Personal Auto Insurance

Transcription

1 Personal Auto Insurance 10.0 Hours 157 Pages 12 Lessons 13 Quizzes 1 Online Final

2 Personal Auto Insurance Developed by 360training This course discusses the basic tenets of personal auto insurance in detail. It outlines the duties that the insurer must perform along with what the insurer should expect from the insured. Multiple practice questions are provided at the end of each lesson to test the student s knowledge. Upon completion of this course the student will: Be able to identify the coverage offered under personal auto insurance. Be able to understand the different parts of PAP. Be familiar with endorsements that can be attached to the policy. Be able to understand his/her duty towards the insured. This course includes: 12 Lessons 1 Pre-Assessment Quiz and 12 Lesson Quizzes 1 Online Final Exam Personal Auto Insurance 2

3 Disclaimer: The material presented within this course is for informational and educational purposes only. It should not be used to provide guidance to your customers or clients in lieu of competent, certified legal advice. All parties involved in the development of this course shall not be liable for any inappropriate use of this information beyond the purpose stated above. As a student, you should understand that it is your responsibility to adhere to the laws and regulations pertaining to any aspect of this course and the materials presented within. Personal Auto Insurance 3

4 Table of Contents Pre-Assessment Quiz p. 7 Lesson One: Introduction to Personal Auto Insurance p. 11 Lesson Two: The Personal Auto Policy p. 39 Lesson Three: Part A: Liability Coverage p. 52 Lesson Four: Part B: Medical Payments Coverage p. 72 Lesson Five: Part C: Uninsured Motorists Coverage p. 79 Lesson Six: Part D: Coverage for Physical Damage to Your Auto p. 88 Lesson Seven: Part E: Duties after an Accident or Loss p. 111 Lesson Eight: Part F: General Provisions p. 116 Lesson Nine: Endorsements and ACORD Forms p. 122 Lesson Ten: No Fault Insurance p. 136 Lesson Eleven: Determining Auto Insurance Premiums p. 142 Lesson Twelve: Underwriters p. 150 Personal Auto Insurance 4

5 KEY TERMS Appraisal: Appraisal settles disputes between the insurer and the insured regarding the amount of a first person property loss. Auto liability coverage: This coverage protects insureds against claims for bodily injury and property damage arising out of use of an auto. Bodily Injury: PAP defines bodily injury as bodily harm, sickness, or disease and resulting death. Concealment occurs when an insured withholds or hides information an insurer is entitled to know. Deductible: Deductible is the portion of a loss that is not paid by insurance. Jurisdiction is the geographical area in which a court has power to hear a case. Loss of consortium: Loss of consortium refers to loss of spousal sex, society, and services. Occupying: PAP defines occupying to mean in, upon, getting in, on, out, or off the insured vehicle. PAP: PAP is the acronym for Personal Auto Policy, an insurance policy purchased for vehicle used for personal use. PAP meets a family s needs for auto liability and physical damage coverage. PIP: PIP is the acronym for Personal Injury Protection. It provides no-fault benefits for medical expenses, lost earnings, hiring others to do domestic chores, funeral expenses, and, sometimes, survivors compensatory benefits. Stacking: Stacking occurs when an insured with more than one vehicle combines the limits of liability to obtain a higher total limit. Stacking is the theory under which an insured argues that his/her policy limit should apply separately to each claimant from a single accident even though he/she has single limit coverage or his/her limit should be multiplied by the number of vehicles insured under the policy. Subrogation: Subrogation is the insurer s right to recover its payments from the negligent third party. Personal Auto Insurance 5

6 VIN: VIN is the acronym for Vehicle Identification Number. It is an auto s unique identification number with a combination of letters and numbers that indicates manufacturer, vehicle attributes, and production sequence. WC: Abbreviates workers compensation. Workers compensation insurance pays all benefits required by the WC law of any state listed in the policy declarations. Personal Auto Insurance 6

7 Pre-Assessment Quiz Take the following quiz and see how you do! How much do you already know about personal auto insurance? 1. Jane was driving Olive s Mercedes when she collided with a trailer and fractured her arm. Based on this information, which of the following is the most appropriate action to be taken by Olive s insurance agency? Share the damage expenses with Jane s insurance agency. Verify whether the insurance coverage meets the expenses. Ensure that Jane owns an auto insurance policy. Make a payment under Olive s policy with regard to the extent of damage. 2. Which of the following are paid for as supplementary payments? Bond costs of up to $350 Post-judgment interest payments Costs incurred due to bodily injury Costs of repairing damaged property 3. Which of the following best describes an uninsured motorist? A motorist operating his/her brother s vehicle A motorist operating a self-insured vehicle A motorist operating a government-owned vehicle A motorist whose vehicle is insured by an insolvent insurer 4. Two parties involved in an accident decide to settle the matter through arbitration. There were three individuals involved, the two arbitrators and a third umpire. Given that neither of the three could agree on one solution, which would be the best way to decide the matter? Consider the umpire s decision as final. Take the advice of a third party. Draw chits. Implement the decision on which at least two out of the three agree. Personal Auto Insurance 7

8 5. Which one of the following duties is NOT to be performed by the insured immediately after an accident occurs? Make a settlement with the other party Inform the police Provide the insurer with the details of loss Protect the auto from further damage Personal Auto Insurance 8

9 Pre-Assessment Quiz Answer Key 1. Make a payment under Olive s policy with regard to the extent of damage.* Auto insurance is tied to the vehicle, not to the vehicle owner. Thus anyone operating the vehicle with the owner s permission is covered, along with passengers and the insured s family members. Thus the most appropriate thing for Olive s insurance agency to do would be to pay for damages caused, as long as they are within the limit of insurance. 2. Post-judgment interest payments* Supplementary payments include: Up to $200 a day for lost wages when the insured is required to attend a legal hearing or trial, bail bond costs up to $250 if required due to an accident resulting in covered liability and post judgment interest payments. Payments for bodily injury and damaged property are not made as supplementary payments. 3. A motorist whose vehicle is insured by an insolvent insurer* When an insurer declares insolvency, the insured is not covered and thus, if an accident occurs, the motorist is considered to be uninsured. Vehicles owned by the government are not considered uninsured vehicles. 4. Implement the decision on which at least two out of the three agree.* When settling any matter through arbitration, the two arbitrators appoint a third, whose cost is shared by the insurers. The decision of any two individuals out of the three is be final. Personal Auto Insurance 9

10 5. Make a settlement with the other party* The insured is required to perform all the listed actions except for reaching a settlement. A settlement is usually reached amongst the insurers of both the parties involved. It is the insurer s job to reach a settlement, not the insureds. Personal Auto Insurance 10

11 LESSON 1: Introduction to Personal Auto Insurance What Is Personal Auto Insurance? Auto insurance is one of the most important forms of insurance that a consumer must think about. It falls under the category of property insurance, and one's automobile is often the most expensive and most necessary piece of property that one owns. Personal auto insurance provides coverage for only those vehicles which are acquired for private use. Any vehicle that is used for commercial purposes cannot be insured under personal auto insurance. Why Is Auto Insurance Mandated? It is estimated that there are between 40,000 & 50,000 deaths each year due to automobile accidents. Additionally, there are over 5 million injuries. These two statistics result from more than 30 million auto accidents each year. There are also economic losses. This puts auto insurance in the # 1 position as the largest form of Property & Casualty coverage. Most states require owners of automobiles to carry a minimum amount of bodily injury and property damage liability insurance. Owners are also required to show Personal Auto Insurance 11

12 proof of financial responsibility when involved in an accident or ticketed. Proof of financial responsibility is now also required for license renewal. The Basis of Legal Liability and How Personal Auto Insurance Protects Insureds From Its Financial Consequences Whenever an accident occurs, the owners of the vehicles involved are responsible for the resulting expenses. One part of personal auto insurance deals with liability coverage. All damages are paid for under this section irrespective of who was operating the vehicle, provided that the operator had a driving license and was operating the vehicle with the owner s consent. It should be noted here that liability coverage is only valid for the vehicle for which it was issued. For example, Jerry owns a BMW insured under personal auto insurance. While Jerry was operating his neighbor s insured black limousine, he had an accident. Jerry s auto insurance will not pay for any of the damages; the limousine owner is liable for the loss. Who Does It Cover? Any injuries sustained in an accident involving the insured vehicle are covered under auto insurance. Coverage is not only provided to the insured, but to any/all Personal Auto Insurance 12

13 of his/her family members who operate the vehicle with the owner s permission, or individuals who were riding in it at the time of the accident. What Does It Cover? Personal auto insurance pays for medical expenses and for work lost due to injury. Auto insurance protects the insured s financial security in case of a lawsuit that results from loss or injuries to other parties following an accident involving a member of the family, or a friend or a relative that had been given permission to drive the car by the insured or the insured s spouse,. Eligible Vehicles All four-wheel motor vehicles licensed for use on public roads can be insured under personal auto insurance if they are: Owned by the insured and/or Leased by the insured for more than six months, including vans or pickups weighing less than 10,000 pounds that are not used in a freight or delivery business. Note: The policy can be endorsed to cover motor homes, motorcycles, golf carts, and snowmobiles. After an insured acquires an auto insurance policy, all of the following vehicles are covered: Personal Auto Insurance 13

14 Any vehicle identified in the declarations Any newly acquired auto, which includes: Autos for which insurance is requested within 14 days of acquisition provided that the autos were acquired during the policy period. Until the time the specific auto is insured, the insurer should have insured the auto as broadly as any insured vehicle under the policy. Any replacement auto acquired during the policy period which receives the broadest coverage available to any insured vehicle. The insured must notify the insurer within 14 days in order to continue physical damage coverage. If none of the insured vehicles are covered for physical damage the insurer must be notified, within four days,that physical damage coverage is required. Any owned trailer; Any non-owned auto or trailer used as a temporary substitute vehicle for one that s broken down, lost, destroyed, or being repaired or serviced. What Is The Basic Provided Coverage? Automobile liability addresses third-party claims for bodily injury and property damage arising out of the insured s negligent operation of an automobile. In Illinois, motorists are required to have some minimum levels of coverage set forth Personal Auto Insurance 14

15 by state statutes. More than 150 million drivers and roughly 110 million private passenger cars are insured in the United States. Coverage is basically provided in the following areas: Liability Coverage Medical Payments Uninsured Motorist Coverage Physical Damage to an Automobile What Is The Basic Structure Of The Personal Auto Policy? The personal auto policy or PAP is designed for personal auto exposure, not commercial. It insures private passenger autos, such as cars, vans, SUVs, and pickup trucks. Motorcycles, golf carts, motorhomes, and snowmobiles may be added by endorsement. A Personal Auto Policy consists of: A declaration page An agreement and definitions page Four coverage parts Two duties or provision parts Personal Auto Insurance 15

16 Optional endorsements The policy form contains four separate coverages, each with its own insuring agreement, exclusions, and conditions. They are: Part A Liability Coverage Part B Medical Payments Coverage Part C Uninsured Motorists Coverage Part D Coverage for Damage to Your Auto (Physical Damage) A Personal Umbrella Policy A Personal Umbrella Policy provides excess coverage over underlying PAP and HO (homeowner) liability policies. The umbrella policy pays up to its limit after the required underlying insurance is exhausted. Umbrella policies have broad insuring agreements with very few exclusions. When the agreement provides coverage for which there is no underlying policy, the insured must absorb a deductible, usually $250, which is known as a selfinsured retention (SIR). Basic Definitions Jurisdiction is the geographical area in which a court has power to hear a case. Concealment occurs when an insured withholds or hides information an insurer Personal Auto Insurance 16

17 is entitled to know. Three Legal Principles in Policy Interpretation: Contract Of Adhesion Insurance policies are contracts of adhesion since they are drafted by one party (the insurer) and presented to the other party (the insured) on a take it or leave it basis. Thus, courts interpret every ambiguity in favor of the insured. If a term is not specifically defined, courts use the term s common meaning. Doctrine Of Reasonable Expectations Under certain, unusual circumstances, a court will interpret an insurance policy to include coverages that a reasonable person would expect it to include; even if the policy s specific provisions exclude the coverage. Public Policy Because insurance is a business concerned with the public interest, a court might impose coverage if a policy provision acts against the interests of the general public. Family Member A family member is defined as anyone who is residing with the named insured and is related to him/her by blood, marriage, or adoption. Family members are considered as insureds. Personal Auto Insurance 17

18 Four Factors Considered In Determining Residence When determining residence the court evaluates: The person s actions and intentions The duration and nature of the person s stays in the household The person s permanency of attachment to the household The closeness of the relationship between the person and the insured Claim Representative (CR) Solutions For Determining Residence The CR should ask the following questions: Does the person eat meals, receive mail, store personal belongings, and/or maintain a room in the residence? What is the frequency and duration of the person s presence in the residence? Does the person pay rent, utilities, or maintenance expenses for the residence? What is the address on the person s driver s license, tax return, and voter registration card? Where does the person garage his vehicle? Issues Concerning the Residency of Children Children away at school or in the military are considered to be residents of the parental household if they intend to return to the family home. Emancipated children are not usually considered residents of their parents Personal Auto Insurance 18

19 household if they are completely independent of parental support and control. Children of divorced parents may be considered residents of the noncustodial parent s household depending on the nature, duration, frequency, and regularity of their visits. Claim Representative (CR) Solutions For Determining Residency of Children The CR should ask the following questions: Is the child financially dependent on the parent? What is the intent of the child and of the parent? What is the frequency and duration of visits? What is the relationship between the parent and the child? Does the child have a key? Does the child have his own room? Does the child store personal belongings in the residence? How old is the child? Does the parent have regular visitation rights? Occupying The PAP defines occupying a vehicle as being in, upon, getting in, on, out, or off the vehicle. Medical payment coverage under PAP covers all individuals who sustain injury while occupying the insured vehicle. It must be noted that the insured and his/her family members are covered irrespective of whether the Personal Auto Insurance 19

20 vehicle they occupied was insured. NOTE: Except by endorsement, the PAP excludes bodily injury sustained while occupying any vehicle with fewer than four wheels. Questions of interpretation arise when injury occurs shortly after someone has exited a covered auto. Physical Contact Test The physical contact test requires the injured person to have physical contact with the vehicle at the time of injury. However, courts are often reluctant to impose coverage for accidents unrelated to the normal, intended use of the vehicle. (An example of this is using the car to steady a gun while deer hunting.) Sufficient Proximity and Vehicle Orientation Test The sufficient proximity and vehicle orientation test requires proximity (nearness) and orientation (relationship) to the insured vehicle. Claim Representative (CR) Solutions For Determining Occupancy What was the person doing when injured? Was the pre-injury activity vehicle-orientated? (For example, a gun backfiring while hunting would not be a vehicle-orientated activity.) How close was the person to the vehicle? Does this jurisdiction use the physical contact test or the proximity and orientation test? Personal Auto Insurance 20

21 Bodily Injury The PAP defines bodily injury as bodily harm, sickness, or disease and resulting death. Courts are divided regarding whether emotional injury claims are considered bodily injury. Claims for Emotional Injury Not all courts recognize a cause of action for emotional injury. They are more likely to recognize a purely emotional (non-physical) injury claim if the claimant was within the zone of danger, or suffered physical symptoms resulting from emotional distress. PAP Coverage for Emotional Injury The majority of courts hold that a purely emotional injury is not bodily injury within the PAP definition. Claim Representative (CR) Solutions For Determining Coverage for Emotional Injury Do the courts in this jurisdiction recognize claims for non-physical injury? Do the courts in this jurisdiction consider purely non-physical claims to be bodily injury under the PAP? Did the person witness injury to a spouse or child? Was the person within the zone of danger? Personal Auto Insurance 21

22 Did the person suffer physical manifestations of the emotional injury? Employees The Business Auto Coverage Form (BAC) covers employees of the named insured. An Independent Contractor An independent contractor might be considered an employee, depending on the degree of control, the length of employment, and the manner of compensation. Claim Representative (CR) Solutions For Distinguishing Employees and Independent Contractors How much control does the employer exercise? Does the position require training or special skills not held by other employees? Does the employer provide tools, materials, and equipment? Is the work performed on the employer s premises? How is the worker paid? Are the services integrated into business operations? Is this an ongoing relationship? Does the employer impose time constraints? Does the worker work exclusively for this employer? Can the employer fire the worker? Can the worker quit? Personal Auto Insurance 22

23 Can the worker hire assistants? Does the worker provide personal services? What reporting requirements exist? Does the employer pay business and travel expenses? Can the worker realize a profit or loss? Liability Coverage Insuring Agreement The insurer will pay damages for bodily injury (BI) and property damage (PD) and defense costs for any legally responsible insured. NOTE: Insured includes the named insured, family members, people reasonably believing they are entitled to use a covered auto, and any other person or organization for its vicarious liability arising from the named insured or other people using a covered auto. The named insured and family members are covered for use of any auto or trailer. Everyone else is only covered for the use of a covered auto and its trailer. Co-Owner and Co-Insured Liability Unless the auto policy specifically excludes intra-family claims, co-owner and coinsured liability is covered under the liability section. Some insurers try to exclude intra-family claims, but many states consider such limitations invalid because they violate public policy. Personal Auto Insurance 23

24 Auto Any vehicle that has less than four wheels or is not designed for use on public roads is excluded from the liability insuring agreement. Such a vehicle will be covered IF it is used in a medical emergency. For example, suppose two men are riding a motorcycle in an isolated area. During a rest stop, one of the men breaks his leg while climbing a hill for a view. If the insured driver takes his friend to the hospital on the motorcycle, coverage would apply. The Duty to Defend When an accident occurs, the insurer may choose to either settle the issue with the injured party or defend its client (i.e. the insured), provided that the claim filed is covered under the policy. If the insurer opts to defend, all defense costs are borne by him/her. The limit of liability stated within the insurance policy is used to determine the duration for which the insured will be defended. The insurer s obligation to defend its client ends when the limit of liability is exhausted by payment of judgments or settlements. NOTEWORTHY: The wording of the PAP, with respect to when the insurer s duty to defend ends, has changed to clearly allow the insurer to simply pay the policy limit and then walk away from the suit. Personal Auto Insurance 24

25 1994 Edition Our duty to defend ends when our limit of liability for this coverage has been exhausted Edition Our duty to defend ends when our limit of liability for this coverage has been exhausted by payment of judgments or settlements. Six Exclusions in Liability Coverage Intentional Injury The courts examine the insured s motivation. Occasionally, a court might apply coverage if the insured intended the act, but did not intend to cause the resulting injury. CR Solutions: In a case involving potentially intentional injuries, the Claim Representative should issue a reservation of rights letter, take detailed statements from the parties and witnesses, evaluate the insured s intent, determine if the accident involved the use of an auto, and consider how courts in the jurisdiction have defined the word accident. Property in the Insured s Care, Custody, or Control This exclusion applies when the insured damages a borrowed car or damages furniture he/she is moving for a friend. A few states require insurers to cover Personal Auto Insurance 25

26 damage to rental cars and/or damage to vehicles being test-driven by the insured. Business Use of a Personal Auto The PAP does not cover any person: For injury to any non-domestic employee For liability arising out of livery (taxi) use of any vehicle (Car pooling is not livery use.) While in the business of selling, repairing, servicing, storing, or parking vehicles (You are covered when you work on your and your family s vehicles during your off-duty hours.) Using or working on any vehicle (except a private passenger auto, pickup, van, or its trailer) while working in any other business The policy is void if the insured s application contains a material misrepresentation about the vehicle s use. NOTE: A misrepresentation is material if it would affect the insured s premium or the insurer s decision to accept the insured. Unauthorized Use of an Insured Vehicle The PAP excludes any person from using a vehicle without being entitled to do so. Courts evaluate whether an ordinary, reasonable person would think he/she Personal Auto Insurance 26

27 was entitled to use the vehicle under the circumstances. NOTE: This exclusion does not apply to family members, which includes underage, unlicensed drivers. Vehicles Owned by the Insured or Available for His/Her Regular Use Courts examine the availability of the vehicle and any restrictions on its use. CR Solutions: Determine ownership. Evaluate the duration and frequency of use and any restrictions on use. The Named Driver Exclusion (Exclusion Only By Endorsement) This exclusion excludes coverage for a named driver, which is usually a driver with a tendency to cause accidents or collect tickets. The named driver exclusion excludes one driver so the rest of the family can get standard coverage at standard rates. Regulators now favor its use since it lets more families buy affordable insurance. Limit of Liability The most the insurer will pay for all injuries and damages resulting from any accident is the limit shown in the Declarations, irrespective of the number of persons covered, claims made, or vehicles insured. The insurer will not pay for medical expenses that have already been paid for by another coverage of PAP or its endorsements. Personal Auto Insurance 27

28 Multiple Impact Accidents Subsequent impacts are considered one accident because the first accident is the proximate cause of the subsequent impacts. Therefore, they are subject to one policy limit. Loss of Consortium Claims Most courts do not consider loss of consortium a separate claim with separate per person limits. Many courts do not even consider it to be a bodily injury claim. Pure Emotional Injury Claims This type of claim is subject to separate per person limits only if the jurisdiction allows pure emotional injury claims; emotional injury constitutes bodily injury ; and the claim is considered a separate claim rather than a derivative claim. NOTE: A derivative claim is derived from the injured person s claim. Offset for Duplicate Payments The policy prevents claimants from recovering duplicate payments under liability coverage (Part A), medical payments coverage (Part B), and uninsured motorists coverage (Part C). Personal Auto Insurance 28

29 NOTEWORTHY: Two problems arise when reducing liability settlements for medical payment settlements: If the Part A (liability) limit is $100,000 and the Part B (med pay) limit is $5,000: 1. Is the combined limit $105,000 or $100,000? 2. If the medical bills totaled $6,000 and the total general damages were worth between $40,000 and $50,000, and the loss was settled for $47,000, did the $5,000 medical pay coverage offset the liability coverage? Out-Of-State Coverage If the insured has an accident in another state or in Canada where the nonresident is required to maintain specific insurance coverage, the policy will provide at least the required minimum amounts and types of coverage. Whether no-fault coverage is required of nonresidents depends on the wording and intent of the state s no-fault statute. Some laws do not expressly require no-fault benefits for nonresidents. CR Solutions: Determine if the insured meets the other state s minimum limits. Obtain copies of the no-fault statute to determine if coverage is required. Other Insurance If more than one policy applies to an owned auto, the insurer uses proration by face amounts, in which the insured s policy contributes proportionately by limits. The policy covers non-owned autos on an excess basis. Personal Auto Insurance 29

30 1. State Laws Contrary To Policy Wording State statutes take precedence over policy wording in all cases for all policies. Some state statutes make the operator s policy primary rather than excess. Other statutes require apportionment by: Contribution by equal shares in which each insurer contributes equally up to its policy limits until the loss is paid Pro rata contribution in which each policy contributes proportionately by its limits 1. Dealer And Repair Shop Autos Many states make the driver s PAP primary if the driver is test-driving a dealer s car or driving a loaner while his/her car is being repaired. CR Solutions: Was the car owned by a dealer or repair shop? Was the insured s car being serviced? Does a statute make the insured s policy primary? 3. Rental Cars The determination of primary vs. excess coverage varies among states. Most courts void rental contract escape clauses that are designed to avoid providing coverage if any other insurance is available. Personal Auto Insurance 30

31 CR Solutions: Did the insured buy additional insurance coverage in the rental contract? How does the rental contract address other insurance? How do courts interpret escape clauses? What type of insurance does the rental company carry? What are the terms of the rental company s policy? Medical Payments Coverage Insuring Agreement The insurer will pay reasonable medical and funeral expenses resulting from an auto accident and sustained by the insured and/or his/her family members while occupying any vehicle or hit by any vehicle as a pedestrian, and by other persons while occupying the insured s covered auto. The expenses must be incurred within three years of the accident. NOTE: Possible coverage issues arise from the definitions of family member and occupy and from potential conflicts with out-of-state coverage in no-fault states. Uninsured Motorists (UM) Coverage Insuring Agreement The insurer will pay compensatory damages for bodily injury to which any insured is legally entitled, and which is caused by an accident with an uninsured motor vehicle. 1. Operation of a Vehicle: The courts consider the extent of the role the uninsured vehicle played in the accident. The more significant the role, the more likely UM coverage applies. Personal Auto Insurance 31

32 2. Definition of Uninsured Vehicle Uninsured motor vehicles include vehicles: Insured for less than the state s minimum bodily injury limits Operated by hit-and-run drivers Insured with an insolvent insurer or one which denies coverage None of the following are considered uninsured vehicles: Vehicles available for regular use by the insured or family members Vehicles owned or operated by solvent self-insurers Vehicles owned by the government Vehicles operated on rails (trains) or crawler treads (bulldozers) Vehicles designed for use off public roads while off public roads Vehicles used as residences 3. Phantom Vehicles: Over forty states require physical contact by a hit-andrun vehicle. Many states allow an exception if corroborative evidence proves the existence of a phantom vehicle. (A phantom vehicle is an alleged hit-andrun vehicle that does not make contact.) CR Solutions: Does the state require physical contact? If the state allows coverage for phantom vehicles, what evidence supports the insured s allegations? Can the hit-and-run driver be identified? Personal Auto Insurance 32

33 Limits of Liability; Uninsured Motorists Coverage The most the insurer will pay for all damages resulting from any accident is the limit shown in the Declarations. Payments Made Under This Coverage Will Be Reduced By Sums: 1. Collected from or on behalf of the responsible party, and 2. Paid under workers compensation or disability benefits laws The insurer will not pay for losses that have already been paid by another coverage of the PAP or by any other underinsured motorists coverage. A few states permit stacking of uninsured motorists coverage, in which insureds with more than one vehicle may combine the limits of liability to obtain a higher total limit. Public Policy Arguments In Favor Of Stacking, Even If Contrary To the Policy Wording: Coverage is required by law and policies can t reduce coverage required by statute. The insured paid more than one premium and should benefit from all the coverage that he/she paid for (the premium rule). The coverage applies per person injured, not per vehicle insured. Personal Auto Insurance 33

34 Arbitration of Uninsured Motorist Claims The arbitration clause states that insurer and insured will go through arbitration if they don t agree on the amount of damages or whether the insured is legally entitled to damages. Each party appoints an arbitrator at its own expense. Those two arbitrators then appoint a third. The decision of any two is binding. States Vary Regarding What Constitutes: 1. Disputes of coverage (which are not appropriate for arbitration) 2. Disputes over whether the insured is legally entitled to recover (which are appropriate for arbitration) States also vary regarding whether arbitration is mandatory and binding. Personal Auto Insurance 34

35 LESSON 1 QUIZ 1. Which of the following situations is NOT provided for under personal auto insurance coverage? Mike owns a Limousine. He uses it to pick up and drop off individuals for a small fee. Jake owns a BMW, which he uses to commute to his office with his friends. Jerry owns a van, which is inoperable and remains in the garage. Ted owns a Volkswagen, which he uses to commute to a university. 2. Jane was driving Olive s Mercedes when she collided with a trailer and fractured her arm. Based on this information, which of the following is the most appropriate action to be taken by Olive s insurance agency? Share the damage expenses with Jane s insurance agency. Verify whether the insurance coverage meets the expenses. Ensure that Jane owns an auto insurance policy. Make a payment under Olive s policy with regard to the extent of damage. 3. In the absence of any special endorsement, which of the following is eligible for coverage under personal auto insurance? A motorbike A snowmobile A three-wheeled dirt bike A Jaguar 4. Which of the following is not one of the four parts of a personal auto policy?: Liability coverage Medical payments Uninsured motorist coverage Theft coverage Personal Auto Insurance 35

36 5. Which of the following information must be mentioned in the personal auto insurance policy? The insured owns real estate worth $500,000. A BMW and Jaguar are also owned by the insured. The insured makes frequent international trips. A loan worth $50,000 was issued by a bank in the insured s name. Personal Auto Insurance 36

37 LESSON 1 QUIZ ANSWER KEY 1. Mike owns a Limousine. He uses it to pick up and drop off individuals for a small fee.* Mike is not eligible for personal auto insurance because he is using the automobile for commercial purposes. Personal auto insurance provides coverage for only those vehicles which are acquired for private use. 2. Make a payment under Olive s policy with regard to the extent of damage.* Auto insurance is tied to the vehicle, not to the vehicle owner. Thus anyone operating the vehicle with the owner s permission is covered, along with passengers and the insured s family members. Thus the most appropriate thing for Olive s insurance agency to do would be to pay for damages caused, as long as they are within the limit of insurance. 3. A Jaguar* A Jaguar is the only vehicle in this list which will be covered. This is because all autos that are covered under personal auto insurance should be four-wheeled vehicles. A Jaguar is the only four-wheeled vehicle on the list. The policy may be endorsed in order to cover motorbikes, snowmobiles, and dirt bikes 4. Theft coverage* The four parts of the Personal Auto Policy are Part A Liability Coverage, Part B Medical Payments Coverage, Part C Uninsured Motorists Coverage, and Part D Damage to Your Auto.. Personal Auto Insurance 37

38 5. A BMW and Jaguar are also owned by the insured.* The policy should state any/all other vehicles owned by the insured if he/she desires that they too be covered. Coverage for such vehicles may be provided as excess coverage. The policy need not mention the worth of the insured s policy, his/her habits, or any personal loans taken. Personal Auto Insurance 38

39 LESSON 2: The Personal Auto Policy Standard Coverage: ISO 1998 Personal Auto Policy Form (PP 00 01) The Personal Auto Policy (Pap) provides the following coverages: Auto Liability Coverage which protects insureds against claims for Bodily Injury and Property Damage, for which the insured is legally liable, arising out of use of an auto. Auto Medical Payments Coverage which pays reasonable medical expenses of: o The insured and family members (occupying any car) and o Other persons occupying an insured car Uninsured Motorists Coverage protects insureds hit by uninsured drivers, hit and run drivers, and drivers insured by insolvent insurers. Auto Physical Damage Coverage covers physical damage to the insured s car. Collision coverage includes upset and impact with another object. Other Than Collision (aka comprehensive) coverage covers damage from non-excluded perils other than collision. The PAP gives three coverage options: 1. Collision and comprehensive: This gives the most protection, but at the highest premium. Personal Auto Insurance 39

40 2. Comprehensive only covers all non-excluded perils other than collision. 3. No physical damage coverage NOTE: Lenders require buyers with auto loans to carry both collision and comprehensive. NOTEWORTHY: No-fault auto insurance requires insurers to pay on behalf of their own insureds for small bodily injury losses regardless of fault, and restricts the rights of accident victims to sue. It reduces insurance costs by reducing the number of lawsuits. Declarations The following information is contained on the PAP declarations page: Named insured (and mailing address) Policy period (from 12:01 am at the policyholder s address on the policy s effective date until 12:01 am on the policy s expiration date) Description of insured automobile(s) (age, make, model, body type, vehicle identification number (VIN), annual mileage, use, and date of purchase) Personal Auto Insurance 40

41 NOTE: Never say VIN number, which basically means vehicle identification number number. It s redundant. The same goes for PIN number which means personal identification number number.. Premium amount (per coverage, per vehicle, and total) Limits of liability (for each vehicle) Schedule of coverages (and deductibles) Lienholder (the secured interest, if any) Garage location (where the car is parked) Rating information (rating class and discounts, if any, for multiple cars, driver training, good student, passive restraints, and anti-theft devices) Applicable endorsements Signatures (representing the insurer) The Four Insuring Agreements There are different agreements for all the four coverages offered under PAP. They are as follows. Part A- Liability Coverage; Insuring Agreement The insurer will pay damages for bodily injury (BI), property damage (PD), defense costs and pre-judgment interest for any legally responsible insured. The insurer may choose to settle or to defend. The duty to defend ends when the insurer has paid the policy limit. Coverage is written with split limits (separate amounts apply to BI per person/per accident and to PD,) but can be endorsed to Personal Auto Insurance 41

42 provide coverage with a single limit (one total amount that applies to both BI and PD liability). The insurer s limit of liability from any single accident is the declaration s limit, irrespective of the number of individuals insured, claims made, or vehicles insured. If the insured has an accident in a state where higher limits are required, the policy automatically provides those higher limits. Part B- Medical Payments Coverage; Insuring Agreement The insurer pays an insured s reasonable medical and funeral expenses incurred within three years and resulting from an auto accident. Benefits are paid regardless of fault. The benefit limit applies separately to each injured person. Part C- Uninsured Motorist Coverage (UM); Insuring Agreement The policy pays for bodily injury damages (medical expenses, lost wages, pain and suffering) to which an insured is legally entitled following an accident caused by an uninsured vehicle. Part D- Coverage for Damage to Your Auto; Insuring Agreement The insurer will pay for direct accidental loss to a covered auto and its equipment, less the deductible. Collision and other than collision (OTC) are insured separately, usually with a lower deductible chosen for OTC. Collision includes upset and impact with another object but excludes: Missiles Falling objects Personal Auto Insurance 42

43 Fire Theft Explosion Earthquake Windstorm Hail Flood Vandalism Riot Contact with an animal. The insured may choose to have glass breakage by collision considered a collision loss (so he/she has only one deductible) or OTC loss (in case he/she didn t buy collision). Collision losses are paid regardless of fault. Coverage applies only if indicated in the declarations. The policy pays for loss to an auto while in the custody of or used by, but not owned or regularly used by, the insured or a resident relative as broadly as any of the covered autos, but on an excess basis. Personal Auto Insurance 43

44 General Provisions Nine General Provisions in the Pap: Part F: Bankruptcy An insured s insolvency does not lessen the insurer s obligations towards him/her. Changes The personal auto policy constitutes the entire agreement. Changes can be made to the policy only by an endorsement issued by the insurer. The premium will be revised if exposure changes. For example, the premium will be adjusted to reflect changes in the number, type, or use of insured vehicles; the operators of insured vehicles; the place of principal garaging; or the coverage, deductibles, or limits of liability. Fraud The policy will be void if the insured is found guilty of fraudulent actions or statements. Legal Action against the Insurer The insurer cannot be sued until the insured complies with all the policy terms and until judgment after trial. (Part A- Liability) Insurer s Right to Recover Payment Personal Auto Insurance 44

45 The doctrine of subrogation grants the insurer whatever rights the insured has over responsible third parties involved in a claim against the insured. Subrogation allows the insurer to assume the rights of the insured at the time of the loss, in order to collect from the responsible third party once the insurer has paid a claim. NOTE: The insurer cannot subrogate against anyone, under Part D, who reasonably believed that he/she was entitled to use the insured s auto. Policy Period and Territory The policy period is shown in the Declarations. The policy territory is: the United States and its territories. Puerto Rico Canada Shipping routes between the ports of the above stated Policy Termination The insured may cancel the insurance policy by returning it to the insurer or by giving advance written notice. The insurer can cancel a newly issued policy, for any reason, within the first 60 days of the issuance. Otherwise, the policy can only be cancelled for: Non-payment of premiums Suspension of a driver s license Material misrepresentation Personal Auto Insurance 45

46 The insurer may terminate or refuse to renew a policy for the above stated reasons or state laws. The policy automatically terminates upon failure to pay the premium. Assignment of the Policy The insured must obtain the insurer s written consent before assigning his/her insurance policy to another. (It must be noted that such permission is seldom granted.) If the insured dies, coverage continues for the insured s spouse and legal representative for the rest of the policy period. Two or More Policies Covering the Same Auto If the insured is covered under more than one applicable policy, the highest limit under any one policy will be the maximum amount that the insurer is liable to pay. Key Policy Definitions Following are definitions of terms commonly used in a PAP: You: The named insured (and spouse, if a resident of the same household) A spouse who leaves the household is covered for the first 90 days after leaving. We: The insurer Personal Auto Insurance 46

47 Owned Auto: Owned autos include any vehicle leased for at least 6 months under a written agreement. Bodily Injury: Bodily injury includes bodily harm, sickness, disease, and death. Business: Any trade, profession, or occupation is considered to be a business. Family Member: A family member is any relative living with the insured related by blood, marriage, or adoption. Occupying: The term occupying includes being in, upon, getting in, on, out, or off the motor vehicle. Property Damage: Physical damage to, destruction of, or loss of use of any tangible property (such as autos, bridges, houses, and signs) is considered property damage. Trailer: A trailer is a vehicle designed to be pulled by a PAP-eligible vehicle, which includes farm implements. Your Covered Auto: This includes: 1. Any vehicle identified in the declarations. 2. Any trailer owned by the insured. Personal Auto Insurance 47

48 3. Any temporary substitute vehicle (An auto or trailer used as a substitute for a vehicle that s broken down, being repaired, serviced, lost, or destroyed. This does not include out-of-town rentals.) 4. Any newly acquired auto Newly Acquired Auto: A newly acquired auto is an eligible private passenger auto, pickup, or van that becomes an owned vehicle during the policy period. Personal Auto Insurance 48

49 LESSON 2 QUIZ 1. A PAP gives three coverage options. Identify which of the following is NOT an option offered by a PAP. Collision only Collision and comprehensive Comprehensive only No physical damage coverage 2. Jake s personal auto insurance policy was supposed to expire on May 21 st. On the 21 st of May, while on his way back from a party, he collided with a truck parked in the middle of the road. Given that it was 10 A.M. when the accident occurred, who will pay for the damages? Jake must make the payment as his policy has expired. The losses are provided for under his personal auto insurance policy. The owner of the abandoned truck must reimburse Jake. Jake and the truck owner will each pay for 50% of the damages. 3. Pre-judgment interest for any legally responsible insured is payable under which part of Personal Auto Insurance? Part A - Liability Coverage Part B Medical Payments Coverage Part C Uninsured Motorist Coverage Part D Coverage for Damage to your Auto 4. The Part B insuring agreement states that the insurer pays an insured s reasonable medical and funeral expenses incurred within years, and resulting from an auto accident. Three Four Ten Six Personal Auto Insurance 49

50 5. Which of the following actions is most likely to occur if the insured is found guilty of fraud? The insurance policy will be void. A case is filled against the insured. No insurer can issue a similar policy to the same insured within a period of three months. The insured is required to issue a warning to the insured. Personal Auto Insurance 50

51 LESSON 2 QUIZ ANSWER KEY 1. Collision only* The three options given under a PAP are comprehensive only; collision and comprehensive; and no physical damage coverage. Thus, coverage for collision only is not offered under a PAP. 2. The losses are provided for under his personal auto insurance policy.* Jake s insurance policy was supposed to expire on the 21 st of May. The policy stays effective till 12:01 A.M. on the policy s expiration date. We know that the accident took place at 10 A.M. Thus, all losses will be paid for under the insurance policy as the policy had not expired at the time of the accident. 3. Part A - Liability Coverage* The insurance agreement for Part A- Liability Coverage states that the insurer will pay damages for bodily injury (BI), property damage (PD), defense costs and pre-judgment interest for any legally responsible insured. 4. Three* Part B deals with medical payments coverage. Its insurance agreement states that the insurer pays an insured s reasonable medical and funeral expenses incurred within three years and resulting from an auto accident. 5. The insurance policy will be void.* One of the nine general provisions for a PAP states that the policy will be void if the insured is found guilty of fraud in connection with any accident or loss for which coverage is sought. Personal Auto Insurance 51

52 LESSON 3: Part A: Liability Coverage What Coverage Does Part A Provide? Part A coverage provides payment for bodily injury and property damage resulting from the insured s use of an automobile for which the insured becomes legally liable. Coverage begins under a PAP policy at 12:01 a.m. on the date listed in the policy. Under Part A, the company promises to settle and defend claims brought against the insured involving the insured s use of an auto. The company also agrees to pay for all defense costs. Damages paid for bodily injury include not just the payments of actual medical costs which can be documented, but also for a person s pain and suffering due to the injury. Property damage extends to any kind of property which is damaged due to the negligent operation of an auto, including vehicles, buildings, street lights, or any other kind of stationary object. The insurer has the option to settle or defend any claim or suit which it deems appropriate. The insured cannot dictate coverage payment or refusal. Liability Coverage The Part A liability is the most the company will pay for all damages resulting from any one auto accident, regardless of the number of insureds, claims filed, vehicles or premiums listed in the declarations, or vehicles involved in the Personal Auto Insurance 52

53 accident. The liability portion of the auto insurance contract covers damages that the insured is responsible for, by virtue of an accident. Prejudgment interest, interest accrued before judgment is rendered, may also be paid to a legally liable insured. Though, it must be remembered that the insurer s duty to defend ends as soon as the liability limits are exhausted. Automobile liability insurance is divided into the following two parts. Bodily Injury Liability Insurance The bodily injury (BI) liability insurance is for the case that an insured causes an accident in which someone else is hurt or killed. Property Damage Liability Insurance The property damage liability insurance is for the case that an insured damages someone else s property. Usually, of course, the damaged property is someone else s car; but other types of property like buildings, lampposts, garage doors, and others are covered. If the insured causes an accident which results in the death or injury of another, monetary damages due to medical payments, lost wages, pain and suffering, and loss of consortium are covered. Personal Auto Insurance 53

54 One of the major decisions with regard to the purchase of insurance is the amount of protection that you will buy. You may purchase insurance one of two ways: Single limit or Split limit. Important Points This coverage is mandatory in many states across the United States. Each state sets the minimum amounts of coverage a vehicle should have before it is allowed to operate on the road. The insurance company also agrees, in the policy, to defend the insured individual in any litigation that results under the policy. But it also reserves the right to settle any litigation without the insured s permission. Lawsuits are basically negotiated on the basis of dollars and cents., not on the principle of who s right. Single Limit Coverage The single limit coverage provides a one-limit protection of $400,000, $500,000, or $600,000 for the insured for all bodily injury and property damage losses suffered by the other party. It states the maximum payable for both BI and PD arising from one occurrence. Split/ Dual Limit Coverage A dual limit coverage provides a separate limit for bodily injury per person, a separate limit for every bodily injury per accident, regardless of the number of Personal Auto Insurance 54

55 people injured or dead, and another limit for property damage in that accident. The dual limits of $100,000 / $300,000 / $50,000 mean that the insurance company will pay up to $100,000 to each injured, but no more than a total of $300,000 to all injured people in that one accident. The insurance company will also pay up to $50,000 for the repair or replacement of the other party s property damaged in that accident. It states the maximum BI per person, the maximum BI per accident, and maximum PD per occurrence. NOTE: In comparing the benefit value of single and split limits, the circumstances of the accident become very important. Also note that coverage is self-reinstating for each accident. Liability coverage is written on a split limit basis, such as 20/30/15. The first two numbers are related to bodily injury. In this case, the amounts would be $20,000 per person for bodily injury in any one accident; $30,000 per accident for bodily injury and $15,000 as a maximum for all property damaged in any one accident. Damages The term damages refers to the monetary award one party is required to pay, due to legal liability, to another whose: Human body has suffered an injury. Auto body has suffered damage. Personal Auto Insurance 55

56 Compensatory Damages Compensatory damages compensate a person for bodily injury or property damage. These include: Special Damages (compensation for out-of-pocket losses) General Damages (compensation for non-economic losses, such as pain and suffering) Punitive Damages Punitive damages, also known as exemplary damages, punish wrongdoers and set an example to others to deter similar future misconduct. What Is Not Covered? The insurer does not cover ownership, maintenance, or use of any vehicle: Having fewer than 4 wheels (except trailers) or designed for off-road use (unless added by endorsement) (However, the use of a non-owned golf cart is covered.) Owned by the insured, or available for regular use, except the insured s covered auto as defined earlier (All vehicles owned by the insured must be insured.) Owned by a family member, or available for his/her regular use, except when used by the insured or the insured s spouse (For example, the insured s son must insure his own car.) Used in a racing facility during competition or practice Personal Auto Insurance 56

57 Who Is Insured? The definition of insured is quite broad, and includes not only family members, but anyone that drives an insured vehicle with permission. The liability coverage under a PAP policy is for any insured who has become legally responsible for bodily injury or property damage to someone else because of an auto accident. An insurance company will pay sums up to limits stated in the declarations portion of the PAP. Insured Persons Insured persons include the following: The insured and family members Anyone using the insured car who reasonably believes he/she has permission Any person or organization responsible for a covered person using a covered auto Any person or organization responsible for the insured s use, or a family member s use, of any auto. The bottom line is that the coverage follows the auto. PAP Example: Melvin Dawes is the head coach of his city s college football team. Melvin decides to host a pool party at his house for the entire team, including friends and relatives. All of the 250 guests bring automobiles to the party, and parking becomes a problem. Several guests park behind Melvin in his driveway, blocking Personal Auto Insurance 57

58 his car. In the middle of the party, Melvin runs out of food. Without more provisions, the team is getting rather hostile and ugly. Melvin chooses Herman to go with him to purchase more beer. To drive to the store, Melvin borrows one of the cheerleader s cars, which is parked in the driveway nearest to the street. Matilda, the cheerleader, carries minimum limits of 10/20/5 liability insurance. Melvin carries 200/300/200. Let s examine the following questions about Melvin s situation. Q1. Whose auto insurance liability applies if there is an accident? Matilda s liability insurance applies when Melvin drives Matilda s car. Melvin becomes an insured, by definition, under Matilda s liability coverage. Q2. If Melvin negligently runs a stop sign, hits a light pole, and causes injury to himself and Herman, whose liability insurance would cover Melvin and Herman s injuries? If Melvin negligently hits a light pole as described, Matilda s liability insurance would apply to Melvin and Herman s injuries because Melvin is an insured, by definition, under Matilda s policy. Personal Auto Insurance 58

59 Q3. Whose liability coverage would apply if Herman sustains serious injuries, resulting in an $80,000 claim? If Herman has an $80,000 claim, Matilda s auto liability coverage would apply to Herman s injuries on a primary basis for $10,000. In turn, Melvin s auto liability coverage (on his own car) would pay the remaining $70,000 on an excess basis. Remember, primary coverage must be exhausted first before excess coverage begins. Compliance with Financial Responsibility Laws With the issuance of an insurance policy, the insurer certifies any current or future financial responsibility that the insured is required to prove by law. Supplementary Payments Supplementary payments include: Up to $200 a day for lost wages when the insured is required to attend a legal hearing or trial Bail bond costs up to $250 if required due to an accident resulting in covered liability Cost of bonds to release attachments in any suit the company defends Any expenses incurred by the insurance company. Personal Auto Insurance 59

60 Reasonable expenses incurred at the insurer s request. Post-judgment interest payments, that is, interest that accrues after the judgment but before payment. Exclusions There are several liability exclusions that should be considered: Intentionally inflicted bodily injury (BI) or property damage (PD) is excluded. It would be a bad public policy to allow persons who deliberately cause damage to be protected. Property owned by the insured, rented by the insured, or in the care and custody of the insured, is usually excluded except for residences and garages. It is primarily excluded because it ought to be covered elsewhere, under a homeowner s policy or under personal property floaters. Business usage of the automobile is also usually excluded, including renting the vehicle out for hire or when in use by employees for business reasons. Damage to property owned or being transported by that person Bodily injury to an employee during the course of employment; this exclusion does not apply to bodily injury to a domestic employee, unless workers compensation is required or available for that domestic employee. People engaged in the business of selling, repairing, serving, storing, or parking automobiles Any liability arising out of the ownership or operation of a vehicle while it is being used to carry people or property for money or a fee Personal Auto Insurance 60

61 Motorized vehicles with fewer than four wheels or designed for use off public roads Vehicles that are used in prearranged racing or speed contests. Injury to any non-domestic employee injured in the course of employment (Domestic employees are also excluded if they are covered under workers compensation insurance.) Liability arising out of livery (taxi) use of any vehicle Using a car without being entitled to do so (except family members using a covered auto owned by the named insured) Insured under a nuclear energy liability policy (Don t worry, all vehicles carrying nuclear fuel or waste and properly insured, provide coverage under their policies.) NOTE: The policy form excludes coverage for persons who use a car without the belief that they were authorized to do so. Out of State Coverage If the insured becomes involved in an auto accident out of state and the state involved requires higher liability limits than the insured maintains, the PAP will provide the higher specified limit for this accident. Personal Auto Insurance 61

62 Other Insurance (what does this mean?) The Effect of Other Insurance on Loss Payments The insurer contributes proportionately by policy limits when more than one coverage applies. Excess coverage will only be provided on non-owned vehicles. Automobile Liability Claims Assessment of Auto Liability Claims Assessments of auto liability claims require an understanding of negligence, the rules of the road, vicarious liability and negligent entrustment, and personal injury protection (PIP). Drivers and owners of autos must operate vehicles in a reasonable, prudent manner and maintain their vehicles in a safe condition. Liability Regarding Parked Vehicles The mere fact that a driver parked illegally does not automatically make that driver liable for accidents involving the parked car. However, a driver who violates parking rules is liable in tort for damages if his negligence is the proximate cause of the accident. This means the driver may be the target of a civil suit and may have to pay damages. For example, suppose an illegally parked car obstructs other drivers visibility as they round a curve. If one of the other drivers runs off the road due to the lack of visibility, the driver of the parked car may be held civilly liable for any resulting injuries or property damages. Personal Auto Insurance 62

63 Liability Involving Disabled Vehicles: If a vehicle is parked on the traveled part of a road, it creates a presumption that the driver was negligent. The driver has the burden of proving that extenuating circumstances prevented him/her from parking elsewhere. In this case, to establish a defense to negligence, the driver must prove that: The parking resulted from an emergency (event beyond the driver s control). The driver was forced to leave the car in the road. The driver used due care in leaving the vehicle. The driver of a disabled vehicle is not automatically liable, but he/she has the burden of proving that any accident was caused by others negligence. Liability Involving Passengers A passenger might be liable for the accident (or at least for his/her own injuries) if the passenger distracted the driver or caused the driver to lose control of the vehicle. In addition, a passenger must use reasonable care for his/her own safety. The passenger is barred from recovering damages if he/she was injured during a voluntary ride with a known incompetent (ill, intoxicated, or inexperienced) driver. Some states have automobile guest statutes that prohibit auto passengers from suing the driver for injuries suffered in an accident, unless the accident results Personal Auto Insurance 63

64 from the driver s willful misconduct or intoxication. These statutes only apply to non-paying passengers. They do not apply to passengers in buses, taxis, and similar forms of transportation. NOTE: In many states, the constitutionality of automobile guest statutes is being tested. Vicarious Liability in Auto Claims Ordinarily, the owner of an auto is not vicariously liable for the driver s negligence. However, courts in a majority of states hold the owner liable if the driver is the owner s agent. A few states impose liability on the vehicle owner if the vehicle is driven with the owner s consent. Under the theory of negligent entrustment, the owner may be liable for the accident if the owner entrusted his/her car to a driver he/she knew or should have known was incompetent. The family purpose doctrine assumes an agency relationship between family members and allows actions against the car owner for accidents caused by other family members. For example: If Mom and Dad need high liability limits on the cars they use, Junior and Sis also need those same high limits. Personal Auto Insurance 64

65 The Seven Activities Involved In Auto Liability Investigations 1 Taking statements from insureds, claimants, and witnesses 2 Investigating the accident scene and diagramming the scene 3 Obtaining police reports 4 Photographing the accident scene and damages 5 Gathering evidence 6 Determining the proximate cause of the accident 7 Obtaining medical documents Determining Proximate Cause Two issues determine proximate causation: o Foreseeability: The damages must be foreseeable by a reasonable person. o Intervening act: No intervening act occurred between the defendant s act and the injury. The Last Clear Chance doctrine states that if a defendant has the last clear chance to avoid injury to another, his/her failure to avoid the accident was the Personal Auto Insurance 65

66 proximate cause of the injury, even if the plaintiff s negligence placed the plaintiff in the position of danger. The Unavoidable Accident defense states that a defendant is not liable for inevitable accidents that: o Could not have been foreseen o Could not have been prevented by being careful Example: An auto accident caused by a bee stinging and distracting the driver; or an auto accident caused by a previously healthy driver suffering a heart attack and passing out while driving The Road Defects defense alleges that improper design, maintenance, or construction of the road caused or contributed to the accident. Experts in Auto Liability Cases Physicians (medical doctors) Mechanics that evaluate auto defect allegations Specially trained police officers that perform accident scene investigations Forensic engineers that perform accident reconstructions Biomechanics experts that determine the probable effect an auto impact would have on the bodies of the occupants Evidence in Auto Liability Claims The evidence in auto liability claims includes: Statements of the insured, adverse driver, passengers, and witnesses Personal Auto Insurance 66

67 Documentary evidence such as: o Police reports o Photographs of the accident scene o Traffic court proceedings o Weather reports o Transit authority reports (for accidents involving buses or taxis) o Newspaper accounts and photographs Demonstrative evidence such as: o Diagrams of accident scenes, and/or o Videos of traffic light sequences Physical evidence such as: o A blown tire, and/or o A defective auto part Expert reports from doctors, mechanics, specially trained police officers, forensic engineers, and biomechanics experts NOTE: The evidence listed above is used for determining liability. Personal Auto Insurance 67

68 LESSON 3 QUIZ 1. Linda s insurance policy limit is $100,000. If, while settling damages with the injured party on her behalf, the settlement amount reaches $105,000, what should the insurer do? The insurer should pay the entire settlement amount. The insurer should only pay the policy limit. The insurer should try and reach a settlement with the injured person s insurer. The insurer is under no obligation to make any payments. 2. Which of the following are parts of automobile liability insurance? I. Bodily injury liability insurance II. Property damage liability insurance III. Pedestrian injury liability insurance I & II. I & III. II & III. I, II & III. 3. Josh has dual limit coverage of $10,000 / $40,000 / $60,000. Based on the information provided, what amount will be paid to Josh for repairing his neighbor s wall with which his vehicle collided? $60,000 $10,000 $40, , Which of the following are paid for as supplementary payments? Bond costs of up to $350 Post-judgment interest payments Costs incurred due to bodily injury Costs of repairing damaged property Personal Auto Insurance 68

69 5. Jerry has a $20,000 limit on his insurance policy. He goes to State Y for a vacation and after being involved in an accident realizes that the State Y s minimum liability insurance requirement is $50,000. What will happen? Jerry will be considered as an uninsured motorist. In order to meet the minimum requirement, Jerry will have to pay out of pocket. Jerry s insurer will meet the higher specified limit for the accident. The insurer is only liable to pay $20,000. Personal Auto Insurance 69

70 1. LESSON 3 QUIZ ANSWER KEY The insurer should pay the entire settlement amount. The insurer should only pay the policy limit. The insurer should try and reach a settlement with the injured person s insurer. The insurer is under no obligation to make any payments. The insurer is obligated to pay only up to the policy limits. 2. I & II.* There are two parts of automobile liability insurance, namely, bodily injury liability insurance and property damage liability insurance. Liability for any injury caused to the pedestrian will be covered under bodily injury liability insurance. 3. $60,000* We know that Josh s coverage was $10,000/$40,000/$60,000 (BI per person / BI per accident / PD per occurrence). From this we know that the insurance company will pay up to $10,000 to each injured, but no more than a total of $40,000 to all injured people in that one accident. Thus, the insurance company will pay up to $60,000 for the repair or replacement of the other party s property damaged in that accident. 4. Post-judgment interest payments* Supplementary payments include: Up to $200 a day for lost wages when the insured is required to attend a legal hearing or trial, bail bond costs up to $250 if required due to an accident resulting in covered liability and post judgment interest payments. Payments for bodily injury and damaged property are not made as supplementary payments. Personal Auto Insurance 70

71 5. Jerry s insurer will meet the higher specified limit for the accident.* If the insured becomes involved in an auto accident out of state and the state involved requires higher liability limits than the insured maintains, the PAP will provide the higher specified limit for this accident. Personal Auto Insurance 71

72 Lesson 4: Part B: Medical Payments Coverage What Coverage Does Part B Provide? Regardless of fault, the insured and his/her family and passengers are covered for necessary medical and funeral expenses sustained, regardless of who was at fault. Part B differs from Part A in that Part A requires legal liability on the part of the insured. The insured and family members are also covered if they are struck by an auto when they are pedestrians. This coverage is a single limit of anywhere from $1,000 to $10,000 and applies to a single person per accident. If there is other applicable auto medical payments insurance, the policy will pay only its share of the loss. The insurer s share is the proportion that the policy s limit of liability bears to the total of all applicable limits. Medical Payments Coverage Medical Payments Coverage pays hospital bills, doctors bills, funeral expenses, and other related medical costs to the insured or to family members following an auto accident. It makes no difference if the accident was the insured s fault or not, nor does it matter whether the insured or the covered family members were struck while occupying a vehicle or while walking, etc. Personal Auto Insurance 72

73 The policy s basic unit of coverage is $1,000, but one can expand the coverage to $10,000 for a reasonable premium increase. The policy covers: The insured and family members of the insured Injuries while occupying the covered auto, including getting into and out of the car The insured and named family members while pedestrians Other persons while occupying the covered automobile The exclusions are usually similar to the exclusions under the liability provisions. They include autos used for hire and autos operated without a reasonable belief that the user had the authority. NOTEWORTHY: The additional benefit of medical coverage is that it provides coverage for funeral expenses, which is not covered by health insurance provided either by employers or through private coverage. Personal Injury Protection In several states, personal injury protection is offered. PIP is a no-fault coverage for insured victims of auto accidents. PIP coverage provides the following benefits: Reasonable expenses for necessary medical and funeral services 80% of an insured s loss of income from employment Personal Auto Insurance 73

74 Reasonable expenses for obtaining services (house-keeping, child care, etc.) that an insured would normally have performed without pay if not injured NOTE: The limit of insurance is usually $2,500 per person, with optional higher limits of $5,000, $10,000 and up to $100,000. Analysis of the Insuring Agreement According to the insuring agreement, the insurer will pay reasonable medical and funeral expenses incurred within three years of the date of the accident. Insured Persons Individuals considered as insureds under Part B: Medical Payments Coverage include: The named insured and family members (occupying any vehicle and as pedestrians) Other persons (occupying the insured vehicle). Analysis of Each of the Exclusions Medical payments coverage will NOT cover an insured: Personal Auto Insurance 74

75 Occupying any vehicle with fewer than four wheels (motorcycles, snowmobiles) Occupying his/her car while it is carrying persons or property for a fee Occupying any vehicle used as a residence (a parked camper) Covered under workers compensation (WC) Occupying or struck by any vehicle (except for the insured auto) owned by or available to the insured s family members (except the insured and his/her spouse) Occupying any vehicle without being entitled to do so (except a family member using a covered auto owned by the named insured) Occupying any vehicle, except a PAP-eligible vehicle (including a non-owned van or pickup), while in the business of any insured Injured due to nuclear or war hazards Injured while occupying a vehicle at a racing facility, during competition or practice Restrictions The most the insurer will pay, per person, for all damages resulting from any accident is the limit shown in the Declarations page. (There is no stacking if you have more than one car). NOTE: Medical payments offset any payment later due under Part A or Part C. Personal Auto Insurance 75

76 The Effect of Other Insurance on Loss Payments This policy contributes proportionately by limits. This policy is an excess over insurance on cars not owned by the insured. Personal Auto Insurance 76

77 LESSON 4 QUIZ 1. What is the maximum amount of coverage (in dollars) that can be purchased under a Part B Medical Payments Coverage? $30,000 $50,000 $10,000 $20, Jake s mother, who lives with Jake, was walking to the store when she was hit by a hit-and-run vehicle. She for hospitalized for three days. Who will pay for the expenses incurred? The hit-and-run vehicle owner Jake s insurance company Jake;s mother The guilty party s insurance company 3. What sort of coverage is offered by PIP? Split limit coverage Dual limit coverage No-fault coverage Limitless coverage 4. What percentage of income lost, due to an accident, is provided by PIP? 80% 20% 50% 75% 5. In the absence of a special endorsement, which of the following insureds will NOT be covered? John, who fell off a motorbike and fractured his arm Bobby, who drove into the a pool causing severe damage Matt, who was hit by a speeding vehicle while crossing the street Kelly, who missed a turn and drove onto the sidewalk Personal Auto Insurance 77

78 LESSON 4 QUIZ ANSWER KEY 1. $10,000* The policy s basic unit of coverage for medical payments is $1,000, but one can expand the coverage to $10,000 for a reasonable premium increase. 2. Jake s insurance company* The insurance company from which Jake purchased personal auto insurance will pay all the medical expenses, because according to Part B Medical payments coverage, the insured and his/her named family members while pedestrians are covered. As for payment being made by the other driver, usually hit-and-run drivers do not have coverage. 3. No-fault coverage* In several states, personal injury protection is offered. PIP is a no-fault coverage for insured victims of auto accidents %* PIP coverage provides 80% of an insured s loss of income from employment. 5. John, who fell off a motorbike and fractured his arm* John will not be covered because he was operating a vehicle with less than four wheels. Autos having less than four wheels are not covered. Personal Auto Insurance 78

79 LESSON 5: Part C: Uninsured Motorists Coverage What Coverage Does Part C Provide? An uninsured motorist is someone that may strike the insured but who does not carry insurance or who is a hit and run driver. Part C agrees to pay damages which an insured is legally entitled to recover from the owner or operator of an uninsured vehicle because of bodily injury sustained in an auto accident. What Is An Uninsured Motor Vehicle? Defining an Uninsured Motor Vehicle An uninsured motor vehicle may be one of the following: A vehicle that has no liability coverage at the time of the accident. A vehicle that is operated by an unidentified hit and run driver who strikes an insured or family member, the insured s auto, or any auto occupied by the insured or a family member. A vehicle that has liability coverage, but not enough to meet the state s financial responsibility requirement. A vehicle that has invalid liability coverage at the time of the accident because the insurer is insolvent or denied coverage. The definition of an uninsured motor vehicle does NOT apply to: Vehicles operated by a self-insurer, unless insolvent Vehicles owned by or made available for the regular use of the insured or Personal Auto Insurance 79

80 any family member Vehicles operated by a government agency Vehicles operated on rails Vehicles designed for use off public roads Vehicles used as a residence Underinsured Motorist Coverage Underinsured motorist coverage is available by endorsement under PAP. It covers the insured when involved in an accident with a driver who has auto liability insurance, but whose coverage limits are insufficient to pay for the insured s damages. NOTE: According to the insuring agreement of part C, the insurer will pay compensatory damages for bodily injury (and, in many states, property damage) to which any insured is legally entitled, caused by an uninsured vehicle. Underinsured motorist coverage pays bodily injury coverage caused by the operation of motor vehicles which are underinsured. The underinsured motorist coverage allows a covered person to be paid the difference between the actual damages for bodily injury and the limit of the other driver s insurance when it is not sufficient to pay the entire claim of the injured party. Personal Auto Insurance 80

81 Who is the Insured for Uninsured Motorists Coverage? The insured is: The named insured and family members Anyone occupying the named insured s covered auto Any person entitled to recover damages because of BI caused by an uninsured motorist to the named insured, family members, or passengers in the covered auto Part C Exclusions Part C does NOT cover losses: For BI sustained by an insured while occupying or when struck by an auto that is owned by the insured, but not insured for uninsured motorist coverage under the policy That are settled without the insurer s consent For BI sustained by a family member while occupying or when struck by an auto owned by the named insured that has primary uninsured motorist coverage under another policy That occur when the auto is being used as a public livery That occur while the insured is using an auto without the reasonable belief that he/she is entitled to do so Personal Auto Insurance 81

82 Part C does not cover punitive (exemplary) damages (awarded to punish wrongdoers and to set an example). Part C only covers compensatory damages (compensation for losses). NOTE: The limit of liability coverage for Part C is similar to that of Part A. What Is The Rationale Behind Uninsured/Underinsured Motorists Coverage? Uninsured/Underinsured Motorists Coverage This auto insurance protection covers the insured and his/her family members and passengers who are injured by a variety of incidents. Some people drive without insurance despite the laws requiring the contrary. The uninsured motorist provision covers the losses from their lack of responsibility. The policy pays an amount that the insured could have collected had the uninsured driver carried the minimum required coverage in that state. This contractual promise is limited to the minimum. This protection extends to three situations: An uninsured or under-insured automobile under the state laws Hit and run accidents Insured autos with insurance companies that become insolvent Uninsured motorist protection deals only with losses for bodily injury and not property damage. Personal Auto Insurance 82

83 Important Point The Underinsured Motorists Coverage protects the insured and the covered family members for the loss he/she sustained after the other driver s coverage has been exhausted. So, when the other driver does not have enough auto insurance liability coverage to pay the full claim amount, the injured individual s insurance takes over. If the insured causes an accident, the only way that he/she can collect payment for damages is if the other driver was insured. If the other driver is not, the insured will only be paid a sum equal to the amount he/she would have received if the other driver was properly insured. Example If the declaration page shows an uninsured liability limit of $150,000/300,000, this means that per individual maximum coverage is $150,000 and $300,000 is the limit of per accident coverage. To compensate for a situation where the person causing the accident is at fault and is also underinsured, the underinsured motorist coverage will pay for any shortfall in the coverage paid by the other person s insurance. Personal Auto Insurance 83

84 Arbitration If the insured and the insurer are in disagreement about the amount of damages and the amount due, they shall each appoint, at their own individual expense, an arbitrator. The two arbitrators will appoint a third, whose cost will be shared by the insurer. The decision of any two individuals out of the three will be final. Only the issues of whether the insured is entitled to recover damages and the amount of damages may be arbitrated. Actual coverage disputes are not subject to arbitration. Limit of Liability The insurer will pay the amount for which the uninsured driver would have been legally responsible, minus any payments made by or for him, and minus any WC payments received, subject to the policy limit (without stacking). NOTE: Part C payments reduce any recovery later due under Parts A and B. The Effect of Other Insurance on Loss Payments The insurer will contribute proportionately by limits. However, the coverage is excess over other uninsured or underinsured motorists insurance. Personal Auto Insurance 84

85 LESSON 5 QUIZ 1. Which of the following best describes an uninsured motorist? A motorist operating his/her brother s vehicle A motorist operating a self-insured vehicle A motorist operating a government-owned vehicle A motorist whose vehicle is insured by an insolvent insurer 2. In which of the following situations does underinsured motorist coverage apply? When one is involved in an accident with a driver whose coverage does not meet the state limit When one is involved in an accident with a driver who does not have any auto insurance When one is involved in an accident with a driver operating a governmentowned vehicle When one is involved in an accident, in a state being visited by the insured 3. Given that damages from an accident involving an underinsured motorist total $40,000, what amount will be paid by the insured motorist s insurer if the underinsured driver s policy limit was $10,000? $30,000 $10,000 $40,000 $0 4. The declaration page of Mathew s PAP states uninsured liability coverage as $200,000/$400,000. Given that one individual was injured in an accident, what is the maximum that Mathew s insurer is liable to pay? $200,000 $300,000 $400,000 $350,000 Personal Auto Insurance 85

86 5. Two parties involved in an accident decide to settle the matter through arbitration. There were three individuals involved, the two arbitrators and a third umpire. Given that neither of the three could agree on one solution, which would be the best way to decide the matter? Consider the umpire s decision as final. Take the advice of a third party. Draw chits. Implement the decision on which at least two out of the three agree. Personal Auto Insurance 86

87 LESSON 5 QUIZ ANSWER KEY 1. A motorist whose vehicle is insured by an insolvent insurer* When an insurer declares insolvency, the insured is not covered and thus, if an accident occurs, the motorist is considered to be uninsured. Vehicles owned by the government are not considered uninsured vehicles. 2. When one is involved in an accident with a driver whose coverage does not meet the state limit* Underinsured motorist coverage applies when the insured is involved in an accident with a driver whose insurance coverage does not meet the minimum liability coverage limit set by the government. A driver who does not have any insurance coverage is an uninsured driver and thus this coverage will not apply in such a case. Government vehicles are never considered to be uninsured, thus they are not underinsured either. 3. $30,000* The insured motorist will be paid $30,000 because according to the underinsured motorist coverage, the insurer pays the difference between the policy coverage of the underinsured and the damages, which in this case is ($40,000 - $10,000 =) $30, $200,000* $200,000 is the maximum amount that the insurer is liable to pay. When the limits are stated as $200,000/$400,000, it means that the per individual maximum coverage is $200,000. $400,000 is the limit of the per accident coverage. 5. Implement the decision on which at least two out of the three agree.* When settling any matter through arbitration, the two arbitrators appoint a third, whose cost is shared by the insurers. The decision of any two individuals out of the three is be final. Personal Auto Insurance 87

88 LESSON 6: Part D: Coverage for Physical Damage to Your Auto What Coverage Does Part D Provide? Under part D coverage, the insurer will pay for direct accidental loss to the insured auto, including its equipment, minus deductible. Collision and other than collision (OTC) are insured separately. A lower deductible is often chosen for the OTC coverage. Rental Cars Car rental companies place the responsibilities for loss or damage to the rental car upon the renter. Collision damage waivers may be purchased to relieve the renter of all or part of his/her responsibility for loss or damage to the car. It should be noted that under a PAP, Coverage D will provide some coverage for the rental car. Covered Autos Covered autos include: The self-owned insured auto Non-owned autos (borrowed or rented cars) Temporary substitute autos (substituting for one that s broken down, being repaired, serviced, lost, or destroyed). Personal Auto Insurance 88

89 NOTE: Non-owned and substitute cars may be covered on an excess basis. Coverage on those cars does not include cars owned or regularly used by the insured or a member of your family. Limit of Liability The insurer will pay up to the lower of the actual cash value (ACV) or the repair or replacement cost, plus tax; however non-owned trailers are limited to $500. The insurer will not pay for diminution in value (actual or perceived loss in market value resulting from the loss). MORE ABOUT: The actual cash value (ACV) is a replacement cost minus depreciation, but in practice, for autos, ACV means market value. NOTE: An ISO endorsement (that has not been approved in all jurisdictions) states that the insurer will not pay for diminished value (actual or perceived loss in market value or resale value that results from direct loss). Some jurisdictions require insurers to pay diminished value as part of a loss. Personal Auto Insurance 89

90 Definition and Analysis of Collision And Other Than Collision Coverage Part D coverage is divided into two separate coverages: Collision Comprehensive Collision means the upset of a covered auto or its impact with another vehicle or object. When a loss is not considered to be from a collision, it will fall under something other than collision coverage. Coverage applies on an ACV basis. NOTE: Damages resulting from missiles, falling objects, fire, theft, explosion, earthquake, windstorm, hail, flood, vandalism, riot, contact with an animal, and glass breakage (which are specified as other than collision (OTC) losses) are not covered. Comprehensive coverage is a loss other than from collision and addresses damage losses to the insured vehicle caused by: Missiles or falling objects Fire Theft or larceny Explosion or earthquake Windstorm Personal Auto Insurance 90

91 Hail, water or flood Malicious mischief or vandalism Riot or civil commotion Contact with a bird or animal Breakage of glass NOTEWORTHY: OTC is often called comprehensive coverage. Physical Damage Coverage The physical damage section of the policy insures the covered automobile for damages due to collision or any other peril, such as theft or weather. The policy can cover all of the physical damage to the car. This is usually provided under comprehensive coverage, which is really coverage for all risks of physical damage. Collision is a separate coverage item that includes damage to the auto from a collision with another car or any other object. The comprehensive coverage then would cover losses due to: Fire Theft Vandalism Storms Accidents involving animals Explosions Personal Auto Insurance 91

92 Important Point The collision coverage will usually be scheduled separately. It will also relate to the value of the car. This is important, because not all cars are worth enough to insure against collision. Comprehensive coverage can be issued alone without including collision coverage, but collision coverage will not be issued unless comprehensive coverage is included. Collision coverage is not dependent on fault. Regardless of who caused the accident, you are entitled to collision benefits. Collision benefits can be paid to vehicles you don't own. Should you be driving a car you do not own, and are involved in an accident, or the car is stolen while in your possession, benefits will be paid. NOTEWORTHY: Some of the more common exclusions include damage to tape players and other sound systems, antennas, and custom furnishings. Again, this policy typically excludes damage incurred while the car is for hire. Appraisal If the insurer and the insured are in disagreement about the amount of loss, each is required to appoint an appraiser at his/her own expense. Those two appraisers will appoint an umpire. The decision of any two of those three will be Personal Auto Insurance 92

93 final and binding on both the insurer and the insured. The Meaning and Application of Transportation Expenses If the auto owned by the insured or a non-owned auto for which the insured is responsible suffers loss, the insurer will pay the insured up to $20 per day. After 24 hours of loss (or 48 hours after theft,) $600 will be paid. Such payments will be stopped as soon as the auto returns to use, or the insurance company makes payment for loss. NOTE: A maximum of $600 will be paid to the insured following loss of a nonowned vehicle. Common Exclusions The insurer will not pay for loss: To the insured auto while it is used for livery (taxi) purposes From wear and tear, freezing, breakdown, or road damage to tires unless caused by theft Due to nuclear or war perils or due to government confiscation Of sound reproduction equipment not permanently installed or contained within a permanently installed housing unit; however there is a $1,000 sub-limit that applys to equipment installed in a location not used by the Personal Auto Insurance 93

94 manufacturer. To other electronic equipment that receives or transmits audio, video, or data signals unless permanently installed in the dashboard opening normally used for a radio, if it is not installed in the manufacturer s location, a $1,000 sub-limit applies Of media used with sound reproduction equipment or other electronic equipment To a camper body or trailer not shown in the Declarations, unless acquired after policy inception and insured within 14 days To any auto while used by you or a family member without the reasonable belief it is acceptable for you to use that auto To awnings or equipment designed to create additional living facilities To any custom furnishings or equipment on any pickup or van including carpeting, furniture, murals, and decals Of radar detection equipment To any non-owned pickup or van used in any business Incurred during racing or race practicing inside a racing facility To a rental car rented by an insured in a state with laws prohibiting rental companies from holding renters liable for damage to rental vehicles Examples of Exclusions to Part D Of the PAP Public or livery conveyance--the insured used his auto as a gypsy cab Wear and tear, etc.--driving over a broken bottle caused a flat tire Personal Auto Insurance 94

95 Electronic equipment designed for the reproduction of sound--extra speakers placed in the car s rear window were stolen or destroyed in a collision Electronic equipment designed for the reception and transmission of audio, visual, or data signals--the insured s car phone was stolen Media and accessories--video tapes and CDs were stolen from the car Government destruction or confiscation--state troopers shot out the tires of the insured s get-away car following a hold-up Camper body or trailer not shown in the declarations--a tree fell on an owned trailer the insured did not insure Using a vehicle without permission--the insured s son took the neighbor s car for a joyride Radar and laser detection equipment--the insured s radar detector was stolen Customizing equipment--hail damaged the custom-painted mural on the insured s van Non-owned auto used in the auto business--a mechanic damaged a customer s car Racing--Jeff Gordon hit a guard rail during practice. Rental vehicles--the insured bought a collision damage waiver on a rental car Personal Auto Insurance 95

96 How Losses Are Paid Payment of Loss The insurer may pay for loss, repair, or replacement, or he/she may return stolen property to the insured or to the address given in the policy summary. The insured will pay for any damage resulting from theft. NOTEWORHTY: This policy will not benefit any bailee. A bailee is a person who takes custody or control of another s property; like a parking garage attendant or auto repair shop employee. Other Sources of Recovery If other insurance also applies, the insurer will pay the proportionate share of any loss, but coverage for non-owned autos is excess. Insurer s Options in Paying a Loss The insurer may pay for the loss in money, or by repairing/replacing the damaged car. The insurer: Will pay any damage resulting from theft of your auto May return stolen property to your declared address NOTE: Deductibles are used to eliminate small claims, reduce premiums, and encourage you to avoid and control losses. Personal Auto Insurance 96

97 Loss Adjustment for Total Loss of an Auto Determining Total Loss A total loss because of damage occurs when the actual cost of repairs (repairs + loss of use + betterment) exceeds the auto s ACV, minus any salvage value. Some insurers set a threshold (such as 75% or 85%) and if the cost of repairs exceeds that percentage of ACV, then the vehicle is considered a total loss. Determining ACV Some states mandate the method of estimating ACV. Regardless of the method used, ACV should consider: Taxes Fees The vehicle s options package, mileage, use, and overall condition Common ACV Errors The most common ACV error is incorrectly identifying the vehicle s options package. Other common errors include incorrectly assessing the vehicle s condition, failing to deduct for unrepaired prior damage, and failing to debit or credit for high or low mileage. Personal Auto Insurance 97

98 Total Loss Payment After the waiting period for theft has expired, or the damaged vehicle is declared a total loss and the ownership is transferred to the insurer, the loss is paid equal to the ACV minus the deductible. If the insured keeps the car, the payment equals the ACV minus both: The deductible, and The salvage figure (net amount received from the sale of the vehicle minus expenses such as towing and storage) Considerations in Auto Damage Claims Direct Repair Program (DRP) The direct repair plan is a network of repair facilities that meets the insurer s criteria for cost and repair quality. Anti-Steering Laws States anti-steering laws do not prohibit the use of DRPs, but they do limit an insurer s ability to restrict a consumer s right to choose an auto repair shop. Some laws prohibit the insured from having to travel more than a reasonable distance for repairs, while other laws prohibit an insurer from requiring an insured to use a specified facility. Personal Auto Insurance 98

99 Flood Factors Include Flood factors include: The type of water The amount of time submerged The height of flood waters in the vehicle The amount of time the vehicle stayed wet Investigating Auto Theft Claims Investigation The adjuster verifies the car s existence and the circumstances of the loss. The insured s statement should cover: When and where the car was obtained The car s VIN, condition, options, and mileage Whether the car was financed If it had been repaired recently Theft Report The insured should notify the police. The adjuster should notify the appropriate index bureau, which tracks losses relating to a particular claims office. Ten Indicators of Auto Theft Fraud Domestic problems Personal Auto Insurance 99

100 Duplicate title Heavy debt Incorrect VIN Leased vehicle with high mileage Need for major repair work New policy or newly added vehicle Prior losses Unemployment Unusual amount of personal property in vehicle The Four Possible Outcomes of a Stolen Vehicle Claim When a claim for a stolen vehicle is filed, any one of the following may occur. The vehicle is: Not recovered Recovered and repaired Recovered and a total loss Not covered due to the insured s fraud or another policy defense Salvage Three Categories of Salvage The following are the three categories of salvage: Personal Auto Insurance 100

101 Rebuilt o If it is less than 6-years-old o If it is in better-than-average condition o If it has average or better mileage o If it has repairable damage Used for parts o If it is less than 10-years-old o If it has relatively little body damage o If it has minor wear on the mechanical parts Used for scrap metal o If it is severely damaged o If it has few usable parts Selling Salvage There are two methods of determining salvage value: Salvage pool: Cars are collected, stored, and sold at auction, each with a minimum bid. Bid process: The adjuster accepts bids directly or hires a salvage company to accept bids. Contractors Equipment Contractor s equipment consists of the tools and machinery used for construction, renovation, earth-moving, and similar activities. The proper name of Personal Auto Insurance 101

102 a piece of contractors equipment usually describes both its method of travel (crawler/ track or tires/wheels) and its attachment (loader, grader, dozer, etc). Examples: crawler dozer, wheel loader. Equipment Falls Into Four Basic Categories Based On Function: Earth-moving equipment: Such equipment is used to clear job sites and move or eliminate large amounts of earth, rock, snow, debris, or other materials. o Earth-moving equipment includes backhoes, bulldozers, excavators, loaders, power shovels, roller/compactors, scraper/graders, and trenchers. Site-improvement equipment: Such equipment prepares and finishes asphalt and concrete surfaces. o Site-improvement equipment includes batching and mixing plants, pavers, pavement planers, and finishers. Material-handling equipment: This equipment is used to raise, lower, and transport people and materials at a job site. o Material-handling equipment includes forklifts, cranes, and hoists. Miscellaneous equipment provides supplementary power and support functions at job sites. o Miscellaneous equipment includes air compressors, generators, and pumps. Personal Auto Insurance 102

103 Contractors Equipment Insurance Contractor s equipment insurance protects the insured against direct physical loss to mobile equipment, machinery, and tools used in the insured s business. Coverage may be written on: A scheduled basis (which describes each item individually with its own limit of insurance) A blanket basis (which insures all items within a single amount of insurance without separately describing the items) Policies with a large schedule include a catastrophe limit. (This is a maximum amount payable for all property losses associated with a single occurrence). Blanket policies set an overall policy limit applicable to all covered property, subject to a per item maximum limit. Covered property generally includes the property of others, but schedule requirements and coverage conditions can create coverage gaps for some properties. o Newly acquired property is technically not covered in policies written on a scheduled basis, but most policies include a clause that automatically covers such property up to a specified amount if the insured reports the new property within a specified number of days. Personal Auto Insurance 103

104 o Property leased, rented, or borrowed may be covered by including such property in the Covered Property Provision in the Newly Acquired Equipment Clause, or as a coverage extension or endorsement. Property excluded: o Property in high-risk work environments--such as property while underground; underwater; waterborne; airborne; or loaned, leased, or rented to others, and o Property covered by other insurance Covered causes of loss: o A special-form policy insures against risks of direct physical loss unless specifically limited or excluded. Most contractors equipment policies provide special-form coverage. o A named-perils policy is used for insureds who want lower premiums or who want policies tailored to their special risks. General exclusions: o War, nuclear hazard, and governmental action o Mysterious disappearance o Inventory shortage o Voluntary parting o Unauthorized instructions o Dishonest acts of employees to whom property was entrusted Additional exclusions that may be found in policies: Personal Auto Insurance 104

105 o Artificially generated electrical currents o Mechanical breakdown o Damage caused by repairs, servicing, and maintenance Special exclusions that apply to cranes and derrick booms: o Weight of load exclusion prohibits coverage for loss caused by the weight of a load exceeding the manufacturer s rated capacity o Tandem lift exclusion excludes losses that occur when two or more cranes are used to lift a single load o Boom operation exclusion deletes coverage for losses occurring during operation unless caused by specified losses Coverage extensions and endorsements: o Rental reimbursement coverage pays for expenses the insured incurs to rent substitute equipment for covered equipment that has been damaged by a covered peril. o Business income and extra expense coverage covers lost net income (operating expenses that continue during the business interruption) and extra expenses the insured incurs to continue normal operations. Most contractors need rental reimbursement coverage rather than business income coverage because contractors can usually continue operations simply by renting substitute equipment. Personal Auto Insurance 105

106 Valuation: Most policies cover this on an ACV basis, which covers the cost to repair or replace damaged equipment and machinery minus depreciation and obsolescence. o Depreciation is based on age and hours of use. Coinsurance: Policies are generally written with an 80%, 90%, or 100% coinsurance clause that applies to each separate limit. Deductibles may be indicated as either a specific dollar amount or a specific percentage of the value of the damaged item or scheduled amount. Split deductibles may apply to certain properties or perils. In addition, some perils may be subject to a separate deductible. Locations covered: The coverage territory includes Canada, Puerto Rico, and the continental US (which includes Alaska, but not Hawaii). o Some policies cover only the contiguous US (which excludes both Alaska and Hawaii). NOTE: Two problems with using serial numbers to identify contractors equipment: There is no standard form for identifying information (unlike an auto s VIN, which provides specific information about the vehicle). The serial number can be located anywhere on the equipment. Personal Auto Insurance 106

107 A Total Loss Claim for Contractors Equipment The total loss claim for contractors is based on ACV. Nine factors that affect ACV of a total loss to a piece of contractors equipment: Accessories Age Hours of Use Local Market Demand Maintenance Manufacturer Prior Unrepaired Damage Salvage Equipment Type and Size Personal Auto Insurance 107

108 LESSON 6 QUIZ 1. Which of the following must be known in order to determine the actual cash value of an auto? I. The replacement cost II. The cost at the time of purchase III. The amount the vehicle has depreciated I & II II & III I & III II ONLY 2. Damages caused by which of the following will fall under the category of other than collision? While speeding to the office, Dexter hit a deer. Driving at 100km/h, Rita hit a parked vehicle. Under the influence of alcohol, Grace drove into the garage wall. While fixing a vehicle, the mechanic damaged the engine. 3. Which of the following coverages cannot be issued alone? Collision coverage Comprehensive coverage Medical coverage Workers compensation coverage 4. Susan s neighbor left his vehicle in Susan s care. Given that the vehicle was stolen, will Susan s insurance company pay for her neighbor s transportation expenses? The insurance company will pay a maximum of $600. The insurance company will not pay anything because the vehicle was not insured by them. The insurance company will pay $20 per day for the next month. The insurance company will pay the replacement cost. Personal Auto Insurance 108

109 5. Which of the following is an exclusion under Part D, coverage for physical damage to your auto? Damage to an auto that is used for purposes, other than livery. Loss incurred due to road damage to tires Loss incurred while an auto is being operated by a family member Damage to a pick-up used in a business Personal Auto Insurance 109

110 LESSON 6 QUIZ ANSWER KEY 1. I & III* The actual cash value (ACV) is replacement cost minus depreciation, 2. While speeding to the office, Dexter hit a deer.* Damages resulting from contact with a bird or an animal are covered by other than collision coverage. 3. Collision coverage* Comprehensive coverage can be issued alone without including collision coverage, but collision coverage will not be issued unless comprehensive coverage is included. 4. The insurance company will pay a maximum of $600.* Under Part D insurance coverage, coverage will provide up to a maximum of $600 for transportation expenses. 5. Loss incurred due to road damage to tires* Part D will provide coverage for all of the listed losses/damages except for damages to tires. Damages of such a nature come under wear and tear which is not covered by Part D. Personal Auto Insurance 110

111 LESSON 7: Part E: Duties After An Accident Or Loss Part E defines the duties that the insured is required to perform when an accident occurs. Actions That Must Be Taken When an accident or loss occurs, the insured must take the following actions: Notify the police Notify the company Be specific as to all the details of the loss, including when and where the loss occurred, how it occurred, names and addresses of witnesses and data about injured persons. Provide access to any required information. Submit a completed proof of loss form. Protect the auto from further damage. Allow the company to inspect and/or appraise any damage. Personal Auto Insurance 111

112 What Steps Must A Person Take To Meet Policy Conditions For Reporting An Accident And Submitting A Claim? The insured must: Cooperate with the insurer. Notify the insurer promptly. Notify the police of any hit and run accident. The insured cooperates with the insurer by providing them copies of any pertinent legal papers, submitting medical exams by the insurer s physicians (at the insurer s expense), help the insurer get medical reports and other records, and submit a proof of loss (a written statement giving the facts of the claim.) Late loss notice might adversely affect an insurer as, with the passage of time: Memories fade. Hard evidence becomes unavailable (Snow melts. Tire skid marks disappear.) Witnesses move and become unavailable or die. Claimants become more and more resolved to demand more and more for their losses. The aforementioned factors increase the total cost of settling claims. Personal Auto Insurance 112

113 Additional Duties for Uninsured Motorists Coverage The insurer must also perform these additional duties: Promptly notify the police if the other driver hit and ran. If the insured sues the uninsured motorist, a copy of the legal papers must be provided to the insurer. Additional Duties for Physical Damage Coverage Protect the auto from further damage after any loss (at the insurer s expense.) Notify the police if the auto is stolen. Allow the insurer to inspect and appraise the damage before the auto is repaired or disposed off. Personal Auto Insurance 113

114 LESSON 7 QUIZ 1. Part E of a PAP focuses on which of the following? Medical payments that an insured is entitled to receive The dollar amount that the insurer is required to pay in case of an accident Privileges that the insured is entitled to under the policy Actions that the insured is required to perform in case of an accident 2. Which one of the following duties is NOT to be performed by the insured immediately after an accident occurs? Make a settlement with the other party Inform the police Provide the insurer with the details of loss Protect the auto from further damage 3. Which of the following actions performed by the insured prove that he/she is cooperating with the insurer? The insured hesitantly hands over his/her medical records. The insured refuses to have his/her auto examined. The insurer is unable to set up a meeting with the insured. The proof of loss submitted by the insured lacks substantial detail. 4. How does a late submission of the notice of loss affect the insurer? The insurer may be unable to find hard evidence. The insurer is unable to file the proof of loss application. The insurer is unable to determine whether the policy was in effect at the time of the accident. The insurer is unable to sanction the claim amount. 5. Other than the insurance company, who else must the insured inform about the accident? The police Family members 911 The fire department Personal Auto Insurance 114

115 LESSON 7 QUIZ ANSWER KEY 1. Actions that the insured is required to perform in case of an accident* Part E focuses on the duties that an insured is required to perform in case of an accident. Medical payments are covered in Part B and liability coverage is covered in Part A. 2. Make a settlement with the other party* The insured is required to perform all the listed actions except for reaching a settlement. A settlement is usually reached amongst the insurers of both the parties involved. It is the insurer s job to reach a settlement, not the insureds. 3. The insured hesitantly hands over his/her medical records.* It is incumbent on the insured to cooperate with the insurer when he/she is investigating a claim. The insured cooperates with the insurer by providing him/her copies of any pertinent legal papers, submitting medical exams by the insurer s physicians, assisting the insurer in obtaining medical reports and other records, and submitting a proof of loss. Though the insured handed over the reports reluctantly, the fact that he/she handed them over shows his/her cooperation. 4. The insurer may be unable to find hard evidence.* Late submission of the notice of loss affects the insurer because he/she may be unable to find hard evidence as, for example, tire skid marks disappear with the passage of time. In addition, people tend to forget details over time, thus making the investigation process more difficult. 5. The police* When an accident or loss occurs, the insured is required to inform the insurance agency and the police. He/she may inform his/her family members at will. Personal Auto Insurance 115

116 LESSON 8: Part F: General Provisions What Does Part F Define? Part F describes the conditions that the insured is required to meet in order to be covered. If the insured fails to meet these provisions, he/she may not be reimbursed by the insurer. Discuss Each of the Nine General Provisions The nine general provisions are as follow: Bankruptcy: The insurer is required to fulfill his/her obligations irrespective of whether the insured is insolvent. Insolvency does not cancel the insurer s obligations. Changes: This insurance policy constitutes the entire agreement which may only be changed by an endorsement issued by the insurer. The insurer has the authority to change the premium if the insured s exposure changes. o For example, the premium may be adjusted to reflect changes in the number, type, or use of insured vehicles; the operators of insured vehicles; the place of principal garaging; or the coverage, deductibles, or limits of liability. Fraud: If an insured is found guilty of fraud, his/her insurance policy will be void. Legal action against the insurer: The insured cannot sue the insurer Personal Auto Insurance 116

117 unless the insured has complied will all the policy terms and, as stated under Part A, until after judgment by trial. Subrogation: If the insurer pays anyone who has a right to recover damages from another, the insurer is subrogated to that right. He/she may not prejudice that right and must assist the insurer. o If the individual, to whom payment is made, recovers payment he/she must reimburse the insurer. o The insurer cannot subrogate against anyone under Part D who believed that he/she was entitled to use the auto. Policy period and territory: The policy period is shown in the Declarations. o The policy territory is the USA, Puerto Rico, Canada, and shipping routes between their ports. Policy Termination: The insured may cancel the policy by returning it to the insurer or by giving the insurer advance written notice. o The insurer will cancel, non-renew, or terminate with only 10 days notice for non-payment and at most 20 days. The policy may also be terminated after 60 days of coverage, only for non-payment, loss of license, or material misrepresentation. o The insurer can non-renew or terminate the policy only under certain, stated conditions or, if more favorable to the insured, as required by the laws of the state in which the insured resides. Personal Auto Insurance 117

118 o The policy automatically terminates upon the insured failure to pay the premium. Policy transfer: The insured may not assign this policy without the insurers written, endorsed consent. If the insured dies, coverage continues for his/her spouse and legal representative for the rest of the policy period. Multiple policies: If the individual is insured with more than one applicable policy, the maximum amount to be paid by the insurer will be the highest limit under any one policy. Personal Auto Insurance 118

119 LESSON 8 QUIZ 1. Which of the following is most likely to occur if an insured fails to meet the conditions set forth in the insurance policy? The insurer is under no obligation to pay the insured for any damages. The insurer and the insured must make amendments to the policy. The insurer must send a written reminder to the insured about the policy. The insurance policy is endorsed by the insurer. 2. Which of the following is NOT amongst the nine general provisions set forth in Part F? Multiple policies Policy termination Policy transfer Policy purchase 3. Which of the following actions of the insured automatically terminate the insurance policy? Accidental misstatement of facts on the policy application. Non-payment of the premium. A lost driver s license. Involvement in an accident that resulted in someone s death. 4. Under Part D, the insurer cannot subrogate against which of the following? Anyone who believed that he/she was entitled to use the auto Anyone who purchases life insurance from the insurer Anyone who appears to be a prospective client Anyone willing to pay for damages at his/her own expense Personal Auto Insurance 119

120 5. Kate is in desperate need for money to pay the university she attends. One of her friends suggests that she damage her vehicle and ask the insurance company for a reimbursement. This way she would get the money for repairs, which she can use to pay the university instead. What does Kate stand to lose? If found guilty, her insurance policy will be void. If found guilty, she will be asked to leave the university. If found guilty, she will not be able to purchase insurance for her automobile for at least seven years. If found guilty, she will be imprisoned for a minimum of two years. Personal Auto Insurance 120

121 LESSON 8 QUIZ ANSWER KEY 1. The insurer is under no obligation to pay the insured for any damages.* If the insured fails to meet the provisions set forth under Part F, he/she may not be covered by the insurer. 2. Policy purchase * The nine general provisions listed within the policy under Part F insurance include all the listed topics except policy purchase. The provisions talk about policy renewal, termination and cancellation, but not about purchase. 3. Non-payment of the premium.* The insurer is required to give the insured a 10 to 20 day notice before terminating, or not renewing a PAP. However, if the insured fails to pay the premium, the policy terminates automatically. 4. Anyone who believed that he/she was entitled to use the auto* The insurer cannot subrogate against anyone under Part D who believed that he/she was entitled to use the auto 5. If found guilty, her insurance policy will be void.* Kate is committing fraud. Thus, if she is found guilty, her insurance policy will be void. Kate stands to lose her insurance. Personal Auto Insurance 121

122 LESSON 9: Endorsements and ACORD Forms Personal Auto Policy Endorsements Some insureds may have additional coverage needs that can be met by the following endorsements: Towing and Labor Costs: Reimburses for the cost of having a vehicle towed. Extended Non-Owned Coverage for Named Individual: This extends the extensive coverage automatically provided under the PAP for the insured and the family while driving cars other than the insured s covered autos. Assigned Risk Plans Insurance companies seldom wish to insure people with poor driving records because their loss experience is much greater than that of the average driver. Accordingly, assigned risk plans help manage these risks. Under these voluntary agreements, licensed insurance companies agree to share the poor risks among themselves. Because these risks are randomly assigned to the participating companies, they are called assigned risks. Drivers with poor records are usually issued BI and PD liability in the minimum required amounts. Personal Auto Insurance 122

123 What Is The Purpose Of Endorsements? Endorsements are used to provide extended coverage to the insured. Every insurance customer has different needs which are not always met by the policy. For example, an insured may desire coverage for damages caused to his/her vehicle when it was being towed. Such coverage is not provided under the basic personal auto insurance policy, and thus may only be acquired by extending coverage with the Towing and Labor Costs endorsement. This endorsement reimburses the insured for the cost of having a vehicle towed. Endorsements enable the insured to customize coverage according to his/her needs. What Major Endorsements Are Associated With A Personal Auto Policy? Common PAP Endorsements Following is a list of endorsements commonly used with a PAP: The Towing and Labor Endorsement covers towing and labor charges at the scene of disablement. The Coverage for Damage to Your Auto Endorsement allows insureds to purchase stated value coverage for autos that are difficult to value or worth more than their market value. The Miscellaneous Type Vehicle Endorsement covers motor homes, motorcycles, and recreational vehicles. Personal Auto Insurance 123

124 A Snowmobile Endorsement is available. The Joint Ownership Coverage Endorsement extends eligibility to autos owned jointly by nonresident relatives and resident individuals other than husband and wife. The Extended Non-Owned Coverage Endorsement covers otherwise excluded business use of non-owned autos and autos available for regular use. The Named Non-Owner Coverage Endorsement extends liability to nonowned autos for insured s who do not own autos. Other PAP Endorsements Extended Non-Owned Coverage Endorsement Vehicles Furnished or Available For Regular Use Endorsement Vehicles Furnished or Available for Regular Use Endorsement gives scheduled individuals coverage while using any non-owned vehicle, including vehicles furnished for their regular use. An option is available to provide coverage for family members driving a vehicle regularly furnished to the named insured. Vehicles Furnished or Available For Use as A Public or Livery Conveyance Endorsement This endorsement provides coverage for an individual who frequently operates a non-owned vehicle for livery use. An option is available to provide coverage for family members of the named insured. Personal Auto Insurance 124

125 Named Non-owner Coverage Named non-owner coverage covers named individuals (spouses must be scheduled) on an excess basis while using non-owned vehicles. It is used by persons who have only a company car or city dwellers who borrow or rent vehicles when needed. Newly acquired vehicles are automatically covered for 30 days. Miscellaneous Type Vehicle Endorsement These endorsements cover scheduled owned vehicles, such as motor homes, motorcycles, ATVs, dune buggies, and golf carts. The Snowmobile Endorsement insures snowmobiles. Limited Mexico Coverage Endorsement includes accidents in Mexico provided that: o The accidents took place within 25 miles of the U.S. border. o The trip was less than 11 days. o The coverage is in force with a licensed Mexican insurer. Coverage for Damage to Your Auto (Maximum Limit of Liability) Endorsement lists a stated amount as the maximum payable for loss to a covered auto. The insurer will pay the least of the stated amount, the ACV of stolen or damaged property, or the amount to repair or replace with like kind and quality. Joint Ownership Coverage Endorsement modifies the definition of Personal Auto Insurance 125

126 insured to include: o Two individuals who are not married but live together and jointly own a vehicle. o Relatives who jointly own a vehicle but do not live together. A Trust Endorsement provides coverage when a vehicle is titled solely in the name of a trust. Auto loan/lease coverage indemnifies the insured if a leased or financed vehicle suffers a total loss and the insured still owes the lessor or financing company more than the vehicle s actual cash value. Towing and Labor Costs Coverage Endorsement provides up to $25, $50, or $100 for towing and labor at the scene of disablement. The endorsement is available only for autos covered under Part D of the PAP. Trip Interruption Endorsement provides up to $600 for reasonable transportation expenses, lodging, and meals when a vehicle is out of service for more than 24 hours due to an accident or break down more than 100 miles from home. Optional Limits Transportation Expense Coverage Endorsement increases the transportation expenses maximum from $20 per day/$600 maximum to $30 per day/$900 maximum. Customizing Equipment Coverage insures custom furnishing and equipment in a van or pickup. Electronic Equipment Endorsement covers electronic equipment that Personal Auto Insurance 126

127 is permanently installed in locations not used by the auto manufacturer. Covered Property Coverage Endorsement covers awnings and other equipment designed for use with insured vans, campers, and mobile homes. How Endorsements Change Coverage Under The Pap The miscellaneous type vehicle endorsement adjusts the PAP to cover motor homes, motorcycles, and recreational vehicles. The passenger hazard exclusion of the miscellaneous type vehicle endorsement, if chosen, eliminates liability coverage for passengers in return for a lower premium. o Part D losses for miscellaneous type vehicles are limited to the least of stated amount, ACV, or RC. The trailer/camper body coverage (maximum limit of liability) endorsement pays for direct, accidental loss to the trailer or camper body listed in the declarations or the endorsement. It includes related equipment, but not clothing, luggage, business or electronic equipment, radar detectors, or custom furnishings. The customizing equipment endorsement provides coverage for custom furnishings and equipment in or upon any pick-up, panel truck, or van by eliminating the last Part D exclusion. o It covers up to the lowest of stated amount, ACV, or RC. Personal Auto Insurance 127

128 The snowmobile endorsement adjusts the PAP to cover the insureds for use of any snowmobile. o It excludes business use, others rental of the snowmobile, and any racing or practice racing. o The passenger hazard exclusion is available to exclude liability for passengers and skiers. The coverage for excess sound reproducing equipment, audio, visual, and data electronic equipment and tapes, records, discs, and other media endorsement covers such property, if the player is permanently installed (in other than the manufacturer s dashboard radio opening) for all Part D perils, without a deductible. Media is covered with up to a $200 maximum limit. The named non-owner coverage endorsement covers named individuals (spouses must be scheduled) on an excess basis while using nonowned vehicles (and newly-owned vehicles for 30 days). o Use it for persons who have only a company car or for city dwellers who borrow or rent cars when needed. The towing and labor costs endorsement covers up to a stated amount ($25, 50, or 75) for towing and labor at the scene of disablement resulting from any disablement, even war. The extended non-owned coverage endorsement covers scheduled individuals while using any non-owned vehicle for business purposes Personal Auto Insurance 128

129 (except the auto/garage business--which is available with an additional endorsement) including vehicles furnished for their regular use. So, the named individuals primarily gain coverage for the following when using vehicles other than those insured as covered autos under the PAP: o Vehicles furnished for their regular use--salesmen using company cars, volunteer firemen using fire vehicles, and o Protection against suits by fellow employees (if such suits are not barred by the state s WC law) The Mexico coverage endorsement extends all coverages, as excess, for accidents in Mexico if within 25 miles of the US border and only for trips of less than 11 days. o It only applies if coverage is also in force with a licensed Mexican insurer. The coverage for damage to your auto (maximum limit of liability) endorsement (aka stated amount endorsement) limits payment to the lowest of the stated amount, the ACV, or the RC. o Use it for antique or restored cars to keep the premium down if you would be satisfied with such a settlement basis. Note: This is not a valued policy. The underinsured motorists coverage endorsement only covers the difference between its limit and the at-fault motorist s limit. (So, if you carried $100,000 per person underinsured motorists coverage, were hit Personal Auto Insurance 129

130 by a motorist with $25,000 per person coverage, and got a $75,000 judgment, your underinsured motorists coverage would pay the $50,000 difference.) NOTEWORTHY: State laws vary. Underinsured motorists coverage may be mandatory or optional. In some states, the underinsured motorists coverage endorsement supplements the uninsured motorists coverage in the standard PAP. In other states, one endorsement includes both uninsured and underinsured coverage and replaces the uninsured motorists coverage in the standard PAP. The 2005 PAP Edition The 2005 edition of the PAP includes the following changes: Medical payments coverage removes the exclusion for non-owned vans and pickups used in the insured s business. Part D--Coverage for Damage to Your Auto now provides coverage for permanently installed electronic equipment that receives or transmits audio, visual, or data signals (such as navigation systems and Internet access). The limit of liability for physical damage to non-owned trailers has been increased to $1,000. Extended non-owned coverage endorsement now includes the option to extend coverage to family members of the named insured. Personal Auto Insurance 130

131 Named non-owner coverage endorsement now includes the option to extend coverage to family members of the named insured. Trip interruption coverage is added to the 2005 PAP. This endorsement adds coverage for: o Transportation expenses incurred due to mechanical or electrical breakdown and o Expenses for lodging and meals incurred due to either a covered physical damage loss or a mechanical or electrical breakdown. What Are The ACORD Forms Associated With A Personal Auto Policy? The ACORD Personal Auto Application ACORD is a nonprofit association whose mission is to facilitate the development and use of standards for the insurance industry. The accord: Describes residents, drivers, vehicles, and vehicle usage Identifies the requested coverages Lists accidents and traffic violations The ACORD s personal auto application s general information section requests information about: Jointly-owned vehicles Personal Auto Insurance 131

132 Vehicle modifications and special equipment Existing vehicle damage Prior losses Cars kept at school Cars parked on the street Other auto insurance Other insurance with the same insurer Current military service by a household member Prior suspension or revocation of drivers licenses Drivers physical or mental impairments Prior financial responsibility filings Prior declination, cancellation, or non-renewal of coverage Any yes answers to the questions in the general information section indicate the need to investigate further or the need to endorse the policy. Personal Auto Insurance 132

133 LESSON 9 QUIZ 1. Which one of the following endorsements reimburses the insured for costs incurred while having an auto towed in the event a covered auto is disabled? Towing and labor costs endorsement* Extended non-owned coverage for named individual endorsement A snowmobile endorsement The miscellaneous type vehicle endorsement 2. People with poor driving records are seldom insured. What technique has the insurance industry come up with to insure such drivers? Assigned risk plans Minimum insurance protection Extra safe driving lessons Higher premium rates 3. Cathy wants her auto insurance policy to cover her snowmobile, which she recently purchased. Which of the following will enable her to obtain such coverage under a PAP? An endorsement ACORDs A new auto policy Higher premiums 4. Which of the following associations issue standardized insurance forms? The Association of Insurance Adjusters The Association for the Evolution of Standardized Insurance Policies The Association for Cooperative Operations Research and Development The Association for the Regulation of Insurance Personal Auto Insurance 133

134 5. The ACORD s personal auto application s general information section requests information about all of the following EXCEPT: Existing vehicle damage Prior losses Individuals who will be operating the vehicle Whether or not the car is parked on the street Personal Auto Insurance 134

135 LESSON 9 QUIZ ANSWER KEY 1. Towing and labor costs endorsement* Coverage for such a task will be provided by the towing and labor cost endorsement. Anyone who has this endorsement appended to his/her policy will be reimbursed for all expenses incurred in having the vehicle towed from one location to the other. 2. Assigned risk plans* Assigned risk plans insure drivers who are looked upon as high risk. Under voluntary agreements, licensed insurance companies agree to share the poor risks among themselves. Because these risks are randomly assigned to the participating companies, they are called assigned risks. 3. An endorsement* Snowmobiles are not covered under a basic personal auto insurance policy. Coverage for such a vehicle is only attainable if the insured agrees to get the snowmobile endorsement appended to his/her policy. Buying another policy will not solve the problem, as it will result in the acquisition of another basic policy. The premium will increase, upon the addition of the endorsement. 4. The Association for Cooperative Operations Research and Development* The Association for Cooperative Operations Research and Development, also known as ACORD, develops standardized forms for different branches of insurance, which after the states approval, are used by all those involved in the business of insurance. 5. Individuals who will be operating the vehicle* The ACORD s personal auto application does not inquire about the individuals who will be operating the vehicle. The application focuses on getting details about the vehicle, the drivers mental or physical impairments, and whether his/her license has ever been revoked. Personal Auto Insurance 135

136 LESSON 10: No Fault Insurance The Purpose of No-Fault Legislation Five Arguments Favoring No-Fault Determining fault is often difficult. A determination of fault can be a lengthy and expensive process since it typically relies on varying witness statements, physical evidence, depositions and testimony, police reports, possibly expert testimony, and demonstrative evidence. Inequities in claims payments: Small claims are often overpaid and large claims are underpaid. Many victims aren t paid under the present tort system: Over 50% aren t! Way too much of the premium goes to lawyers: 23% in one study. The tort system results in delayed payments: Payments delayed months and sometimes years. Five Arguments Opposing No-Fault The defects of the tort system are exaggerated. Claims of premium savings from no-fault are exaggerated. No-fault penalizes safe drivers who must pay for their own injuries. No-fault provides no payment for pain and suffering. The present tort system only needs reform. Personal Auto Insurance 136

137 The following are the four characteristics of no-fault insurance: No-Fault insurance: 1. Exists, in some form, in about half the states 2. Provides Personal Injury Protection (PIP) benefits equal to economic loss for the injured party from his own insurer (Economic loss refers to medical expenses, lost earnings, hiring others to do work that the injured can t do, funeral expenses, and sometimes, survivor s compensatory benefits.) 3. Restricts the injured s right to sue (except under add-on plans) 4. Excludes recovery for property damage (which tends to be relatively minor and tends to be easily settled by insurers) Four Types of No-Fault Automobile Insurance Pure no-fault: Under this insurance, the injured person cannot sue anyone. He may recover PIP benefits only. Add-on no-fault: The injured person collects no-fault PIP benefits, but still retains his right to sue in all cases. Hence, add-on no-fault is not truly no-fault, since the right to sue is unrestricted. Modified no-fault: The injured person may sue if he meets either a o Monetary threshold: Often $1,000 of medical expenses, or Personal Auto Insurance 137

138 o Verbal threshold: Often requiring death, disfigurement, dismemberment, or permanent loss of use of a body member or function. Choice no-fault plans: The insured can choose (at initial purchase or renewal) whether to be covered by no-fault. Personal Injury Protection (PIP) No-Fault Statutes Personal injury protection no-fault statutes allow victims of auto accidents to recover their economic losses, regardless of fault, directly from their own insurers. Such laws reduce litigation and provide a definite source of recovery, but require victims to pay for their own losses. Thresholds in No-Fault Insurance Laws No-fault insurance laws allow injured people to assert common law tort claims if their injuries exceed their state s statutory threshold. Tort exemptions vary among states, but most are based on either: Monetary thresholds (Medical expenses must exceed a set dollar sum.) or Verbal thresholds (The accident must result in extensive temporary disability, disfigurement, fracture, permanent disability, or death.). If the injured person meets the threshold, he/she may continue to receive PIP benefits or he/she may sue the tort feasor for economic and non-economic Personal Auto Insurance 138

139 losses such as pain and suffering. Even if the injured person has not met the threshold, claim reps should begin investigating liability immediately. Unfortunately, monetary thresholds often encourage plaintiffs to build up medical expenses until they exceed the threshold amount. Benefits Provided By No-Fault Insurance Automobile personal injury protection (PIP) plans provide each insured the following benefits for economic loss: Medical expense benefits pay reasonable and necessary expenses for medical, surgical, and dental treatment; nursing; hospitalization; rehabilitation; and medication, prosthetics, and medical supplies causally related to the accident. Reasonable means usual and customary. Income continuation benefits pay for loss of earnings and losses from inability to work, even if the injured person s salary was continued. o The claimant must provide: Medical proof of disability Proof that he did not work Replacement services benefits pay reasonable expenses to hire someone to do the household work the injured person would have done if he had been uninjured. Death benefits to survivors pay the maximum amount available for income continuation and/or essential services benefits if the victim had survived. Funeral expense benefits pay funeral, burial, and cremation expenses. Personal Auto Insurance 139

140 LESSON 10 QUIZ 1. What is no-fault insurance? An insurance policy that does not contain any fraudulent information. An insurance policy that does not allow the insured to disobey any of its provisions. An insurance policy that provides coverage, even if the insured is at fault. An insurance policy that restricts the insured from suing the insurance company. 2. Which of the following is NOT a type of no-fault insurance? Pure no-fault insurance Add-on no-fault insurance Modified no-fault insurance Essential no-fault insurance 3. Which of the following is a benefit provided under PIP? Hiring help for housework, if the insured s condition does not allow him/her to do such housework A vehicle to help the insured commute Resources to enable the insured to work out of the house Providing subsidized meals 4. Under which no-fault insurance plan is the right to sue NOT restricted? Add-on no-fault Pure no-fault insurance Choice no-fault insurance Modified no-fault insurance 5. Under modified no-fault insurance, the monetary threshold for medical expenses is usually set at: $1000 $3000 $200 $500 Personal Auto Insurance 140

141 LESSON 10 QUIZ ANSWER KEY 1. An insurance policy that provides coverage, even if the insured is at fault.* No-fault insurance provides coverage for the insured even if the accident resulted due to the insured s carelessness. Thus, under no-fault insurance, the insured is paid irrespective of who was at fault. 2. Essential no-fault insurance* There are four types of no-fault insurance: pure no-fault, add-on no-fault, modified no-fault insurance, and choice no-fault plans. 3. Hiring help for housework, if the insured s condition does not allow him/her to do such housework* According to the benefits offered under PIP, the injured insured will be paid enough to hire help for housework. Other than this, the insured is paid death benefits, funeral expenses, income continuation benefits, and medical expenses. 4. Add-on no-fault* Under add-on no-fault insurance, the injured person collects no-fault PIP benefits, but still retains his/her right to sue in all cases. Hence, add-on no-fault is not truly no-fault, since the right to sue is unrestricted. 5. $1000* The monetary threshold is often $1,000 for medical expenses. Personal Auto Insurance 141

142 LESSON 11: Determining Auto Insurance Premiums What Are The Main Factors Used In Determining Personal Auto Premiums? Factors That Determine the Cost of Automobile Insurance Primary Rating Factors Territory: City cars have more and higher losses. Age, sex, and marital status: Young, male, unmarried drivers are the most accident prone. Use: Business, commuting, pleasure, and farm use generate losses in that order. Good student and driver education: Smart, educated drivers cause fewer accidents. Secondary Rating Factors Type of auto: Performance, age, original cost, damageability Number of vehicles: Often multi-car discounts apply Driving record Deductibles Liability limits Personal Auto Insurance 142

143 Insurers match the price of insurance to the loss exposure by dividing applicants into rating categories that reflect their differing loss exposures. Young and inexperienced drivers are considered less desirable insureds because they have greater-than-average probabilities of having accidents. Although competitive forces can influence rates, insurers must meet state requirements for rates that are adequate, not excessive, and not unfairly discriminatory. Rating Methods and Statistics Rating Procedures for Private Passenger Automobile Insurance Primary Rating Factors Age, sex, and marital status (Young, male, single drivers have more accidents.) Geographic location (Rural drivers have fewer accidents.) Type of use (Pleasure, commuting, business, and farm--business cars have more accidents.) Additional Rating Factors Driver education and good student (reduced accident rates for youthful drivers) Multiple car discounts Merit (safe driver) plans Personal Auto Insurance 143

144 The Objectives of Insurance Rate Regulation Rates must be: Reasonable--not excessive Adequate Not unfairly discriminatory Auto Insurance Discounts Discounts could be bigger than one might think and there are more discounts than the average driver knows. Let s look at some of the discounts available with some insurance companies. Good Driver Discount A 5% to 15% discount is given if an individual has a three-year accident-free driving record. Some states give up to a 20% discount. Airbag and Automatic Seatbelt Discount A 5% to 45% discount off the No-Fault and Medical Payments premium is offered if the individual has air bags and or automatic seatbelts. Multi-Car Discount An auto driver is given up to a 30% discount if he/she insures more than one automobile. Personal Auto Insurance 144

145 Home Insurance Discount If an individual obtains homeowner s insurance or renter s insurance from the same company as their auto insurance, he/she receives a discount of up to 15%. Defensive Driver Discount The auto driver will receive up to a 10% discount if he/she has completed a stateapproved defensive driving course within the past three years. With some companies, one must have successfully passed the course within one year. Safe Vehicle Discount An individual is eligible for a discount of up to 10% if he/she does not drive a high-performance automobile and is insuring automobiles that have been determined to be very safe. Coverage for High Risk Drivers Techniques That Make Coverage Available For High Risk Drivers: Specialty auto insurers o They cover high-risk drivers voluntarily. o They charge high premiums and limit coverage options. Assigned risk plans o Cover drivers rejected by private insurers o Applicants are assigned to insurers for 3-year periods. o Insurers insure the same proportion of the voluntary and involuntary Personal Auto Insurance 145

146 markets. o Habitual traffic violators and habitual drunks are often ineligible. Joint underwriting associations (JUAs) o Use a limited number of servicing insurers who share premiums, expenses, and losses based on their proportions of the voluntary market Reinsurance facilities (RFs) o Such facilities involve insurers transferring applicants who do not meet underwriting standards to the reinsurance facility. o Insurers share premiums, expenses, and losses for those drivers. Personal Auto Insurance 146

147 LESSON 11 QUIZ 1. Which of the following factors will NOT be considered by an underwriter when determining the premium for an insurance policy? The applicant s address The principal location of the auto The applicant is only one semester shy of a college degree. The applicant uses the vehicle only for pleasure. 2. Which of the following drivers is considered to be the least desirable insured? Jake has just acquired a driving license. Jeremy is new in town and unfamiliar with the area. Florence s weak eyesight requires her to wear glasses while driving. David loves to have new gadgets fitted in his auto mobile. 3. Which of the following individuals is eligible for a 15% to 20% driver discount? Driver A has never been issued a speeding ticket. Driver G has been driving for almost 25 years now. Driver K has never had any automobile losses reimbursed by the insurer. Driver X has avoided accidents for the past three years. 4. What benefit can an insured avail if he/she purchases homeowners insurance from the same insurer from whom he/she obtained automobile insurance? The benefits provided are the same as those provided under any other homeowner or auto insurance policy. The insured will be given a discount. The insured will be given extra coverage within the same amount. The insured will not be required to pay the first policy premium. Personal Auto Insurance 147

148 5. Which of the following pieces of information regarding assigned risk plans is FALSE? Assigned risk plans cover drivers rejected by private insurers. Applicants are assigned to insurers for three-year periods. Insurers insure the same proportion of the voluntary and involuntary markets. Habitual traffic violators and habitual drunks are offered rehabilitation programs. Personal Auto Insurance 148

149 LESSON 11 QUIZ ANSWER KEY 1. The applicant is only one semester shy of a college degree.* Factors considered when determining premium rates are divided in two categories; primary factors and secondary factors. Primary include territory, age/sex/marital status, use and good student and driver education. Secondary factors include; type of auto, number of vehicles, driving record, deductibles, and liability limits. 2. Jake has just acquired a driving license. * Jake is the least desirable insured because he is young (as he has just acquired his driving license) and does not have any driving experience. Such individuals are considered to be undesirable insureds because they have a greater-thanaverage probability of having accidents. 3. Driver X has avoided accidents for the past three years.* A good driver discount of a maximum of 20% is given if an individual has a threeyear accident-free driving record. 4. The insured will be given a discount.* If an individual obtains homeowners insurance or renter s insurance from the same company as their auto insurance, he/she receives a discount of up to 15%. 5. Habitual traffic violators and habitual drunks are offered rehabilitation programs.* Assigned risk plans cover drivers rejected by private insurers. Applicants are assigned to insurers for 3-year periods. Insurers insure the same proportion of the voluntary and involuntary markets and habitual traffic violators and habitual drunks are often ineligible. Personal Auto Insurance 149

150 LESSON 12: Underwriters Underwriting Personal Auto The producer and underwriter have a symbiotic relationship, that is, they both benefit from such a relation. The producer solicits profitable business and submits applications to the underwriter, while the underwriter provides a stable market and low rates for the producer s clients. Together they create a growing, profitable book of business. The Producer s Customer Service Representatives (CSRS) The customer service representatives are given the responsibility of: Gathering underwriting information Preparing submissions Helping make changes to existing policies Helping policyholders Processing renewals Preparing binders Notifying policyholders of cancellations and non-renewals Creating and maintaining files Underwriting Assistants The underwriting assistants are responsible for: Reviewing submissions for completeness Personal Auto Insurance 150

151 Ordering underwriting reports Organizing files Performing other tasks to let their underwriters focus on underwriting decisions Computers are used to screen applications in order to identify those submissions that are either clearly acceptable or clearly unacceptable. This allows the underwriter to focus on only those applications that require judgment. A computerized diary system notifies underwriters to review files at a fixed time before renewal. File review may also be triggered by claim activity, occurrence of specified events, or passage of a specified time since the last review. Six General Factors Used By Personal Lines Underwriters The producer might request an accommodation (acceptance of otherwise marginal or unacceptable business). When underwriting borderline or barely unacceptable business, an underwriter considers the producer s history with the insurer, his/her mix of business, his/her premium volume, and the profitability of his/her book of business. The existence of a prior insurer may be a factor if the underwriter can surmise the reason for switching insurers. The insured may have been cancelled (negative factor) or may have switched producers due to friendship (neutral factor). Previous auto coverage is a positive factor. Prior losses indicate areas of underwriting concern and predict future losses Personal Auto Insurance 151

152 unless the insured has taken corrective action. o Underwriters are more concerned with loss frequency (the number of losses) than with loss severity (the total dollar amount of losses) because the dollar amount of loss is often subject to chance, whereas frequent losses indicate a pattern of problems. Applicants ages may be considered in some states, but is prohibited from consideration in others. o As a group, drivers in the 35 to 55 age bracket have the best driving record. Applicants occupations and financial stability indicate the potential for moral hazard and determine the ability to maintain property and to pay premiums. Applicants character and reputation are difficult to evaluate at the initial submission, but could become a factor at renewal if a claims adjuster experienced a problem with the insured. Sources of Underwriting Information Sources of underwriting information include the producer, the application, the motor vehicle reports, credit reports, consumer investigation reports, and classification reports. NOTE: Classification reports are investigative reports containing only objective information. Personal Auto Insurance 152

153 Underwriting Factors Specific to Personal Auto Insurance Underwriting factors specific to Personal Auto Insurance focus on the drivers and vehicles used. Drivers ages, years of driving, and marital status: Younger drivers and inexperienced drivers have more accidents. o Marriage indicates greater stability and maturity [exception: shotgun marriages of teenagers]. Driving record: Statistically, drivers with prior accidents and/or traffic violations are more likely to have future accidents. Most insurers do not write coverage for drivers with DUI (driving under the influence) convictions. Vehicle type: Rating manuals assign every car a price new symbol (based on the manufacturer s suggested price) and a rating symbol (based on that model s physical damage loss experience). o Under the ISO s Vehicle Series Rating Program, vehicles with higher symbols pay higher physical damage premiums. Each auto has its own vehicle identification number (VIN) (unique identification number). Insurers use a VIN to generate a vehicle s description, track its claims, and determine ownership of recovered stolen autos. Size/engine: Many insurers add a surcharge to the rating factor for cars that fall within certain categories defined in terms of body type, the number of passenger seats, and the weight-to-horsepower ratio (vehicle weight divided by the engine s horsepower rating). o Cars with a low ratio (engines too powerful for their size) are less Personal Auto Insurance 153

154 acceptable to underwriters. Vehicle use: Underwriters consider the use (commuting or pleasure); the annual mileage; and, for commuters, the distance driven, the traffic conditions, and the workplace location. Vehicle age, condition, and value: Newer vehicles are more likely to have the latest safety equipment and be in good condition. Physical damage coverage is undesirable on older vehicles due to potential adjustment problems from depreciation. Underwriting guides state maximum insurable values for cars, often based on limitations in the reinsurance treaties. Garaging: Underwriting problems exist when insureds in high-traffic or highcrime areas park their cars on the street. NOTE: Underwriting factors are considered by the underwriter in evaluating a submission. Rating factors determine the amount of the insured s premium. Most insurers offer account credits (discounts to insureds who buy two different policies) to encourage account selling (soliciting all of a prospect s coverages) and account underwriting (underwriting all of an insured s business as a whole). Account selling by producers decreases coverage gaps, reduces competition from other producers, increases premiums, and creates efficiency. Account underwriting increases the insurer s premiums, improves the retention rate, prevents coverage gaps or overlaps, gives the underwriter a better understanding of the insured, reduces expenses, and creates efficiency. Personal Auto Insurance 154

155 What Pap Underwriters Need To Know PAP underwriters need: A motor vehicle report on every household driver The ages and educational levels of the insured s children (some may be close to the driving age, while others may be using a household car at college) The normal garaging location and typical use for each vehicle An accurate value (and photo) for each vehicle Any additional material required by state regulators Knowledge of the applicant s coverage preferences Personal Auto Insurance 155

156 LESSON 12 QUIZ 1. Which of the following is a source of underwriting information for auto insurance? Medical reports Business reports Credibility reports Consumer investigation reports 2. PAP underwriters need to know all of the following EXCEPT: The normal garaging location of the vehicle The typical use for each vehicle The applicant s coverage preferences The credit report on every household driver 3. Which of the following is NOT a benefit of account underwriting? Improved retention rate Prevention of coverage gaps Reduced expenses Lower premiums for the insurer 4. Which of the following is determined by rating factors? Premium amount Duration of coverage Endorsements to be attached The policy effective date 5. Under which rating plan are vehicles with higher symbols required to pay higher physical damage premiums? The state rating plan. ISO s vehicle series rating program A federal rating plan Insurers Rating Associations Rating Plan. Personal Auto Insurance 156

157 LESSON 12 QUIZ ANSWER KEY 1. Consumer investigation reports* Sources of underwriting information include: the producer, application, motor vehicle reports, credit reports, consumer investigation reports, and classification reports. 2. The credit report on every household driver* PAP underwriters need: a motor vehicle report on every household driver; the ages and educational levels of the insured s children (some may be close to the driving age, while others may be using a household car at college); the normal garaging location of the vehicle along with the typical use for each vehicle; an accurate value (and photo) for each vehicle; any additional material required by state regulators; and knowledge of the applicant s coverage preferences. 3. Lower premiums for the insurer* Account underwriting increases the insurer s premiums, improves the retention rate, prevents coverage gaps or overlaps, gives the underwriter a better understanding of the insured, reduces expenses, and creates efficiencies. 4. Premium amount* Rating factors determine the amount of the insured s premium. 5. ISO s vehicle series rating program* Under the ISO s Vehicle Series Rating Program, vehicles with higher symbols pay higher physical damage premiums. Personal Auto Insurance 157