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7.6 Part D – Coverage for Damage to Your Auto

Part D explains how the policy covers physical damage to the insured's auto. This coverage is often referred to as physical damage coverage because it applies to direct damage to the vehicle itself. Part D is a form of first-party property coverage, meaning it protects the insured's own covered auto when it is damaged by a covered cause of loss. In addition, Part D may provide limited coverage for certain non-owned vehicles while they are being used or operated by the insured or a family member.

Insureds who own their vehicle outright usually have the option to purchase physical damage coverage or decline it. However, if the vehicle is financed, the lender may require the insured to carry physical damage coverage as a condition of the auto loan agreement. This requirement helps protect the lender's financial interest in the vehicle until the loan is paid off.

Insuring Agreement​

Coverage for Damage to Your Auto pays for direct and accidental physical damage to Your Covered Auto or a qualifying non-owned auto, subject to the deductible shown in the policy. Part D is important because it is the only section of the Personal Auto Policy that specifically defines a non-owned auto for physical damage coverage purposes. A non-owned auto includes:

  • A private passenger auto, pickup, van, or trailer that is not owned by, or furnished or available for the regular use of, the named insured or a family member, while it is being used by the named insured or a family member
  • A temporary substitute vehicle that is not owned by the insured and is being used while Your Covered Auto is out of normal use because of breakdown, repair, servicing, loss, or destruction

This means Part D may extend physical damage coverage beyond the insured's own vehicle in certain limited situations, such as when the insured is driving an eligible borrowed vehicle or using a temporary substitute vehicle.

Coverage Options​

Part D provides two physical damage coverage options: Collision Coverage and Other Than Collision Coverage. Other Than Collision is often abbreviated as OTC and is also commonly referred to as Comprehensive Coverage. Collision Coverage applies when Your Covered Auto or a qualifying non-owned auto is damaged by collision. Collision includes the upset, or overturn, of the vehicle, as well as the vehicle's impact with another vehicle or object. Under this coverage, the covered cause of loss is limited to collision. Other Than Collision Coverage provides broader physical damage protection for losses that are not caused by collision, unless the loss is otherwise excluded by the policy. This coverage may apply to many types of accidental losses, including but not limited to:

  • Missiles or falling objects
  • Fire
  • Theft or larceny
  • Explosion or earthquake
  • Windstorm
  • Hail, water, or flood
  • Malicious mischief or vandalism
  • Riot or civil commotion
  • Contact with a bird or animal
  • Breakage of glass

A key learning point is that Collision Coverage is designed for damage caused by the vehicle colliding with something or overturning, while Other Than Collision Coverage is designed for many other types of physical damage losses, such as theft, fire, hail, vandalism, flood, or contact with an animal.

When a loss involves glass breakage, the cause of the glass damage determines how the loss may be classified. If the glass breaks because of a collision, the insured may choose to have the glass breakage treated as a collision loss instead of an Other Than Collision loss. This option can be important because Collision and Other Than Collision coverage may have different deductibles. By allowing the insured to choose how the glass loss is classified, the policy gives the insured flexibility when a collision results in broken glass.

The Declarations page identifies which Part D coverages apply to each covered auto. It must show whether Collision Coverage, Other Than Collision Coverage, or both coverages have been selected for a particular vehicle. When a loss involves a non-owned auto, the policy extends the broadest Part D coverage that applies to any covered auto shown in the Declarations. This means that if at least one covered auto has both Collision and Other Than Collision coverage, that broader protection may apply to the eligible non-owned auto, subject to the policy terms, conditions, and deductible.

An Insurance Story

The Nelson family chose different Part D coverage options for their vehicles. They selected Collision Coverage only for their sedan, but they selected both Collision Coverage and Other Than Collision Coverage for their minivan and new SUV.

If any of the Nelsons' covered autos is damaged by hitting another car, a tree, or a utility pole, the loss would be covered under Collision Coverage. However, losses such as theft, flood damage, or contact with a deer would fall under Other Than Collision Coverage. Because the sedan does not have Other Than Collision Coverage, those types of losses would be covered only for the minivan and SUV.

Now assume the sedan is out of normal use because it is being serviced, and Liam's mother uses a temporary substitute auto to drive the children to school for a few days. Because the policy applies the broadest Part D coverage available on any covered auto to an eligible non-owned auto, the temporary substitute auto would have both Collision Coverage and Other Than Collision Coverage, subject to the policy terms and deductible.

Deductibles​

Collision Coverage and Other Than Collision Coverage are each subject to their own deductible, as shown on the Declarations page. These deductible amounts may be different. If a single loss involves both Collision and Other Than Collision coverage, the insured does not pay both deductibles. Instead, the insured is responsible only for the highest applicable deductible.

Transportation Expenses (Rental Reimbursement)​

The policy provides limited coverage for temporary transportation expenses when the insured cannot use a covered auto because of a covered Collision or Other Than Collision loss. This coverage applies only if the damaged auto has the applicable physical damage coverage in place. The insurer will pay up to $20 per day, with a maximum total payment of $600, for reasonable temporary transportation expenses. This coverage is sometimes referred to as rental reimbursement because renting a vehicle is one common type of covered transportation expense. If the damaged vehicle is a non-owned auto, temporary transportation expenses are covered only when the insured is legally responsible for the loss. Payment is limited to the period of time reasonably required to repair or replace the damaged auto.

When the loss involves the total theft of Your Covered Auto or a qualifying non-owned auto, temporary transportation expense coverage does not begin immediately. The insurer will pay only for expenses incurred during the covered payment period. This period begins 48 hours after the theft and ends when either:

  • The stolen auto is returned to use; or
  • The insurer pays for the loss.

This waiting period means the insured is responsible for any transportation expenses incurred during the first 48 hours after the theft.

When the loss is caused by a covered peril other than theft, temporary transportation expense coverage does not begin immediately. The insurer will pay only for expenses that begin after the auto has been withdrawn from use for more than 24 hours. This means the insured is responsible for transportation expenses incurred during the first 24 hours that the vehicle is unavailable.

Part D Exclusions​

Part D contains several exclusions that limit or remove physical damage coverage in certain situations. In general, Part D does not provide coverage for:

  • Loss to a covered vehicle while it is being used as a public or livery conveyance, such as transporting people or property for a fee. This exclusion does not apply to a share-the-expense car pool.
  • Loss caused by radioactive contamination, nuclear weapon, war, insurrection, or rebellion.
  • Total loss to Your Covered Auto or a non-owned auto caused by destruction or confiscation by government or civil authorities.
  • Loss to an auto while it is located inside a racing facility for the purpose of competing in, practicing for, or preparing for a racing or speed contest.
  • Damage caused by wear and tear, freezing, mechanical or electrical breakdown or failure, or road damage to tires.

These types of losses are generally considered maintenance-related or non-accidental causes of damage, and they are commonly excluded under property insurance policies. However, the exclusion for wear and tear, freezing, mechanical or electrical breakdown, or road damage to tires does not apply when the damage results from the total theft of the auto.

Part D also includes exclusions that apply specifically to non-owned autos. Even when a vehicle qualifies as a non-owned auto, physical damage coverage does not apply in every situation. Coverage is not provided for loss to a non-owned auto when:

  • The auto is used by an insured without a reasonable belief that they are entitled to use it.
  • The auto is maintained or used by someone engaged in the business of selling, repairing, servicing, storing, or parking vehicles. This includes activities such as road-testing and delivery.

These exclusions help clarify that Part D is not intended to cover unauthorized use of a vehicle or losses connected with professional auto-related business operations.

Part D also excludes coverage for certain types of property that may be damaged, stolen, or lost when an auto is damaged or lost. These exclusions help distinguish between property that is considered part of the covered auto and property that should be insured elsewhere, such as under a Homeowners policy or another property policy. Physical damage coverage does not apply to:

  • Electronic equipment that is not permanently installed in the vehicle. This includes items such as radios, stereos, tape decks, CD players, navigation systems, computers, phones, recording devices, televisions, mobile or CB radios, and scanners. Media used with this equipment, such as tapes, records, disks, or similar items, is also excluded.
  • Radar and laser detection devices and equipment.
  • A trailer, camper body, or motor home that is not shown in the Declarations. Equipment used with these items is also excluded, including cooking or refrigeration equipment, plumbing, awnings, and cabanas.

However, the policy does provide coverage for certain trailers and newly acquired property. Coverage applies to non-owned trailers, and it may also apply to a trailer, camper body, or related equipment acquired during the policy period if the insured notifies the insurer within 14 days after becoming the owner.

Physical damage coverage also excludes loss to custom furnishings or equipment in or on any pickup or van. Examples include special carpeting or insulation, furniture or bars, height-extending roofs, and custom murals or other graphics.

However, this exclusion does not apply to a cap, cover, or bed liner in or on a pickup.

Limit of Liability​

Under Part D, the insurer's payment for a covered physical damage loss is limited to the lesser of:

  • The actual cash value of the damaged property; or
  • The amount needed to repair or replace the damaged property with property of like kind and quality.

Actual cash value, or ACV, generally reflects the value of the property at the time of loss. If the auto is a total loss, the insurer will consider factors such as depreciation and the vehicle's physical condition when determining its ACV.

This means the policy is not designed to pay more than the property was worth at the time of the loss, even if the cost to replace it is higher.

If the repair or replacement of damaged property results in property that is better than like kind and quality, the insurer will not pay for the increased value, or betterment. Betterment occurs when the insured receives an improvement beyond restoring the property to its pre-loss condition. In that situation, the insured may be responsible for the additional cost that exceeds the amount required to repair or replace the property with comparable property.

Part D also includes special limits for certain types of property. The maximum limit of liability is $1,500 for a non-owned trailer and $1,000 for permanently installed electronic equipment. These limits apply even if the actual value of the damaged property is higher. Therefore, the insured should understand that certain property covered under Part D may be subject to a specific dollar limit rather than the full value of the loss.

Payment of Loss​

When a loss is covered under Part D, the insurer may settle the claim in one of two ways. The insurer may either:

  • Pay the insured for the covered loss; or
  • Repair or replace the stolen or damaged property.

If the insurer settles the loss by paying money, the payment will include any applicable sales tax related to the stolen or damaged property. This provision gives the insurer flexibility in how the loss is paid, while ensuring that the insured receives payment for the covered damage, subject to the policy's terms, limits, and deductible.

After a damaged auto has been inspected and the amount of loss has been appraised, the named insured is generally responsible for choosing where the repairs will be completed. Although an insurer may recommend a repair facility, many states prohibit insurers from requiring an insured to use a specific repair shop. Such a requirement may be considered an unfair business practice because it limits the insured's ability to choose the repair provider.

If stolen property is recovered after a covered loss, the insurer has the right to decide how the recovered property will be handled. The insurer may either:

  • Keep the recovered property at its agreed or appraised value; or
  • Return the recovered property to the named insured.

If the insurer returns the stolen property to the named insured, the insurer must also pay for any damage to the property that resulted from the theft, subject to the policy's terms, limits, and deductible.

No Benefit to Bailee​

Part D does not provide coverage for the benefit of a person or business that has care, custody, or control of the covered auto under a bailment relationship. A bailment exists when the insured temporarily gives possession of the vehicle to another party for a specific purpose, such as repair, servicing, storage, or parking. The person or business holding the vehicle is known as the bailee. For example, if the insured leaves a vehicle at a repair shop for servicing and the mechanic damages the vehicle, the Personal Auto Policy would not make payment for the benefit of the repair shop. Instead, the repair shop's own insurance would be expected to respond because the shop may be legally liable as the bailee.

Other Sources of Recovery​

If other insurance applies to a covered Part D loss, or if another party is available to pay for the loss, the insurer will not pay the entire amount of the loss by itself. Instead, Part D will pay only its proportionate share. This means the loss is shared among the available sources of recovery according to their applicable limits or responsibility. This provision helps prevent duplicate recovery and ensures that each responsible insurer or party pays only the amount it owes under the circumstances.

When a covered Part D loss involves a non-owned auto, the policy pays on an excess basis. This means the insured's policy does not pay first. Primary coverage may include insurance provided by the vehicle's owner, any other applicable physical damage coverage, or another available source of recovery, such as insurance purchased by the driver of the vehicle. After those primary sources have paid, the insured's Part D coverage may apply to the remaining covered loss, subject to the policy's terms, limits, and deductible.

Appraisal​

If the insured and the insurance company cannot agree on the amount of a Part D loss, either party may request an appraisal. Appraisal is used to resolve disputes about the value of the damaged property or the amount of the loss. When appraisal is requested, each party selects its own appraiser and pays that appraiser's fee. The two appraisers then prepare separate appraisals of the actual cash value and the amount of loss. If the appraisers do not agree, they select an umpire and submit their differences to that person. A decision agreed to by any two of the three parties—the two appraisers and the umpire—is binding. The insured and the insurer share the cost of the umpire and any other appraisal expenses equally.