1998 ISO personal auto policy revisions

Transcription

1 1998 ISO personal auto policy revisions 1998 ISO personal auto policy revisions Resource kit By Ted Kinney, CIC, CPCU, ARM, AU, AAM, AAI Nothing is certain in life but change. This is especially true for Insurance Services Office Inc. (ISO) policy forms. In 1994, ISO introduced a replacement of the 1989 Personal Auto Policy which included 22 changes. Now, ISO is introducing a new policy edition with 19 new changes. The new policy edition has an effective date of June 1, 1998, in Connecticut, New Hampshire and New Jersey. It has not been filed in New York. While it is true that many companies do not use the straight ISO Personal Auto Policy, most use the ISO policy as a basis for their form. Because of this, it is important for agency and company personnel to be aware of the new form and its changes. This resource kit will introduce these changes and the reasons for the revisions. 1) Definition of named insured In the current policy, the definition of "you" and "your" includes the individual named in the declarations and a resident spouse. If only one person is named in the declarations, the unnamed spouse only has named insured status while a resident of the named individual's household. If the unnamed spouse moves out due to marital separation or other reasons, that person loses named insured status. In the new policy edition, the definition of "you" and "your" is broadened to extend temporary full-policy coverage to a separated spouse. In addition, coverage is extended to "family members" who move to a new residence with the separated spouse. If the spouse ceases to be a resident during the policy period or prior to the policy inception, named insured status is extended for the earlier of 90 days, the effective date of a policy listing the spouse as a named insured, or the end of the policy period. This is a broadening of coverage. 2) Leased pickups and vans In the current form, a private passenger auto leased under a written agreement for more than six months is considered an owned auto. However, there is no mention of leased pickups and vans. In a clarification of intent, the new policy also considers leased pickups and vans as owned autos under the policy. 3) Definition of newly acquired auto For purposes of clarification and modernization, a new definition is being introduced. In the current edition, the definition of "your covered auto" includes provisions for newly acquired autos. In the new form, these provisions have been deleted, and a new definition, "newly acquired auto," is being introduced.

2 For all coverages except physical damage, a "newly acquired auto" (replacement or additional) will get the broadest coverage of any vehicle already insured on the policy. If the new vehicle is an additional vehicle, the insured must request coverage within 14 days or coverage ceases. The previous policy edition had a 30-day reporting period for additional vehicles. A replacement vehicle has coverage for the remainder of the policy period without asking to insure it. Retroactive physical damage coverage will be provided from the date of acquisition if no physical damage coverage existed on the policy, provided the named insured requests the coverage within four days after becoming the auto owner. If a loss occurs during the four-day period, but before the named insured reports the new vehicle, a $500 physical damage deductible will apply. This will allow the insured who buys an auto but is unable to contact the company or agent to be provided with physical damage coverage from the date of purchase even if no physical damage coverage is provided in the existing policy. After the four-day period, coverage will begin on the date the insured requests it. In the 1989 and 1994 forms, if physical damage existed on the policy, coverage is applied to a newly acquired auto in certain circumstances if the insured notified the insurer within 30 days of the purchase date. Coverage applied retroactively if the insured complied with this provision. In the new form, the number of days is being reduced from 30 to 14 days. Please note that this is a coverage restriction. 4) Defense coverage In the current policy form, the insuring agreement states that the insurer's duty to settle or defend ends when the limits are exhausted. However, it does not indicate how the limits are exhausted. In a clarification, the new policy states that the duty to defend ends when the limits have been exhausted "by judgments or settlements." 5) Loss of earnings Under supplementary payments, the current policy provides up to $50 per day for loss of earnings incurred by an insured who has to attend hearings or trials at the insurer's request. In the new form, the daily limit is increased to $200 per day. This broadening of coverage is being made to better reflect the income of many insureds in today's workforce. 6) Nonowned pickups and vans In the liability section of the current policy, coverage is excluded for nonowned pickups and vans used in business unless the pickup or van is a temporary substitute. The physical damage section completely eliminates coverage for business use of nonowned pickups and vans. Nonowned pickups and vans could include rental vehicles, pool vehicles or borrowed vehicles. The new policy extends both liability and physical damage coverages to these vehicles. This represents a broadening of coverage. 7) Reasonable belief exclusion The current policy excludes coverage for insureds using vehicles without a reasonable belief that they are entitled to do so. The primary purpose of the exclusion is to exclude coverage for car thieves. In the past, there has been a concern that this also creates a family-member exclusion. The new policy specifically states that the exclusion does not apply to family members using a named insured's covered auto. This wording is included in the liability, medical payments and uninsured motorists sections of the policy and in the underinsured motorists endorsement. The physical damage portion of the policy remains unchanged, because the exclusion only applies to nonowned autos, not a covered auto.

3 8) Nuclear energy exclusion The liability section of the current edition of the policy excludes exposures insured under a nuclear energy liability policy. The policy lists several nuclear energy liability insurers, including American Nuclear Insurers. American Nuclear Insurers has changed its name to Nuclear Energy Liability Insurance Association. The new policy has revised the exclusion to reflect the name change. There is no change in coverage. 9) Nonowned golf carts The liability section of the current policy excludes coverage for vehicles with fewer than four wheels or designed for use off public roads. This presents a problem for golf carts, as they are often used on public roads in resort areas, for example. Owned golf carts can be insured using the Miscellaneous Vehicles Endorsement, but nonowned golf carts cannot be insured. An insured might be unaware of whether the owner has liability coverage on the golf cart. Therefore, the new policy specifically lists nonowned golf carts as one of the exceptions to the exclusion, thus providing coverage. This represents a broadening of coverage. 10) Split limits of liability The liability and uninsured motorists sections of the current policy and the underinsured motorists endorsement are written with a single limit of liability. Split limits can be provided by endorsement. The new policy is being changed to split limits with a single limit available by endorsement. ISO found that a majority of insurers wrote a split-limit policy, and that this trend is likely to continue. 11) Other insurance provision (UM/UIM) Currently, when the insured is injured while occupying a nonowned auto (or injured as a pedestrian) and there is other insurance available to pay damages under two or more policies that provide uninsured motorist (UM) or underinsured motorists (UIM) insurance, the UM or UIM "other insurance" provision of the insured's policy is designed to provide excess coverage over any other collectible UM or UIM insurance. This provision was not designed to provide excess coverage over any other collectible insurance provided by another auto coverage for example, liability coverage. The new policy clarifies that the insured's UM or UIM coverage will provide excess coverage over any other collectible UM or UIM coverage similar to the insured's UM or UIM coverage. Similar changes also have been made in the underinsured motorists endorsement. This represents a clarification of intent and does not impact coverage. 12) Transportation expenses coverage In the physical damage coverage part of the current policy, the Transportation Expenses provision provides up to $15 per day but not more than $450 maximum for temporary transportation expenses incurred as the result of damage to a covered auto or loss of use for which the insured might become liable for damage to a nonowned auto. Increased limits ($30 per day up to $900) are available by using the Increased Transportation Expenses Endorsement. The new policy broadens coverage by increasing the basic limits to $20 per day/$600 maximum. Coverage for nonowned autos has been broadened to include expenses in addition to loss of use; for example, administrative or other expenses for which the insured might become liable. For nonowned autos, the "per diem" limit only applies to loss of use expenses and not other expenses, subject to the $600 aggregate limit.

4 The title of the Increased Transportation Expenses Endorsement is being changed to Optional Limits Transportation Expenses Coverage. The reference to the $30/$900 option has been deleted. The endorsement now allows the insurer to write in the increased limits level of its choice. 13) Coverage for sound-reproducing and electronic equipment Sound-reproducing equipment. Exclusion 4 of the physical damage portion of the current policy excludes coverage for sound-reproducing equipment unless it is permanently installed, or is removable from a permanently installed housing unit and is powered solely by the auto's electrical system. Because the policy provides coverage for any permanently installed sound-reproducing equipment, claims adjusters have had difficulty settling claims for expensive after-market equipment installed in inexpensive vehicles. The new policy inserts a $1,000 limitation for sound-reproducing equipment installed in locations not designed by the auto manufacturer for such equipment. For example, an extra set of speakers installed in the rear deck of an auto would be subject to the limitation if this is not a location normally used by the auto manufacturer for speakers. Increased limits are available for an additional premium. Cellular telephones. Physical Damage Exclusion 4 in the current policy excludes permanently installed telephones, but coverage can be added by using endorsement PP Coverage for Audio, Visual and Data Electronic Equipment and Tapes, Records, Discs and Other Media. Many new vehicles are now equipped with cellular phones, or provide a prewired space in the console for these phones. Because of this trend, the new policy will provide coverage for permanently installed, nonremovable cellular telephones. Combination stereo/cb units. In the current policy, an exception to Physical Damage Exclusion 4 gives back coverage for electronic equipment that is an "integral part of the same unit housing sound-reproducing equipment... and permanently installed in the opening of the dash or console of 'your covered auto' or any 'nonowned auto' normally used by the manufacturer for installation of a radio." The purpose of this exception was to provide coverage for any electronic equipment which is normally excluded but is combined with any sound-reproducing equipment, such as a combination AM/FM/CB radio unit. Because such equipment is no longer common, the coverage exception has been removed in the new policy edition. Changes in the Part D Physical Damage Exclusions. Part D, Exclusion 4 has now been divided into three separate exclusions as follows: sound reproducing equipment (Exclusion 4); audio, visual, and data electronic equipment (Exclusion 5); and tapes, records, discs and other media (Exclusion 6). The purpose of these changes is to better display the exclusions and to allow for better coordination with their counterparts in the optional endorsement PP Coverage for Audio, Visual and Data Electronic Equipment and Tapes, Records, Discs and Other Media. 14) Physical damage coverage for trailers, camper bodies, customized vans and pickups, and motor homes

5 Part D Physical damage exclusions. Exclusions 6 (unscheduled, owned camper body or trailer) and 8 (awnings, cabanas and equipment designed to create additional living facilities) have been combined into new Exclusion 8. The new exclusion excludes physical damage coverage for all trailers, camper bodies, motor homes and their facilities and equipment. An exception to the exclusion provides coverage for nonowned trailers and provides 14-day automatic coverage for newly acquired trailers or camper bodies. Physical damage coverage for trailers and camper bodies can be added using the PP Trailer/Camper Body Coverage Endorsement. Motor homes can be covered with the PP Miscellaneous Type Vehicle Endorsement. Exclusion 11 (loss to custom furnishings or equipment in or upon a pickup or van) has been revised to delete the reference to "cooking and sleeping" facilities. These items are now included in Exclusion 8. An exception to Exclusion 11 provides coverage for a cap, cover or bedliner in or upon any pickup. 15) Nonrenewal The nonrenewal provision has been changed to clarify when a company can nonrenew a policy written for a term of six months or longer, but less than one year. The current policy allows companies to nonrenew a policy before the end of the policy period by mailing a notice at least 20 days prior to the end of the policy period. Exceptions in the provision state that a policy with a term of less than six months can only be nonrenewed every six months, beginning six months after the original effective date; a policy with a term of one year or longer can be nonrenewed at each anniversary of the original effective date. The new policy specifically states that if the policy is written for six months or longer, but less than one year, the insurer will have the right to nonrenew or continue the policy at the end of the policy period. This is simply a clarification of intent. Since most states have unique cancellation laws, the impact of this revision will be negligible. State-specific laws will be referenced in individual state endorsements. 16) Transition endorsement So that companies can exhaust their current supply of policies, ISO has developed a transition endorsement. This endorsement (PP 00 07) incorporates the coverage changes in the new policy edition. The amendatory endorsement (PP 00 06) used with the previous policy edition has been withdrawn. 17) Underinsured motorists coverage exhaustion clause In the current underinsured motorists coverage endorsement (PP 03 11), paragraph 1 of the insuring agreement requires the exhaustion of the liability policy limits applicable to a single source; for example, the underinsured motorist, before the insured can make an underinsured motorists claim. Recent case law has interpreted the "exhaustion clause" as requiring the exhaustion of not only the underinsured motorists limit, but also any other policies which may be applicable to the loss. This could include the policies applicable to multiple wrongdoers or even the jurisdiction where the loss occurred. To clarify the intent of the exhaustion clause, it has been revised. The change clarifies that only the liability policies applicable to the underinsured motor vehicle are required to be exhausted in order to make a claim under this coverage.

6 18) Limited Mexico coverage endorsement The current endorsement, Mexico Coverage (PP 03 21), extends the policy coverages to accidents which occur in Mexico within 25 miles of the U.S. border when the insured is on a trip of 10 days or less. For the endorsement to apply, the insured also must purchase insurance from a Mexican insurer. To clarify the scope of coverage provided, the new endorsement contains several editorial changes. The title has been changed to Limited Mexico Coverage. The extended coverage applies only to those coverages afforded under the underlying policy, and to both accidents and losses. The endorsement clarifies that the actual cash value of the vehicle is the value determined in the United States. 19) Certificate of insurance trusts Many estate planners suggest that trusts set up for estate planning purposes be named in the auto policy. Because of the increased popularity of estate planning, more insureds are requesting that vehicles owned jointly by the named insured and the trust be included in the personal auto policy. The current eligibility rules do not permit the insuring of vehicles owned jointly by the named insured and a trust. However, new manual rules are being introduced to allow for this situation. In terms of coverage, a trust is currently afforded vicarious liability coverage by the definition of "insured" in the Part A insuring agreement. Paragraph B. 3 of the definition states that "insured" means: "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." A certificate of insurance is being introduced to serve as proof of insurance that vehicles owned jointly by the named insured and the trust are afforded liability coverage under Part A. This will assist insureds in situations where a person or organization requires proof that jointly owned vehicles have been provided coverage. Conclusion The 1998 version contains changes which broaden, restrict and clarify coverage. Agents and company representatives need to comprehend these changes to provide the most accurate advice to their insureds. It is important to understand that not all insurers will adopt the new revision. Other insurers may choose to adapt their policies to include some of the changes and not others. Some insurers are still using the 1989 revision, while others will continue to write the 1994 edition. Still others have filed their own company-specific policies. This creates a potential exposure to E&O claims. It is suggested that you contact your carriers to determine the status of this change. Includes copyrighted material of Insurance Services Office Inc., with its permission. Copyright, Insurance Services Office Inc., 1994, /04 PIA your best source of information

7 With respect to all information found in this communication, PIA of Florida and its directors, officers, members, or employees make no warranty, express or implied, or assume any legal liability or responsibility for the accuracy, completeness, or usefulness of any information contained therein. PIA of Florida does not warrant that the information or services will meet any specific requirements; nor will it be error-free or uninterrupted; nor shall PIA of Florida be liable for any indirect, incidental, or consequential damages sustained or incurred in connection with the use of information in this communication. Under no circumstances will PIA of Florida be liable for any loss or damage caused by anyone's reliance on information contained in this communication. 1-05