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