Recap of Chapter Seven
A Personal Auto Policy is a package policy that provides both liability coverage and property coverage for eligible vehicles. Eligible vehicles generally include private passenger autos, as well as pickups and vans with a gross vehicle weight of 10,000 pounds or less. The policy may also allow certain types of incidental business use. For example, coverage may still apply when the vehicle is used to deliver or transport goods and materials for farming or ranching purposes, or for a business that involves installing or repairing furnishings or equipment. A key learning point is that the Personal Auto Policy is designed primarily for personal-use vehicles, but it may allow limited business-related use when the use falls within the policy’s eligibility rules.
To be eligible for coverage under a Personal Auto policy, covered vehicles generally must be owned by the named insured or leased continuously for at least 6 months. When a vehicle is owned jointly by individuals who are not spouses, or when it is owned with a relative who does not live in the named insured’s household, the policy may need to be modified by adding the Joint Ownership Endorsement. Certain types of vehicles are usually not eligible for coverage under the standard Personal Auto policy. This includes vehicles with fewer than 4 wheels and vehicles designed mainly for use off public roads. However, exceptions may apply when the vehicle is being used for a medical emergency or when coverage is added through the Miscellaneous Type Vehicle Endorsement. This eligibility restriction does not apply to trailers or non-owned golf carts.
In the Personal Auto Policy, the term Your Covered Auto is used to describe the autos and certain trailers that are covered by the policy. Your Covered Auto includes any vehicle listed in the Declarations. It also includes owned trailers, including farm implements, a newly acquired auto, and certain non-owned autos or trailers being used as a temporary substitute. A temporary substitute auto is a vehicle the insured uses when a covered auto is temporarily unavailable because of breakdown, repair, servicing, or loss. Newly acquired autos may also qualify as covered autos, but coverage is subject to specific notice requirements. The insured must notify the insurer within the required time period in order to request coverage for the newly acquired auto.
The Part A limit of liability is commonly written using split limits. Split limits provide separate limits for each type of loss. These usually include a per person limit for bodily injury, a per accident limit for bodily injury, and a per accident limit for property damage. For example, a policy may show three separate liability limits, with each limit applying to a different part of the claim. A policy may also be written with a combined single limit. A combined single limit provides one total limit that applies to bodily injury and property damage arising from a covered accident. Part A liability limits must comply with state financial responsibility laws. These laws establish the minimum amount of auto liability insurance a driver must carry. If the insured drives into another state that requires higher minimum liability limits, the policy’s out of state coverage provision automatically increases the applicable limits to meet that state’s financial responsibility requirements.
The PAP provides casualty insurance coverages in Parts A, B, and C:
| Coverage Part | Coverages | Insureds | Exclusions |
|---|---|---|---|
| Liability Coverage (Part A) | Bodily injury and property damage for which insured is legally liable | Named insured | Liability from using an auto as a public or livery conveyance |
| Liability Coverage (Part A) | Liability from using a vehicle for farming or ranching or from using a non-owned golf cart | Named insured’s family members (live in same household and are related by blood, marriage, or adoption) | Damage to personal property being transported |
| Liability Coverage (Part A) | Defense costs (in addition to limit of liability) | Person using covered auto with permission | Using auto without permission |
| Liability Coverage (Part A) | Supplementary payments: bail bonds, postjudgment interest, loss of earnings due to trial attendance | Person or organizations legally responsible for insured’s auto liability-related acts or omissions | Those employed in the business of selling, repairing, servicing, storing, road testing, or parking autos |
| Liability Coverage (Part A) | Damage to residence or private garage rented to or used by the insured | Injuries covered by Workers’ Compensation | |
| Liability Coverage (Part A) | Intentional injury | ||
| Liability Coverage (Part A) | Cars furnished or available for regular use, like a company car, unless added by Extended Non-owned Coverage Endorsement | ||
| Medical Payments Coverage (Part B) | Reasonable medical expenses sustained by an insured | Named insured | Expenses incurred while using an auto as a public or livery conveyance |
| Medical Payments Coverage (Part B) | Reasonable funeral service expenses sustained by an insured | Named insured’s family members | Expenses incurred while using an auto with fewer than 4 wheels |
| Medical Payments Coverage (Part B) | Reasonable expenses must be incurred by the insured within 3 years | Passengers | Expenses incurred while occupying or struck by a company car or commercial fleet vehicle |
Personal Auto Policy Casualty Coverages
| Coverage Part | Coverages | Insureds | Exclusions |
|---|---|---|---|
| Uninsured Motorists Coverage (Part C) | UM: Bodily injury to an insured caused by an at-fault uninsured motorist | Named insured | Bodily injury to an insured caused by the insured’s auto that is not covered by the PAP |
| Uninsured Motorists Coverage (Part C) | Compensatory damages the insured is entitled to recover | Named insured’s family members | Punitive or exemplary damages |
| Uninsured Motorists Coverage (Part C) | UIM: Bodily injury to an insured caused by an at-fault underinsured motorist | Anyone occupying Your Covered Auto | Bodily injury while using an auto as a public or livery conveyance |
| Uninsured Motorists Coverage (Part C) | Others entitled to recover damages | Using auto without permission | |
| Uninsured Motorists Coverage (Part C) | Property damage unless added by endorsement |
Under Part C — Uninsured Motorists Coverage, an uninsured motor vehicle is generally a vehicle that does not have bodily injury liability insurance in effect at the time of the accident. A vehicle may also be considered uninsured if liability coverage exists, but the insurer denies coverage or becomes insolvent. In some cases, a vehicle may qualify as uninsured if its liability limits are lower than the minimum amount required by law. A hit-and-run vehicle may also be treated as an uninsured motor vehicle when the owner or operator cannot be identified. However, certain vehicles are not considered uninsured motor vehicles under Part C. These commonly include vehicles owned or furnished for the insured’s regular use, such as a company car; vehicles owned by a government agency; vehicles operated on rails or crawler treads; and vehicles being used as a residence or premises. The limit of insurance for Part C usually mirrors the limit shown for Part A — Liability Coverage, unless a different limit is shown in the policy or required by state law.
Underinsured Motorists Coverage may be provided as part of Part C — Uninsured Motorists Coverage, or it may be offered as a separate coverage, depending on the state and the insurer. An underinsured motor vehicle is a vehicle that has legally required bodily injury liability insurance in effect at the time of the accident, but the available liability limits are not high enough to fully respond to the injured party’s damages. In other words, the at-fault driver has insurance, but the amount of coverage is insufficient for the claim arising from the accident.
Part D — Coverage for Damage to Your Auto provides coverage for direct and accidental physical damage to Your Covered Auto and certain non-owned autos. Part D is divided into two main coverage options: Collision and Other Than Collision. Collision Coverage applies when a covered auto overturns or is involved in an impact with another vehicle or object. This includes losses caused by the upset of the auto or by collision with another auto, a structure, or another object. Other Than Collision Coverage, often referred to as comprehensive coverage, applies to physical damage losses that are not caused by collision. This coverage is generally written on an open perils basis, meaning it covers direct and accidental loss unless the cause of loss is excluded. Examples of covered Other Than Collision losses include theft, earthquake, flood, and contact with a bird or animal. Each Part D coverage option is subject to its own separate deductible. For example, the deductible for Collision may be different from the deductible for Other Than Collision. The Part D limit of liability is generally based on the actual cash value of the damaged property at the time of loss, subject to the policy’s terms, conditions, and deductible.
Part D — Coverage for Damage to Your Auto also provides coverage for certain transportation expenses that result from a covered physical damage loss. Transportation expenses are generally limited to the reasonable period of time needed to repair or replace the covered auto. This coverage helps pay for substitute transportation, such as a rental vehicle, while the damaged auto is being repaired or replaced. If the covered loss is a total theft of the auto, transportation expense coverage begins 48 hours after the theft. If the loss is caused by another covered peril, coverage begins 24 hours after the loss. The insured may also add the Towing and Labor Costs Coverage Endorsement. This endorsement provides a scheduled amount of insurance when Your Covered Auto or a covered non-owned auto becomes disabled. Coverage may apply when the disabled auto must be towed to a garage. It may also apply when necessary labor is performed at the place of disablement. However, the endorsement does not cover the cost of parts or repairs unless specifically provided by the policy.
Part D physical damage coverage is subject to several important exclusions. Coverage is generally not provided while a covered auto is being used as a public or livery conveyance, such as transporting people or property for a fee. Coverage is also excluded when the vehicle is being used in, or preparing for, a speed contest or racing event. Part D does not cover ordinary maintenance issues or wear and tear. For example, damage to tires caused by poor road conditions may be excluded unless the damage results from a covered loss. The Personal Auto Policy also excludes certain electronic equipment. Electrical equipment that is not permanently installed in the vehicle, such as portable radios, phones, scanners, or similar devices, is generally not covered under Part D.
Part D also excludes certain types of vehicles, equipment, and property unless coverage is specifically added by endorsement. Loss to a trailer, camper body, or motor home, including equipment used with these vehicles, is generally not covered unless the item is specifically covered by endorsement. Part D also does not cover custom furnishings or custom equipment, such as special carpeting, murals, or similar customized features. However, certain items associated with pickup trucks, such as covers and bed liners, may be covered when they are in or on the pickup. Coverage is also excluded for loss to a non-owned auto while it is being used by someone engaged in the business of selling, repairing, servicing, storing, or parking vehicles. This exclusion applies because the vehicle-related business, rather than the Personal Auto Policy, is expected to provide coverage for that exposure. Finally, Part D does not provide coverage when payment for the loss would benefit a bailee. A bailee is a person or business that has temporary custody of another person’s property, such as a repair shop, storage facility, or parking service.
Part E — Duties After an Accident or Loss explains the responsibilities of any person seeking coverage under the Personal Auto Policy. A person submitting a claim must promptly notify the insurer of the accident or loss. This notice should include important details, such as how, when, and where the accident or loss occurred. The insured must also cooperate with the insurer during the investigation, settlement, or defense of the claim. This may include providing requested information, answering questions, and assisting the insurer as needed. If the claim involves bodily injury, the insured may be required to submit to a physical examination by a physician selected by the insurer, as often as the insurer reasonably requires. The insured must also authorize the insurer to obtain medical records and submit any required proof of loss. For Uninsured Motorists Coverage, the insured must promptly notify the police when the accident involves a hit-and-run driver. For Part D — Coverage for Damage to Your Auto, the insured has additional duties. The insured must take reasonable steps to protect the covered property from further damage, promptly notify the police if the vehicle is stolen, and allow the insurer to inspect and appraise the damaged vehicle before it is repaired or disposed of.
Coverage under a Personal Auto Policy applies only to accidents and losses that occur during the policy period and within the policy’s coverage territory. The policy territory includes the United States, its territories and possessions, Puerto Rico, and Canada. Accidents or losses that occur outside this territory are generally not covered unless the policy specifically provides otherwise. When more than one policy or coverage applies to the same loss, the Personal Auto Policy generally pays on a pro rata basis. This means the insurer pays only its share of the loss in proportion to the total amount of applicable insurance. However, coverage for a non-owned auto is usually excess over any other collectible insurance. For example, if the insured is driving another person’s vehicle, the vehicle owner’s insurance is typically primary, and the insured’s Personal Auto Policy applies only after the owner’s coverage has been used.