PERSONAL AUTOMOBILE PROGRAM ARCHIVE

(September 2024)

This is a repository of articles and analyses that relate to earlier editions of the above captioned program or coverage form.

Archive Index
Analysis	ISO '05 Ed. Personal Auto Policy Coverage Form Analysis
Analysis	ISO '98 Ed. Personal Auto Policy Coverage Form Analysis
Comparisons	A Comparison Of The 6/98 And 6/94 Editions Of The Personal Auto Policy
Comparisons	Comparing The ‘94 And ‘89 Editions Of The PAP
Comparisons	PAP Feature Comparison With Family And Special Automobile Policies
Comparisons	PAP Comparison With Family And Special Automobile Policies Knowledge Tester Quiz
Special Analysis	Credit Score Discussion Panel
Special Analysis	No Fault Automobile Insurance

ISO '05 Ed. Personal Auto Policy Coverage Form Analysis

This is a discussion of Insurance Services Office's (ISO) 2005 edition of the Personal Auto Policy (PAP), a popular coverage standard that is used by many insurers to cover personal driving exposures.

AGREEMENT

This opening section states that payment of applicable premium initiates the automobile contract as stated in the sections that follow the Agreement.

DEFINITIONS

This section defines the terms that are critical to understanding how the policy responds to eligible losses. 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 the earliest of the following:

· they have been out of the household for 90 days

· the former spouse gets his or her own policy where he or she is the named insured

· the policy period ends.

Example: An insured and her spouse are insured under a PAP with a policy term of 3/2/15 to 3/2/16. On 5/5/15, the couple split up, with the husband leaving (the wife was the named insured). On 8/25/15, 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 5/5/15?

· he insures his car on 8/25/15?

· his wife’s policy’s renewal date of 3/2/16?

· he’s been out of the household for more than 90 days; in this case, 8/2/15?

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.

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

C. 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. Pickups and vans are also eligible to qualify as owned vehicles.

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.

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 $12 fee for each trip. While driving one couple home, Jay hits the rear of a car of another church-member who is 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." However, no person is a family member unless they reside in the same household as the named insured.

G. "Occupying" means in, upon, getting in, getting on, getting out or getting off.

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.”

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

While this simple definition is inclusive, it still permits some elements of a loss to be denied.

Example: Natasha’s ’11 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.

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 by PAP.
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 by PAP.
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 pickup, 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.

Note: Farm implements and farm wagons qualify as trailers ONLY for the time that they are being towed by an eligible 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:

· An ‘11 Chrysler the insured borrowed from his neighbor while his car is having its brakes inspected

· The ‘14 Dodge Ram that is a “loaner” from the body shop which is removing rust spots and re-painting the insured’s custom van

· A ‘13 Taurus a dealer lends to the named insured’s spouse because her regular car is having its transmission replaced

A ‘15 Hyundai an insured rents after a severe oil leak disables 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.

Cindy’s car is a substitute for Sara’s car and would be covered if she caused bodily injury or property damage to another party. However, there is no coverage for damage to Cindy’s car.

The above example should be considered a fair application of coverage. If a person who only carries liability coverage has their car damaged while permitting another driver to use it, that situation should not create broader coverage when no party carries collision or comprehensive coverage on the applicable vehicle.

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. Though not specifically referenced, SUVs are treated as private passenger autos and are subject to the following weight restriction.

In order to be eligible, a pickup or van has to have a maximum Gross Vehicle Weight Rating of 10,000 lbs. or less.

Example: Joe Karluver has a PAP with a policy period of February 10, 2015 to August 10, 2015 and it covers a ‘14 Taurus. Given this information, which of the following qualifies as a “newly acquired auto”?

An ‘11 Chrysler Joe bought on 03/16/15 - qualifies
A ‘10 Chevy 2-ton truck Joe bought on 06/10/15 - doesn’t qualify
A ‘12 Buick which Joe’s grandfather left to him in a will on 07/20/15 - qualifies
An ‘08 Chevy pickup that Joe gets by trading a boat and trailer to his neighbor on 05/03/15 - qualifies
An ‘09 Chevy pickup that Joe gets by trading a boat and trailer to his neighbor on 05/03/15 AND the pickup is hired out to a couple of businesses for making deliveries - doesn’t qualify
A '10 Explorer that Joe bought on 02/02/15, 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. Paragraph 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. The coverage that is available for newly acquired autos depends on the type of coverage provided by the PAP. However, in order for coverage to apply beyond the automatically provided coverage, the insured must report the newly acquired auto within the applicable time period. If not reported as required, there is no coverage on the auto between the time of automatic coverage and the date the formal request is made.

a. All coverages other than Coverage D-Coverage for Damage to Your Auto.

The insured has to report a new auto no later than 14 days from its acquisition. During those 14 days, the coverage is equal to the broadest coverage existing for an auto that appears on the policy declarations. If the new vehicle replaces a vehicle that is listed on the policy, the replacement does not have to be reported.

The issue of a vehicle replacing a vehicle already described and covered by a PAP is an area that could use clearer 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 time of the policy’s next renewal after acquisition.

· 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 ‘04 Mercury, has a policy period of April 15, 2015 to October 15, 2015, and it has the following coverages:
Bodily Injury	$100,000/$300,000
Property Damage	$100,000
Medical Payments	$10,000
Uninsured Motorist	$25,000/$50,000
Bodily Injury	$100,000/$300,000
Scenario 1: On September 3, 2015, Dill buys a ‘10 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 2: On September 3, 2015, Dill buys a ‘10 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.

b. Coverage for Damage to Your Auto - Collision

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 ‘09 Volkswagen and car 2, an ‘11 Volvo, and has a policy period of June 5, 2015 to December 5, 2015; it has the following coverage:
Coverage	Car One	Car Two
Collision	No coverage	$500 Deductible
On October 9, Duhreece’s grandfather gives her his ‘10 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. 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 neither one nor car two had Collision Coverage, Duhreece could only qualify for full protection if she had requested full coverage by October 13.

c. Coverage for Damage to Your Auto - Other Than Collision Coverage

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 is in effect.

Let’s make use of the Duhreece situation again.

Example: Scenario 1: Duhreece Smith’s PAP covers car 1, a ‘09 Volkswagen and car 2, an ‘11 Volvo, and has a policy period of June 5, 2015 to December 5, 2015; it has the following coverage:
Coverage	Car One	Car Two
Other Than Collision	No coverage	$1,000 Deductible
Scenario 2: Things are nearly the same as in scenario 1. 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. Scenario 3: Everything is the same as in Scenario 2 except Duhreece still has the ‘VW and the roll-top desk are 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 3 are probably an unintended result of the definition for a “newly acquired auto” which may be handled in future editions of the PAP. Of course, a subscribing company may also handle this situation by filing its own endorsement.

Pickups and Vans

The PAP considers pickups and vans eligible vehicles as long as their gross vehicle weight rating does not exceed 10,000 pounds and they aren't used commercially.

Example: Terry owns two sedans that were insured under his PAP. For the longest time, he has been working on starting his own business. He finally gets a chance and buys out his boss’s interest in Acme Inc., a fruit & vegetable wholesaler. The purchase includes a newer delivery truck. Terry assumes that, since he sold one of his personal cars to help make the business purchase, the truck can be considered a replacement and is covered under his PAP. He is wrong.

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

A. 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 PAP gives the insurer discretion on defending and/or settling a given claim. The PAP contains the potential of an unlimited defense obligation since it does not contain a specific monetary limit on the amount that may be 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.

Note: When prejudgment interest is awarded against an insured, this amount is part of the insurer’s obligation to pay, subject to applicable policy limits.

B. Under Part A - Liability Coverage, an insured includes:

1. You, any "family member,"

Note: This is in regard to operating, owning, or maintaining either a car or trailer

2. Persons who use "your covered auto."

Example: Yannick Petrie’s ‘09 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 materials spill 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 damage 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). The same protection is available with regard to non-owned auto or trailer. However, this coverage does not apply in instances where such entities either own or hire the vehicle or 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. There are states with 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]), some states use various no-fault approaches.

Supplementary Payments

This section advises the insured of several, additional coverages that are available.

1. 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.

2. 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.

3. 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.

4. 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 colliding 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 to reimburse a covered person for 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.

5. 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.

A very important point is that any supplemental payment does not reduce the PAP’s other, primary policy limits.

Exclusions

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

A. 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 that deliberately 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 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.

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 damage involving 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 by and are not 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 ‘07 minivan. But things are looking up. At first he used it 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 $100 a week by 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 an insured is in the business of 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.

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.

Examples:

Scenario 1: 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.

Scenario 2: 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.

Scenario 3: 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.

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: This 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 (Nuclear Energy Liability Insurance Association, Mutual Atomic Energy Liability Underwriters and Nuclear Insurance Association of Canada) or their successors.

B. These are other situations that are ineligible for coverage.

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 exists when such a vehicle is used by an insured in a medical emergency. Trailers are still covered and so are incidents involving golf carts as long as the golf cart is NOT owned by an insured.

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.

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 or 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).

4. 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 ‘13 Acura, which they’ve modified to perform at impressive speeds. One Saturday night, both are in their Acura 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, damaging them and some other facility equipment. Such a loss, while not technically involving a race, is still excluded because Carl and Josie’s Acura was within a facility designed for racing AND they had the intent of participating in a race.

Limit of Liability

A. 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 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 carpooling) and a local TV station’s van. Following are the resulting claims for damages
BI Claims	Amount
One	$43,000 (Severe burns)
Two	$12,000
Three	$51,500 (paralyzed)
Four	$24,000
Five	$17,800
Six	$8,500
Seven	$26,500
Total	$183,300
PD Claims	Amount
One	$23,000
Two	$14,700
Three	$19,600
Four	$83,000
Total	$140,300
These claims, all under a single accident, could be handled 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.

B. This 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. Paragraph 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. Paragraph A.2. explains 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.

Paragraph B of this provision states that no one is eligible for duplicate payments.

This provision prevents technicalities to bar or limit coverage because of the different ways that states structure their coverage requirements. The provision allows travelers to cross state lines without having to worry about making specific adjustments to their form.

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.

Other Insurance

In the event that other sources of liability insurance exist, Part A-Liability Coverage 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. Both sources have coverage limits greater than the loss amount.
Scenario 1: 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 2: 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 3: 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.

Regarding other existing coverage, the policy 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

Paragraph 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.” However, only expenses for services provided within three years of the date of the accident are covered.

Example: Linda, who’s insured under a PAP, is struck by an auto while crossing at an intersection in January 2013. Linda suffers some deep cuts to her thighs and legs and Linda’s PAP pays for an ambulance trip and for stitches. In January 2016, Linda visits her doctor about continued pain in her legs. Her doctor detects bone deterioration resulting from trauma suffered in the January 2013 accident. She has surgery in February 2016 and then undergoes two months of rehabilitation. Linda contacts her insurer to handle the latter recently identified expenses. The 2016 expenses are not covered by the PAP because they were incurred more than three years from the accident date.

Item B defines insured as used in this coverage part as the named insured and spouse plus any “family member.” However, they are insureds only when occupying any trailer or a motor vehicle that is meant to be on public road. They are also insureds if, while being a pedestrian, they are struck by either type of vehicle. Finally, anyone occupying a covered auto is also an insured.

Exclusions

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

1. When the injury happens while the insured is in a vehicle that has less than four wheels. Such exposures are best covered by a PAP policy with an applicable endorsement or by a policy designed for motorcycles or recreational (off-road) vehicles.

2. When the injury takes place while the vehicle is being used to transport persons or property for income.

Note: The PAP does cover carpooling arrangements in which riders help the driver with pooling expenses such as gas, oil and maintenance.

3. When the injury happens while the vehicle is at its location and being used as a premise or residence.

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

5. When the bodily injury happens while the 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 using a vehicle that is regularly available to him or her.

Example: Lenny gets up from under a car he’s repairing and which is supported by a jack that was not placed properly. The jack falls over and the front of the car crushes Lenny’s leg. As it turns out, the car belongs to his uncle, who gave Lenny the car a year earlier since his poor health kept him from leaving his home. Because the car is always available to Lenny and it was never listed on Lenny’s policy, his PAP does not provide coverage.

6. When 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: Items 5. and 6. describe 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. When injury occurs while the injured person is occupying a vehicle without the belief that she or he has the vehicle owner’s permission to do so. However, the exclusion does not affect such situations involving an insured’s family member.

8. When injury is suffered while the insured is 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.

9. Any injury related to war of any type

10. Any injury caused directly or indirectly by a nuclear weapon, reaction radiation or contamination

11. When injury involves any vehicle inside a facility designed for racing while preparing for or competing in a race.

Limit of Liability

Paragraph A explains that the monetary limit that appears on the policy declarations page is the maximum amount of coverage that will apply to injuries suffered by any individual that occur in a given, accidental loss. The number of vehicles, insureds, or claims involved in a given loss does not affect this maximum amount. It is also unaffected by 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.

Paragraph 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-Medical Payments Coverage 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 under three different PAP forms. The PAP source one has limits of $3,500; source two, $5,000; and source three, $6,500. 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 any other available coverage has paid its limit.

Note: 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 C - UNINSURED MOTORISTS COVERAGE

Insuring Agreement

A. 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 or 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 insurance 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.

The PAP is designed and refined to address loss obligations which can be properly considered personal auto losses. It is also structured so that loss payments be made by the party or parties responsible for the loss. However, the PAP also handles a substantial coverage gap. 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. Drivers often consider operating a vehicle to be a right. Unfortunately, many such persons ignore the financial responsibility to take care of damages they may cause while 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?

B. This portion of the 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.

C. Part C of the PAP 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.”

Ineligible Vehicles - 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

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.

B. No insured qualifies for uninsured motorists coverage if a bodily injury claim is settled without the company’s consent. However, this applies only if the settlement hinders the insurance company’s recovery rights. In the instance of an unapproved settlement of a bodily injury claim, it 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 adversely affected by an insured’s action. Previously, certain losses could have been denied, purely on technical grounds. Nationwide, courts have been rejecting such results.

Also, there is no coverage for an insured in a vehicle that’s transporting people or property for pay or for loss to a vehicle while 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.”

C. No coverage exists if coverage should be handled by either workers compensation or disability benefits law.

D. Payments are not made for punitive or exemplary damages.

Limit of Liability

A. Paragraph 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, or 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.

B. Regardless 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.

C. 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. The Applecheeks need to apply for coverage under the $25,000 uninsured motorist coverage part of their own PAP. Their insurer 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 $1,250 be returned to them.

D. No coverage exists under this portion of the policy if coverage should be handled by either a workers compensation or a disability benefits law.

Other Insurance

1. This portion of the Personal Auto Policy operates with 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.

2. 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 (this is true even with regard to vehicles that are temporary substitutes for listed vehicles).

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 this process, using representatives of their own choosing. A judge may be called upon to select a third arbitrator if that person isn’t selected by the first two arbitrators within 30 days.

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 state’s 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

Insuring Agreement

A. Under paragraph 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 a ’03 Chevy Cavalier with BI, PD and UM/UIM coverage only and a ’09 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.

B. “Collision” refers to your covered auto or your non-owned auto which has either hit or been hit by another vehicle or some other item. It’s implied that the event has to result in damage to your car. It also covers the damage to the covered or non-owned auto when it flips or is otherwise upset.

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.

C. 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”).

Examples:

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.

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.

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.

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.”

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 ’93 Fiero to use until your chariot is repaired. On the way home, you studiously avoid potholes….until you swerve out of your lane and sideswipe another car. This is a covered temporary substitute situation.

Transportation Expenses

A. 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 (subject to $20 daily maximum) 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 ‘12 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.

B. 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 (that a covered vehicle is unavailable for use). Coverage ends when the covered car is back for the insured’s use or a settlement has been made. All coverage is subject to any limits and provisions shown in paragraph A of the coverage. Further, all payments end when the auto is available for use or the loss has been settled. Payments under this provision are also subject to the time it should reasonably be expected to repair or replace the applicable auto.

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 only gas and wear and tear.

2. Damage resulting from your car’s aging, extremely cold weather, mechanical or electrical breakdown, or road damage.

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.

An exception is made for such damage that is related to the total theft of a covered auto (owned or non-owned).

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, 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 designed for reproducing, receiving or transmitting signals (both audio and visual). For instance, the PAP begins by excluding coverage for equipment such as radios, tape decks, stereos or compact disc players. Other items that are becoming common auto components are also barred from coverage such as navigation devices, phones, computers, TVs, scanners and similar equipment. However, there are some exceptions. There IS coverage for equipment IF the equipment is permanently installed in your covered auto or any non-owned auto.

Note: Another issue that may need to be addressed, although the items that are listed in the PAP is just illustrative, the fact that it includes obsolete devices and fails to mention newer devices could still create claim disputes.

5. This exclusion is for any media that is used with such equipment as well as any accessories used with equipment that reproduces sound, receives or transmits (audio and/or visual) signals.

6. No coverage is available for vehicles listed on the policy or those that qualify as a non-owned auto when they are destroyed or taken by military or civil authorities.

Example: Marnie’s car is confiscated by the local police when illegal drugs are found to have been hidden in the vehicle. This loss is ineligible for coverage under Marnie’s PAP.

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.

7. 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–Trailer/Camper Body Coverage (Maximum Limit of Liability). Of course, in many instances it would make more sense to purchase a special motor home or RV policy to properly protect rolling homes.

Are there any exceptions? Yes. This exclusion doesn’t affect coverage for trailers (including their facilities or equipment) that are 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.

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.

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

9. Any equipment used to detect or locate radar or lasers aren’t protected if it is lost or damaged.

10. 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 Coverage).

Is there an exception to exclusion 10? Yes. The exclusion is not extended to a pickup truck’s cap, cover or bed liner. However, an insured MUST be the owner of the pickup that is equipped with this property.

11. 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 mentions that it applies even during road testing and delivery. HOWEVER, this exclusion just applies to vehicles that are made for use on public highways.

It looks like exclusion 11 bars coverage for any auto-related business.

12. 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 broad. There’s no coverage for any auto that’s located in a structure built to host auto races, including practices if the auto is there to actually participate in the contest.

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, including such times that a vehicle is at a location as a precursor to a participating in a race.

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 racetrack 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.

13. This item 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 fiancée 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

A. The PAP does have restrictions on the total amount of coverage available for a loss to a covered vehicle.

1. Paragraph 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

2. 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;

· 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.

B. 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 paragraph 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.

C. While not defined, the words “of like kind and quality” can have a significant impact on settlements. 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.” As it is with homeowners insurance, the need to repair damaged property often puts auto insurers in the position of having to actually improve an insured’s position after a loss. Use of the terms “like kind and quality,” allows carriers options other than the problematic use of new parts to make repairs and then attempt to make adjustments to the value of the settlement.

Payment of Loss

This provision discusses a company’s options in making a settlement on a loss to a covered vehicle. 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

A carrier for hire or a bailee for hire is not permitted to benefit from the PAP.

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.

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.

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 (competent and impartial) 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.

Note: 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.

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 or her 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. However, coverage may be lost only if the failure to comply is significant

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. When the Smiths sue their insurer, the court rules that, since the slight delay did not harm the insurer’s ability to investigate/handle the loss properly, it had no grounds for denying 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.

Paragraph 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 or 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 items paragraph B. allows 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.

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. Jeremy’s insurance company denies the claim, alleging that his actions breached the insurance policy.

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.

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 paragraph 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 ’03 Audi is replaced by a ’12 BMW

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, paragraph B. of this 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.

C. This part 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 (whether such change is done via a new coverage edition or an amendatory endorsement).

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 provision of the insurance contract is implied throughout the policy.

While it is questionable that such wording ever deters fraud, at least it continues to act as a basis for denying coverage when discovered.

Legal Action Against Us

A. This provision of the PAP acts to make a lawsuit the last recourse to resolving a dispute under this 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.

Of course, with insurance policies, any aspect of the agreement will eventually find its way to a formal dispute.

B. Paragraph 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 paragraph 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 (prejudice) 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, confess 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.

Paragraph 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.

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.

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.

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.

Examples:
An
  insured unintentionally provided the wrong model year or name of a standard
  vehicle on the application - isn’t an important misrepresentation. The
  information just needs correction with any necessary adjusted premium.
An
  insured hid their recent conviction for serial vehicular homicide – that
  information 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.

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

Paragraph 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 ‘04 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. Yungadriva 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 or 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 ’12 Cadillac 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.

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 ’15 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.

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.

ISO 06 98 ED. Personal Auto Policy Coverage Analysis

This article is a reproduction of our original discussion of the 1998 edition of the ISO Personal Auto Policy and the differences it introduced from the '94 program.

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, and

· Part F - General Provisions.

The basic structure of the PAP remains constant in the current 06/98 edition. This analysis, where applicable, will comment on significant differences between the two latest editions of the form.

Definitions

This section preceding the coverage parts continues to define the terms that are critical to understanding how the policy responds to coverage situations. The definitions section of the 06 98 edition of the PAP is different in a couple of areas when compared to the 06 94 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).

06 98 change: A spouse’s status is significantly changed when he or she no longer lives in the same home as the named insured. Once a spouse is in a different address or location, he or she still qualifies under the definitions of “you” and “your” until either:

· he or she has 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.

Be aware that a spouse who becomes a named insured on their own auto policy is no longer an insured under their former resident spouse’s coverage. It is possible that this item creates some ambiguity.

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

C. Like its predecessors, the 06 98 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.

The 06 98 edition of the Personal Auto Policy also defines these words and phrases. Note, as a shortcut, these terms appear in quotation marks whenever referenced in the PAP.

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.

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

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" refers to getting in, getting upon, getting out of, or getting off of a vehicle as well as being in or on a vehicle. As inclusive as this list may appear, there are situations that constantly challenge what's meant by occupying a vehicle. Consider that the PAP definition doesn't mention whether being under a vehicle is occupying it.

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

Clarification: Although the 06 98 edition of the PAP includes loss of use in its “Property Damage” definition, this incidental loss must be related to some physical contact.

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.

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).

J. The definition of “your covered auto” was substantially revised in the 06 98 edition of the PAP. A ”covered auto” now refers to autos described in the policy, new autos bought by an insured during the policy term, owned trailers, non-owned autos and trailers that are substitutes for owned vehicles. However, the substitution has to be due to the owned vehicle being repaired, serviced, lost or destroyed.

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.”

K. We should now take a careful look at the definition of “newly acquired auto.” With the introduction of the 06 98 Edition of the PAP, item K. has taken the place of item J. as the “king” of the definition section (due to its length). This new definition has more parameters than what was previously required for additional vehicle purchases or acquisitions (such as an insured who receives a car as a gift). The purpose remains the same. It is meant to keep control of the exposure that the insurance company originally agreed to write and for which the PAP is intended to cover - fundamentally, personal driving exposures. The 06 98 edition of the PAP considers a newly acquired auto to be any private passenger auto, pickup or van that an insured acquires (buys, leases, is given, etc.) during the policy term. However, pickups and vans have to weigh less than 10,000 lbs. and can't be used for business purposes in order to qualify. The definition does make an exception for certain incidental business exposure and for farm/ranch use.

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 that 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 on a confusing basis. An insured has to meet rigid reporting requirements and, if missed, coverage begins on the date of the actual request.

a. When only liability and medical payments coverage is involved, a new vehicle qualifies for the broadest coverage that appears for any auto on the policy. An insured has to report the vehicle's acquisition within 14 days of securing ownership.

If a newly acquired vehicle is a replacement for a covered auto, it assumes the same coverage as the auto it replaces, IF the coverage ONLY involves liability and medical payments. In other words, a liability only replacement auto does not have to be reported until policy renewal.

Now this is an area which 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 the first 14 days of its acquisition, 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.

b. The requirements are very different when either Collision or Other Than Collision coverage is involved. If either Collision or Other Than Collision is involved, the newly acquired vehicle has to report the auto within:

(1) 14 days after securing ownership when any car listed on the declarations page is covered for collision. During that 14-day period, the new acquisition qualifies for the broadest level of collision coverage shown.

(2) Four days securing ownership if no current vehicle shows Collision or Other Than Collision Coverage on the policy declarations.

Note: If a physical damage loss occurs during the 4-day period, the insurer will honor the applicable coverage after applying a $500 deductible. However, if a loss occurs on day five (or later) and the vehicle has not been reported, coverage does not apply until the actual reporting date, so the loss would not be covered.

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 are 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.

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."

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). This could apply to a situation where one member of a group or club causes an accident with another member's car while using the car for a club activity.

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.

Supplementary Payments

The PAP also includes some additional coverages. It 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.

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.

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

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?

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

Because of this exclusion, property belonging to other parties that is destroyed while that property is in an insured's car would not qualify for coverage.

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.

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.

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 either an owned auto, van or pickup, or a temporary substitute, is covered.

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.

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

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. While out drinking heavily to celebrate the fact that his mother-in-law is leaving, his son and a friend decide to go cruising in the borrowed truck - 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 death” never to touch it - 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 4 wheels and/or is really 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.

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.

Exclusion B.4 has been part of the PAP beginning with its 06/94 edition. In the 06 98 version, it continues to read as follows:

4. Any vehicle, located inside a facility designed for racing, for the purpose of:

a. competing in or

b. practicing or preparing for any prearranged or organized racing or speed contest.

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

In the 06 94 edition of the PAP, the Part A limit of liability section consisted of paragraphs A, B. and C. In the 06 98 edition, paragraphs A. and B. have been rewritten into paragraph A. and paragraph B, which has the same wording as the previous edition’s paragraph C.

Part A 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, nor 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.

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.

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

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

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 which 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.

· 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.

7. No coverage applies if bodily injury occurs when the injured person is occupying a vehicle with 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, an owned pickup or van, or a trailer being used with such vehicles.

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 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 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.

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.

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

Under part A of the insuring agreement, the Personal Auto Policy agrees to protect an “insured” against “bodily injury” damages 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 damages 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.

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 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 higher numbers 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.

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.

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.”

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.

Limit Of Liability

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. Part 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.

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.

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.

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 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 as well as understood in the ultimate arena in which policies are interpreted - 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.

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.

“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 a 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 ‘93 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.

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. Note that this is an increase from the $15/day, $450 maximum found in the 06 94 edition of the PAP. 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.

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.

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).

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.

The next exclusions are a little different in the 06 98 edition of the PAP. Exclusions 4. through 6. in the latest edition appeared in the 06 94 edition as exclusions 4.a. and 4.b. The rewrite was done for the sake of clarity and was sorely needed since the previous wording was confusing.

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.

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.

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.

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.

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. However, the 06 98 edition of the PAP has tightened its reins. Where the PAP previously gave an insured up to 30 days after getting the property to report it to the insurer, the report must now be made within 14 days.

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’s 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.

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 which 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.

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.

In versions of the PAP issued before the ’94 edition, this loss would be covered, since it didn’t specifically involve a race. The ’94 and ’98 editions of the PAP correct this oversight with exclusion 13. 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.

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 $500;

· 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.

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. The explicit mention of tax was introduced in the 06/94 edition of the PAP in the hopes that it would make settlements more consistent.

No Benefit To Bailee

The PAP states:

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

Other Sources Of Recovery

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.

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’s important that these conditions be met, since failing to comply may relieve an insurer from having to pay for a loss.

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’s 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.

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 makes 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.

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.

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 of events that could affect the policy’s rates:

1. The ’92 Pontiac Sunbird is replaced by a ’96 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.

Fraud

This provision needs to be shown verbatim:

“We do not provide coverage for any “insured” who has made fraudulent statements or engaged in fraudulent conduct in connection with any accident or loss for which coverage is sought under this policy.”

Thank goodness for this provision. Without it the insurance industry would have a big problem with fraudulent claims.

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.

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.

This duty of both parties regarding subrogation has been long established.

Policy Period And Territory

Termination

A. Cancellation

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

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. New in the 06 98 edition of the PAP, this part of the termination provision gives the insurer the right, for policies with a term that is longer than 6 months yet shorter than a year, to non-renew coverage at the end of the policy period.

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.

C. Automatic Termination

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.

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 93 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.

Two Or More Auto Policies

The final provision of the Personal Auto Policy is an exciting one! Okay, it’s not particularly thrilling, but it 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 one applicable policy.

The limits may not be combined in any way to increase coverage beyond the limits available under a single policy.

A COMPARISON OF THE 6/98 and 6/94 EDITIONS OF THE PERSONAL AUTO POLICY

Following are highlights of the differences between the 6/98 and 6/94 editions of ISO’s Personal Auto Policy. For an explanation of current, optional endorsements, refer to PF&M section 410.3 -Personal Auto Policy Endorsements.

I. PERSONAL AUTO POLICY

First, let’s take a brief look at the changes to the Personal Auto Policy. This latest edition, 06 98, is to take the place of the current, 06 94 policy edition.

DEFINITIONS

You and Your

The revised definition of “you” and “your” now refers to a husband or wife who leaves the named insured’s household. Non resident spouses are temporarily considered named insureds for 90 days after changing residency or until he or she gets their own policy or the policy period ends, whichever occurs first. This change should alleviate short term gaps in coverage due to relationship related changes to a covered person’s status.

Owned Autos

The Personal Auto Policy definition of an “owned auto” currently includes private passenger autos that a covered person leases (under a written agreement) for at least a six month period. Now this extension includes leased pickups and vans. This change means that any policy reference to “owned autos” now applies to leased vans and pickups. Therefore, both coverage and exclusion references which allude to “owned autos” will apply to a wider range of vehicles.

Covered Autos

Your Covered Auto

The definition of “your covered auto” now refers to vehicles which are described on the policy declarations page and “newly acquired autos.”

Newly Acquired Autos

“Newly acquired autos” include private passenger autos, pickups and vans which are not covered by another insurance policy. Note that any pickup or van must weigh less than 10,000 pounds and may not be used for delivery unless the delivery is incidental to installing, maintaining or repairing furnishings or equipment. Pickups and vans that are used in ranching or farming are still eligible as newly acquired autos.

Part two of the definition for “newly acquired autos” concerns itself with the coverage that is provided by the policy. This part of the definition explains the following:

· If the insured doesn’t request coverage for a new auto within the time frames specified in the definition, the coverage is provided on the date it is requested.

· For all coverages (excluding Damage To Your Auto), a newly acquired additional auto gets the broadest coverage written in the policy if coverage for the auto is requested within 14 days of the vehicle purchase date. There’s no need to ever request coverage for a new auto that replaces one that is listed on the policy.

· For either collision or other than collision when either collision or other than collision appears on the policy declarations, a newly acquired additional auto gets the broadest coverage written on the policy if coverage for the auto is requested within 14 days of the vehicle purchase date. If collision or other than collision does not appear on the policy declarations, a newly acquired additional auto is protected if coverage for the auto is requested within 4 days of the vehicle purchase date. However, a $500 deductible applies.

PART A - LIABILITY COVERAGE

Insuring Agreement

The insuring agreement has been revised in order to clarify when the insurer’s duty to defend ends. The insurance company’s obligation to settle or defend an insured ends when the Part A - Liability limit of insurance has been exhausted by either a payment of judgments or settlements.

Supplementary Payments

The daily limit for loss of earnings has been substantially increased from $50 to $200.

Exclusions

Several exclusions have been modified in order to make their intent clearer to policyholders.

Item 7 now states that exclusion A.2. does not apply to private passenger autos, vans or pickups, or trailers used or maintained by an “insured.” This exclusion no longer makes a distinction between owned and non owned pickups and vans.

Item 8 excludes coverage for losses involving vehicles that are used without an insured’s permission. This exclusion has been reworded so that it can be read with greater understanding. The exclusion now states that it DOES NOT apply to a family member while using a covered auto belonging to the insured.

Item 9a.: this exclusion’s obsolete reference to American Nuclear Insurers has been updated to refer to the Nuclear Energy Liability Insurance Association.

Editor's note: It is unfortunate that ISO missed a chance to eliminate some more confusion. The first part of the exclusion is labeled 9a. and b. The second part, which defines what is meant by “nuclear energy liability policy” is also labeled a, b (and c).

Under section B of Exclusions, item 1 has been changed. It adds “non-owned golf carts” to its exceptions. This results in the Personal Auto Policy offering liability protection for golf carts that are neither owned nor are available for an insured’s regular use.

Limit Of Liability

The limit of liability for Part A - Liability Coverage is now offered on a split limit basis. The wording of this section has been changed in order to address the bodily injury (per person and per accident) and property damage split limit structure. Important note: the policy wording has retained the following statement:

“This is the most we will pay regardless of the number of:

1. “Insureds;”

2. Claims made;

3. Vehicles or premiums shown in the Declarations; or

4. Vehicles involved in the auto accident.”

However, this statement appears in the same paragraph that deals with Property Damage, so it may be interpreted as not being an additional limitation which also applies to bodily injury. It is difficult to determine whether this change was intentional.

The reference concerning how the policy confirms to state laws requiring split limits has been deleted.

PART B - MEDICAL PAYMENTS

Exclusions

Item 7 excludes coverage for losses involving vehicles that are used without an insured’s permission. This exclusion has been reworded so that it can be read with greater understanding. The exclusion now states that it DOES NOT apply to a family member while using a covered auto belonging to the insured.

PART C - UNINSURED MOTORISTS COVERAGE

Exclusions

Item B.3 excludes coverage for losses involving vehicles that are used without an insured’s permission. This exclusion has been reworded so that it can be read with greater understanding. The exclusion now states that it DOES NOT apply to a family member while using a covered auto belonging to the insured.

Limit Of Liability

The limit of liability for Part C - Uninsured Motorists Coverage is now offered on a split limits basis. The wording of this section has been modified in order to address the uninsured motorist coverage per person and per accident within the split limit structure. This section’s meaning is clarified since it now specifies that the limit placed on damages that are paid under this coverage part includes care, loss of services or death which arises out of “bodily injury” incurred during a covered loss.

Other Insurance

This provision under Part C - Uninsured Motorists Coverage has been clarified. The additional wording makes it clearer that coverage will be shared among any other policy or coverage provision that provides “similar” coverage.

PART D - DAMAGE TO YOUR AUTO

Transportation Expenses

The basic coverage provided by the policy for temporary transportation expenses has been increased to $20 per day with a $600 maximum. This coverage provision also refers to “expenses” instead of “loss of use expenses,” until later when the provision limits payment for any loss of use to $20 per day. This particular change might make more sense if the term “loss of use” was defined. In absence of a defined term, it is not clear to this writer why the distinction was made by ISO.

Exclusions

This section of Part D - Damage To Your Auto has been drastically revised for sake of clarity and to make sure that the coverage provided by the basic policy matches up to what may be offered via optional endorsements. Since so much rewriting and renumbering is involved, let’s review each exclusion.

Exclusion 1 is unchanged from the PP 00 01 06 94 edition.

Exclusion 2 is unchanged from the PP 00 01 06 94 edition.

Exclusion 3 is unchanged from the PP 00 01 06 94 edition.

Exclusion 4 has been rewritten and reformatted into exclusions 4, 5 and 6.

Discussion of change: exclusion 4 in the 06 94 edition of the Personal Auto Policy was among its most confusing parts. The exclusion was rewritten into three separate exclusions. The revised exclusion 4 excludes losses under Part D to equipment such as radios, stereos, tape decks or compact disk players. However, two exceptions are made for equipment that merely reproduces sound, including their accessories. The first exception is for such equipment that is permanently installed. The second exception is for portable equipment IF the equipment is a component of a permanent housing unit, is powered by the covered car’s electrical system AND the equipment is either in or upon a covered auto when a loss occurs.

New exclusion 5 excludes coverage for electronic equipment that is capable of sending or receiving data signals, including its accessories. The two exceptions under this exclusion are for equipment which is part of an auto’s operating system and telephones which are permanently installed, but such telephones MUST be powered by the covered auto’s electrical system.

New exclusion 6 excludes coverage for tapes, records and similar media that are used with equipment excluded by revised exclusions 4 and 5.

Exclusion 5 has been renumbered to exclusion 7, but otherwise is unchanged from the PP 00 01 06 94 edition.

Exclusion 6 has been incorporated into exclusion 8 and has been substantially modified.

(see Exclusion 8, Discussion of change)

Exclusion 7 has been renumbered to exclusion 9, but is otherwise is unchanged from the PP 00 01 06 94 edition.

Exclusion 8 has been substantially modified.

Discussion of change: The revised exclusion 8 basically incorporates exclusions 6 and 8 of the 06 94 edition of the Personal Auto Policy. The result is that the revised exclusion denies coverage to camper bodies, trailers and motor homes which aren’t shown on the policy declarations page. The exclusion extends to living facilities and cooking, plumbing, or refrigerating equipment. Exceptions are made for trailers or camper bodies, including facilities and equipment, which are either non owned or are newly acquired. Such property that is newly acquired must be reported to the insurance carrier within 14 days of becoming the property owner’s. Important note: the coverage for newly acquired equipment was reduced from 30 to 14 days.

Exclusion 9 has been renumbered to exclusion 10, but otherwise is unchanged from the PP 00 01 06 94 edition.

Important note: It is clear that the Personal Auto Policy is not intended to cover equipment which is designed to defeat equipment used by law enforcement officials to control speeding motorists. However, a loophole may be present for equipment such as radar or laser “jamming” devices. Such equipment may not detect nor locate laser or radar equipment, so it might technically qualify for coverage.

Exclusion 10 has been renumbered to exclusion 11 and has been modified.

Discussion of change: this exclusion was reworded for greater clarity and to delete the reference to cooking and sleeping facilities (which are addressed elsewhere). An exception has been added for caps, covers or bedliners which are in or upon covered pickups. This exception updates the PAP to recognize the increasing popularity of such added equipment.

Exclusion 11 has been renumbered to exclusion 12, but is otherwise unchanged from the PP 00 01 06 94 edition.

Exclusion 12 has been deleted.

Exclusion 13 is unchanged from the PP 00 01 06 94 edition.

Exclusion 14 is unchanged from the PP 00 01 06 94 edition.

Limit of Liability

Part A of this provision has been revised to introduce a $1,000 sublimit for sound-reproducing equipment and accessories which are permanently installed in a covered auto. This coverage is for such equipment that is installed in locations that aren’t used by the auto manufacturer.

Examples:

· A CD player that is permanently installed in the rear floorboard of a minivan.

· A trunk which contains two obnoxiously large bass speakers for a cassette deck.

PART F - GENERAL PROVISIONS

Termination, Part B. Nonrenewal

This provision has added wording which clarifies the nonrenewal notice provided to policies which have policy terms that are 6 months or longer, but less than one year.

II. OTHER PERSONAL AUTO POLICY FORMS

Now let’s take a look at the other form changes made to the Personal Auto Policy program. Note that all of the revised or new Personal Auto Policy optional endorsements have an edition date of 06 98.

PP 00 06 06 94 - Amendatory Endorsement

This form has been withdrawn from use since its purpose was to modify an older version of the PP 00 01 personal policy into the 06 94 edition.

PP 00 07 06 98 - Transition Endorsement

This is a new form. Its purpose is to convert the 06 94 edition of the PP 00 01 Personal Auto Policy into the 06 98 edition.

PP 03 02 06 98 - Optional Limits Transportation Expenses Coverage

This is a revision of the form previously named “Increased Limits Transportation Expenses Coverage.” It has been changed to delete reference to merely increasing coverage to a $30 per day, $900 maximum. The daily and maximum limits, as well as a vehicle description and required premium, may now be entered on the form, which now contains a complete schedule, or on the policy declarations, along with the appropriate premium.

PP 03 07 06 98 - Trailer/Camper Body Coverage (Maximum Limit Of Liability)

This is a revision of the form previously named Covered Property Coverage (Maximum Limit Of Liability). This updated form has a complete schedule and has additional and revised wording. The revised endorsement includes a clearer explanation of the property that is covered and excluded.

PP 03 09 06 98 - Single Liability Limits

This form has been changed in order to endorse single limits of liability to the Personal Auto Policy since the basic PAP now offers coverage on a split liability limits basis.

PP 03 11 06 98 - Underinsured Motorists Coverage

This form is used to add coverage for losses caused by motorists whose auto insurance is less than the level of insurance provided by the insured’s policy. The updated form has a complete schedule and additional and revised wording. The revisions include clarifications of the insuring agreement, exclusions, limit of liability and other insurance provisions.

PP 03 13 06 98 - Coverage for Excess Sound Reproducing Equipment, Audio, Visual and Data Electronic Equipment And Tapes, Records, Discs And Other Media

This is a revision of the form previously named Coverage for Audio, Visual and Data Electronic Equipment And Tapes, Records, Discs And Other Media. This form has been substantially revised. It reflects the changes made to the basic policy under Part D - Damage To Your Auto. This endorsement may be used to provide additional coverage for eligible sound producing equipment.

PP 03 18 06 98 - Customizing Equipment Coverage

This revised form still provides coverage for loss to custom equipment. It reflects the changes made to exclusion 11 under Part D - Damage To Your Auto.

PP 03 20 06 98 - Snowmobile Endorsement

This revised form, like its predecessor, may be used to provide coverage to snowmobiles owned by the named insured. The newest form includes a larger schedule that offers coverage on a split limits basis and clearer instructions on entering information. The form also has changed the notification period on newly acquired snowmobiles from 30 days to 14 days.

PP 03 21 06 98 - Limited Mexico Coverage

The title of this endorsement has been changed from “Mexico Coverage” to “Limited Mexico Coverage.” This simple change reduces any interpretation that the form provides complete coverage for autos being temporarily operated in Mexico. The other changes to this form involve the basic definition change to “your covered auto” and “newly acquired autos” (please refer to Part I, Definitions, under this article). Further, the revised endorsement includes clarifications to its Coverage, Additional Exclusions and Other Insurance provisions.

PP 03 22 06 98 - Named Non-Owner Coverage

The endorsement’s schedule has been changed to show split limits of liability and the Definitions section shows the change of notification required for newly acquired automobiles (from 30 to 14 days).The Limit of Liability provisions have been changed to clarify how the maximum payment under the form applies. The change is explained in detail under Part A - Liability, Limit of Liability, of this article.

PP 03 23 06 98 - Miscellaneous Type Vehicle Endorsement

This form has been revised in order to be consistent with the 06 98 edition of the PP 00 01, Personal Auto Policy. The endorsement’s schedule has been changed to show split limits of liability and the Definitions section shows the change to “your covered auto” which includes the reference to “newly acquired autos.” This section also contains a revised “newly acquired auto” definition. The latter change is critical since this endorsement’s “newly acquired auto” definition replaces the one found in form PP 00 01. In order to provide coverage for new purchases, the latest edition of this endorsement had to include a definition of “newly acquired auto” which contained a reference to miscellaneous type vehicles.

The Part A - Liability Coverage, Limit of Liability provision has been changed to clarify how the maximum payment under the form applies. The change is explained in detail under Part A - Liability, Limit of Liability, of this article. The Part D - Coverage For Damage To Your Auto Limit of Liability provision has been changed to clarify how the physical damage portion of the endorsement applies. The Part D - Coverage For Damage To Your Auto Insuring Agreement, “non-owned auto” definition and Exclusions have also been revised for greater clarity and to be consistent with the other PAP program changes.

PP 03 28 06 98 - Miscellaneous Type Vehicle Amendment (Motor Homes)

This endorsement’s schedule has been changed to show split limits of liability. The form has also replaced its references to “covered property” with the term “facilities or equipment.”

PP 03 33 06 98 - Certificate Of Insurance - Trusts

This is a new form introduced by ISO in order to properly endorse a trust which may have a joint interest with a named insured. The protection provided to a described trust only extends under the liability insurance. The form includes a schedule and it offers coverage on a split limit of liability basis.

PP 03 34 06 98 - Joint Ownership Coverage

This form has been revised in order to be consistent with the 06 98 edition of PP 00 01, Personal Auto Policy. The endorsement’s schedule has been changed to show split limits of liability and the Definitions section shows the change to “your covered auto” which includes the reference to “newly acquired autos.”

PP 04 01 06 98 - Single Uninsured Motorists Limits

This form has been changed in order to endorse single limits of liability for Uninsured Motorist Coverage to the Personal Auto Policy since the basic PAP now offers this coverage on a split liability limits basis.

PP 04 02 06 98 - Single Underinsured Motorists Limits

This form has been changed in order to endorse single limits of liability for Underinsured Motorist Coverage to the Personal Auto Policy since the Underinsured Motorist Coverage endorsement follows the updated PAP Coverage Form PP 00 01, offering this coverage on a split liability limits basis.

PP 04 01 06 98 - Split Uninsured Motorists Limits

This form has been withdrawn from use since its purpose was to modify the 06 94 edition of the PP 00 01 Personal Auto Policy to provide uninsured motorists coverage on a split liability limits basis.

A COMPARISON OF THE 6/98 and 6/94 EDITIONS OF THE PERSONAL AUTO POLICY KNOWLEDGE TESTER QUIZ

1. What change was made to the supplementary payment for loss of earnings?

2. Explain under what situation golf carts are eligible for liability coverage under Part A - Liability Coverage.

3. What is a “Newly Acquired Auto”?

4. What is the purpose of endorsement form PP 03 33 06 98—Certificate Of Insurance—Trusts?

5. What exception exists to the policy exclusion of coverage for losses that occur while a covered auto is being operated by a person who does not have the insured’s permission?

6. What change has occurred to the bodily injury limit under the 06 98 edition of the Personal Auto Policy?

7. How was the Part C—Uninsured Motorists Coverage “Other Insurance” provision clarified by the 06 98 edition of the PAP?

8. What additional types of vehicles are included in the 06 98 Personal Auto Policy definition of an “owned auto?”

9. Part D—Damage To Your Auto of the 06 98 edition of the PAP now contains a $1,000 sub-limit for sound reproducing equipment. What elements have to exist in order for such equipment to qualify for coverage?

10. What changes were made to the basic limit provided for transportation expenses?

11. How was the Part A—Liability Coverage’s insuring agreement clarified regarding the insurer’s duty to defend a lawsuit?

12. What happens to the insured status of a spouse of a named insured who leaves the insured household due to separation or divorce:

a. Under the 6/94 edition of the Personal Auto Policy?

b. Under the 6/98 edition of the Personal Auto Policy?

Answers

1. The daily limit for loss of earnings has been substantially increased from $50 to $200.

2. Under section B of Exclusions, item 1 has been changed. It adds “non-owned golf carts” to its exceptions. This results in the Personal Auto Policy offering liability protection for golf carts which are neither owned nor are available for an insured’s regular use.

3. The term “newly acquired auto” includes private passenger autos, pickups and vans which are not covered by another insurance policy. Note that any pickup or van must weigh less than 10,000 pounds and may not be used for delivery unless the delivery is incidental to installing, maintaining or repairing furnishings or equipment. Pickups and vans that are used in ranching or farming are still eligible as newly acquired autos.

Part two of the definition for “newly acquired autos” concerns itself with the coverage that is provided by the policy. This part of the definition explains the following:

· If the insured doesn’t request coverage for a new auto within the time frames specified in the definition, the coverage is provided on the date it is requested.

4. This is a new form introduced by ISO in order to properly endorse a trust which may have a joint interest with a named insured. The protection provided to a described trust only extends under the liability insurance.

5. This exclusion has been reworded so that it can be read with greater understanding. The exclusion now states that it DOES NOT apply to a family member while using a covered auto belonging to the insured.

6. The bodily injury limit of liability is now offered on a split limits basis. The wording of this section has been changed in order to address the bodily injury per person and per accident split limit structure. The effect is the same as having a sub-limit of liability.

7. The provision under Part C—Uninsured Motorists Coverage has additional wording which states that coverage will be shared among any other policy or coverage provision that provides “similar” coverage. This is to remove confusion that coverage might be shared whenever ANY other type of coverage existence. Sharing occurs ONLY when there is other coverage that also applies to the loss.

8. The 06 91 Personal Auto Policy definition of an “owned auto” currently includes private passenger autos that a covered person leases (under a written agreement) for at least a six month period. Under the 06 94 PAP, this extension includes leased pickups and vans. This change means that any policy reference to “owned autos” now applies to leased vans and pickups.

9. A $1,000 sublimit of coverage is available for sound-reproducing equipment and accessories which are:

· permanently installed in a covered auto

· installed in locations that aren’t used by the auto manufacturer.

10. The daily and maximum limits were increased to $20 and $600, respectively.

11. The Part A—Liability Coverage insuring agreement was revised in order to clarify when the insurer’s duty to defend ends. The insurance company’s obligation to defend an insured ends when the Part A—Liability limit of insurance has been exhausted by either a payment of a judgment or settlement.

12a. Assuming that the spouse was not listed on the policy declarations page, he or she would immediately lose status as a covered person under the 06 94 edition of the PAP.

12b. Again, assuming that the spouse was not listed on the policy declarations page, he or she would be temporarily considered a named insured for 90 days after changing residency or until he or she gets their own policy or the policy period ends, whichever occurs first.

COMPARING THE ‘94 and ‘89 EDITIONS OF THE PAP

The ’94 edition of the Insurance Services Office’s (ISO) Personal Auto Policy is used by many companies to protect individuals and families against the risks of owning and operating a private passenger vehicle. The PAP was first introduced nearly 20 years ago to provide consumers with a policy which was easier to understand and more comprehensive, containing both liability and physical damage coverages. The PAP has gone through several revisions, the latest replaced the 12/89 version with a 6/94 edition. The changes have primarily been driven by ISO’s desire to clarify the coverage intent of the PAP. However, maintaining the PAP’s readability remains important. It’s difficult to preserve the PAP’s coverage intent. The policy’s meaning is constantly challenged by the passage of time, increasing consumer sophistication, expanding coverage expectations and legal trends. Further, ISO’s ’94 revision of the PAP continues to balance consumer understanding and form relevance. The policy has to change to keep pace with issues such as, the continuing problem of uninsured motorists and the proliferation of automobile electronic technology.

Following are highlights of the differences between the ‘94 and ‘89 editions of ISO’s Personal Auto Policy.

CHANGING THE WORD PERSON TO INSURED

Court cases began interpreting the PAP references to "any person" found in the exclusions sections and in the definition of the word "insured" as having the same meaning. This interpretation expanded the circumstances where operators might believe they had permission to drive an insured vehicle. ISO addressed this court trend by replacing the reference to “person” with the defined word "insured" throughout the policy and multi-state endorsements. The change is meant merely to clarify intent.

BUSINESS USE EXCLUSION

The 1989 edition of the Personal Auto Policy inadvertently excluded a pickup or van used as a temporary substitute for "your covered auto" which has broken down, been damaged or is being repaired. The 1994 policy edition corrected that problem by adding language that restored the coverage.

Editor’s Note: This situation spotlights a problem that’s inherent in changing policy language. Changes meant to address a particular situation tend to have a narrow focus. This focus may result in unintended changes to other aspects of coverage. Unfortunately, such changes usually become apparent only after a claim or lawsuit. This is a major reason why policy writing philosophies tend to be extremely conservative and piecemeal.

VEHICLES DESIGNED FOR USE OFF PUBLIC ROADS

In addition to excluding vehicles with less than 4 wheels, the PAP also excludes ALL vehicles that are designed mainly for use off public roads. The policy makes a coverage exception by adding back coverage for trailers. This revised language results in restricting coverage compared to the ‘89 edition.

VEHICLES LOCATED INSIDE A FACILITY DESIGNED FOR RACING

The PAP’s racing exclusion was clarified in the ’94 policy revision. The PAP now excludes vehicles in racing paddocks (special parking areas for race vehicles), repair garages, manufacturing facilities or while the vehicle is being prepared for any race. This restriction appears to be consistent with the policy’s original intent to exclude coverage for all aspects of a racing exposure.

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

UNINSURED MOTORISTS COVERAGE - DUPLICATION OF BENEFITS

The wording of this coverage was revised. It currently prevents a person who is eligible for uninsured motorists coverage from obtaining benefits for the same elements of loss from more than one of the PAP’s coverage parts (for instance, from the policy’s medical payments and uninsured motorists sections). The language change is a clarification and is not intended to enhance or reduce policy coverage.

MEDICAL PAYMENTS - 3 YEAR RULE

A couple of problems existed with this coverage provision. The first involved this coverage part’s reference to "expenses incurred." If an auto accident confined a person to a wheelchair, the expenses incurred could involve a lifetime of medication and care. This interpretation of coverage went far beyond the 3 years of coverage granted.

The second problem was that, historically, insurance consumers purchased medical payment limits of liability of less than $10,000. Therefore, the PAP’s original coverage intent assumed modest levels of medical payments coverage. However, some states allow the purchase of limits up to $100,000. PAP policy language was changed to provide coverage only for "services rendered" during the three-year claim period. Of course, this change restricts coverage, but again it was a revision thought necessary to preserve the policy’s modest coverage intent.

UNINSURED MOTORISTS - OWNED-BUT-NOT-INSURED EXCLUSION

The policy’s original language meant to exclude coverage for uninsured vehicles which were owned by other resident family members. In other words, if an insured borrowed a child’s uninsured “beater” and was injured in an auto accident, the insured could not claim uninsured motorists protection under the insured’s own policy. However, courts and legislatures objected to this exclusion, so the language was changed. The revised intent is to eliminate uninsured motorists coverage for any resident family member who is injured while occupying their own uninsured vehicle.

Example: Clifford jumps into his daughter Becky’s car to go to her cello recital. Unfortunately, Becky let her policy lapse, so the car is uninsured when Becky rams into a cement block in a parking lot, injuring herself and Clifford. The policy language of the ’94 edition of the PAP provides Cliff with coverage, but denies protection for Becky under the uninsured motorists coverage part.

The ‘94 language also states that, if a family member is covered under your policy but is involved in an uninsured motorist loss while occupying or being struck by another vehicle which is owned by the named insured, but has uninsured motorists insurance provided on a primary basis under any other policy, then coverage for uninsured motorists under your policy is not available to that family member.

UNINSURED MOTORISTS - CAPPING LOSS PAYMENTS

Some claimants have successfully obtained multiple payments for the same injury under different policies, or even different vehicles in the same policy. The ‘94 language states that regardless of the number of insurance policies available to the insured, the insured's recovery can be no greater than the highest applicable limit for any one vehicle under all the policies that provide coverage on either a primary or excess basis. The PAP addresses other policies by indicating that coverage available under coverage existing for a non-owned auto is primary and the PAP will provide only excess coverage. (Depending on the circumstances, multiple policies may respond on a proportional basis). Language changes are more restrictive, but do clarify what was originally intended for the coverage.

UNINSURED MOTORISTS - ARBITRATION

In the ‘89 edition of the PAP, either the insurance company or the injured person could demand arbitration. The language in the ‘94 edition requires "mutual consent" in order to initiate arbitration. The intent is to encourage a more successful arbitration process, which was handicapped when one party was allowed to be “forced” into arbitration.

DEDUCTIBLES

Under the ‘89 policy edition, if two of an insured household’s cars were involved in an accident with each other, a deductible would apply to both damaged vehicles. In the ‘94 version of the personal auto policy, an insured is responsible only for the higher of the two deductibles. This change broadens coverage.

INCREASED LIMITS - TRANSPORTATION EXPENSES

The ‘94 policy handles this coverage differently than its predecessor. The basic policy extends coverage for the expense of finding alternate transportation that results from the loss of a covered auto due to collision, other than collision and theft perils. The earlier version provided this coverage only in the case of a theft. However, an insured must purchase the underlying collision and other than collision coverage. If only other than collision coverage is purchased, then transportation expenses arising out of collision losses aren’t covered. The basic policy makes coverage at $15 per day to a maximum of $450 available. It also includes wording to increase coverage to $30 per day to a maximum of $900. This option must be indicated by marking the appropriate area on the Declarations Page or vehicle schedule.

ANTI-THEFT REMOVABLE RADIOS

Ironically, the 1989 version of ISO’s Homeowners policy excluded radios that were made to be removed from the vehicle as an anti-theft measure, unless the removable radio was installed at the factory. The wording of the 1994 PAP protects removable radios, regardless whether they were installed at the factory. Important note: to be eligible, the equipment has to be designed to be powered by an auto’s electrical system AND it is in or upon the auto. In this case, a removable radio that was stolen from the trunk of the covered car would be covered. There’s still the irony that if a removable radio was stolen from an owner who put a radio down on the sidewalk to tie her shoe in a parking lot, it would be without coverage under the PAP.

GOVERNMENTAL ACTION EXCLUSION

The language of the latest edition of the PAP denies coverage when the government orders the total destruction or confiscation of a covered vehicle. No consideration is given to the circumstances which created the order. The result is that an uncovered loss occurs. Its ineligibility remains whether the insured was involved in illegal activity or the owner wasn’t available during an emergency and the vehicle had to be destroyed, say, for a fire department to get access to a raging blaze. However, even when coverage is denied to an insured, the loss payee's interest in the vehicle is still covered.

Editor’s Note: This exclusion is intended to clarify previous language but, in application, the exclusion may have had unintended impact on consumers.

LASER DETECTORS

Radar detectors have been excluded since the 1989 edition of the PAP. The ‘94 version extends the exclusion to laser detectors as well. The positive side to this is that now manufacturers of radar and laser detecting equipment can add insurance protection for these devices to their extended warranties.

RENTAL VEHICLE EXCLUSION - COVERAGE D, DAMAGE TO YOUR AUTO

This language change was made in anticipation that many states would adopt the NAIC Collision Damage Waiver Model Act. The new wording indicates that if state law permits a rental car company to hold an insured responsible for damage to a rental vehicle, then the personal auto policy will not cover the loss. However, if no such law exists, then the insured's policy will respond as it has in the past. The PAP is now constructed so that it is relieved of its obligation to rental vehicle damage if, by law, such damage MUST be handled under a vehicle rental contract.

LIMIT OF LIABILITY - COVERAGE D, DAMAGE TO YOUR AUTO

Under the new language, the policy will pay actual cash value in the event of a total loss, pay only the amount necessary to make repairs or replace the damaged vehicle with other property of like kind and quality. An insurance company may deduct for improvements in condition made to the vehicle by the repairs. For example, if new fenders were installed and the vehicle was improved beyond its condition before the loss, then the company can deduct from payment the difference between the new and used parts. This change is intended to clarify the original concept of paying only for actual cash value, but could cause companies to re-examine current claims payment practices for new vs. reconditioned parts. Editor’s note: The PAP wording isn’t clear on whether a company can, for convenience sake, use new parts and deduct for the cost of the betterment or, if this option exists only if used parts are NOT available. An insured might object to additional out of pocket expense because an insurer chose not to exercise an option to use reconditioned or used parts.

SALES TAX

Payments made directly to a repair facility by the insurance company generally are not subject to most state sales taxes. However, any payment to the insured for total theft or repair of a vehicle is subject to sales tax. The 1994 policy directs the insurance company to include the payment of any applicable sales tax in the loss settlement to Coverage D - Coverage for Damage to Your Auto. This change provides additional coverage to the insured.

NONRENEWAL PROVISIONS

Policies with terms of less than six months can now only be nonrenewed every six months, beginning six months after the original effective date. Policies with terms of one year or longer can be nonrenewed at each anniversary of the policy's original effective date. The intent of change is to standardize cancellation procedure. Of course, this provision is commonly replaced by either individual state or company cancellation provisions.

OTHER TERMINATION PROVISIONS

The 1994 edition of the PAP no longer makes reference to the policy‘s conforming to state provisions. Such a reference is unnecessary if state law requires a company to include state-specific termination requirements in a state amendatory endorsement. If no state law exists, it makes more sense for a company to provide its own provision.

PAP COMPARISON WITH FAMILY AND SPECIAL AUTOMOBILE POLICIES

The 06 98 edition of the Insurance Services Office’s Personal Auto Policy is used by many companies to protect individuals and families against the risks of owning and operating a private passenger vehicle. However, there are companies which use auto policies that differ from the PAP or which use earlier editions of the PAP. This comparison highlights some significant coverage features found in the two latest editions of the PAP (which first appeared in the late seventies) and two much earlier forms: the Family Auto (FAP) and the Special Package Auto (SPAP) policies. Our readers should find this comparison useful since most private passenger auto policies find their roots in one of these common forms. In recent years, physical damage coverage for rental cars has been a high profile topic. Generally, the broadest coverage that’s written on any of the vehicles insured by the policy applies to a rental car qualifying as a "non-owned auto" or as a temporary substitute for a "covered auto."

Please be aware that this comparison is based upon very early versions of the FAP and SPAP. The purpose is to demonstrate the development of policy coverage and language. It’s critical that the reader be aware of their current forms when dealing with their coverage analysis responsibilities.

Auto Policy Features Comparison
Feature	‘98 Ed. PAP	’94 Ed. PAP	Family Auto Policy (FAP)	Special Package Auto Policy (SPAP)
PD to Non-owned auto " in the insured's custody”	Not covered under Liability insurance, as it was previously. Physical Damage (Part D - Coverage For Damage To Your Auto) coverage applies.	Same as 06 98 PAP	Damage to non-owned vehicles in the custody of the insured is not covered because of the Care, Custody, and Control exclusion	Same as FAP
Occurrence Basis	Liability coverage applies on the basis of each auto accident, instead of the older term "occurrence." Accident means the same and is more easily understood by consumers.	Same as 06 98 PAP	The Insuring Agreement explains that Liability coverage applies on an occurrence basis.	The Insuring agreement is similar to the FAP, also referring to "occurrence."
Single Vs. Split Limits	Split limits of liability are provided. They may be converted to a combined single limit of liability by endorsement.	A combined single limit of liability is provided. It may be converted to split limits of liability by endorsement.	Single limit of liability is provided.	Single limit of liability is provided.
Out Of State Provision	Provisions allow the policy’s liability coverage to respond at least with an applicable state’s minimum FR and benefit requirements.	Same as 06 98 PAP.	Out of state requirements may be covered, but insured would have to reimburse any amount exceeding the policy limits.	Same as FAP.
Auto Policy Features Comparison
Feature	‘98 Ed. PAP	’94 Ed. PAP	Family Auto Policy (FAP)	Special Package Auto Policy (SPAP)
Terminating Defense Obligation	Limits exhausted by paying judgment or settlement terminates defense.	Exhaustion of limit of liability terminates defense.	Intent similar to ’94 PAP found in the supplementary payments provision.	Same as FAP
Bail Bonds	Coverage is available up to $250 for bonds related to an accident eligible for coverage under the PAP.	Same as 06 98 PAP	Coverage is available up to $100, including bonds for traffic violations not involving an accident.	Bail bond payment is made up to $250, including traffic violation not involving an accident.
Loss Of Earnings	Is paid up to $200 a day for attending hearings or trials at company request.	Is paid up to $50 a day for attending hearings or trials at company request.	Reasonable expenses paid for attendance, other than earnings loss.	Loss of earnings is paid up to $25 a day
First Aid	Such costs are invariably included in claims or suits under Liability coverage.	Same as 06 98 PAP.	First Aid coverage is included under Supplementary Payments.	Same as FAP.
Medical Payments	Pays for services rendered within three years from date of accident.	Same as 06 98 PAP	Expenses incurred within one year from accident are covered.	Similar to FAP, but insuring agreement includes wording to prevent receiving duplicate payments.
Medical Payments (Other Coverage)	Medical Payments coverage applies regardless of benefits available to an insured under Accident Disability or Hospitalization insurance. It is primary coverage with respect to automobile accidents. Its wording prevents duplicate payments for coverage provided under the PAP’s liability or uninsured motorists sections. Coverage is excess over auto medical coverage provided for non-owned vehicles	Same as 06 98 PAP.	Same as SPAP.	Automobile Medical Payments coverage becomes proportional to any other available automobile medical insurance. Coverage is excess over any valid and collectible insurance available to an insured for accidents involving non-owned vehicles.
Auto Policy Features Comparison
Feature	‘98 Ed. PAP	’94 Ed. PAP	Family Auto Policy (FAP)	Special Package Auto Policy (SPAP)
Medical Payments (Workers Comp)	Payments are excluded under Automobile Medical Payments coverage if benefits for bodily injury are required or available under a Workers Compensation Law.	Same as 06 98 PAP.	Workers Compensation benefits nullify medical payments only for injuries to persons employed in the automobile business.	Medical Payments Coverage is excess over benefits covered by Workers Compensation Laws.
Non-Owned Autos	The named insured and resident relatives are covered while occupying non-owned auto operated by named insured or non-owned private passenger auto operated by resident relative.	The named insured and resident relatives are covered while occupying non-owned auto operated by named insured or non-owned private passenger auto operated by resident relative with the named insured’s permission.	Same as SPAP.	The named insured and resident relatives are covered while occupying non-owned auto operated by named insured or non-owned private passenger auto operated by resident relative with the named insured’s permission.
Eligible Vehicles	Same as 06 94 PAP	Injury to occupants of a vehicle with less than four wheels or one made for off-road use is specifically excluded.	No such specific exclusion, but intent is the same.	No such specific exclusion, but same intent, defining auto as a 4-wheel land motor vehicle made for public road use.
Accidental Death Benefit	Coverage is not included	Coverage is not included	Coverage is not included	Accidental Death benefit in amount of $1,000 is included for Named Insured and spouse residing in the insured household.
Uninsured Motorists (Limits)	Basic limits and increased limits apply if shown on the Declarations Page	Same as 06 98 PAP.	Provision on Declarations Page generally only for basic limits.	Provision on Declarations Page generally only for basic limits.
Uninsured Motorists (Type Of Limits)	Split limits are generally provided.	Single limit is generally written.	Split limits are generally provided.	Single limit is generally written.
Auto Policy Features Comparison
Feature	‘98 Ed. PAP	’94 Ed. PAP	Family Auto Policy (FAP)	Special Package Auto Policy (SPAP)
Uninsured Motorists (Other Coverage)	The limit of insurance is capped at the highest available Uninsured Motorists coverage limit for any one vehicle on any one policy. Provision contains wording to prevent duplicate payments from Uninsured Motorists and any other policy coverage parts.	Same as 06 98 PAP.	Same as SPAP.	Benefits are reduced by other applicable policy coverages and any payments received from Workers Comp, Disability Ins. or from any party that’s legally liable for damages. No wording regarding stacking of coverages.
Punitive Damages	No coverage is provided for punitive or exemplary damages.	No coverage is provided for punitive or exemplary damages.	No such exclusion	No such exclusion
Underinsured Motorists Coverage	Underinsured Motorists coverage available by endorsement. Covers damage the insured is legally entitled to recover from owner or operator of an underinsured highway vehicle. This coverage and Uninsured Motorists coverage are mutually exclusive. Uninsured coverage applies when the Liability insurance on the offending vehicle is less than what is available under the insured’s policy. Uninsured coverage applies when either no insurance is available or a "hit-and-run" vehicle is involved.	Same as 06 98 PAP.	Not generally available.	Not generally available.
Auto Policy Features Comparison
Feature	‘98 Ed. PAP	’94 Ed. PAP	Family Auto Policy (FAP)	Special Package Auto Policy (SPAP)
Physical Damage (Coverage For Damage To Your Auto)	Same as 06 94 PAP.	06 94 PERSONAL AUTO POLICY— Coverage For Damage To Your Auto insuring agreement refers to Collision and Other Than Collision losses. Coverage is included by indication in the Declarations.	Separate insuring agreements for Comprehensive, which may include personal effects coverage and Collision coverages. Physical Damage coverages are broken out into various additional categories, including, “Fire, Lightning and Transportation,” “Theft,” and “Combined Additional Coverage.”	Separate insuring agreements for Comprehensive - including Collision, Comprehensive - excluding Collision, and Collision coverages.
Transportation Expense	Transportation expense is paid for theft of trailer (as well as a car) for a maximum of $20 per day or $600.	Transportation expense is paid for theft of trailer (as well as a car) for a maximum of $15 per day or $450.	No specific provision for trailer.	No specific provision for trailer.
Damage To Non-Owned Autos	Damage to "non-owned autos" is covered on an excess basis under Physical Damage insurance. Liability coverage is no longer applicable, as it was previously. A rental car qualifying as a "non-owned auto" has the broadest coverage applicable to any of the insured's "covered autos." Similarly, a temporary substitute for a "covered auto" has the broadest coverage applicable to any of the insured's "covered autos."	Same as 06 98 PAP.	Collision and Comprehensive coverage apply to non-owned private passenger cars on an excess basis.	Collision and Comprehensive coverage apply to non-owned private passenger cars while used by the Named Insured and/or relatives, but only if covered driver is legally liable.
Auto Policy Features Comparison
Feature	‘98 Ed. PAP	’94 Ed. PAP	Family Auto Policy (FAP)	Special Package Auto Policy (SPAP)
Personal Effects	There is no Personal Effects coverage unless it is endorsed as an optional coverage.	Same as 06 98 PAP.	Personal Effects coverage included in Comprehensive coverage for fire or lightning loss.	Personal Effects coverage included in Comprehensive coverage for loss by fire, lightning, flood, falling objects, explosion, earthquake, theft of auto, and (if Collision coverage is effective) collision.
Camper Bodies	Camper bodies are excluded unless specifically declared in policy Declarations. This exclusion makes the common exception for newly acquired camper bodies, but the policy does cover non-owned trailer (including facilities).	Camper bodies are excluded unless specifically declared in policy Declarations. This exclusion makes the common exception for newly acquired camper bodies.	No such specific exclusion.	No such specific exclusion.
Additional Living Facilities	Loss to TV antenna, awnings, cabanas, and equipment designed to create additional living facilities is excluded. Intent of basic coverage is insuring loss to automobile and its normal equipment	Same as 06 98 PAP.	No such specific exclusion.	No such specific exclusion.
Waiving Collision Deductible	Same as 06 94 PAP.	Collision deductible is not waived when covered car and other car are insured by same company, unless accident involves two covered autos same - highest deductible will apply.	Provision for waiver of Collision deductible when covered car and other car are insured by same company is generally included.	Provision for waiver of Collision deductible when covered car and other car are insured by same company is generally included.
Towing And Labor	Towing and Labor Costs coverage is optional by endorsement.	Same as 06 98 PAP	Made effective optionally by paying premium for the "built-in" coverage.	Basically included in Comprehensive coverage.
Auto Policy Features Comparison
Feature	‘98 Ed. PAP	’94 Ed. PAP	Family Auto Policy (FAP)	Special Package Auto Policy (SPAP)
Electronic Equipment	Loss to radios, stereos, tape or CD players, CB radios, mobile radios, phones, TVs, video or audio cassette recorders, PCs or scanners is excluded. An exception applies to radios, stereos, tape or CD players that are permanently installed in a console. Removable radios that can only be powered by the auto's electrical system - anti-theft removable radios - are now covered while in or on the car). Radar and laser detectors are not covered. NOTE: The policy will provide up to $1,000 for loss to equipment for producing sound which is permanently installed in a location that is DIFFERENT than the spot designated by the car manufacturer.	Loss to radios/stereos, tape decks or compact disc players, citizens band (CB) radios, two-way mobile radios, telephones, televisions, video or audio cassette recorders, personal computers or scanners is excluded. The exclusion doesn’t apply to radios/stereos, tape decks or compact disc players which are permanently installed in dash or console opening (but radios removable from the dash that can only be powered by the auto's electrical system - anti-theft removable radios - are now covered while in or on the car). Radar and laser detectors are not covered.	No basic exclusion; such equipment is generally excluded by endorsement, often with buy-back option.	No basic exclusion; such equipment is generally excluded by endorsement, often with buy-back option.
Covered Persons	Under Liability and Medical Payments, the Named Insured and spouse (no other persons) are covered on an excess basis while using or maintaining a vehicle owned by, or furnished or available for the regular use of a family member.	Same as 06 98 PAP.	No such provision.	No such provision.
Auto Policy Features Comparison
Feature	‘98 Ed. PAP	’94 Ed. PAP	Family Auto Policy (FAP)	Special Package Auto Policy (SPAP)
Permission To Use Covered Vehicle	Excludes drivers who use covered vehicles without a reasonable belief of having permission. When it appears that permission existed, an insurer is unable to subrogate under Physical Damage insurance.	Same as 06 98 PAP	Permission is required for use of owned vehicles by individuals other than Named Insured and household residents; also for the use of non-owned vehicles except by the Named Insured.	Permission is required for use of owned vehicles by individuals other than Named Insured; also for the use of non-owned vehicles except by the Named Insured.
Additional Vehicles - Newly Acquired	Additionally acquired vehicles must be reported within 14 days of acquisition if only liability coverage is involved. With regard to an additional vehicle that includes collision or other than collision, such vehicles must be reported within 14 days if at least one existing car has the same physical damage coverage, or 4 days if no existing car has matching physical damage coverage.	Additionally acquired vehicles must be reported within 30 days of acquisition. With regard to replacement vehicles, however, notification within 30 days is necessary only if Physical Damage coverage is to apply to the replacing vehicle.	Similar to PAP, but it doesn’t make reference to 30 day notification for replacement vehicles in order to continue application of Physical Damage coverage.	Same provision as is in Personal Auto policy.
Additional Vehicles - Regularly Furnished	With regard to non-owned automobiles, coverage is excluded for vehicles which are furnished or available for regular use.	Same as 06 98 PAP	Coverage is excluded for non-owned vehicles furnished for regular use.	Same provision as is in Personal Auto policy.
War Exclusion	Same as 06 94 PAP.	War exclusion applicable to Medical Payments and Physical Damage is amended to include "discharge of a nuclear weapon (even if accidental)."	War exclusion not so modified.	War exclusion not so modified.
Auto Policy Features Comparison
Feature	‘98 Ed. PAP	’94 Ed. PAP	Family Auto Policy (FAP)	Special Package Auto Policy (SPAP)
Death Benefits	Death Indemnity Specific Disability Benefits and Total Disability Benefits coverages are not available.	Same as 06 98 PAP.	The coverages are unavailable under the basic contract.	Not available, but an accidental death benefit of $1,000 is included.

PAP COMPARISON WITH FAMILY AND SPECIAL AUTOMOBILE POLICIES - KNOWLEDGE TESTER QUIZ

1. True or False? The PAP policies handle losses on an “occurrence” basis while the two earlier forms respond to losses on a claims-made basis.

2. Name two early policies that provided insurance coverage for private passenger automobiles.

3. How do the PAPs differ from the earlier forms’ reference to a driver’s need for permission to operate an insured vehicle in order to be covered?

4. Explain how the four policy forms handle electronic equipment that is stolen.

5. How is coverage for non-owned vehicles applied under the Special Package Auto Policy (SPAP)?

6. Do all four policy forms provide the same limit of insurance for covering the cost of bail bonds?

7. Explain how the different policies limit medical payments.

8. How does the PAP differ from the earlier forms in handling UNDERINSURED Motorist losses?

9. Is there any difference between how the PAPs and the earlier forms of auto policies handle punitive damage?

10. How do the four different policies handle personal effects?

Answers

1. False. The Special Package Auto Policy, Family Auto policy and the two editions of the PAP all respond to losses on an occurrence basis.

2. The Special Package Auto Policy and the Family Auto Policy.

3. Both editions of the PAP exclude drivers who don’t have a reasonable belief that they have permission to use an owned vehicle. In the FAP and SPAP, drivers (other than the named insured) must actually have the named insured’s explicit permission to drive an owned vehicle.

4. 06 98 PERSONAL AUTO POLICY—Loss to radios/stereos, tape decks or compact disc players, citizens band (CB) radios, two-way mobile radios, telephones, televisions, video or audio cassette recorders, personal computers or scanners is excluded. The exclusion doesn’t apply to radios/stereos, tape decks or compact disc players that are permanently installed in dash or console opening (but radios removable from the dash that can only be powered by the auto's electrical system - anti-theft removable radios - are now covered while in or on the car). Radar and laser detectors are not covered.

Note: The policy will provide up to $1,000 for loss to equipment for producing sound that is permanently installed in a location that is DIFFERENT than the spot designated by the car manufacturer.

06 94 PERSONAL AUTO POLICY— Loss to radios/stereos, tape decks or compact disc players, citizens band (CB) radios, two-way mobile radios, telephones, televisions, video or audio cassette recorders, personal computers or scanners is excluded. The exclusion doesn’t apply to radios/stereos, tape decks or compact disc players that are permanently installed in dash or console opening (but radios removable from the dash that can only be powered by the auto's electrical system - anti-theft removable radios - are now covered while in or on the car). Radar and laser detectors are not covered.

FAMILY AUTOMOBILE POLICY—No basic exclusion; such equipment is generally excluded by endorsement, often with buy-back option.

SPECIAL PACKAGE AUTOMOBILE POLICY—No basic exclusion; such equipment is generally excluded by endorsement, often with buy-back option.

5. Under the SPAP, Collision and Comprehensive coverage apply to non-owned private passenger cars while used by the Named Insured and/or relatives, but only if covered driver is legally liable.

6. No, the Family Auto Policy offers a maximum of $100 while the other forms offer up to $250 for the cost of bail bonds.

7. 06 98 PERSONAL AUTO POLICY—Payments are available for services rendered within three years from date of accident.

06 94 PERSONAL AUTO POLICY— Same as 06 98 PAP.

FAMILY AUTOMOBILE POLICY—Expenses incurred within one year from accident are covered.

SPECIAL PACKAGE AUTOMOBILE POLICY—Similar to FAP, but insuring agreement includes wording to prevent receiving duplicate payments.

8. 06 98 PERSONAL AUTO POLICY—The limit of insurance is capped at the highest available Uninsured Motorists coverage limit for any one vehicle on any one policy. Provision contains wording to prevent duplicate payments from Uninsured Motorists and any other policy coverage parts.

06 94 PERSONAL AUTO POLICY—Same as 06 98 PAP.

FAMILY AUTOMOBILE POLICY—Same as SPAP.

SPECIAL PACKAGE AUTOMOBILE POLICY—Benefits are reduced by other applicable policy coverages and any payments received from Workers’ Comp, Disability Insurance or from any party that is legally liable for damages. There is no wording regarding stacking of coverages.

9. Both the ‘94 and ‘98 editions of the PAP exclude coverage for punitive and exemplary damages while the FAP and the SPAP don’t contain such exclusions.

10. 06 98 PERSONAL AUTO POLICY—There is no Personal Effects coverage unless it is endorsed as an optional coverage.

06 94 PERSONAL AUTO POLICY—Same as 06 98 PAP.

FAMILY AUTOMOBILE POLICY—Personal Effects coverage included in Comprehensive coverage for fire or lightning loss.

SPECIAL PACKAGE AUTOMOBILE POLICY—Personal Effects coverage included in Comprehensive coverage for loss by fire, lightning, flood, falling objects, explosion, earthquake, theft of auto, and (if Collision coverage is effective) collision.

CREDIT SCORE DISCUSSION PANEL

Editor’s Note: This was adapted from “Credit Score Providers Address Concerns” which appeared in the February 2003 issue of Rough Notes Magazine.

The Society of Chartered Property Casualty Underwriters 2002 Annual Meeting included a panel presentation and discussion on credit-based scoring. The panelist represented companies that are active in providing credit data to insurers. The panel consisted of the following persons:

· William T. Atkins, CPCU (Moderator), V.P. Personal Lines for Pacific Insurance

· Lamont D. Boyd, CPCU of Fair Isaacs, Inc.

· Gary Skerl, Progressive Insurance (responsible for building their Credit Base Scoring algorithm)

· John B. Wilson, Risk Modeler for Choice Point

· Gregg L. Antenen, President, Convergent Data

The seminar moderator, William Atkins, admitted in his introduction that credit-based scoring is facing backlash. Several experts on credit-based scoring joined to discuss different aspects with a focus on how to speak to the public about this critical issue. The seminar opened with each panelist making some comments, which was followed by a question and answer period.

Lamont Boyd, who has a great deal of experience in credit-based scoring through his work at Fair Isaacs, explained that their business purpose is to generate data and analytics to help businesses make more efficient decisions. In his opinion, the development of credit-based scoring falls precisely within that purpose. He mentioned that there’s a distinction between credit scores (predictors of creditworthiness) and credit-based insurance scores (predictor of loss propensity). He spoke of the NAIC White Paper in 1996 which references the Tower-Tillinghast study that independently confirmed a significant correlation between credit scores and loss ratios. He also said that there’s nothing used in credit-based scoring formulas that can negatively affect (unfairly discriminate against) insurance consumers.

Gary Skerl from Progressive Insurance Company said he is a believer in the correlation between credit-based scoring and loss predictability. Progressive uses its own algorithm to create its C-B scores and they are progressing on developing the following:

1. New Generation Credit Scores – a simplified model that uses nine rather than 16 variables. The algorithm calculates scores by assigning everyone a base score of 100. Then they either deduct or add to the base to create a score ranging between 49-228, with the lower number being more desirable. Their model will be used nationwide and will be filed in those states requiring such plans to be filed.

2. How to deal with consumers with either no credit history or insufficient credit histories (“no-hits” or “thin files”)? Skerl mentioned that some states are requesting that this class of insureds be treated (grouped) as average or best credit score groups. The elderly no-hits, which is a small segment of no-hits, has better loss experience, so Progressive plans to break out this group versus younger drivers who do not have established credit.

3. Credit Assistance Team – responds through a toll free phone number that responds to consumers who call in with concerns over how they’ve been affected by use of their credit history within an insurance transaction. The company will use the team to help consumers in the following manner:

a. Personal Insurance Credit Report – Skerl explained that this document is a two-page breakdown that shows an individual's variable score and it compares with aggregate scores.

b. Progressive will consider extraordinary events that affect scores and also consider past credit history. For example, it will give full consideration to a crisis medical situation or the fact that a person’s past history had been quite positive for an extended amount of time, but may have just recently deteriorated.

c. The company’s Credit Assistance Team will help with correcting credit history errors by showing insureds/applicants whom to contact in order to take care of credit report problems.

John Wilson of Choice Point explained the development of his company's approach. Rather than using proprietary information, Choicepoint wanted to use sources for their scores that would allow it to share their model information with regulators, agents, consumers and others. They have created a Power Point presentation to explain Credit based underwriting scores to agents.

Regarding regulators, they have met with them to discuss how they created their scoring model (in the hopes of gaining greater regulatory acceptance). Wilson then commented on the possibility of regulators banning the use of credit based scoring. In that eventuality, Choice Point is performing studies on alternatives, such as loss history on other lines of business (i.e., Homeowner loss history as a predictor of auto loss) or information on prior coverage history.

Gregg Antenen noted that his company, Convergent Data, which is less than two years old, has live product which uses sources other than credit to predict the likelihood of losses. Those sources include check writing and sub-prime data. Gregg pointed out that individuals write checks in many instances and their respondent companies collect information on:

· How many times an individual writes a check

· What are the check amounts

· What are the reasons for writing the checks

· Number of times checks have bounced.

Much of its information comes from Telecheck Services. It also makes extensive use of a unique bureau that collects information from various services such as collection agencies, check-cashing services and rental centers. This information can enhance Credit-Based scoring because these sources are predictive but do not report to credit bureaus.

Its data can supplement and refine credit bureau source information. It can also help to flag problem groups and improve rating. Gregg’s company is able to develop additional information on “no-hits” and “thin files.” Their services help to create actionable scores for person in these groups.

Moderator Atkins then opened things up for questions from the audience.

Question: What is the underlying reason for backlash against the use of credit based scores?

Boyd: thought that the problem is related to persons who have been negatively affected by use of private information. Also, he did not think that a good job was done in explaining credit-based scoring. They (Fair Isaacs) and other companies are making more information available on credit based scoring through their Website to help the public better understand their scores and also to provide guidance to how their score may be improved.

Skerl: felt that the industry could do a better job. However, he also mentioned that, as companies provide more explanations, it would open the door to increased questions about how the information is predictive. He felt that a bridge needs to be built over the gap in understanding Class predictive behavior.

Question: Will there be a backlash on the use of sub-prime credit to focus on lower economic class segments?

Antenen: Said they his company (Convergence Data) does not focus on lower economic classes, but rather on possible negative use of credit facilities (implying that this should not cause any negative public reaction).

Question: Other than paying bills on time, how can insurance consumers improve their credit scores?

The panelists agreed that it also is important to reduce credit balances. They also said it is important to check credit history for any errors and aggressively correct them. It would also help to seek any information offered by insurers or vendors about how elements of their scoring models that an individual can control might be monitored.

Question: How can vendors take frequent inquiries into account? (Note: Credit reports also include information on how many times different parties request a person’s credit history. This element often negatively affects a person’s score.)

Boyd said that Fair Isaacs groups inquiries, particularly those related to mortgages, into a single inquiry.

Skerl admitted that Progressive is playing “catch-up” on this issue, studying how to minimize the affect of inquiry frequency on scoring.

Question: How can insureds deal with the inefficiencies of credit bureaus in handling errors?

Wilson said he feels that current laws provide bureaus with an incentive to deal with correcting information. He also said that, largely, bureaus accurately report data.

Boyd pointed out that one recent study (1) from the Insurance Research Council revealed that MVRs are not very accurate and credit –based scores help to supplement traditional, accepted underwriting criteria.

Skerl remarked that there aren’t enough studies available to prove the accuracy (of credit bureau information). In his opinion, it is up to individuals to ensure that their credit information is correct.

Question: When do companies that offer credit-based insurance scores have to update their scoring models?

Boyd said it is important to re-evaluate and re-validate scoring models to make sure that credit management patterns are reflected (in them).

Question: How can we (companies that use credit-based scoring) get more consistency in scores from various sources?

Boyd predicted that consistency will increase as states begin to control the variables used to develop scores.

Another participant, whose job requires her to help develop and maintain adequate rates for her employer, mentioned a related concern. She stated that the current inconsistencies among models will harm the ability to use competitive rate comparisons in ratemaking.

Question: Will credit-based scoring be developed so that insurance companies can use state-specific information to support rate changes?

None of the panelists thought that such information would be acceptable for justifying line of business rate increases.

Question: Why are agents opposed to credit-based scoring? What can we (insurers) do to increase (their) buy-in?

Skerl said that companies must educate agents and enable them to point consumers to vendors to help handle frontline questions.

Boyd said that agent associations were doing a better job helping agents explain credit-based scoring use.

Question: How do you account for catastrophic situations such as persons who have been hurt by bad economy, business fraud or job loss?

Skerl said that his company (Progressive) does look into individual circumstances.

Antenen responded by saying that bankruptcies usually aren’t overnight situations and "could be managed."

Wilson suggested that since circumstances such as medical catastrophes can produce a poor (credit) score, perhaps companies should be willing to take individual events into account.

Atkins said that in his opinion, the effect of personal catastrophe would be to change credit management behavior and, therefore, risk management behavior.

Question: What are trends in the use of non-credit history models?

Boyd said that Fair Isaacs has studied credit-based information for around 15 years. It also is creating customized models for individual clients. There are different types of information to use, but the company has had problems finding information that is legal to use, is accurate and is consistently predictive.

Question: As Progressive began using credit-based scoring, did it find how it correlated with other underwriting variables and is the impact of these variables accounted for?

Skerl: Progressive makes adjustments for the impact of credit-related and non-credit related information (in its scoring model).

Question: How does sharing information with credit bureaus violate individual privacy concerns?

Wilson: "It’s possible that a response to a credit inquiry could include information that (an) individual did not want to be shared."

Question: In data collection area, how will insurers be able to adjust cross-state data to account for state-specific (credit-based scoring) models?

Wilson indicated that state-specific models will cause problems.

Question: (Are there) any studies on how credit scores change over time and how long a score done at one time remains valid?

Boyd recommended that scores be examined annually. He referred to a study on FICO scores, which found that a person having a good score is likely to have had such a score in the past and is likely to continue to maintain a good score. Regarding poorer scores, results fluctuate considerably.

Wilson: Progressive migration studies show that individuals’ (credit scores) can change significantly within a year.

Antenen indicated that his company has such studies, but did not share any specifics on findings.

Question: For homeowners business, a husband and wife could have two different credit scores. Which one should be used, (the) lower or higher score?

Boyd: Insurers (order) reports based on the first named insured and the assumption is that this person is most responsible for credit management. Companies vary in their practice. Some order both scores; some use the higher score; some use the lower score.

Skerl pointed out that Progressive does not write homeowners business, but it bases its report orders on the primary driver.

************

(1) Summer, 2002 IRC report, "Accuracy of Motor Vehicle Records: An Analysis of Traffic Convictions” (states included in study: Connecticut, Florida, Ohio, and Washington).

NO-FAULT AUTOMOBILE INSURANCE

Essentially, automobile liability insurance operates under the common law concept of tort liability. It offers complete protection, assuming adequate limits of insurance are carried, for an insured motorist's legal liability under the law. In order to collect damages, an auto accident victim must proceed against another motorist or another motorist's insurance company and prove the other driver to be at fault. A determination of who is at fault must be made before anyone can collect from a liability insurer.

The principal criticism of automobile insurance coverage centers on its cost and availability, slowness and delays in payment, alleged "unfairness" of settlements, and the frustration of seeking compensation while dealing with adjusters, lawyers and the courts.

The public is quite aware that auto insurance premiums represent a major item in most families' budgets. Though most people understand that inflationary factors push insurance costs up, and that cost factors such as medical care, legal services and auto repair are outside the control of insurers, the public nevertheless tends to relate rising costs for coverage to shortcomings in the auto insurance system itself.

Closely related to price issues are complaints over the availability of auto insurance. When state insurance departments do not approve requested rate increases, availability is affected. Companies become reluctant to issue policies to persons they have reason to classify as less than good risks.

General Conclusions

Numerous opinions and studies have led to the following conclusions about the tort liability automobile insurance reparations system:

· It is not satisfactory to the public because of the inequities in the legal system under which it operates.

· It is not satisfactory to the insurance companies because it has not been a profitable enterprise overall. Rising jury awards and the cost of adjusting third party claims continue to create a high level of public concern.

· It is a sensitive, unwieldy issue to both state and federal governments because it constitutes a serious political and administrative problem that can’t be regulated to anyone's satisfaction.

Objectives Of A Reform To The Tort System

One study by the U.S. Department of Transportation identified the following elements as components of an ideal accident compensation system:

· guarantee payment of basic economic losses to all accident victims without regard to fault;

· drastically limit and carefully define intangible damages;

· eliminate as many lawsuits and as much of the adversary nature of the system as possible;

· offer maximum opportunity for rehabilitation;

· continue to be serviced by the private insurance industry; and

· continue to be regulated by the individual states.

No-Fault Insurance As A Solution

Over the years, a number of U.S. states passed legislation to introduce no-fault coverage. Such coverage reimburses insured persons for economic loss and for hospital, medical and rehabilitation expense arising out of automobile accidents. Economic loss would include present and future wage loss, cost of services such as housekeeping to replace those of the insured, other reasonable out-of-pocket expenses, and damage to property other than automobiles.

Any payment for "pain and suffering" is excluded. But all plans provide compensation for permanent impairments. Plans vary considerably as some permit extra payments or allow an excess level of tort recovery. In states that offer no-fault plans, motorists arrange for their own coverage for damage to their own cars (via physical damage insurance).

Types Of No-Fault Laws

No-fault automobile insurance laws can be classified into three categories. These are:

1. modified no-fault laws

2. add-on plans

3. pure no-fault laws

Under a modified no-fault automobile insurance law, the right to sue is restricted but not completely eliminated. Injured persons are permitted to sue if the claim exceeds the monetary or verbal threshold. The monetary threshold is usually expressed as dollars of medical cost (such as damages recoverable if medical expenses exceed $4,000). Verbal thresholds may be expressed in definitions describing seriousness of injury (such as damages recoverable only if injury results in significant disfigurement, permanent loss of bodily function or death). Verbal thresholds are also expressed in terms of length of disability caused by injury (such as damages recoverable if medically determined injury or impairment of a non-permanent nature prevents injured person from performing substantially all material acts which constitute normal activity for at least 90 of the 180 days immediately following the accident). But if the claim is below the threshold, the injured party would collect certain benefits from one's own insurer.

Add-on plans will pay certain described benefits to those who are injured in automobile accidents, without regard to fault; but the right to sue is not restricted. This explains the name add-on, as the law adds benefits but takes nothing away. Since the injured party's right to sue is not limited, add-on laws are not true no-fault laws.

With a pure no-fault law, the injured party cannot sue for damages, regardless of the severity of the injury. The tort liability system for bodily injury is abolished and replaced with a system where the injured party receives unlimited benefits from his/her own insurer for such items as medical expenses and loss of wages. No state has enacted a pure no-fault law to date.

Right To Sue Restricted But Not Eliminated

Briefly, no-fault laws alter the tort liability system to a significant degree as it relates to the automobile, but they do not restrict the right to sue when there are serious injuries. Pure no-fault statutes restrict or limit the right to recover for "pain or suffering." They substitute a system of compensating victims of automobile accidents on a first party basis. Insurance policies written under such laws reimburse injured persons for economic loss and for hospital, medical and rehabilitation expense arising out of automobile accidents. Economic loss includes present and future wage loss, cost of services such as housekeeping, and other reasonable out-of-pocket expenses.

Characteristics Of No-Fault Laws

Although each no-fault law has unique features with respect to particular law details, certain characteristics are common to all such laws. No-Fault benefits for automobile accidents are usually provided by adding an endorsement to an automobile insurance policy. This endorsement (usually called personal injury protection), through its terms and conditions, provides details on the benefits to be paid to an injured party. These no-fault benefits are limited to economic loss and make no provision for non-economic loss. Non-economic losses, like pain and suffering, may be recovered from the responsible party only when the claim exceeds either a specific monetary or verbal threshold (previously described). The following no-fault benefits are typically provided:

1. Medical Benefits: generally includes doctor, hospital and rehabilitation expenses. Most states have a maximum limitation on medical benefits receivable. Such limits are either specified or subject to the limitations on total benefits receivable.

2. Wage Loss Benefits: refers to benefits received for loss of income the victim would have received but for the injury. In most states the amount of wages recoverable is limited to a percentage of lost wages, wages which would have been earned in a fixed time period, and/or the total amount of first-party benefits receivable.

3. Replacement Services Benefits: benefits received to pay for services the injured person normally provides for the benefit for family members. Maximum limits are set by liquidated amounts over specified time periods and/or by limitations on total first-party benefits receivable.

4. Survivors' Benefits: generally, survivor benefits include compensation to dependents of the deceased victim for lost wages and replacement services. In most states maximum limits are set by liquidated amounts and/or limits on total benefits recoverable.

5. Funeral Benefits: refers to the amounts recoverable by the victim's survivors for burial expenses. In most states maximum limits are set by liquidated amounts and/or limits on total benefits recoverable.

Some states require that insurers offer higher, optional no-fault benefits to persons who want benefits greater than the prescribed minimums. In addition, some states require insurers to offer optional deductibles that can be used to reduce or eliminate certain no-fault benefits.

As previously discussed, under a true no-fault law the injured parties have only a limited right to file lawsuits. The states that have no-fault laws follow a modified law in which the injured party is not allowed to sue for damages unless the injury exceeds the threshold limit. However, laws in various jurisdictions allow the insurer to subrogate against the negligent motorist's insurance company to the extent of the benefits it has paid. Or the insurer is entitled to be reimbursed for benefits it has paid if there is a tort liability recovery from a third party.

Example: Paul is injured when, as he goes through an intersection, he is struck by Jill, who ran a red light with her SUV. Paul’s insurance company pays him $11,000 for his injuries. The no-fault law in their state allows suits to be filed for damages that exceed $8,000. Paul sues Jill and receives $6,000. Paul then pays his insurer the proceeds. The insurer ends up paying a net amount of $5,000. Note that Paul’s insurer could have assumed his rights to recover and sued Jill directly.

No-fault laws typically only apply to bodily injury and not to property damage; therefore, any restriction on the ability to sue does not apply to damages to property. One exception to this general characteristic is the law in the State of Michigan. In Michigan, automobile owners generally are prohibited from litigation with regard to property damage to their own vehicles. But even in Michigan, damage to property other than vehicles is subject to the tort liability system.

No-Fault Laws

No-fault statutes are presently effective in more than a dozen states. These states and jurisdictions have enacted statutes that restrict or limit the right to recover for "pain and suffering.” They substitute a system of compensating victims of automobile accidents on a first party basis, permitting an injured person to recover from his or her insurance company without reference to fault. Their essential characteristic is that they prohibit lawsuits unless an auto accident results in serious injuries, the qualifying nature of which is spelled out in the law. They alter the tort liability system to a significant degree as it relates to the automobile, but they do not restrict the right to sue when there are serious injuries.

Add-On Insurance

Some states have enacted laws whereby first party "add-on" personal injury coverages must be offered as a supplement to automobile liability insurance covering automobiles or motor vehicles registered or principally garaged in the state. They make provision for add-on coverage for medical expenses, lost income and other economic losses.

There is no "threshold" or limitation on the right to sue as a condition of payment of such benefits. The right to sue is preserved without reservation. The governing laws do not alter, in any degree, the existing tort liability concept. But in making provision for additional coverage for the benefit of injured persons, such laws may represent a positive step toward automobile insurance reform. Reasonable compensation is considered by many to be a practical method of tempering the burgeoning litigation process.

Statutes in some states presently require that insurance companies writing automobile liability insurance offer first party "add-on" benefits coverages to their insureds. The coverages are mandatory in some states. They may be rejected by the insured in others, but in any event, must be made available.

Arguments In Favor Of No-Fault

Proponents of no-fault automobile insurance argue that serious defects exist in a tort liability system that is based on fault and the necessity to prove negligence. These alleged defects are:

1. Difficulty in determination of fault

Automobile accidents often occur suddenly and unexpectedly. However, facts surrounding the cause of automobile accidents may become faded with time or may be suppressed or fabricated by one of the parties. Also, the legal defenses of contributory negligence and last clear chance are difficult to apply. No-fault automobile insurance permits recovery of certain benefits to an injured accident victim without a necessity to determine fault.

2. Inequities in claim payments

Critics argue that smaller claims are overpaid, while larger claims are underpaid. Evidence shows that economic considerations may cause insurers to pay out more for smaller claims in proportion to the actual economic loss, and then expend funds for investigation and defense while insurers may vigorously resist larger claims in an attempt to reduce the amount of payment.

3. Limited scope of tort reparations system

Many injured persons do not collect under the present system. A no-fault system will work to compensate those injured in an automobile accident. No-fault compensates more victims more fully. The number of no-fault payouts per hundred insured cars is double that found in traditional (tort liability) jurisdictions. Successful no-fault claimants receive an average of $8,679 in total compensation, 79 percent more than their lawsuit counterparts, according to a study conducted by the U.S. Department of Transportation, "Compensating Auto Accident Victims.”

4. Large proportion of each premium dollar paid is used for legal costs

Almost one-fourth of each premium dollar is used to pay claim costs.

5. Delay in claims' payments

Large numbers of claims are not promptly paid because of claims' investigations, negotiations between the insurer and injured parties or their representatives, and the difficulties encountered in waiting for court dates. The more serious the injury, the greater the delay. Thus, the very parties who need to be compensated quickly are not. No-fault laws enable injured parties to receive immediate (or almost immediate) compensation for economic loss.

Payouts are made far more quickly under no-fault. One year after notifying his or her insurance company of an accident, the average no-fault claimant has received more than 95 percent of final compensation. Those forced to resort to the tort system have received just over a half one year after notification to the insurer. Swifter payment facilitates swifter physical recovery through more immediate access to better medical treatment.

6. No-fault is considerably the more efficient system

For example, auto accident victims in Michigan, where no-fault has been implemented in its purest form (high benefits coupled with severe restrictions on court access), receive an average of 14 more cents on their premium dollar. These savings mean that in no-fault states, a greater proportion of insurance money is going where it should—toward rehabilitating the injured, rather than being wasted in useless legal and administrative costs, according to a study conducted by the U.S. Department of Transportation, "Compensating Auto Accident Victims.”

7. No-fault systems relieve courts of suffocating caseloads

In the first four years of its no-fault statute, Massachusetts reported a drop of almost two-thirds in the number of automobile negligence suits brought to court (from 30,000 to 11,000 annually). Other no-fault states have witnessed similar dramatic reductions.

Arguments Against No-Fault

Parties that prefer the tort liability system make a number of arguments against no-fault laws, including:

1. The defects of the current tort liability system are exaggerated

The concepts of negligence, as applied to automobile accidents, have a history of success. The present system is, in fact, working well, as most automobile claims are settled out of court.

2. The allegations that no-fault laws would result in insurance premium savings and greater efficiency are exaggerated.

It is argued by proponents of no-fault that because of alleged efficiencies, the cost of an auto reparations system would be reduced and this cost savings could be passed along to consumers in the form of savings on their premiums. However, the total dollars paid accident victims will not change and, in fact, may increase.

3. The safe driver may be penalized

Rating systems under a no-fault law could allocate the accident costs to the persons not responsible for the automobile accident, but who are the ones paying the benefits. The person actually responsible for the accident may escape any rating "penalty.”

4. The accident victim is not compensated for pain and suffering

A no-fault system provides for economic losses. Non-economic losses such as pain and suffering are not recoverable unless the injury exceeds the limit of the threshold.

5. Court delays are not all-embracing

While court delays may exist in selected metropolitan areas, the problem is not universal. While it is agreed this situation should be addressed, it must be handled as its own problem and not as justification for a no-fault system.

6. The present tort system only needs reform

Certain tort system advocates urge reform rather than replacement. Limiting contingency fees for attorneys and using alternative dispute resolutions are suggestions made for producing positive results within the current system.

Continuing Debate On Reform

Demand continues for change in the automobile insurance reparations system against a background of rising insurance premiums, and the withdrawal of insurers from certain areas. Adversaries in the public debate lay blame on an overly aggressive legal community, runaway judicial system, skyrocketing medical costs, and increasing claim frequency and severity.

A recent development has been to seek tort reform rather than replacement. Further, the lack of the spread of no-fault jurisdictions and other studies are building a case against no-fault coverage as a viable solution. A 2010 study performed by The Rand Corporation suggests that no-fault systems have been largely ineffective in reducing accident costs and are not more efficient than tort-based reparations. Two particularly important elements of the study were that total injury costs are substantially higher in no-fault states and that the major reason was extremely high medical costs.

No Fault Glossary

Below are several terms that may help your understanding of no-fault coverage. These terms come courtesy of another Rough Notes Product, Insurance Words and Their Meanings.

contributory negligence–A common law defense in which the plaintiff must be entirely free from fault in order to recover from a negligent defendant. If the plaintiff has in any way been guilty of neglect, the plaintiff cannot recover from the defendant. This principle has been modified in some states by legislation and interpretation by the courts.

Keeton-O'Connell Plan–A "no-fault" plan for compensating automobile accident victims for their loss of wages and medical expenses, etc., without the usual legal proof of negligence. Devised by Professors Robert E. Keeton and Jeffrey O'Connell.

modified no-fault–Refers to no-fault plans that include some level of consideration of a driver’s negligence in causing a loss. Such plans usually allow pursuit of compensation by lawsuit for certain types of losses or when a given level of severity is met.

no-fault automobile insurance–Coverage designed to compensate victims of automobile accidents via their own insurance carriers, regardless of fault and without the necessity of proving negligence on anyone's part. No-fault laws passed by different states vary greatly in their scope and application. Most provide that a victim's own insurance will allow a victim to sue in tort, once expenses or injuries have passed a stipulated threshold (monetary or otherwise).

personal injury protection (PIP)–Also known as no-fault insurance, PIP provides insurance for medical costs, loss of earnings, additional living expenses, and funeral costs for occupants of the insured automobile and pedestrians other than those insured under other policies.

pure no-fault–A reference to no-fault plan that completely ignores each party’s behavior or action that may have contributed to a loss.

threshold level–This term applies to no-fault automobile liability provisions. No-fault was designed to reduce the time and litigation involved when two or more parties are involved in an auto accident by providing coverage with the insured's own insurer, regardless of who was actually at fault in the accident. Some states have a modified no-fault to allow an insured to take legal action against the negligent party who caused the accident when the accident exceeds a specified amount called the threshold level, or when serious bodily injury, disfigurement or death occurs. The threshold level is different by jurisdiction.

verbal threshold - No-fault automobile laws are applicable in some states. In a portion of the states with no-fault laws, when the injuries of the victim meet or exceed specifically described criteria, the victim is compensated under the no-fault system but is also allowed the option to take legal action against the negligent tortfeasor under the tort system for injury and loss such as pain, suffering and, where allowed, punitive damages. The specifically described criteria, or verbal description of injuries are called the verbal threshold.