Personal Auto Policy Issues and Answers

Transcription

1 Personal Auto Policy Issues and Answers Presented by: Ted A. Kinney, CIC CPCU ARM AAI CPIA Kinney Training & Consulting, LLC Columbus, OH 1

2 Ted A. Kinney, CIC CPCU ARM AU AAM AAI AINS CPIA CRIS Kinney Training and Consulting, LLC Columbus, OH Ted Kinney is the owner/president of Kinney Training and Consulting, LLC, which specializes in providing quality insurance training programs to agencies and companies throughout the United States. Ted also serves as the Director of Education and Technical Affairs for the Alabama Independent Insurance Agents in Birmingham, Alabama. In this position he is responsible for developing agent education programs and providing technical assistance to association members. He is also an independent contractor for the Professional Independent Insurance Agents of Ohio. As with AIIA, he assists with the development of the association s education programs and provides technical assistance to members. Ted has been in the insurance business since his graduation from the Ohio State University in During his career, he has worked as an underwriter, field sales manager, department supervisor, marketing specialist and trainer. From 1994 to 2003, Ted was the Director of Curriculum and Faculty Development for PIA of Ohio & Indiana. During that time he developed over 150 training courses covering all aspects of the insurance industry. He has obtained several insurance designations including Certified Insurance Counselor (CIC), Chartered Property Casualty Underwriter (CPCU), Associate in Risk Management (ARM), Associate in Underwriting (AU), Associate in Automation Management (AAM), Accredited Advisor in Insurance (AAI), Associate in General Insurance (AINS), Certified Professional Insurance Agent (CPIA) and Construction Risk and Insurance Specialist (CRIS). He is a member of the national faculty of the Society of Certified Insurance Counselors, the American Insurance Marketing Society (CPIA) and the Independent Insurance Agents and Brokers of America s ask the expert service. In addition, Ted is a member of the Society of Certified Insurance Counselors, the National Academy of Producer Insurance Studies and the Society of Insurance Trainers and Educators. 2

3 Disclaimer and Liability Statement The information provided in this course is for educational purposes only. No legal advice is implied or given. If actual legal advice is needed, contact a legal professional. Also, coverage can and does vary from insurer to insurer and from policy to policy. For the exact wording and interpretation of your insurers forms and endorsements, please contact the individual insurer. The instructor s opinions are not necessarily representative of others in the industry. The instructor and Kinney Training & Consulting, LLC are not responsible for any liability arising out of reliance upon the information provided in this course. 3

4 DEFINITIONS A. Throughout this policy, "you" and "your" refer to: 1. The "named insured" shown in the Declarations; and 2. The spouse if a resident of the same household. If the spouse ceases to be a resident of the same household during the policy period or prior to the inception of this policy, the spouse will be considered "you" and "your" under this policy but only until the earlier of: 1. The end of 90 days following the spouse s change of residency; 2. The effective date of another policy listing the spouse as a named insured; or 3. The end of the policy period. 4

5 Personal Auto Policy Issues and Answers I. Important Policy Definitions A. You and your a. Named insured the person(s) named on the declarations page b. Resident spouse if not listed as a named insured c. Domestic partners? some states consider couples together in a legally recognized civil union as married d. Divorce and separation gaps 1. In many policies, an unlisted spouse who no longer resides with the policy s named insured is only considered you for a period of time ISO says, the earlier of policy expiration, when a separate policy is written or 90 days 2. Some policies cover an unlisted, non-resident spouse only until policy expiration 3. If children go with the unlisted spouse they are no longer considered family members 4. Both the unlisted spouse and children residing with him or her would lose coverage for non-owned vehicles e.g. rented or borrowed autos 5

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7 e. Joint ownership 1. Vehicles are sometimes titled in the name of two individuals who are not married, or even related e.g. father/son, roommates, etc. 2. ISO handles this with a Joint Ownership Coverage endorsement relatives do not have to live together but unrelated owners must live together this endorsement is sometimes used for civil unions 3. Some companies will list both parties as named insured s in the declarations page 7

8 F. "Family member" means a person related to you by blood, marriage or adoption who is a resident of your household. This includes a ward or foster child. J. "Your covered auto" means: 1. Any vehicle shown in the Declarations. 2. A "newly acquired auto". 3. Any "trailer" you own. 4. Any auto or "trailer" you do not own while used as a temporary substitute for any other vehicle described in this definition which is out of normal use because of its: a. Breakdown; b. Repair; c. Servicing; d. Loss; or d. Destruction. This Provision (J.4.) does not apply to Coverage For Damage To Your Auto. 8

9 B. Family member a. Related to you by blood, marriage (sometimes civil union), adoption includes a ward or a foster child b. Who is a resident of your household c. College students away at school are they still residents of the parents household? d. Non-rated drivers some companies exclude coverage for drivers who are not listed or rated for on the declarations page e. Step down coverage some companies provide state minimum financial responsibility limits for unlisted drivers C. Your covered auto a. Any vehicle shown in the declarations b. Newly acquired auto there is a separate definition for this term c. Owned trailer a vehicle designed to be towed by a private passenger auto, pickup truck or van includes a farm wagon or implement only while towed d. Temporary substitute auto 1. Specifically defined non-owned auto 2. Any non-owned auto used as a substitute for a covered auto that is out of service due to breakdown, repair, servicing, loss or destruction 3. This provision does not apply to Coverage for Damage to Your Auto (i.e. physical damage) 9

10 K. "Newly acquired auto": 1. "Newly acquired auto" means any of the following types of vehicles you become the owner of during the policy period: a. A private passenger auto; or b. A pickup or van, for which no other insurance policy provides coverage, that: (1) Has a Gross Vehicle Weight Rating of 10,000 lbs. or less; and (2) Is not used for the delivery or transportation of goods and materials unless such use is: (a) Incidental to your "business" of installing, maintaining or repairing furnishings or equipment; or (b) For farming or ranching. 2. Coverage for a "newly acquired auto" is provided as described below. If you ask us to insure a "newly acquired auto" after a specified time period described below has elapsed, any coverage we provide for a "newly acquired auto" will begin at the time you request the coverage. a. For any coverage provided in this policy except Coverage For Damage To Your Auto, a "newly acquired auto" will have the broadest coverage we now provide for any vehicle shown in the Declarations. Coverage begins on the date you become the owner. However, for this coverage to apply to a "newly acquired auto" which is in addition to any vehicle shown in the Declarations, you must ask us to insure it within 14 days after you become the owner. 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. b. Collision Coverage for a "newly acquired auto" begins on the date you become the owner. However, for this coverage to apply, you must ask us to insure it within: (1) 14 days after you become the owner if the Declarations indicate that Collision Coverage applies to at least one auto. In this case, the "newly acquired auto" will have the broadest coverage we now provide for any auto shown in the Declarations. (2) Four days after you become the owner if the Declarations do not indicate that Collision Coverage applies to at least one auto. If you comply with the 4 day requirement and a loss occurred before you asked us to insure the "newly acquired auto", a Collision deductible of $500 will apply. 10

11 D. Newly acquired auto a. You become the owner this provision does not apply to family members 1. Private passenger auto 2. Pickup truck or van that is 10,000 pounds or less and is not used for delivery unless it is incidental to your business of installing, maintaining or repairing furnishings or equipment or used for farming or ranching b. Replacement vehicle 1. A replacement vehicle has the broadest coverage of any vehicle shown in the declarations 2. There is no reporting requirement unless the named insured wants physical damage coverage 3. There is a 14-day reporting requirement for physical damage coverage c. Additional vehicle 1. An additional vehicle has the broadest coverage of any vehicle shown in the declarations 2. There is a 14-day reporting requirement for all coverage d. Leased vehicles? leased vehicles are not owned and therefore a newly acquired leased vehicle is not covered until reported to the company e. Pickups and vans over 10,000 gross vehicle weight rating? many pickups or vans have a gross vehicle weight rating over 10,000 pounds a vehicle of this type would not be covered until reported to the company 11

12 c. Other Than Collision Coverage for a "newly acquired auto" begins on the date you become the owner. However, for this coverage to apply, you must ask us to insure it within: (1) 14 days after you become the owner if the Declarations indicate that Other Than Collision Coverage applies to at least one auto. In this case, the "newly acquired auto" will have the broadest coverage we now provide for any auto shown in the Declarations. (2) Four days after you become the owner if the Declarations do not indicate that Other Than Collision Coverage applies to at least one auto. If you comply with the 4 day requirement and a loss occurred before you asked us to insure the "newly acquired auto", an Other Than Collision deductible of $500 will apply. 12

13 d. If the policy does not currently have a vehicle with physical damage coverage, a newly acquired auto would have coverage for four days a $500 deductible applies 13

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15 II. Liability Issues A. How much is enough coverage? a. Split vs. single limits which type of limit is better? /300/100 - $100,000 bodily injury per person, $300 bodily injury per accident and $100,000 property damage per accident 2. $300,000 single limit per accident an insured can apply the limit where needed 3. Personal auto policies are typically written on a split limit basis unless endorsed for single limits a Business Auto policy is single limit unless endorsed for split limits b. Prepare for the umbrella sale sell a limit that would qualify as the underlying auto liability limit for the umbrella c. Limits for family members on separate policies 1. Should a family member (e.g. a young driver) have the same limits as the parents? 2. Most family members (or resident relatives) qualify as insureds on an umbrella policy and must meet the underlying requirements or there is a gap in coverage 15

16 PART A. LIABILITY COVERAGE B. "Insured" as used in this Part means: 1. You or any "family member" for the ownership, maintenance or use of any auto or "trailer". 2. Any person using "your covered auto". 3. For "your covered auto", any person or organization but only with respect to legal responsibility for acts or omissions of a person for whom coverage is afforded under this Part. 4. For any auto or "trailer", other than "your covered auto", any other person or organization but only with respect to legal responsibility for acts or omissions of you or any "family member" for whom coverage is afforded under this Part. This Provision (B.4.) applies only if the person or organization does not own or hire the auto or "trailer". 16

17 B. Who is an insured? a. You and family members any auto or trailer b. Anyone using your covered auto i. Permissive operators with your permission? ii. Express permission? with your express permission iii. Implied permission? with your express or implied permission c. Any person or organization responsible for an insured using your covered auto this is vicarious liability d. Any person or organization responsible for you or a family member while using other than your covered auto the person or organization does not own or hire the auto or trailer 17

18 EXCLUSIONS 2. For "property damage" to property owned or being transported by that "insured". 3. For "property damage" to property: a. Rented to; b. Used by; or c. In the care of; that "insured". This Exclusion (A.3.) does not apply to "property damage" to a residence or private garage. 4. For "bodily injury" to an employee of that "insured" during the course of employment. This Exclusion (A.4.) does not apply to "bodily injury" to a domestic employee unless workers compensation benefits are required or available for that domestic employee. 18

19 C. Problem liability exclusions a. Property damage to property owned or transported by that insured i. This is liability coverage, not property coverage e.g. damage to personal property such as luggage is excluded ii. No coverage for property being transported e.g. damage to property of others while transported b. Property damage to property rented to, used by or in the care of that insured except a rented residence or private garage i. Excludes damage to property to rented to an insured e.g. damage to a rental car ii. Excludes damage to property of others used by or in the insured s care e.g. damage to a borrowed auto iii. There is coverage for damage to a rented residence or private garage c. Bodily injury to an employee of that insured during the course of employment i. Excludes injury to an insured s employee e.g. an insured s employee is riding with the insured to make a sales call ii. There is coverage for injury to a domestic employee unless workers compensation coverage is required or available e.g. the insured s nanny is driving the insured s vehicle on errands iii. When is workers compensation required or available? - in a number of states, employers of domestic employees are subject to the act if they employ these workers for more than a specified number of hours per week or if the employee is paid more than a specified sum over a certain period of time. In a few states, all domestic employees are covered under the act, regardless of the number of hours worked 19

20 5. For that "insured s" liability arising out of the ownership or operation of a vehicle while it is being used as a public or livery conveyance. This Exclusion (A.5.) does not apply to a share-theexpense car pool. 6. While employed or otherwise engaged in the "business" of: a. Selling; b. Repairing; c. Servicing; d. Storing; or e. Parking; vehicles designed for use mainly on public highways. This includes road testing and delivery. This Exclusion (A.6.) does not apply to the ownership, maintenance or use of "your covered auto" by: a. You; b. Any "family member"; or c. Any partner, agent or employee of you or any "family member". 20

21 d. Ownership or operation of a public or livery conveyance (not car pool) i. What is a public or livery conveyance? A vehicle used indiscriminately in conveying the public, without limitation to certain persons or particular occasions or without being governed by special terms. Black s Law Dictionary e.g. the insured uses his vehicle as a taxi or is a taxi cab driver for a cab company ii. A vehicle used in a share-the-ride car pool is not excluded iii. Some policies exclude vehicles used to carry people or property for a fee iv. Some policies exclude transportation of persons or property for compensation of any kind v. Some policies have specific food delivery exclusions vi. PP Extended Non-Owned Coverage for Public or Livery Conveyances Endorsement used to provide excess coverage for insured s who drive non-owned public or livery conveyances e.g. the insured who is a taxi cab driver for a cab company e. While employed or engaged in an auto business except use of your covered auto this is a garage liability exclusion i. Would exclude coverage for an auto mechanic test driving a customer s auto ii. Would exclude coverage for a valet parking attendant iii. There is coverage if an insured is using a covered auto in an auto business e.g. the mechanic uses his own pickup truck to pick up parts from an auto supply store 21

22 7. Maintaining or using any vehicle while that "insured" is employed or otherwise engaged in any "business" (other than farming or ranching) not described in Exclusion A.6. This Exclusion (A.7.) does not apply to the maintenance or use of a: a. Private passenger auto; b. Pickup or van; or c. "Trailer" used with a vehicle described in a. or b. above. B. We do not provide Liability Coverage for the ownership, maintenance or use of: 1. Any vehicle which: a. Has fewer than four wheels; or b. Is designed mainly for use off public roads. This Exclusion (B.1.) does not apply: a. While such vehicle is being used by an "insured" in a medical emergency; b. To any "trailer"; or c. To any non-owned golf cart. 22

23 iv. Maintaining a vehicle for business other than farming or ranching except private passenger, pickup or van or trailer 1. No business use coverage for a vehicle larger than a private passenger auto, pickup truck or van 2. There would be no coverage for an insured using a large rented truck to move his office furniture 3. There would be no fellow-employee coverage in the situation described in 2. e.g. injury to a fellow employee riding with the insured while moving the office furniture f. Vehicles with fewer than four wheels or designed mainly for use off public roads (except used in a medical emergency, trailer, non-owned golf cart) 1. Coverage would be excluded for motorcycles, mopeds, scooters, etc. 2. Coverage would also be excluded for any off-road recreational vehicle such as a dune buggy, golf cart, ATV, etc. 3. If the vehicle is subject to registration, there is no coverage on the homeowners policy 4. There is coverage for using such a vehicle for a medical emergency 5. There is coverage for a trailer with fewer than four wheels 6. There is coverage for a non-owned golf cart this exception appeared in 1998 and may not be included in a non-iso form 7. PP Miscellaneous Type Vehicle Endorsement or a Recreational Vehicle Policy can be used to provide coverage 23

24 B. We do not provide Liability Coverage for the ownership, maintenance or use of: 2. Any vehicle, other than "your covered auto", which is: a. Owned by you; or b. Furnished or available for your regular use. 3. Any vehicle, other than "your covered auto", which is: a. Owned by any "family member"; or b. Furnished or available for the regular use of any "family member". However, this Exclusion (B.3.) does not apply to you while you are maintaining or "occupying" any vehicle which is: a. Owned by a "family member"; or b. Furnished or available for the regular use of a "family member". 24

25 a. Auto furnished or available for your regular use i. Excludes vehicles owned by the named insured that are not listed in the declarations ii. Excludes a vehicle furnished or available for your regular use 1. Regular access 2. No need to ask for permission 3. Possession of keys 4. Company cars 5. Pool cars may qualify 6. Autos owned by other members of the household e.g. roommates 7. Fellow employee exposure excluded 8. PP Extended Non-Owned Coverage Vehicles Furnished or Available for Regular Use b. Auto furnished or available for regular use of a family member i. Same issues as a. ii. There is no coverage for a family member s vehicle not listed in the declarations (the exclusion does not apply to you while maintaining or occupying the vehicle) iii. There is no coverage for a company car or pool car iv. PP Extended Non-Owned Coverage Vehicles Furnished or Available for Regular Use 25

26 PART D. COVERAGE FOR DAMAGE TO YOUR AUTO INSURING AGREEMENT A. We will pay for direct and accidental loss to "your covered auto" or any "non-owned auto", including their equipment, minus any applicable deductible shown in the Declarations. If loss to more than one "your covered auto" or "non-owned auto" results from the same "collision", only the highest applicable deductible will apply. We will pay for loss to "your covered auto" caused by: 1. Other than "collision" only if the Declarations indicate that Other Than Collision Coverage is provided for that auto. 2. "Collision" only if the Declarations indicate that Collision Coverage is provided for that auto. If there is a loss to a "non-owned auto", we will provide the broadest coverage applicable to any "your covered auto" shown in the Declarations. B. "Collision" means the upset of "your covered auto" or a "non-owned auto" or their impact with another vehicle or object. Loss caused by the following is considered other than "collision": 1. Missiles or falling objects; 2. Fire; 3. Theft or larceny; 4. Explosion or earthquake; 5. Windstorm; 6. Hail, water or flood; 7. Malicious mischief or vandalism; 8. Riot or civil commotion; 9. Contact with bird or animal; or 10. Breakage of glass. If breakage of glass is caused by a "collision", you may elect to have it considered a loss caused by "collision". 26

27 III. Physical Damage Issues A. Direct and Accidental Loss what is direct loss? 1. Direct direct damage caused by a covered peril 2. Would not cover an indirect loss one which arises out of the direct loss e.g. loss of use 3. Accidental not expected or intended 4. Important definitions a. Collision upset of a covered auto or non-owned auto or impact with another vehicle or object if loss to more than one covered auto or nonowned auto results from the same collision only the highest deductible applies b. Other than collision direct loss other than collision, which is not otherwise excluded c. The policy clarifies that 10 causes of loss are considered other than collision this is a clarification, not a limitation of coverage to the 10 causes of loss 5. The broadest coverage of any your covered auto applies to a non-owned auto 27

28 B. "Non-owned auto" means: 1. Any private passenger auto, pickup, van or "trailer" not owned by or furnished or available for the regular use of you or any "family member" while in the custody of or being operated by you or any "family member"; or 2. Any auto or "trailer" you do not own while used as a temporary substitute for "your covered auto" which is out of normal use because of its: a. Breakdown; b. Repair; c. Servicing; d. Loss; or e. Destruction. 28

29 d. Non-owned auto two separate definitions: i. Private passenger auto, pickup or van not owned by or furnished or available for regular use of you or a family member while in the custody of or being operated by you or a family member ii. Any auto you do not own while used as a temporary substitute for a covered auto which is out of service due to its: 1. Breakdown 2. Repair 3. Servicing 4. Loss 5. Destruction iii. Note that ii. is broader than i. 29

30 TRANSPORTATION EXPENSES A. In addition, we will pay, without application of a deductible, up to a maximum of $600 for: 1. Temporary transportation expenses not exceeding $20 per day incurred by you in the event of a loss to "your covered auto". We will pay for such expenses if the loss is caused by: a. Other than "collision" only if the Declarations indicate that Other Than Collision Coverage is provided for that auto. b. "Collision" only if the Declarations indicate that Collision Coverage is provided for that auto. 2. Expenses for which you become legally responsible in the event of loss to a "non-owned auto". We will pay for such expenses if the loss is caused by: a. Other than "collision" only if the Declarations indicate that Other Than Collision Coverage is provided for any "your covered auto". b. "Collision" only if the Declarations indicate that Collision Coverage is provided for any "your covered auto". However, the most we will pay for any expenses for loss of use is $20 per day. B. Subject to the provisions of Paragraph A., if the loss is caused by: 1. A total theft of "your covered auto" or a "nonowned auto", we will pay only expenses Incurred during the period: a. Beginning 48 hours after the theft; and b. Ending when "your covered auto" or the "non-owned auto" is returned to use or we pay for its loss. 2. Other than theft of a "your covered auto" or a "non-owned auto", we will pay only Expenses beginning when the auto is withdrawn from use for more than 24 hours. Our payment will be limited to that period of time reasonably required to repair or replace the "your covered auto" or the "non-owned auto". 30

31 C. Transportation Expenses incurred by you (this coverage only applies to the named insured or resident spouse) a. Your covered auto if the covered auto is damaged by covered collision and/or other than collision the policy will pay up to $20 per day/$600 maximum for temporary transportation expenses b. Non-owned auto if the policy provides collision and/or other than collision to any covered auto, then any expenses for which you become legally responsible are covered up to $600 maximum loss of use is limited to $20 per day subject to the maximum c. For theft losses, coverage begins 48 hours after the theft and ends when the vehicle is returned to use or the company pays the loss there is no coverage for the first two days d. For other than theft losses, the vehicle must be withdrawn from use for more than 24 hours if the vehicle is withdrawn for more than 24 hours, there is no waiting period, i.e. transportation expenses are paid from the date of the loss e. Coverage is limited to the time reasonably required to replace the covered auto or non-owned auto f. PP Optional Limits Transportation Expenses Coverage endorsement can be used to increase the per day and maximum limits g. Some policies only apply this coverage for theft losses rental reimbursement coverage is need for other than theft losses 31

32 EXCLUSIONS We will not pay for: 2. Damage due and confined to: a. Wear and tear; b. Freezing; c. Mechanical or electrical breakdown or failure; or d. Road damage to tires. This Exclusion (2.) does not apply if the damage results from the total theft of "your covered auto" or any "non-owned auto". 4. Loss to any electronic equipment that reproduces, receives or transmits audio, visual or data signals. This includes but is not limited to: a. Radios and stereos; b. Tape decks; c. Compact disk systems; d. Navigation systems; e. Internet access systems; f. Personal computers; g. Video entertainment systems; h. Telephones; i. Televisions; j. Two-way mobile radios; k. Scanners; or l. Citizens band radios. This Exclusion (4.) does not apply to electronic equipment that is permanently installed in "your covered auto" or any "non-owned auto". 32

33 D. Problem physical damage exclusions a. Due and confined to wear and tear; freezing; mechanical or electrical breakdown; road damage to tires i. Damages must be due and confined to one of the named losses i.e. there would be coverage if an independent event caused the loss ii. This exclusion is designed to exclude losses that are not unexpected/not accidental iii. None of the damages are excluded if they result from the total theft of the auto iv. Some policies are more restrictive because they don t include the due and confined to wording b. Loss to electronic equipment i. Permanently installed electronic equipment is covered ii. $1,000 limit if permanently installed but not in a place not designed by the manufacturer (this appears in the Limit of Liability condition) iii. Variations found in other policies: 1. Permanently installed radios, tape decks or CD players 2. Covered only for Collision loss 3. Original manufacturers equipment only 4. No limitation 5. Not covered if installed in a place not designed by the manufacturer 33

34 7. Loss to: a. A "trailer", camper body, or motor home, which is not shown in the Declarations; or c. Facilities or equipment used with such "trailer", camper body or motor home. Facilities or equipment include but are not limited to: (1) Cooking, dining, plumbing or refrigeration facilities; (2) Awnings or cabanas; or (3) Any other facilities or equipment used with a "trailer", camper body, or motor home. This Exclusion (7.) does not apply to a: a. "Trailer", and its facilities or equipment, which you do not own; or b. "Trailer", camper body, or the facilities or equipment in or attached to the "trailer" or camper body, which you: (1) Acquire during the policy period; and (2) Ask us to insure within 14 days after you become the owner. 34

35 d. Loss to a trailer, camper body or motor home including facilities and equipment facilities and equipment include: i. Cooking, dining, plumbing or refrigeration facilities ii. Awnings or cabanas; or iii. Other facilities or equipment used with a trailer, camper body or motor home iv. There is $1,500 coverage for non-owned trailers (appears in the Limit of Liability condition) v. Coverage for a newly acquired trailer, camper body or facilities or equipment in trailers or camper bodies must be requested within 14 days after you become the owner vi. PP Trailer/Camper Body Coverage (Maximum Limit of Liability) endorsement vii. Variations found in some policies 1. No coverage for non-owned trailers 2. Coverage for non-owned trailers only if attached to a covered auto 3. No coverage for newly acquired trailers 35

36 10. Loss to any custom furnishings or equipment in or upon any pickup or van. Custom furnishings or equipment include but are not limited to: a. Special carpeting or insulation; b. Furniture or bars; c. Height-extending roofs; or d. Custom murals, paintings or other decals or graphics. This Exclusion (10.) does not apply to a cap, cover or bedliner in or upon any "your covered auto" which is a pickup. 11. Loss to any "non-owned auto" being maintained or used by any person while employed or otherwise engaged in the "business" of: a. Selling; b. Repairing; c. Servicing; d. Storing; or e. Parking; vehicles designed for use on public highways. This includes road testing and delivery. 36

37 e. Loss to custom furnishings in a pick up or van (except a cap, cover or bedliner) does not apply to custom equipment in or on a private passenger auto i. PP Customizing Equipment Coverage endorsement used to purchase coverage for custom equipment in pickups and vans ii. PP Custom Equipment Exclusion Endorsement - new ISO endorsement excludes custom equipment including equipment in or on private passenger autos the exclusion endorsement gives back $1,500 iii. PP Excess Customizing Equipment Coverage endorsed used to increase the $1,500 limit if the PP exclusion endorsement applies iv. Variations 1. Exclusion applies to all customizing equipment including caps, covers or bedliners 2. Exclusion applies to customizing equipment in all vehicles, including private passenger autos 3. Coverage subject to an internal limit 4. Stated amount coverage only if endorsed 5. No exclusion f. Loss to a non-owned auto maintained or used in an auto business i. No physical damage for a mechanic driving a customer s vehicle there is coverage for the vehicle owner ii. This exposure should be covered in Garagekeepers Coverage of a Garage policy 37

38 LIMIT OF LIABILITY A. Our limit of liability for loss will be the lesser of the: 1. Actual cash value of the stolen or damaged property; or 2. Amount necessary to repair or replace the property with other property of like kind and quality. 38

39 E. Limit of Liability concerns a. Lesser of the actual cash value or the amount to repair or replace i. Constructive total loss if the amount to repair or replace is more than the actual cash value ii. PP Coverage for Damage to Your Auto (Maximum Limit of Liability) this provides stated amount coverage 1. This is not good for the insured 2. The company will pay the lesser of the actual cash value or the amount to repair or replace or the state amount 3. This puts a cap on the company s exposure 4. Underwriters often recommend this valuation method for classic cars or antique cars exactly when it should not be used 5. The endorsement states, The amount shown in the Schedule or in the Declarations is not necessarily the amount you will receive at the time of loss or damage for the described property. iii. Agreed amount coverage 1. This valuation method is normally available only from nonstandard markets 2. Used for classic cars or antique cars 3. The insured and the company agree on the value prior to the loss this amount is paid if there is a total loss 39

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41 b. Gap exposures i. Insured s with long term loans or leases often become upside down, i.e. they owe more than the value of the vehicle ii. Since the company will pay the actual cash value and the insured must pay off the loan or lease amount, there is a gap iii. PP Auto Loan/Lease Coverage endorsement can close the gap 41

42 However, the most we will pay for loss to: 1. Any "non-owned auto" which is a trailer is $ Electronic equipment that reproduces, receives or transmits audio, visual or data signals, which is permanently installed in the auto in locations not used by the auto manufacturer for installation of such equipment, is $1,000. B. An adjustment for depreciation and physical condition will be made in determining actual cash value in the event of a total loss. C. If a repair or replacement results in better than like kind or quality, we will not pay for the amount of the betterment. 42

43 c. $1,500 limit on non-owned trailers ($500 prior to the 2005 edition) i. Would apply to borrowed and rented trailers ii. A trailer rental company would hold the insured responsible for the full value of a damaged trailer iii. There is no endorsement available to increase the $1,500 limit iv. Is a loss damage waiver available? v. The insurer providing coverage on the trailer would probably subrogate against an insured who borrowed a trailer there is no coverage for this exposure except the $1,500 limit d. $1,000 limit on electronic equipment not installed in a place designed by the manufacturer i. Young drivers often install high valued electronic equipment in a vehicle, sometimes in the trunk or under seats ii. PP Excess Electronic Equipment Coverage endorsement provides a way to purchase an increased limit e. Custom equipment i. If the PP Custom Equipment Exclusion is added to the policy, there is an additional limitation Custom equipment in or upon your covered auto or any non-owned auto is $1,500 ii. PP Customizing Equipment Endorsement can be used to increase the $1,500 limit f. Adjustment for depreciation and physical condition in determining the actual cash value of a vehicle if a total loss occurs, adjustments for depreciation and physical condition are made g. Betterment if the repair or replacement of the damaged parts results in better than like kind or quality, the insurer will not pay for this improvement 43

44 F. Other Physical Damage Issues a. Diminution in value the perceived loss of vehicle market value due to an accident or the loss of vehicle market value due to inferior quality repairs i. Arises out of the requirement that the company pay ACV or the cost to repair or replace ii. Courts have issued mixed decisions on this issue 1. State Farm v Mabry (Georgia) 2. Ellis v King (West Virginia) 3. Delledonne v State Farm (Delaware) 4. Carlton v Trinity (Texas) 5. Siegle v Progressive Consumers Insurance, Inc. (Florida) 6. Blakely v State Farm (Mississippi) 7. Culhane v Western National Mutual Ins. Co. (South Dakota) b. OEM versus Non-OEM Parts i. The concept of "like kind and quality" has been the source of much litigation, particularly when it comes to replacing damaged auto parts ii. Often, insurers replace damaged parts with aftermarket parts that are normally less expensive than the original equipment manufactured (OEM) parts for example, some non-oem parts are as much as 40 percent less expensive than OEM parts iii. Many insurance-related organizations and insurers maintain that aftermarket parts match up quality-wise to the OEM parts, whereas consumer groups and many automotive industry organizations argue to the contrary 44

45 iv. This issue is controversial one, in which the courts have ruled in different ways on numerous class action suits 1. Lebrilla v. Farmers Group, Inc. (California) 2. Gilchrist v. State Farm 3. Avery v. State Farm v. One area that insurers should explore is offering an endorsement that would guarantee the utilization of OEM replacement parts to repair a damaged auto this would clearly define the policy's obligation on this controversial matter 45

46 Some Questions To Ask When A Client Calls Regarding Rental Cars 1. What type of vehicle are you renting? (Don t assume it s a private passenger auto, pickup or van. It might be a motor home, camper, motorcycle or some other excluded vehicle). 2. Is the vehicle being used for pleasure or business use? (Some policies exclude business use of a non-owned pickup or van. Otherpolicies exclude business use of non-owned vehicles larger than private passenger autos, pickups and vans). 3. Where will you be renting or using the vehicle? (Coverage applies only in the coverage territory U.S., territories and possessions, Puerto Rico and Canada). 4. How long will you be renting the vehicle? (Some companies consider a vehicle rented for more than 30 days furnished or available for regular use; or the policy might specifically exclude vehicles rented for more than a certain number of days). 5. What types of expenses does the rental car contract obligate the insured to pay? (The contract may make the insured responsible for loss of use, loss of turn-back value, administrative fees or other expenses. There is limited or possibly no coverage for these items. Some policies limit coverage to loss of use only. Other policies limit loss of use coverage to theft of the vehicle only). 6. Who will be driving the vehicle? (Some rental car contracts limit the authorized drivers the renter. Others include the renter and renter s spouse). 7. Will the vehicle be rented in the name of a business or in an individual s name? (Who is listed as the renter on the rental contract? Who is signing the rental contract? If rented in the business name, the coverage would come from the Business Auto Policy. If rented in an individual s name, the coverage would come from the individual s Personal Auto Policy). 8. Are you aware of the rental agreement s use restrictions? (It is critical the insured understand these). 9. Do you understand the advantages of purchasing the rental car company s loss damage waiver? (In some cases, this may provide the only physical damage coverage available to the insured). 10. Are you relying on your credit card to provide coverage? (Do you understand the limitations of the coverage and that it is reimbursement coverage? This is not an exhaustive list of questions that address important considerations when renting a car. It is important to understand that insurance policies provide widely varying coverage for rental cars. 46