (picnic site), the van hits an oil slick on the road, slams into a couple of parked cars, and one of the children suffers a broken leg. This policy provision allows the PAP to defend both you and the church as defendants in a claim involving the damages caused by a vehicle that is not owned or hired by either party.

Although this analysis does not attempt to discuss individual state differences, one important issue must be mentioned: no-fault insurance provisions. Many states have implemented different methods of handling compensation of persons injured in automobile accidents. Instead of compensation based on tort liability (where payment of damages is based upon fault of the driver[s]), many states have modified or replaced this approach. For a summary of these differences, please refer to PF&M Section 410.6-17, No-Fault Automobile Insurance Fundamentals.

Supplementary Payments

'05 Change: ISO made a minor change to this section. Rather than use the opening phrase "In addition to our limit of liability…" it states that the payments available under this section do not affect the policy's stated insurance limits. This change, largely semantic, results in removing the possibility of interpreting the wording to mean that supplemental payment is conditional on payment under another Coverage Part.

This section advises the insured of several, additional coverages that are available. One supplemental coverage will pay for the cost of bail bonds, but this coverage is limited to a total of $250. However, the bond has to be connected with an accident. A bond that is due solely to a traffic violation isn't covered.

The policy pays for the costs of premiums on appeal bonds and attachment bonds, but only those involved in a suit that the insurance company is defending.

The PAP pays for loss of earnings caused by hearings or trial attendance and other reasonable expenses caused by an insurance company's request.

Example: June Unlukki is asked to appear at a preliminary hearing involving her auto accident where she collided with a family in a van while trying to merge onto a crowded interstate. June gets permission to take an unpaid day off from work to attend and testify at the trial. The insurer says that they will pay for her loss of a day’s wages.

Concerning loss of pay, the PAP pays a maximum of $200 per day because of lost earnings; this supplemental coverage does not include loss of other sources of income. However, the loss of earnings limit used to be a fraction of the current coverage. In previous editions of the PAP, the maximum limit for loss of earnings was $50 per day. One thing remains the same: there is no other limitation regarding loss of earnings, so the limit could be paid for one or 100 occurrences of lost pay.

The PAP also pays for any interest on judgments that have been entered. However, any payment obligation ends if the policy's limit of insurance is reached.

Finally, under Supplementary Payments, the policy will pay any reasonable expenses that are due to activity requested of an insured by the insurer.

Example: Sammi Kollum’s insurer is defending a lawsuit filed against him for an intersection collision that occurred while Sammi was coming home from an out-of-state vacation. Sammi’s insurer has made arrangements for him to travel to a lawyer’s office in a neighboring state so that he can participate in a deposition. The insurance company assures Sammi that they will pay for all expenses including travel, meals, hotels, etc.

Exclusions

This coverage part's exclusions fall under categories A, having to do with "insureds," and B, which concerns vehicle ownership, maintenance and use.

Part A. Exclusions

There are a number of situations that fail to qualify for coverage under the PAP, such as the following:

1. The Personal Auto Policy doesn't provide liability protection to insureds who intentionally injure other persons or property. Because this point sometimes causes confusion, it's important to examine what is meant by intent.

Example: Jimmy is on the way home from a really horrible day at the office. As he merges into freeway traffic, another driver swerves from behind and beats him onto the road. Jimmy is so mad that, after he merges, he races up to the other car, meaning to ride his bumper. Unfortunately, Jimmy ends up hitting the other car. In this case, the intent lies with Jimmy's frame of mind. Yes, he intentionally sped up and overtook the vehicle, but what he meant to do was to get on the other driver's case, not to put the other driver's car into a body shop. Certainly one could argue that what happened was foreseeable, but in Jimmy's mind, it was still an accident.

If you think the fact that something is foreseeable should determine intent, how about the following?

Example: Pearl thinks that she is a world class driver and she is very proud of her expert ability to make it through intersections under “yellow” traffic lights. One day, Pearl is headed towards a very busy intersection where the light facing her has just turned yellow. Pearl knows that the street is slick because the area she’s traveling in just had a very brief downpour. Pearl ignores this fact as she picks up speed. She then decides that she just won’t be able to beat the red light. Pearl quickly hits her brakes and, as anyone should expect since the street is wet, the tires can’t grip anything. Pearl slides into the intersection and also into two other cars. The accident under these circumstances was quite foreseeable, but this is easily a covered loss under the PAP.

If you’re interested in a legal opinion concerning a driver’s intent during a loss, please refer to PF&M Section 410_C089, Unlicensed Driver "Borrows" Grandparents' Van, in Court Cases.

2. The PAP excludes coverage for property damage to property that any insured owns or transports.

Example: Pete is a drummer for the "Xploding Eardrums." He jumps into his van and speeds toward a bowling alley on the other side of town. He's late for a gig being held there. Not only does he have his drums, but he's also carrying the other band members' instruments. None of the instruments survive his abrupt meeting with a city bus. While the PAP will dutifully respond to paying damages to the bus and his car, he and the other “Eardrums” won’t be collecting payment for their implements of noise under the car policy.

3. Any property that an insured has rented, uses or is caring for is also without protection if damaged or destroyed. The good news is that an exception is made for an insured’s home or garage.

4. This exclusion negates bodily injury coverage to any person who is hurt while working for an insured. However, an exception is made for domestic employees who aren’t covered AND aren’t required to be covered by workers compensation.

5. If an insured is using a covered auto to make money by transporting either people or property, that insured has just made the vehicle ineligible, except if the situation is a typical car pool (where the insured gets gas and maintenance money from his riders).

Example: Timmy was glad when he got his driver’s license. He was one of the first drivers at Gearhead H.S. Unfortunately, he wasn’t thrilled that, instead of a new ‘kickbutt’ car, he inherited his mom’s ‘00 minivan. But things are looking up. At first he used to take a friend or two back and forth to school. Now, Timmy’s van is known as the “Gearhead Taxi Service” and he makes nearly $90 a week for transporting kids to school/home, dances and sporting events. Let’s hope that Timmy doesn’t get into an accident because this use of the van won’t be covered by the PAP.

The remainder of this section’s exclusions is (with the exception of number 8) significantly more complex. The purpose of exclusions 6 & 7 is to keep the PAP from responding to commercial auto exposures that should be written under a commercial auto policy.

6. No coverage is provided if the accident happens while selling, fixing, caring for, keeping or parking automobiles that are operated on public roads, including road testing or vehicle delivery. However, you don’t have to worry about this exclusion if the accident involves your covered car that’s being handled by “you” or any “family member,” partner, agent or employees of any of these insured parties. For details on a loss involving a business-related use of a private-passenger automobile, please refer to PF&M Section 410_C003, “Mechanic's Driving Of Customer's Car Held Excluded” in Court Cases.

7. This exclusion takes coverage away from any insured while involved in any “business” that is NOT described in exclusion 6, unless the business is ranching or farming. HOWEVER, the exclusion is voided if it involves a private-passenger auto, van or pickup that either is owned or is a temporary substitute for a covered auto that is inoperable because it is broken down, lost, destroyed, or being repaired or serviced. Further, any trailer used with an owned auto, van or pickup, or a temporary substitute, is covered.

Example: Chester owns a large farm outside of town. His pickup is in town having its brakes replaced. Chester needs to move a trailer loaded with bales of straw to the other end of his property, so his neighbor lets him use her pickup. While backing up onto a country road, the trailer gouges the side of a passing car. This loss is covered, since the “trailer” was attached to a temporary substitute for a covered vehicle. Further, the activity involved farming, which is permitted.

Example: Now suppose that, instead of farming, Chester repairs lawn equipment. His pickup is still unavailable because of the brakes. Chester borrows the same neighbor’s truck to deliver some mowers he fixed that are loaded on his trailer. Chester backs up the truck and the trailer hits the same passing car. Although the loss originated from use in Chester’s excluded business activity, this loss is covered, since the borrowed pickup is considered a temporary substitute for a covered auto.

Example: Okay, before Chester’s neighbor and the passing motorist get too upset, let’s say that Chester once again hits a passing car while using his neighbor’s pickup truck to deliver some mowers he fixed that are loaded on his trailer. However, the reason he borrowed the truck was because his own pickup was being used by his daughter to go to tennis practice. There is no coverage in this situation. The loss is excluded because Chester is involved in a business activity while using a non-owned car that the policy does not define as an eligible temporary substitute. If he had used his own pickup, it would have been covered, since the definition of “your covered auto” (refer to definition J) allows the incidental business use of an owned vehicle in the insured’s business.

Example: Chester....OOPS, his neighbor and the passing motorist were just arrested for beating him silly.

8. Don’t look for coverage under the PAP unless you’re operating a covered car in the belief that you have an insured’s permission. Note that the standard is subjective. This means that evaluation of a loss must include consideration of the operator’s point of view, at least regarding his or her thoughts on whether the car was operated with an insured’s permission.

Example: A friend of an insured borrows a car a second time during a weekend that the insured is away from home. The insured gave permission for the first use, but not the second. However, since the friend can’t get in touch with the insured and as it was okay to use the car before, she assumes that a second use is okay. If the friend has an at-fault accident while using the borrowed car, her belief that she had permission should support coverage being extended to cover the loss.

However, a significant change in circumstances can render a different evaluation.

Example: Again let’s use the situation of an insured’s friend who borrows a car twice during the time that the insured was away for a weekend. Again, the first time, the friend received permission for the first use, which was to go on a downtown shopping trip. All of this was with the insured’s knowledge and permission. The second use is without the insured’s knowledge or permission but, as it was in the original situation, the friend can’t get in touch with the insured and as it was okay to use the car before, she assumes that a second use is okay. However, in this scenario, rather than using the insured’s SUV for personal use, the friend uses it to make deliveries for persons who bought furniture from her Second Hand Shop. If the friend has an at-fault accident while using the borrowed car, her belief that she had permission might be challenged by an insurer. While the friend’s assumption that a second personal use might be okay, the assumption might not hold when the second use is for business. It is possible that coverage for this situation could be denied.

This exclusion does maintain its grip on reality. It DOES NOT apply to the use of a covered auto that is owned by an insured and being operated by a “family member.”

Example: Junior storms out of the house and uses his set of keys to the pickup immediately after his mom just said that he could not use the truck for a date - this is a covered situation.

Example: An insured borrows his neighbor’s dual axle pickup to help his mother-in-law move out of state. After he returns home from the move, the insured goes out in his own car to celebrate the fact that his mother-in-law is gone. While he is away, his son and a friend decide to go cruising in the borrowed truck - this is NOT a covered situation.

Example: A newly licensed daughter takes mom’s brand new car for a short drive even though she was threatened under “penalty of being grounded forever” never to touch it. A mile away from her home, the daughter causes an intersection collision - this is a covered situation.

9. Finally, under section A., no bodily injury or “property damage” is covered if separate coverage exists (or would exist except for exhausted limits) under a nuclear energy liability policy issued by three named sources or their successors.

Part B exclusions

1. If your vehicle doesn’t have at least four wheels and/or is principally designed for off-road use, it isn’t protected under the PAP. An exception is if such a vehicle is used by an insured in a medical emergency. Trailers are still covered.

Example: Jeri and her teen-aged twins are on their way to a weekend camping trip. She is towing a small trailer that has an all-terrain cycle (ATC) loaded on it. The trailer and ATC were lent to her by her ex-husband. A mile away from the campground, Jeri's car slips off the road and onto a soft shoulder. She loses controls and crashes. Her son is seriously hurt in the crash. Jeri tells her daughter to watch her brother while she goes for help. The car is inoperable, but Jeri is able to unload the ATC and drive it on the road into town. If Jeri is in another accident while using the ATC on the roadway, it would be covered.

By the way, if you’re not sure of the distinction between wheels and tires, please refer to PF&M Section 410.6-14, Glossary of Basic Automotive Terms.

2. A definite coverage problem exists for any car that’s not a “covered auto,” which an insured either owns or has available for her regular use. Why? Because such a vehicle should either be listed and rated on an insured’s policy, or coverage should exist under another party’s policy. If the PAP didn’t contain these exclusions, the country could play “six degrees of insurance protection” with only about 100 people being policyholders and the other 250 million people being related for coverage purposes.

3. Similar to exclusion 2., the PAP disqualifies any car that’s not a “covered auto” that a “family member” either owns or has available for their regular use, unless such a vehicle is being either maintained or occupied by a named insured (and/or resident spouse).

Exclusion B.4 explains that the PAP is not meant to cover racing exposures. This item bars coverage for vehicles that are within any area designed or used for racing when that vehicle is going to compete or practice for a speed competition.

The intent of this language is to exclude any loss exposure that may be related to an organized racing or speeding event. Excluding coverage for any loss occurring while a vehicle is within a facility built for racing while awaiting or preparing for a race appears to make the exclusion complete.

Example: Carl and Josie own a Saturn, which they’ve modified to perform at impressive speeds. One Saturday night, both are in their ’06 Saturn that’s parked in the pit area of a local race track. They’re waiting to participate in a promotional “Amateur Couples Valentine’s Day” race. While waiting, Carl’s foot slips off the brake and they ram into a pile of custom racing tires. Besides damaging a dozen tires, the couple also destroys some other equipment. Such a loss, while not technically involving a race, is still excluded because Carl and Josie’s Saturn was within a facility designed for racing AND they had the intent of participating in a race.

For insurers and brokers who have access to coverage for a variety of difficult automobile situations, refer to the section for Automobiles, Trucks, or Recreational Vehicles in The Insurance Marketplace, published by The Rough Notes Company, Inc.

LIMIT OF LIABILITY

Part A of this provision explains that the monetary limit that appears on the policy declarations page is the maximum amount of coverage that applies to the damages from any single loss. This maximum is not affected by the number of vehicles, insureds, or claims involved, or the number of vehicles or premiums appearing on the declarations page. This arrangement is true of both bodily injury and property damage claims. The particulars of a given loss may well affect how payments may be distributed, but the maximum remains the maximum.

Example: Tony and Kim have a PAP with the following limits:

Bodily Injury	$100,000/$300,000
Property Damage	$100,000
Medical Payments	$10,000
Collision	$500 Deductible
Other Than Collision	$500 Deductible
Uninsured Motorist	$25,000/$50,000

Just before Kim could say “watch out,” Tony’s ‘03 Ram Pickup slid out of control while trying to pass a car that slowed down to make a left turn at an intersection. Besides hitting the car waiting to turn, their truck also hit two other cars (both were car pooling) and a local TV station’s van.

Following are the resulting claims for damages:

Claimant	BI Claim Amount
One	$43,000 (burns, plastic surgery)
Two	$12,000
Three	$51,500 (paralyzed)
Four	$24,000
Five	$17,800
Six	$8,500
Seven	$26,500
Total	$183,300

Car	PD Claim Amount
One	$23,00
Two	$14,700
Three	$19,600
Four	$83,000
Five	Total - $140,300

The above claims under the one accident could be settled in a wide variety of ways. Under bodily injury, all of the individual claimants qualify under the per person insurance limits and the entire amount may also be paid under the per accident limit. Under property damage, all of the cars individually qualify for coverage under the insurance limits, but the total amount exceeds the limits. Depending upon how the loss is settled, one or more of the claimants may only get partial settlement or could be squeezed out from any coverage at all, say if car four received total payment for its huge loss.

Part B of the Limit of Liability section explains that, regardless of whether coverage exists under more than one coverage part (specifically parts A, B and/or C), no duplicate payments will be made under the PAP. This limitation means that, even if portions of a single claim qualify for coverage under Part A - Liability as well as Part B - Medical Payments and/or Part C - Uninsured Motorists coverage, an insured will not be paid more than once for any portion of his loss. This clarifies the purpose of the PAP to indemnify rather than enrich a claimant for their accidental loss.

OUT-OF-STATE COVERAGE

The Personal Auto Policy emphasizes being able to perform in compliance with the legal realities of the environment that surrounds an eligible loss. Consistent with this objective, this provision allows the PAP to respond to a loss according to a given state’s requirements. Part A.1 of this provision states that the policy will provide a higher limit for bodily injury or property damage liability coverage to meet whatever is minimally required by the state in which a covered loss occurs. Part A.2 indicates that the PAP will comply with the minimum amounts and types of coverages that may be required by a state’s compulsory insurance law while the covered auto is being operated in that state.

Example: The policy may be written in state A, which requires combined single limits, and the policy has a limit of $300,000. As it happens, a loss occurs while the insured is traveling in state B, which mandates the limit of liability to be applied in split limits for bodily injury and property damage liability. The PAP would respond to the accident by applying the $300,000 maximum consistent with the split limit requirement, but it would not increase the maximum available. For an important exception, see the out-of-state coverage provision below.

Part B of this provision states that no one is eligible for duplicate payments. In total, this provision makes the policy a much more reasonable coverage document by preventing technicalities to bar or limit coverage because of the different ways that states structure their coverage requirements. Imagine if no such provision existed and a person from state A had to travel across the country and had the misfortune of being in an accident or having to show proof of valid insurance in several states with different laws.

FINANCIAL RESPONSIBILITY

The PAP, when considered as valid proof of financial responsibility, is to be interpreted as complying with the governing financial responsibility law. This is helpful and flexible since financial obligations required of drivers vary significantly by state. For more details on this issue, please refer to PF&M Section 410.6-18, Financial Responsibility Limits.

OTHER INSURANCE

In the event that other sources of liability insurance exist, Part A of the Personal Auto Policy will pay on a basis that equals its share of the total amount of insurance available to cover an eligible loss involving an owned auto. If the loss involves a non-owned auto, the PAP responds on an excess basis, paying only after the primary policy has paid its limit.

Example: Let us examine an auto loss that totals $10,000 in damages. The loss is covered by a PAP and some other source of coverage. Assume that both sources have coverage limits greater than the loss amount.

Scenario A: The loss involves an auto owned by the insured and the PAP and the other coverage source offer the same coverage limits. In this case, payment would be:

PAP	$5,000
Other Source	$5,000

Scenario B: The loss involves an auto owned by the insured and the PAP and the other coverage source offer different coverage limits. Let us assume that the PAP’s limit represents 40% of the available coverage. In this case, payment would be:

PAP	$4,000
Other Source	$6,000

Scenario C: The loss involves an auto that is NOT owned by the insured and the PAP and the other coverage source offer the same coverage limits. In this case, payment would be:

PAP	$0
Other Source	$10,000

Note: If a nonowned auto is involved, it would not matter if the PAP and the other source had different limits. The other source would have to pay out its complete limit before the PAP would contribute any payment.

'05 Change: The latest edition of the PAP has modified its approach to other existing coverage. The policy now reads that, even for autos that qualify as temporary substitutes for covered autos, this policy will respond as excess coverage over protection that may exist elsewhere.

PART B - MEDICAL PAYMENTS COVERAGE

INSURING AGREEMENT

Item A of this coverage part explains that it will pay for necessary medical and funeral services incurred by an “insured” suffering from accidental “bodily injury.” Note that the 06/94 edition of the Personal Auto Policy clarified item A by stating the following:

We will pay only those expenses incurred for services rendered within 3 years from the date of the accident.

The intent is to limit payment to accident-related expenses that actually were paid for services provided no later than three years after an accident. Early editions of the PAP were open for interpretation and that situation led to broader coverage than intended, such as providing coverage for services:

· identified within three years of a loss date and thus allowing persons to validly claim expenses occurring beyond the three-year period.

Example: Linda, who’s insured under a PAP, collided with Harry at an intersection in January, 2004. Harry suffers some deep cuts to his thighs and legs and Linda’s policy pays for an ambulance trip and for stitches. In January, 2007, Harry visits his doctor about continued pain in his legs. His doctor catches bone deterioration resulting from trauma suffered in the January, 2004 accident. He is scheduled for February, 2007 surgery and he undergoes two months of rehabilitation. Harry contacts Linda’s insurer to handle the latter recently identified expenses. The situation is not be covered by the PAP since the expenses were incurred later than three years from the accident date.

· initially occurring in the three-year period and then CONTINUING beyond the period.

This portion of the insuring agreement acts to eliminate such long-tailed obligations.

Item B of this coverage part defines “insured,” for purposes of applying medical payments coverage, as “you or any family member while occupying or being struck by a vehicle that’s primarily meant to be operated on public roads, including trailers.” Further, any person in “your covered auto” is also an insured under this coverage part.

EXCLUSIONS

Even if a person is an “insured,” no coverage for “bodily injury” applies under the following circumstances:

1. if it happens while being in a vehicle that has fewer than four wheels.

2. if the injury takes place while the vehicle is being used to transport persons or property for income. Note that the PAP does cover carpooling arrangements in which riders help the driver with pooling expenses such as gas, oil and maintenance.

3. if the injury happens while the vehicle is set up and being used as a premise or residence.

4. if it occurs while on the job, and workers compensation coverage is either available or required for the bodily injury.

5. if the bodily injury happens while an insured is occupying or is hit by a vehicle that is owned by the insured (but not shown on the policy as required), or while an insured is using a vehicle that is regularly available to him or her.

6. if the bodily injury happens while an insured is occupying or is hit by a vehicle that is owned by or is a vehicle that is regularly available to a “family member.” However, this exclusion doesn’t apply to a named insured or a resident spouse.

Note: This exclusion describes situations that represent a regular personal auto exposure that should either be rated under an insured’s PAP or under the insurance carried by the applicable vehicle’s owner.

7. No coverage applies if bodily injury occurs when the injured person is occupying a vehicle without the belief that she or he has the vehicle owner’s permission.

8. This item prohibits coverage for bodily injury suffered while in a vehicle that’s being used in an insured’s “business.” Coverage still applies if the insured is in a private-passenger auto, pickup or van, or a trailer being used with such vehicles.

'05 Change: The latest edition of the PAP changed exclusion eight. The '05 edition makes an exception for any pickup or van used in an insured's business. Previous editions excluded such losses involving non-owned pickups or vans.

Items 9 and 10 eliminate coverage for bodily injury caused directly or indirectly by a nuclear weapon, reaction radiation or contamination; or by war, civil war, insurrection, rebellion or revolution.

Exclusion 11 under Part B - Medical Payments Coverage also contains the clarification that denies coverage for injury involving any vehicle inside a facility designed for racing while preparing for or competing in a race.

LIMIT OF LIABILITY

Part A explains that the monetary limit that appears on the policy declarations page is the maximum amount of coverage that will apply to the damages from any single loss. This maximum is not affected by the number of vehicles, insureds, or claims involved, nor the number of vehicles or premiums appearing on the declarations page. The details of a given loss may well affect how payments may be distributed, but the maximum remains the maximum.

Part B of the Limit of Liability section explains that, regardless of whether coverage exists under more than one coverage part (specifically parts A, B and/or C), no duplicate payments will be made under the PAP. This limitation means that, even if portions of a single claim qualify for coverage under Part B - Medical Payments as well as Part A - Liability and/or Part C - Uninsured Motorists coverage, an insured will not be paid more than once for any portion of his loss. This clarifies the purpose of the PAP to indemnify rather than enrich a claimant for their accidental loss. Please refer to the example under the Part A - Limit of Liability section for an illustration of this provision.

OTHER INSURANCE

In the event that other sources of medical payments insurance exist, Part B of the Personal Auto Policy will pay on a basis that equals its share of the total amount of insurance that is available to cover an eligible loss involving an owned auto.

Example: Jason is eligible for medical payments coverage and two other sources of recovery under the PAP. The PAP source one has limits of $3,500; source two, $5,000; and source thrree, $6,500. The total amount available is not $15,000 (the sum of the three sources), but $6,500, the limit of the third source. Further, the PAP will pay only on a basis that equals its share of the total amount of insurance that is available to cover an eligible loss involving an owned auto. In this example, the PAP would pay approximately 23% of the loss (limit of $3,500 divided by total amount available of $15,000).

If the loss involves a non-owned auto, the PAP responds on an excess basis, paying only after the other available coverage has paid its limit.

PART C - UNINSURED MOTORISTS COVERAGE

INSURING AGREEMENT

This part’s insuring agreement obligates the issuing company to protect an “insured” against “bodily injury” caused by an accident with an “uninsured motor vehicle.” In other words, an insured can rely on his own PAP to take care of injuries resulting from an accident where the driver who caused the injury doesn’t have the coverage to take care of his/her legal obligation. However, this coverage part is not bound by any judgment for damages that are determined by a lawsuit that’s filed without the company’s written consent. It is very important to note that different states vary on this issue. The common differences include whether the coverage is mandatory, what limits must be offered, the availability of underinsured coverage (including if UIM is considered part of UM coverage), and if UM coverage can be rejected. Please refer to PF&M Section 410.6-2, Auto Uninsured and Underinsured Requirements.

The PAP is big on responsibility. It is designed and refined to make sure that the policy takes care of loss obligations which can be properly considered personal auto losses. It also is insistent that loss payments be made by the party or parties responsible for the loss. However, the PAP has a heart. Instead of excluding coverage, the PAP responds to instances in which no other source for payment exists. The PAP is worded so that it acts as the last resort for coverage. Further, it carefully defines the situations in which coverage applies.

Uninsured motorist coverage has long been a major problem for insurers, and it looks like it will remain a tremendous challenge for the automobile insurance industry. Operating an auto commonly is considered a right. Unfortunately, it’s a right that often is unaccompanied by the financial responsibility to take care of damages that may be caused by exercising that ill-conceived right. Insurance companies have a very difficult time trying to price and control this loss exposure. One reason for the difficulty is that the exposure is hard to predict. Other than determining if a given territory has a higher number of uninsured drivers, how can a company gain insight on the likelihood of a loss involving a driver who is not insured?

Part B of the uninsured motorists coverage insuring agreement defines who is considered an insured. An insured includes the named insured and resident spouse, any “family member,” any other person “occupying” “your covered auto,” and any person eligible for payment because of bodily injury damages suffered by an insured. An example is the person (such as the executor of an estate) who pays for the funeral expenses of an insured who dies from bodily injury in an accident with an uninsured motorist. Of course, no matter how well a policy tries to explain who is considered an insured, anything can be questioned in court. Please refer to PF&M Section 410_C002, "Family Member Definition Held Not To Extend To Son," in Court Cases for information on a judicial ruling on the meaning of the term "family member.”

Precisely what is considered an “uninsured motor vehicle” is the subject of Part C of this section’s insuring agreement. Part C is unique in the PAP because it includes the broadest definition of a vehicle. Any “land motor vehicle” or trailer may be an “uninsured motor vehicle” if no bodily injury liability policy or bond applies to the vehicle. Such a vehicle could still qualify as an “uninsured motor vehicle” if a bond or policy does apply but the writer of the coverage denies coverage or becomes insolvent. Finally, a hit-and-run vehicle is also an “uninsured motor vehicle” when it hits the named insured (includes resident spouse) or a family member, or any car occupied by these classes of people, or it hits a “covered auto.”

Although the PAP’s definition of an uninsured vehicle is broad, it doesn’t include any vehicle or equipment that either belongs to or is regularly available to the named insured or any family member, or any vehicle owned by a governmental entity. Vehicles used as a residence, vehicles which operate upon crawlers or treads, or vehicles made primarily for off-road use also are disqualified as uninsured motor vehicles.

The logic behind excluding many of the types of vehicles is that the PAP is not designed to handle exposures to losses that should be handled by other types of policies such as motor home, recreational vehicle or mobile home policies. The exclusion also intends to avoid a very high source of “uninsured” vehicle operation - off-the-road recreational activity.

EXCLUSIONS

Under Part A, the following situations bar coverage for bodily injury:

1. No coverage exists for any insured if he or she is hit by or hit while occupying an owned vehicle (including a trailer) that isn’t protected by uninsured motorists coverage.

2. No family member is covered if they are hit by or occupying a vehicle that is owned by the named insured, but that is covered by any other policy.

Under part B, no insured qualifies for uninsured motorists coverage if a bodily injury claim is settled without the company’s consent, the insured is in a vehicle that’s transporting people or property for pay, or if the vehicle was being used without permission. However, the question of permission does not apply to a “family member” who is operating a vehicle that qualifies as a “covered auto.”

'05 Change: The '05 Program has made another change that acknowledges a court trend. It has altered the portion of the provision requiring an insurer's permission to settle a loss. Now, an unapproved settlement of a bodily injury claim is only excluded if the action prejudiced (damaged or eliminated) the insurer's rights. This eliminates the application of an exclusion when, for all intents, an insurer's position has not been affected by an insured’s action. Previously, certain losses could have been denied, purely on technical grounds. Nationwide, courts have been rejecting such results.

Parts C and D explain that no coverage exists if coverage should be handled by either workers compensation or disability benefits law, and that payments are not made for punitive or exemplary damages.

Example: “Crazy” Earl Speedball is, oddly enough, insured by a Personal Auto Policy with a $50,000 combined single limit for Bodily Injury and Property Damages. During a winter storm that led to very icy driving conditions, “Crazy” topped the crest of a hill going 10 miles over the regular posted limits and slid down the other side where a line of vehicles were traveling much slower because of the frozen road. The judge at “Crazy’s” lawsuit approved a $27,000 BI and PD settlement and then awarded the injured parties another $30,000 in damages. The judge said that the extra $30,000 should make “Crazy” think about operating his car properly in bad weather. When Crazy complained to his insurance agent about how he’s going to come up with the $7,000 to pay the rest of the claim ([$27,000 + $30,000] - $50,000 insurance limit), his thoughtful agent explained that, since the extra judgment was awarded as punishment, “Crazy” is going to have to come up with the entire $30,000.

LIMIT OF LIABILITY

Part A explains that the monetary limit that appears on the policy declarations page is the maximum amount of coverage that will apply to the damages from any single loss. This maximum is not affected by the number of vehicles, insureds, or claims involved, nor the number of vehicles or premiums appearing on the declarations page. The particulars of a given loss may well affect how payments may be distributed, but the maximum remains the maximum.

Part B of the Limit of Liability section explains that, regardless of whether coverage exists under more than one coverage part (specifically parts A, B and/or C), no duplicate payments will be made under the PAP. This limitation means that, even if portions of a single claim qualify for coverage under Part C - Uninsured Motorists Coverage as well as Part B - Medical Payments and/or Part A - Liability Coverage, an insured will not be paid more than once for any portion of his loss. This limitation also applies to any coverage available under any underinsured motorists coverage provided by the policy.

This clarifies the purpose of the PAP to indemnify rather than enrich a claimant for their accidental loss. Please refer to the example under the Part A - Limit of Liability section for an illustration of this provision.

Parts C affirms that the PAP won’t pay for a single element of loss that already has been paid by any party responsible for that loss.

Example: Carla Applecheek and her son are on their way back home from a victory at a pee-wee ice hockey game when they’re hit by Jonni, who ignores a stop sign. Jonni drives an old ‘95 Chevy that is held together by rust and, surprise, is not insured. Although the Applecheeks aren’t hurt too seriously, they need to apply for coverage under the $25,000 uninsured motorist coverage part of their own PAP. Their company pays them $6,700 for their injuries but later, after finding out that Jonni paid them $1,250 that he was saving for a new car, the insurer asks that, since Jonni paid part of the damage, $1,250 be returned to them.

Part D explains that no coverage exists if coverage should be handled by either a workers compensation or a disability benefits law.

OTHER INSURANCE

If other sources of insurance or other policy provisions apply to an uninsured motorist loss, this provision intends to make sure that such sources are contemplated when compensating an insured for a loss. Part C of the Personal Auto Policy operates on a special constraint. It considers that the total amount of coverage available to pay for losses involving uninsured motorists is no higher than the greatest amount provided for a single vehicle.

Example: A covered loss having three different sources of recovery occurs. Source one has limits of $25,000; source two, $50,000; and source three, $15,000. The total amount available is not $90,000 (the sum of the three sources), but $50,000, the limit of the second source. Further, the PAP will pay only on a basis that equals its share of the total amount of insurance available to cover an eligible loss involving an owned auto.

Further, the total amount that may be paid on the loss may not exceed the total amount of primary and excess coverage available for any single auto. If the loss involves a non-owned auto, the uninsured motorist coverage part responds on an excess basis, paying only after the other available coverage has paid its limit.

'05 Change: The latest edition of the PAP has modified its approach to other existing coverage. The policy now reads that, even for autos that qualify as temporary substitutes, this policy will respond as excess coverage over protection that may exist elsewhere.

ARBITRATION

A. If we and an “insured” do not agree

If the company and their insured aren’t on the same wavelength regarding whether a loss payment is due and/or how much is due in an uninsured motorist loss, the argument may go to arbitration. However, both the company and the insured must want the disagreement to be handled by representatives of their own choosing. A judge may be called upon to select a third arbitrator if this person isn’t selected by the first two arbitrators within 30 days.

Though the case does not involve a personal auto, a helpful illustration of the power of an arbitration clause can be found if you please refer to PF&M Section 131_C083, “Insurer Must Accept Decision Of Its Approved Umpire” In Court Cases.

B. Distribution of costs

Each party will handle their own out-of-pocket expenses, as well as share in the cost of the third arbitrator. The arbitrators must follow the local rules of law in their discussions.

C. Unless both parties agree otherwise

The insurance company and the insured must accept the decisions agreed on by any two arbitrators as legally binding in the areas of determining a valid claim and the amount to be paid. An exception is made if the arbitrated amount is greater than the minimum bodily injury liability established by the applicable financial responsibility law. If this disparity occurs, either the insurer or the insured can insist on going to trial. However, if no party contests the amount within 60 days, the decision, regardless of the amount, is binding.

PART D - COVERAGE FOR DAMAGE TO YOUR AUTO

This section is a serious departure from the earlier sections, since instead of liability to other injured parties, it deals with actual damage to the insured’s covered vehicle (including expenses because of loss of use of the same). In days gone by, the references were to comprehensive and collision damages. It has been increasingly common that the term comprehensive has been replaced by “other than collision.” It is likely that “comprehensive” might have been found to create too broad an expectation of coverage. We may soon start seeing references to “other than insured motorist” or “other than owned automobiles,” etc.

Policy language continues to change in an attempt to make sure that its meaning is clear to insurance professionals and consumers. Wording adjustments are also necessary regarding how policies are understood in the ultimate arena - the courts. However, the use of terms such as “other than collision” and Coverage For Damage To Your Auto as replacements for the older terms of “Comprehensive” and Physical Damages appear to be awkward alternatives for describing the coverages that are available for protecting an insured’s vehicle. Perhaps future editions of the PAP will continue to clarify its definitions and explanations rather than change terms.

INSURING AGREEMENT

Under section A of the insuring agreement, the Personal Auto Policy agrees to protect “your covered auto“ or a “non-owned auto” against accidental loss. Any payment includes compensation for loss to auto equipment, but does not include the applicable deductible. If you’re unlucky enough to have more than one covered vehicle involved in the same collision loss, only a single, highest deductible will count against any loss payment.

Example: Barney and Kloorene Runarown have two Toyota mini-vans that are covered by a PAP. The vans aren’t their vehicles of choice, but they also have four lovely offspring who keep them incredibly busy with their sports and other activities. It’s fall and the Runarowns often have to split up in order to handle four kids on four different sports teams. It’s not unusual to have one parent zoom into their driveway to pick up some little Runarowns, while the other is zooming out with the others. One day, instead of zooming in and out of their driveway, they zoomed into each other. While there was $3,200 in damages to his van and $1,900 to hers, they were glad that only a single $500 deductible applied to the whole loss.

This section clearly applies only to collision and other than collision losses, but only if the policy’s declarations page shows a deductible choice to indicate that these coverages apply. Should a loss involve a non-owned auto, the broadest coverage written for “your covered auto” applies.

Example: Your declarations page lists an ’00 Chevy Cavalier with BI, PD and UM/UIM coverage only and an ’06 Explorer with liability, collision and other than collision deductibles. The Explorer is at your car dealer to repair some body damage from a not-at-fault collision, and you are using a rented car. While turning into your company’s parking lot, you hit a wrought iron fence, causing serious damage to the fence and the rented vehicle. Instead of just handling the damage you caused to company property, the PAP responds by acting as if the rented car has the same coverage as the Explorer. The policy would act in the same manner even if the rented car replaced the Cavalier. The reasoning is that ‘non-owned” situations are temporary, and the low level of exposure justifies that the PAP extends reasonable coverage for these situations without providing broader coverage.

Part B of the insuring agreement explains that “collision” refers to your covered auto or your non-owned auto which has either hit or been hit by another vehicle or some other inorganic item. It’s implied that the event has to result in damage to your car.

Example: While parking your car at a supermarket, you slam headfirst into a fully inflated helium balloon that’s being used to promote their fresh cucumber sale. Besides creating a lot of laughter, no harm is done to your car or the store’s balloon. Collision? Yes. A loss under Part D? No, because nothing was damaged or destroyed.

“Other than collision” simply refers to those events that aren’t collision. The PAP lists 10 events that qualify as other than collision losses. If your covered car is damaged by items falling from the sky, fire, theft, explosion or earthquake, windstorm, hail or flood, vandalism, rioting, contact with birds and animals, or if glass has broken, you’ve experienced an other than collision loss. The PAP is flexible about losses involving glass. If any vehicle glass is broken during a collision, an insured may choose to have it covered under the collision portion of the policy.

Now let’s move on to “non-owned” autos. These are private-passenger vehicles (including trailers), vans and pickup trucks that, while being operated or used by an insured, aren’t owned by or regularly available to any insured (which includes any “family member”).

Example: A PAP is written for a husband and wife. The wife is late coming home from work, so the husband borrows his neighbor’s car to take his daughter to a sleep-over. This is an eligible non-owned situation.

Example: Your son’s Little League coach has to stay at the park to prepare the baseball diamond for the next day’s game, but he promised his team a pizza dinner. You agree to take the kids over to the restaurant in his mini-van while he uses your Chevy in order to join you in an hour. This is an eligible non-owned situation.

Example: You borrow your neighbor’s car to go to the mall. The car belongs to the neighbor’s daughter, who’s away at college. They gave you an extra set of keys so that you can use it as needed, as long as you keep gas in it. This is NOT an eligible non-owned situation.

Example: Mom has to pick up some groceries for a dinner party. Dad has the car, so she jumps into her son’s car. It’s an old “beater” that’s not registered or licensed...the son is going to take care of that after it’s completely fixed up and painted. This is NOT an eligible non-owned situation..

Note: This definition, while including pickups or vans, does not include a reference to their gross vehicle weight such as is made in the definition of “newly acquired auto.”

Example: Joe is in a hurry to pick up his fiancee from the airport. He hasn’t seen her in nearly three months. He jumps into his ‘98 Miata, turns the key and...nothing. He then notices that he left his glove compartment open. Its small light must have been on until it drained his battery. Joe’s neighbor, Sonny, says he can borrow his truck. The truck is a two ton flatbed truck with wood stake sides and is from “Sonny’s Tree Barbers.” Joe’s fiancee, Sylvia, won’t be thrilled...but it’s better than the alternative of picking her up late. Because of the policy’s non-owned auto definition, this MAY qualify as a valid covered vehicle.

Another class of vehicle that’s considered a non-owned auto is a temporary substitute. This refers to an auto or trailer that takes the place of a covered auto (or trailer) because the covered vehicle is unavailable while being repaired, replaced or maintained. The rationale for covering non-owned autos is that these are temporary situations that don’t typically increase the exposure contemplated by your premium, so the PAP should be available to provide protection.

Example: You’ve taken your car down to Mac’s Garage for a re-alignment after you hit a city record 14 potholes in one day. Mac gives you his trusty ’88 Fiero to use until your chariot is repaired. On the way home, you set a brand new city pothole collision record. This is a covered temporary substitute situation.

TRANSPORTATION EXPENSES

An insured can accumulate significant expenses related to the loss of a covered vehicle. The PAP is sensitive to this likelihood, and it includes some additional coverages. For instance, the PAP will pay up to $20 a day for up to a maximum of $600 to help cover the cost of getting replacement transportation. This coverage is only provided if the covered car is unavailable due to a collision or other than collision loss. Of course, the declarations page has to show that the applicable coverage has been selected.

In the midst of this section that provides physical damage coverage lies liability protection. The PAP also compensates an insured for legal liability for the loss-of-use expenses for damage to a non-owned car. This coverage is limited to $20 per day with no mention of a maximum. Of course this is a small loss exposure, so no other limit may be necessary.

Example: Jennifer’s car is having its brakes replaced. She rents a car from “We-R Not Selling Insurance Auto Rental Co.” for a day. Unfortunately, upon returning the car the next day, she rams into one of their carport support beams, smashing the body against the front tires. The PAP would pay for “We’-R-Not’s” loss of rental income for the day it takes them to get the car back into service.

Example: Jim and his family have only one car and it broke down while his daughter was trying to return home from her high school’s football game. Jim borrows his neighbor’s ‘01 Sonata to pick her up. Unfortunately, just as he turns onto their street with his daughter (and a dead battery from his own car), Jim has a collision. Since Jim’s neighbor’s car has to be at his car dealer’s body shop for a few days, Jim’s PAP will take care of the cost to rent a car.

The PAP also will cover additional transportation expenses if an owned or non-owned auto is stolen. However, coverage won’t begin until 48 hours after the theft. In all other cases, coverage begins after 24 hours. Coverage ends when the covered car is back for the insured’s use or a settlement has been made.

'05 Change: A slight change was made to make this portion of the policy more easily understood. The wording was revised to make it clearer that any coverage granted is conditional. It fully depends upon any limits and provisions shown in Part A of the coverage.

EXCLUSIONS

Part D - Coverage For Damage To Your Auto will not pay for:

1. Loss to an owned or non-owned auto that occurs while it is used for hire to transport persons or goods. An exception is made for car pools, where the driver gets money for gas and wear and tear.

2. Damage resulting from your car’s aging, extremely cold weather, mechanical or electrical breakdown, or road damage. An exception is made for such damage that results from the total theft of a covered auto (owned or non-owned).

Example: It took Pete two hours to start his car during a typical winter’s morning in North Dakota. After it starts, he jumps in the car and the engine dies. He has it towed to Fargo’s best garage and the mechanic tells him that the car is toast. Pete used a cheap engine oil that broke down due to EXTREME cold, and the engine wasn’t lubricated. As much as we might feel for Pete, this is not a covered loss under the PAP.

Example: Pete gets a new car and is leaving a restaurant to get his car from his parking space when he notices that a stranger is breaking into his car. The thief sees Pete, quickly hot-wires the car, and drives out of the lot. The thief is in such a hurry that she doesn’t bother to avoid a loose sewer cover while escaping. The police discover the car the next day with the interior stripped of electronics. The front end, including the tires, is severely damaged. Normally, the destroyed tires would be excluded, but since it happened during a theft, Pete’s settlement would include reimbursement for the tire damage.

3. There’s no coverage for any loss caused by radioactive contamination, nuclear weapons, war (including civil war – there are still some Confederate soldiers that complain about this exclusion), insurrection, rebellion or revolution.

Example: Alan Newtron is coming home from work and he rear-ends a panel truck from a hospital that just started operating in his area. He is puzzled when, as he gets out to trade insurance information, the doors of the truck are flung open. Screaming, the truck’s driver and two passengers jump out and run from the truck. Alan also wonders why they were wearing protective suits. Alan’s curiosity is satisfied when he peers into the truck and notices that a new X-ray machine is laying in the back...cracked into two pieces. Any damage caused by the ongoing irradiation is excluded from coverage.

4. Part D of the PAP does not cover loss to electronic equipment intended to reproduce sound, including any accessories or related equipment. For instance, the PAP begins by excluding coverage for equipment such as radios, tape decks, stereos or compact disc players.

However, there are some exceptions. There IS coverage for equipment and accessories made only to reproduce sound IF the equipment is permanently installed in your covered auto or any non-owned auto.

Example: Henni Oldmun loves his ’04 Lexus. Even though it came with a beautiful sounding CD player, Henni added a special cassette unit. Henni is a senior project manager who spends much of his business day in his car traveling between job sites. Since he has to produce reports on how his projects are progressing, he uses his cassette to record updates and later has them transcribed. Last week he was late for a meeting and he ran out of his car without arming the alarm system. Henni came back to a Lexus that was minus everything that wasn’t tied down and this included his recorder. Henni’s mood wasn’t improved when his insurance company adjuster said that the recorder was not covered. Henni said that it should be covered because the unit was permanently installed in his car. The adjuster pointed out that the unit didn’t qualify for coverage because it was capable of recording sound and it was put in a different area of the dash than is normally used for similar equipment.

The PAP also will protect sound-reproducing equipment that can be removed from the covered vehicle, as long as the equipment meets three conditions. One, the equipment must come from a housing unit that is permanently installed in the auto. Two, the equipment has to be designed for operation from the auto’s electrical system. Three, the equipment must be in or upon the covered vehicle at the time of loss.

'05 Change: This is a change that is another bow to progress in equipping vehicles. The PAP used to exclude electronic equipment that, even when permanently installed, was located in areas that a car maker did not designate for such equipment. The PAP will now offer its $1,000 limit to cover any eligible equipment that is permanently installed and designed to run from the vehicle's power plant.

5. This exclusion bars coverage for such devices as computers, video and audio recorders, scanners, radios of all types, receivers, televisions, telephones, CD players and similar property that is capable of receiving or transmitting audio or video signals.

Exception 5. If the equipment facilitates the covered car’s normal operation or is used for monitoring the car’s operating system, it’s eligible for coverage. The final exception is made for equipment that is part of the same housing unit for any sound-reproducing equipment. Again, such equipment has to be permanently installed in the part of the car’s dashboard or console that the manufacturer made for that purpose. Please refer to any additional coverage concerning such equipment that is mentioned under Part D - Damage To Your Auto, Limit of Liability.

6. This exclusion is for any media (tapes, CDs, records, etc.) that is used with such equipment as well as any accessories used with equipment that reproduces sound or transmits signals.

Exclusion 7. This exclusion explains that the Part D - Damage to Your Auto doesn’t respond to a loss of either an owned or non-owned auto that’s destroyed or taken by legal authorities. Of course, an exception is made for the financial interests of loss payees. It isn’t in the public interest to deny protection to lenders because of the illegal acts of their borrowers.

Exclusion 8. There’s no coverage for a camper body, motor home or trailer owned by an insured, but not listed on the declarations page. Neither is there any coverage for awnings, cabanas (lightweight structures with living facilities) and equipment designed to create additional living facilities including cooking, refrigerating or plumbing equipment. Coverage for such property should be endorsed to the policy using PP 03 07 COVERED PROPERTY. Of course, in many instances it would make more sense to purchase a special motor home or RV policy to properly protect rolling homes. Please refer to PF&M section 410.4-3, Personal Auto Policy Endorsements.

Are there any exceptions? Yes. This exclusion doesn’t affect coverage for trailers (including their facilities or equipment) that is NOT owned by an insured.

Example: Sarah Grizzled was a poor, but avid, backpacker. While she usually just liked to camp with a tent, a friend convinced her to borrow his camper trailer for an excursion out West. Sarah was initially skeptical but, after a week’s use, came to truly enjoy the trailer. Sarah was as upset as her friend when, while cresting a narrow, twisting mountain road, a quick maneuver caused the trailer to swing into the mountainside, obliterating it. This loss would be eligible for coverage under the PAP.

The PAP also provides coverage for trailers (including their facilities or equipment) that are newly acquired by the insured and which are reported to the insurer within 14 days. The intent of the policy is to make sure that all exposures are reported and rated.

Example: A retired couple buys a travel trailer without reporting it to their insurance company. Two weeks later, they take off on an extended vacation, a cross-country trip. Just as they’re entering the third week of travel, the trailer detaches from the hitch while heading toward Pike’s Peak. The trailer is destroyed. Unfortunately, the trailer is also uninsured, since it wasn’t reported in time.

Of course, coverage would also apply to such equipment that the insured already owns on the date that the property is reported and coverage requested by the insured. However, most companies have their own additional restrictions in order to protect themselves against insureds who try to save money by requesting coverage while a trailer is being used (such as the summer) and then removing coverage while the property is in storage.

Exclusion 9. Any insured, including a family member, who has a loss involving a non-owned auto will find himself without coverage if he doesn’t believe he has permission to use the auto.

Exclusion 10. Any equipment used to detect or locate radar or lasers isn’t protected if it is lost or damaged.

Exclusion 11. All custom furnishings and equipment are excluded from coverage. Examples of such items are carpeting, insulation, furniture or bars, ovens, microwaves, beds/couches, roof extensions, murals, paintings, etc. These items should be separately endorsed since their value is rarely included in the vehicle value used to rate the basic physical damage coverage. ISO provides a special endorsement where these items can be listed and rated (PP 03 18 CUSTOMIZING EQUIPMENT). Please refer to PF&M section 410.4-3, Personal Auto Policy Endorsements.

Is there an exception to exclusion 11? Yes. The exclusion is not extended to a pickup truck’s cap, cover or bedliner. However, an insured MUST be the owner of the pickup that is equipped with this property.

Exclusion 12. This eliminates coverage for any non-owned auto that is being held or used by any insured while working at selling, repairing, servicing, storing or parking cars. The exclusion specifically includes road testing and delivery. HOWEVER, this exclusion just applies to vehicles that are made for use on public highways.

Example: It looks like exclusion 12 bars coverage for any business connected with most autos. However, there would be protection if a business involves the insured and his family detailing dune buggies that are owned by other parties and strictly used off-the-road.

Exclusion 13. There is no coverage for any auto used in a speed contest or race. It clarifies the intent of the PAP by making the exclusion broader. Now, there’s no coverage for any auto that’s located in a structure built to host auto races, including practices.

Of course, your car should be safe if it’s in the parking lot of a NASCAR track...at least we hope so. Actually the change to the PAP is logical to fulfill the policy’s intent to avoid coverage for race-related exposures.

Example: An insured has a mint condition Yugo that’s been modified for racing. (Hey, we didn’t say it was a smart insured.) Anyway, the turbo Yugo is sitting in a garage just prior to a race when a nervous track visitor knocks over some fuel that splashes onto some hot equipment, starting a fire. Tragically, the Yugo is consumed. More tragic, this loss wouldn’t be covered.

The PAP definitely means to distance itself from covering cars that have anything to do with organized racing. Persons who have these exposures have to look for special coverage, since ISO does not fill the coverage gap with any endorsement.

Exclusion 14. Excludes any loss to a non-owned auto (including loss of use) rented by an insured when any applicable state law or rental agreement prohibits a rental car company from collecting for any loss or loss of use. In other words, the PAP won’t provide protection when either state law or a rental contract provides that coverage must be part of the rental transaction. Such a legal requirement makes coverage under a PAP unnecessary.

Example: Karen Sufistakatid and her fiancee are on vacation and Karen has suggested spending a week traveling in the bordering western state. Although Karen’s late model car is covered by a PAP, she prefers to rent a car since she doesn’t want to affect the mileage use of her leasing agreement. Before renting the car she asks her insurance agent if she should get coverage for the rental. The agent says, “I guess so, but I think your policy covers rentals.” Karen then calls a local car rental company. A rental clerk says that she can use her auto policy as coverage but must sign a special agreement to allow her credit card to be automatically billed for any losses to a rental including a daily charge for lost car rental income. Karen is relieved when she finds that the state she is vacationing in requires all rental companies to provide full coverage for ANY loss to a rental car for only a few dollars a day.

LIMIT OF LIABILITY

The PAP does have restrictions on the total amount of coverage available for a loss to a covered vehicle. Specifically, Part A of Part D - Coverage for Damage to Your Auto - states that the policy is obligated to pay the actual cash value of the lost (stolen or damaged [including total losses]) property or to pay what’s needed to repair or replace the property, whichever is the LEAST EXPENSIVE option. This provision includes the option of settling a loss by using property of like kind and quality.

This section also explains that the maximum available for the loss of:

· a non-owned trailer is $1,500;

'05 Change: In previous editions, the limit for such trailers was $500. The adjustment is merely a nod to current financial reality about the increasing cost of such property.

· equipment that merely reproduces sound (such as a CD player) which is installed other than where intended by the vehicle manufacturer (including its accessories) is $1,000.

Part B explains that any settlement includes an adjustment for a vehicle’s decreasing market value (depreciation) and physical condition when determining its actual cash value after a total loss. Finally, under Part C, if the repair or replacement of a covered vehicle results in an insured being better off than before the loss, the PAP won’t pay the value of the improvement.

The words “of like kind and quality,” as well as Part C, aren’t defined, and are having a significant impact on settlements. Both of these items are changes to the LIMIT OF LIABILITY provision, introduced in the 06/94 edition of the PAP. Both changes have likely contributed to settlement complexities. As the cost of vehicles and vehicle parts continues to increase, insurers face more pressures to find options that indemnify their insureds while not “breaking the bank.” One solution is to use the option that’s been in use in homeowners policies for years. As with homeowners insurance, the need to repair damaged property put an insurer in the position of having to actually improve an insured’s position after a loss. It also became problematic to use new parts to make repairs and then attempt to make adjustments to the value of the settlement. Requesting insureds to participate in loss settlements above their coverage deductibles is a hard sell, so the option of introducing the “like kind and quality” concept made increasing sense, at least from the insurer’s side of the equation.

In reality, claimants may disagree that attempts to replace property are fair. Auto manufacturers and consumer groups continue to battle the insurance industry’s use of generic auto parts instead of original manufacturer parts. The resistance has been greater when the settlement option goes to the “extreme” of offering a similar, but different, vehicle. Much of the controversy may settle as time goes by and claimants become more familiar with the concept. For more information on a closely-related issue, please refer to PF&M Section 410.6-16, Diminished Value, a Discussion.

PAYMENT OF LOSS

This provision discusses a company’s options in making a settlement on a loss to a covered vehicle, stating that the settlement may be in the form of a cash payment, a repaired vehicle or a replacement vehicle. The insurer has the option to return any stolen property to the named insured or to the latest address shown on the declarations page. If any property is returned, the insurer must pay for doing so, and only after any damages have been repaired. Further, should the company exercise the right to keep the property, it has to be at a price that’s acceptable to both parties. Finally, if the settlement is made in cash, the total has to include any sales tax.

NO BENEFIT TO BAILEE

The PAP states:

This insurance shall not directly or indirectly benefit any carrier or other bailee for hire.

The Personal Auto Policy has a tradition of trying to identify precisely the parties to the insurance contract. One of its intentions is to perform its contractual obligations to the named insured and other parties defined in the definitions, insuring agreements and other policy provisions. To do otherwise would be to open the policy up to parties who haven’t been rated or underwritten for coverage and for more exposures than contemplated. Other parties may benefit unintentionally from the policy without this provision. Such persons or organizations can’t piggyback their obligations to the PAP. For an example of how this provision would act in an actual claim, please refer to PF&M Section 220_C039, "Car Wash Assumes Liability When Customer Relinquishes Vehicle For Service" in Court Cases.

OTHER SOURCES OF RECOVERY

This provision is to make sure that any payment under Part D of the Personal Auto Policy takes other sources of loss payment into account. If other insurance policies, provisions or sources of recovery apply to a physical damage loss, the policy will only pay its proportion of the total available coverage. But the proportional payment is only for owned autos. If other sources of payment exist for a loss involving a non-owned auto, Part D of the PAP responds on an excess basis. It is excess over every other available source of payment, including the policy of the owner of the car.

Note that the provision to pay its proportionate share on owned auto losses effectively assures that the policy won’t pay more than the limits of liability listed on the declarations page. Of course, it has no other way to control the amount paid by other sources.

APPRAISAL

This system works quite similarly to an arbitration clause, except that the only point of dispute is the amount of payment, rather than the amount of payment and/or whether payment is due. This provision may be invoked when the company and the insured don’t agree on the amount of the loss. Each party must select its own qualified appraiser. The two appraisers then select an umpire. The appraisers then submit their opinion of the actual cash value and the amount of the loss. If they don’t reach agreement, they submit this information to the umpire. An agreement by any two persons is binding on both parties.

The company and the insured have to pay for the expenses of their own appraiser, as well as equally share the expenses of the umpire. No other insurer rights are affected by their agreeing to an appraisal. For instance, if another party has some responsibility for the loss, the insurer, after paying the appraised amount of loss, may still subrogate the claim.

'05 Change: There has been a minor change to this section and the result is that it makes the PAP appraisal language line-up with the wording used in other ISO lines of business. In the '05 edition, the appraisal provision requires both the insurer and the insured to choose an appraiser that is competent and also impartial. Previously the provision only made reference to competency.

PART E - DUTIES AFTER AN ACCIDENT OR LOSS

Up to this point, the PAP has been concerned primarily with the duties of the company. This section explains what an insured must do in order to fulfill his obligations once a loss occurs. It is important that these conditions be met, since failing to comply may relieve an insurer from having to pay for a loss.

'05 Change: The wording of this provision has been changed. The insured still risks endangering his or her coverage by failing to comply with their post-loss duties. However, the provision now states that coverage may be lost only if the failure harms or violates (prejudices) the insurer's position. In other words, the provision no longer permits a loss of protection for a mere technicality.

Example: The Smiths are insured under a PAP and have been sued by a driver due to an intersection accident. The Smiths call their insurer to tell them that they received some important paperwork. The insurer asks the Smiths to send the paperwork and that it would be good if they mailed it within a week. The Smiths mail the paperwork 21 days later. The insurer later sends a letter saying they will not defend against the claim because the “late” mailing was a breach of the policy’s cooperation requirement.

Scenario One – the policy was written on a pre-2005 edition of the PAP. In this case, there is a possibility that the delay may result in a loss of coverage.

Scenario Two - the policy was written on a 2005 edition of the PAP. In this case, the insurer would have to have compelling proof that the slight delay harmed their ability to investigate/handle the loss before being able to withdraw/deny coverage.

A. Notification. The insured must tell the company the accident details as soon as possible. The notification may be to an agent, and, ideally, should include the identity and addresses of any people hurt in the accident, as well as accident witnesses.

Item A is critical, since it initiates the entire claims process, and it gives the insurer its first and best opportunity to control the expense of the claim.

B. If an insured wants coverage, he/she must:

1. assist the insurer in the claim’s investigation and settlement, as well as help with defending against any claim or suit.

2. immediately send the company copies of ANY material received that’s related to the accident.

3. agree to attend as many:

a. physical exams, involving doctors selected by the insurer and/or

b. interviews under oath

as are reasonably requested by the insurer. These requirements are at the insurer’s expense.

4. Permit the insurer complete access to medical and other records that relate to the accident.

5. give the insurer any requested proof of loss.

The conditions under item B allow an insurer to evaluate whether a loss payment is due and how much has to be paid. This area has a lot of potential for straining relations between the insurer and the insured, since the two parties may differ over what is “reasonable.” The insured may quickly become concerned with their privacy, as well as their community standing. It is important that this provision spells out an insured’s contractual obligations in order to document their cooperation and possibly mitigate any hard feelings over repeated requests for help or information. For an illustration of the importance of an insured’s attitude in assisting an insurer, please refer to PF&M Section 410_C066, Insured Fails To Cooperate, in Court Cases.

C. If the loss involves uninsured motorists coverage, the insured is further obligated to notify the police quickly if the accident was caused by a hit-and-run driver, and to send the insurer copies of any legal papers should a suit be filed. Hit-and-run losses are always difficult to investigate and are always favorites for exaggerated, inaccurate or fraudulent claims. The requirement that such losses be immediately reported to the police is a way to guard against claim problems.

D. If the loss involves collision or other than collision coverage, the insured is further obligated to:

1. protect their property from further loss. The company is obligated to reimburse the insured if any additional expense is involved.

2. quickly notify the police if the covered vehicle is stolen.

3. allow the company to inspect and evaluate the damage property BEFORE it is repaired or removed.

Preserving the damaged property after a loss is extremely important.

Example: Tina returns home early in the morning in her convertible and hits a very large landscape rock that’s in front of her house. The damage is minor, but it includes damage to a mechanism that made it impossible to close the convertible top. Instead of moving the car into the garage or covering the car, it’s left in the driveway. Tina’s car remains outside, sitting exposed to a downpour that severely damages the interior and the car’s electrical systems. This situation creates a need to tow the car to have the damage inspected (when, originally, it could have been driven), and it complicates the adjustment and settlement.

In the last instance, having any damage repaired or getting rid of the damaged property is an extremely serious breach of contract on the part of the insured, and could easily result in an insurer’s refusal to make payment. If the insured vehicle is repaired or disposed of, the insurer has no chance to evaluate whether coverage was due, nor determine how much was due.

Example: Jeremy’s older car has a significant number of body dents, scratches, etc., but still has collision and other than collision coverage. On the way to work, he rear-ends another car. The damage to his own car is restricted to his bumper and right front end. However, Jeremy takes the car to a garage and has the accident damage repaired, as well as having all of the body dents removed and the vehicle repainted. He then reports the loss, submitting the total repair bill to his insurer. This late reporting complicates the third-party situation, since there is a delay in contacting the owner of the car that Jeremy hit. Further, it’s now impossible to determine what, if anything, was due to be paid to Jeremy.

PART F - GENERAL PROVISIONS

BANKRUPTCY

This PAP provision says that an insured’s bankruptcy or insolvency doesn’t release the company from any obligations under this policy. This fact appears clear enough. But what happens if an insured can prove that his bankruptcy prevented payment of the policy premium in time; the policy then cancels and the insured has a loss a day after the final cancellation date? Can this situation be interpreted as still obligating the insurance company to adjust the loss and possibly make settlement? This writer is stumped. It would be interesting to have the right circumstances argued to see what a court might think.

CHANGES

A. This states that the policy is a complete agreement that can’t be changed, except by the company issuing an endorsement.

This is important. If the insured were allowed to change the policy, the most common changes would involve waiver of premiums for life, guaranteed renewals and unlimited liability limits. Not that, from a consumer’s point of view, these wouldn’t be good policy features; it’s just that the provisions would make it a little tough to earn a profit. Fortunately, insurers are eager to help their customers make valid changes to their policy to fit their current circumstances.

B. The second part of this provision explains that the policy premium was based on a certain set of facts. If any of this information changes, it could affect the rating of the auto policy, and the insured’s premium may be changed. Items that could cause the policy’s cost to change include the number, type or use of vehicles; the operators using the cars; where the vehicles are kept; and coverage, deductible or limit changes.

Examples: These are situations that could affect the policy’s rates:

1. The ’98 Pontiac Sunbird is replaced by a ’06 Pontiac Trans Am.

2. A teenager gets his driver’s license and is now a regular driver.

3. The mini-van that used to be driven one mile to and from school is now being used to drive to work 42 miles one-way.

4. The insured requests that the deductibles on collision and other than collision coverage be changed from $100 to $500.

Finally, part B of the changes provision makes a reference that falls outside of the policy. It states that if a rating change is necessary, the change will be performed in compliance with the applicable company’s filed rating plan and rules.

Part C is a liberalization clause for the benefit of consumers. If a company does something to expand the coverage under the PAP without charging additional premium, then the change immediately applies to all similar parties in a given state. This provision does not apply in instances where changes both expand and restrict coverage.

Example: On May 1^st, Company A amends the PAP to provide theft protection for Beach Boys vinyl albums for up to $500, free of charge. Effective May 1^st, policies that don’t renew until after May 1^st automatically get this additional, valuable protection.

FRAUD

This provision is particularly brief and straightforward. The insurer advises that, if an insured speaks or acts with the intent to mislead others regarding any loss or claim, the insurer can deny coverage. Of course this part of the insurance contract is implied throughout the policy. Naturally, the wording does nothing to deter fraudulent activity.

LEGAL ACTION AGAINST US

This provision of the PAP stands as a tool to make a lawsuit the last recourse to resolving a dispute between the 1^st and 2^nd parties to the contract. The provision forces the parties to use all of the tools within the PAP before a suit is attempted. In other words, an insured, disputing the existence of liability or the amount that should be paid, cannot skip arbitration or appraisal or cooperation with the company or providing proof of loss, etc., and go straight to filing a suit. Further, even after compliance with all of the policy provisions has occurred, no action can be filed unless there’s been a written agreement that the “insured” is responsible for a loss payment OR the amount of the payment has been settled via judicial proceedings.

Example: Theresa collided with a mini-van owned by an operator of a day care center. While Theresa was unhurt, the van’s driver and several children had to be hospitalized for various injuries. Theresa was unhappy with the defense provided by her insurer and was enraged that, while her policy limits were for $50,000, the judgment against her was for $212,000. Theresa filed suit against her insurer, claiming that they failed to properly investigate the accident and provide inadequate defense. The suit was allowed under the policy provision, since a judgment was made.

Part B of this provision denies any person or organization’s right to bring action against the insurer to determine if the “insured” is liable for an accident. This part is needed to limit the persons who may rightfully expect performance under the auto contract. Without this clause, the PAP would provide an umbrella of protection to parties who, rightfully, should secure their own protection.

OUR RIGHT TO RECOVER PAYMENT

This provision of the PAP specifically states that, while an insurer will fulfill any valid obligation to make payment under the policy, when payment is made, it acquires the insured’s right to recover payment from another responsible party. Just as important as acquiring this right is the duty it imposes on the insured. The insured must cooperate fully with the insurer to pursue recovery AND must be certain that he or she does nothing to undermine this right. However, this provision doesn’t apply under Coverage Part D - Damage to Your Auto when the responsible party is a person who operates the covered car with an insured’s permission.

Example: James is a self-employed business owner who prides himself on getting things accomplished. His parked car was involved in a hit-and-run accident. James filed a police report, and his car was repaired. A couple of weeks later, Teri, James’ friend, confesses that she hit his car while driving through his neighborhood late at night. Since he knows that Teri has no insurance (they’re friends and James has already had his car fixed), he keeps this information a secret. James’ decision is a SERIOUS breach of the “Our Right To Recover Payment” provision. He has shielded the responsible party from criminal and civil responsibility, preventing the insurer from seeking reimbursement or legal action against Teri. If the insurer found out, they could seek damages from James. OOPS, almost forgot - the police probably wouldn’t mind talking to James about his decision.

Part B of this provision explains that if the company compensates the insured for a loss and then collects payment from the responsible party for the same damages, the insured HAS to hold onto the money on behalf of the insurance company and then reimburse the company up to the amount of the settlement.

Example: Let’s say that in the immediate example, James’ friend Teri comes along and confesses to the hit-and-run, goes to the police and accepts her legal probation and fine, and then gives James money to pay for the damages. To comply with the PAP policy provision, James must hold the money, tell his company about the payment, and forward part or all of it to the insurer (depending upon whether Teri’s payment is less or greater than the company’s settlement).

This duty of both parties regarding subrogation has been long established. For a classic illustration of this matter, please refer to PF&M Section 410_C054 Subrogation Examined In Automobile Claim (Classic), in Court Cases.

POLICY PERIOD AND TERRITORY

In order for the PAP to apply to a loss, the loss must happen within the policy period shown on the declarations page and within the territory shown. The territory described in the Personal Auto Policy includes the United States, its territories and possessions, Puerto Rico and Canada. The territory also includes accidents involving a covered vehicle while it’s being shipped between the ports of these locations.

TERMINATION

This Personal Auto Policy provision addresses both cancellation and non-renewal of an auto policy. However, a detailed discussion of this topic is fairly academic, since it may be the most frequently amended or replaced policy provision. This provision is necessary due to various state requirements, as well as individual company preferences. It is critical to keep in mind that state and company rules are what must be followed when terminating a customer’s coverage. Understanding this PAP provision provides a grasp of the mechanics, rather than the actual events that create non-renewals or cancellations. One exception may exist concerning an insured’s request to cancel the policy. Still, individual companies may adopt their own rules requiring return of original policy, a lost policy receipt, or other requirements that make it careless to make any assumptions. Please refer to PF&M Section 410.6-1, Auto Cancellation and Non-renewal Time Requirements.

A. Cancellation

The insured has it simple. All she or he has to do is either return the policy to the company or send prior written notice of the date the policy is to be canceled. The insured can request cancellation at any time during the policy period.

It’s a little more complicated for the insurer to cancel coverage. The company has to mail written notice to the named insured at the address shown on the policy declarations page. The insurer must give 20 days’ advance notice of cancellation, unless the cancellation is for not paying the premium or if it is done within the first 60 days of coverage (new business). In the latter instances, the insurer may give 10 days’ advance notice.

After new business has been in effect for 60 days or after a renewal of a continued policy, cancellation may take place only for nonpayment of premium or after the license of the named insured or a regular driver of the covered vehicles is suspended or revoked. Any suspension or revocation must have occurred either during the last policy period or, if the policy period is other than annual, since the last anniversary date. Another reason for cancellation is any significant misrepresentation set forth to get coverage. Please refer to PF&M Section 410.6-1, Auto Cancellation and Non-renewal Time Requirements.

Note: A misrepresentation has to be important enough to affect a company’s decision to accept coverage. Minor items may call for premium adjustments, but not cancellation. For example, finding out that the insured gave you a wrong model year or name isn’t an important misrepresentation. The fact that he or she hid their recent conviction for serial vehicular homicide is kind of important, and sending a legal notice of cancellation would be justified.

B. Non-renewal

This option to end coverage is just a company privilege. However, if an insured sent in advance a written notice not to renew coverage at the policy’s expiration date, it technically would be an insured’s request to non-renew.

In any case, if a company doesn’t want to continue coverage, it has to give an insured at least 20 days’ advance notice of non-renewal. If the policy period is less than six months, coverage may be non-renewed at any six-month period after the anniversary of the original effective date. If the policy period is annual or longer, the policy may be non-renewed at any anniversary. As with the cancellation provision, many states and companies vary from this portion of the Personal Auto Policy. It is critical, absolutely critical, that you understand the rules of your company and state provisions, since the differences center around the amount of notice (nearly always longer) and have specific reasons for non-renewing. Further, for both cancellations and non-renewals, many states require that the legal notice includes the reason for the action and any available recourse. Again, please refer to PF&M Section 410.6-1, Auto Cancellation and Non-renewal Time Requirements.

C. Automatic Termination

This section of the termination provision allows for coverage to end without any written request or notice being required. If a company sends a renewal policy, and if the insured or insured’s representative doesn’t accept it, coverage ends at the latest expiration date. Nonpayment of the renewal premium is considered non-acceptance. If an insured obtains another insurance policy, coverage automatically terminates at the effective date of the replacing coverage.

D. Other Termination Provisions

Part D of the TERMINATION provision informs the insured that a cancellation notice may be delivered or mailed and that proof of mailing acts as sufficient proof of notice. IMPORTANT: Many states mandate how the notice has to be delivered (for instance, registered or certified mail), so you need to be aware of state law and any form that amends or replaces this provision.

The insured is also told that the company may be refunding the premium if a policy is canceled, but that the refund transaction has no effect on the cancellation. In other words, an insured may not claim that, after receiving legal notice as well as any other notification requirements, the cancellation is voided because of a delay in returning the premium.

TRANSFER OF YOUR INTEREST IN THIS POLICY

A policyholder can assign his rights and duties under the PAP to another person, BUT ONLY with the written permission of the insurer.

Example: The Yungadriva family has reached a milestone. Sylvie Yungadriva has just turned 16 and passed her test to become a driver. Sylvie is delighted when her parents tell her that, not only does she get sole use of the family’s ‘99 Hyundai, her father has changed the title of the car to Sylvie. Now the bad news. Since she now owns a car, she will also have to be responsible for her own insurance policy. Mr. Yungadriver sends in a request to his insurer to show Sylvie as the principal driver and to make her the named insured. The request has an explanation that Sylvie is now the legal owner and operator of the car. Their agent says that the insurer will process the change without a hitch.

There is one exception to the rule of having to get the insurer’s permission to assign a policy: if the policyholder dies. In this event, this policy provision automatically transfers coverage either to a surviving spouse (if he/she lives at the same address) or the deceased’s legal representative. Either party achieves the status of named insured. However, the legal representative is protected only to the extent of his/her duties to maintain or operate the covered vehicles.

Example: Paul Graybeard just died a couple of weeks ago. Before his death, he asked his niece, Justa, to be his estate’s executrix. As part of the will, Paul’s ’98 Mercury Lynx was given to Paul’s grandson. Because Justa lived only a few miles away from her nephew’s family; she arranges to drive the car over to her nephew, join her relatives for a home-cooked meal and then have her nephew try out the car by driving her home. On the way over to her nephew’s home, Justa nods off at the wheel, runs a stoplight and hits a young couple who were attempting to cross the street. The couple suffers some scrapes, cuts and broken bones. Since Justa was her uncle’s legal representative and as she was executing a portion of his will, the loss is covered. However, if Justa had the accident while doing some task that was unrelated to the estate, her uncle’s policy would not cover the loss.

The insurer will only recognize such a transfer until the policy’s expiration date. The working assumption is that appropriate coverage reflecting the change in circumstances will be obtained or that coverage will either be terminated or allowed to expire.

TWO OR MORE AUTO POLICIES

The final provision of the Personal Auto Policy is important. What happens if the insurer issues more than one auto policy to an insured, and all of the policies are available to respond to the same accident? Simple enough: this provision designates the company’s total liability to its insured. The total amount that the company is obligated to pay equals the highest limit of insurance written under any single, applicable policy.

Example: Ober N. Shord owns a ’06 Landmaster Sports Utility Vehicle that is insured by Slumbertyme Mutual. Their underwriters must have been asleep because Ober ended up with three policies applying to an at-fault collision. Slumbertyme’s policies had the following coverages and limits:

Coverage	Policy A	Policy B	Policy C	Policy Limit Totals
Bodily Injury	$25,000/$50,000	$250,000/$500,000	$100,000/$300,000	$375,000/$850,000
Property Damage	$25,000	$250,000	$100,000	$375,000
Medical Payments	$3,000	$10,000	$5,000	$18,000
Uninsured Motorist	$15,000/$30,000	$100,000/$300,000	$25,000/$50,000	$140,000/$380,000

Although it might be a comfort to Ober and the person he injured to have the insurance limits added together (stacked), the Two Or More Policies provision prevents this scenario. In this instance, Slumbertyme’s total possible obligation is limited to the insurance limits shown under Policy B above, the highest single set of limits. The limits may not be combined in any way to increase coverage beyond the limits available under a single policy. For a court’s view on this matter, please refer to PF&M Section 410_C091, Insured Not Permitted To Stack UIM Benefits, in Court Cases.

Note: There are laws in a number of states that, depending upon circumstances and coverages, limits may be stacked. Therefore, applicable state law is always relevant.