IV.  POLICY CONSTRUCTION

 

Historically, consumers objected to the wording in automobile insurance policies as they were not familiar with technical terms used.  In addition, they often felt (and frequently stated) that insurance policies were loaded with “fine print” that only the insurance company could interpret and were used primarily to avoid paying claims.

 

Over 20 years ago, the Insurance Service Office introduced a new and simplified automobile insurance policy with simpler language that was much more “consumer friendly.”  However, this form and the wording were not adopted immediately as some states had specific laws that had to be changed to accommodate the new wording.  Perhaps the most important objection was that certain policy wording was already interpreted by the courts and by tradition, so any change would mean that the courts would have to again interpret the meanings of the new terminology.  Unfortunately for the insurance companies, any new interpretation would invariably be more favorable to the insured than to the insurance company.

 

After 10 years, the “model” policy has been adopted in nearly all states and the plan has remained basically the same and will be used as the example in this text.

 

Even though there has been, and will continue to be, concerted effort to make Automobile Insurance Policies (and most other insurance policies) easily understood by the consumers, there still remains confusion as to the meaning of the words and phrases used in the contract.  The principal reason for the difficulty in making policies more consumer-friendly is that a policy is, after all, a legal contract with all of the ramifications, so care must be taken in the wording so that the actual intent is voiced.  With the Legal Departments of insurance companies contributing to the wording, in addition to the wording required by the Insurance Departments because of law or regulations, there exists a wide variety of wordings.

 

While the wording varies considerably, the intent of the various phrases and words used in the policies remain practically the same.  The arrangement of the coverages are relatively standard, with the Liability coverage following a Definition of Terms, and appearing prior to such items as Uninsured Motorists Coverage, and items regarding physical damage, etc.  In addition, in those cases where No-Fault policies are required, the wording is quite different in those areas of the policy affected.  When a state becomes a “No-Fault State”, it has been common practice for an insurer to amend existing policies by Endorsements, resulting in a more-confused document that is extremely difficult, if not impossible, for the layperson to interpret.  These policies consist of many statements amending, adding to, or deleting various sections of the original policy, and where coverages or procedures have been added, the policyholder must continually refer to previous sections in the policy.

 

In order to eliminate as much confusion as possible, this text will discuss the provisions of the Personal Automobile Policy with emphasis on intent and coverage, and with more easily understood format.  Many insurance texts state a “typical” provision as it would appear in the policy in its most technical and confusing form, and then explain in “common English” what the wording means.  This text will explain the various parts of a typical policy based upon the Standard form devised by the Insurance Service Office and used nearly universally as the basis for Personal Automobile Policies.  Other features outside of this Standard policy form will be discussed in a similar manner.  Therefore, if a particular policy is being analyzed, while the wording may vary between policies, the interpretation of the words and phrases may be more easily understood.

 

The Personal Automobile Policy has six sections (Also known as “Parts”) plus the Declarations, Agreement, and Definitions sections which are included at the beginning of the policy, which are added by the insurance company.  The Endorsements which add to or change provisions in the policy may be found either in the beginning of the policy, or at the end of the policy.

 

  The six sections (Parts) are:

 

         Part                                                  Coverage                                                                        .

 

1.                                                    Liability
2.                                                    Medical Payments
3.                                                    Uninsured Motorists Coverage
4.                                                    Damage to the Insured Automobile
5.                                                    Duties of the Policyholder After an Accident/Loss
6.                                                    General Provisions.

POLICY DECLARATIONS

 

 

The Declaration Page identifies the policy number, the parties to the agreement, and other considerations, such as the identification of the vehicle(s) insured, name and address of the named insured, time coverage, what coverages and limitations are provided, etc.  Basically, it identifies “who”, “what” and “where” in specifics.

 

Many Policy Declarations include a Summary of information so that the policyholder can see what cars are covered, and what the premiums are.  The following is a sample of an Auto Policy Declarations, with  a Summary which covers two automobiles owned by drivers over age 65.  The formats vary from company to company, but the information contained is rather consistent.

 

 

     Typically where there are multiple automobiles, there are two pages of information. 

=================================================================

 

RATING INFORMATION This vehicle is driven over 7,500 miles per year, for pleasure, retired adult, good driver rate, one accident surcharge waived

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RATING INFORMATION This vehicle is driven over 7,500 miles per year, for pleasure, retired adult, good driver rate

 

 

 

 

 

 

 

 

AGREEMENT

 

As with any other contract, the wording is preceded by a statement(s) which simply state that the services will be performed (by the insurance company) as shown in the policy, as long as the (premiums are paid).  This may be simple, but it accomplishes two purposes: (1) it identifies the premium as the consideration given by the insured and the promises as consideration of the insurance company; and (2) it incorporates all of the subsequent terms of the policy by referring to them specifically.

 

In return for payment of the premium and subject to all the terms of this policy, we agree with you as follows:

 

DEFINITIONS

 

Policies contain a “Definition” section, which defines the terms used in the policy, with particular emphasis on how they apply to what is required of the insurer and the insured.

 

Many, if not most, insurers use the “first person” tense in writing the policy, whereby the insured(s) is/are referred to as “you”, and “your.”  Conversely, the insurer is referred to as “we”, “us”, and “our”, etc.  Contrary to rumor, “Ya’ll” or “us’n’s” are not used in the policies.

 

Some companies will always put certain important terms in quotations marks (“named insured”, “named vehicle”, etc.)  Other companies may use a boldface print for the same purpose.

 

It is imperative that the object (private passenger automobile) be defined so that there is no question as to what is insured.  In most policies, a private passenger car is an auto (“car” and “auto” and “automobile” may be used interchangeably in this text) which is owned by the insured(s) or leased for a period of at least 6 months under a written lease.  “Borrowing” a brother-in-law’s car, even with his permission, and keeping it for a period of time, does not necessarily mean that that car is insured under the insured’s PAP policy (except by Endorsement).  Also, this paragraph establishes the status of a leased car – a minimum lease of 6 months is standard in order for it to be treated as an owned vehicle.

 

When the term “bodily injury” (a.k.a. BI) is discussed, as it is in many places, it refers to actual harm to the physical body (not mental), sickness, disease or death which occurs as the result of a situation covered by the policy.

 

A “Business” includes such things as a trade (carpenter, plumber, etc.), profession or occupation, broadening the definition considerably from common usage.

 

Since the policy, in several places, includes or excludes “Family Members”, they are defined as any person related to the insured by blood, by marriage or by adoption who resides in your household.  This does not include a brother-in-law if he still lives with his mother.  A ward or foster child is included in the definition of a member of the family.

 

Certain coverages apply while the insured is “occupying” the vehicle.  “Occupying” means that the insured is either in the vehicle, is getting into the vehicle, is upon the vehicle (tractor or motorcycle come to mind), or in the process of getting out or off of the vehicle.

 

Property Damage means actual physical injury to property, the destruction of the property, or the loss of the use of tangible property as a result of situation covered by the policy.  “Tangible” property means actual property that one can see or touch.

 

Frequently policyholders will tow a trailer without even considering whether the trailer is also covered under their automobile policy.  For the purposes of insurance, a “trailer” is a vehicle which is designed to be pulled by a private automobile, pickup or van.  It can also pertain to a farm wagon or farm implement while being towed by the insured vehicle(s).  A “Fifth-Wheel” trailer, i.e. a trailer which rests partially on the bed of a pickup truck.  They are so large that they cannot be pulled by a car, but since they are pulled by a pickup, and a pickup is considered as a passenger car in the policy, they will be covered under the PAP.

 

Most policies use the terms “covered auto”, “covered vehicle”, etc., so it is necessary to define what is meant by “covered” auto, etc.  Policies are rather explicit as to what is covered, but basically a covered auto is the vehicle(s) that is shown in the Declarations.  While this is obvious, the question arises frequently as to newly acquired vehicles.  The requirements are such that they need further explanation:

 

Personal Automobile Insurance Policies are designed to cover individually owned private passenger automobiles, pickups or vans, with a Gross Vehicle Weight of less than 10,000 pounds.  They are to be used for “personal” usage, and if they are used for delivery or transporting goods and materials, such usage must be incidental to your “business” (see discussion of “business” above), and incidental to installing, maintaining or repairing furnishings or equipment.  Of course, because of the nature of the work, farming and ranching usage is allowed.  The language of this section makes it clear that only those private passenger vehicles are to be included in a Personal Automobile Policy.

 

There are frequently a couple of “caveats” regarding replacement vehicles and additional vehicles acquired.  If a covered auto is replaced by another auto, the policyholder has 30 days to notify the insurer if additional coverage is required, or if the coverage is to continue on the same basis.  If an additional vehicle is acquired, the additional vehicle will have the broadest coverage of any vehicle previously insured.

 

Not only does the policy cover a “covered” auto, it also covers any auto or trailer owned by the policyholder(s) used as a temporary vehicle while the covered vehicle is not able to be used because it has broken-down or is lost, destroyed, or in the state of repair or servicing.

 

DEFINITIONS

 

1. Throughout this policy, “you” and “your” refer to:
2. The “named insured” shown In the Declarations; and

    2.   The spouse if a resident of the same household

B. “We," “us” and “our” refer to the Company providing this insurance.

C. For purposes of this policy, a private passenger  type auto shall be deemed to be owned  by a person if leased:

1. Under a written agreement to that person; and

2. For a continuous period of at least 6 months. Other words and phrases are defined. They are in quotation marks when used.

D. Bodily injury means bodily harm, sickness or disease including death that results.

E. “Business” includes trade, profession or occupation.

F. “Family member” means a person related to you by blood, marriage or adoption who is a resident of your household. This includes a ward or foster child.

G. Occupying means in, upon, getting in, on, out or off.

1. “Property damage" means physical injury to, destruction of or, loss of use of tangible property.

I. Trailer means a vehicle designed to be pulled by a:

1.      Private passenger auto; or

2.      Pickup or van.

It also means a farm wagon or farm implement while towed by a vehicle listed above.

J. “Your covered auto” means:

1.     Any vehicle shown In the Declarations.

2.     Any of the following types of vehicles on the   date you become the owner:

   a. a private passenger auto, or

                        b. a pickup or van that:

(1)  has a Gross, Vehicle Weight of less      than 10,000 lbs.; and

         (2)   is not used for the delivery or transportation of goods and materials unless such use is:

      (a) incidental to your “business” of installing, maintaining or repairing furnishings or equipment; or

   (b)  for farming or ranching.

This provision (J.2.) applies only if‑

a.        you acquire the vehicle during the policy period;

b.        you ask us to insure it within 30 days after you become the owner; and

                     c.        with respect to a pickup or Van, no other Insurance policy provides coverage for that vehicle.

If the vehicle you acquire replaces one shown In the Declarations, it will have the same coverage as the vehicle it replaced. You must ask us to Insure a replacement vehicle within 30 days only if you wish to add or continue Coverage for Damage to Your Auto.

If the vehicle you acquire is in addition to any shown in the Declarations, it will have the broadest coverage we now provide for any vehicle shown in the Declarations.

     3.  Any “trailer” you own,

    4.  Any auto or “trailer” you do not own while used as a temporary substitute for any other vehicle described in this definition which is out of normal use because of its:

a. breakdown;    d. loss; or

b. repair;            e. destruction.

c. servicing;

This provision (J.4.) does not apply to Coverage for Damage to Your Auto.

 

 

The following chart shows a summary of the applicability of Personal Automobile Policy insurance based upon the type of vehicle and ownership

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ELIGIBILITY OF PERSONAL AUTOMOBILE POLICY BY TYPES AND USES OF VEHICLES

 

 

PAP – Personal Automobile Policy

BAP – Business Automobile Policy

PAP(E) – Personal Auto Policy modified by Endorsement

 

 

Private Passenger Auto                                PAP                             PAP(E)            BAP   .

Pickup / Van

   Not used in Business                                PAP                             BAP                BAP

   Used in Business (not farming)                BAP                            BAP                BAP

   Used in Farm business                              PAP                             PAP(E)            BAP   .

Trailer, designed for Private Passenger

Use, used with any of above                       PAP                             PAP(E)            BAP   .

Miscellaneous Types of Vehicles

All-Terrain (ATV)

Campers

Dune buggies

Go-carts

Mopeds

Motor Bikes

Motor Homes

Motorscooters

Motorcycles

Snowmobiles

Similar vehicles                          PAP(E)                                 PAP(E)       BAP   .

All Vehicles Not listed above                         BAP                            BAP           BAP   .

 

 

 

 

 

 

 

 

 

 

STUDY QUESTIONS

1. The Declaration Page(s) of a Personal Automobile Insurance policy
A. always appears at the end of the policy form.
B. is part of the application for insurance.
C. describes the pertinent specific information on the persons and automobiles covered under the policy, including limits.
D. lists (declares) the exclusions under that particular policy.

2. In order to comply with state regulations, many insurers amend their policies to meet the new requirements by
A. Amendment.
B. Correction.
C. Endorsement.
D. attaching a letter of Explanation.

3. In a Personal Automobile Policy (PAP), a private passenger car is an auto that is _______ or _____________________ by the insured.
A. owned, leased
B. borrowed, driven
C. driven, garaged
D. driven, loaned

4. Bodily Injury (BI) means
A. disability or mental disorder.
B. actual harm to the physical body, sickness, disease or death.
C. inability to operate a motor vehicle, regardless of cause.
D. damage to the body of the automobile.

5. According to definitions in a PAP, which of the following is NOT occupying a vehicle?
A. getting into a vehicle
B. pushing a vehicle
C. exiting a vehicle
D. starting a vehicle from the drivers seat.

6. According to definitions in a PAP, a “covered auto” must not
A. weigh more than 10,000 pounds.
B. be a pickup or a van.
C. be privately owned.
D. have more or less than 4 wheels.

7. If a covered automobile on a PAP is garaged because of mechanical difficulties, a rented automobile
A. would not be covered under the policy.
B. will be covered under the policy.
C. would be covered under the policy for only 24 hours.
D. could be obtained but only from a list of approved auto rental companies.

8. Under the Definitions in the auto policy, which of the following is not a “Family Member.”
A. A daughter over the age of 21 living with the insured.
B. A sibling of the insured who lives with their own family next door.
C. An adopted child living with the insured.
D. The single brother of the wife who lives with the insured and his wife.

9. Which of the following trailers is not insured under personal auto insurance?
A. A horse trailer pulled by a pickup insured under the policy.
B. A camping trailer pulled by a station wagon insured under the policy.
C. A boat trailer pulled by a SUV insured under the policy.
D. A hay baler pulled by a tractor.

10. John lives on a farm. He owns a station wagon used for personal pleasure with occasional trips to an animal auction; a pickup which is used to haul hay and other farm items and which is used to take John and/or children to town and school functions when the station wagon is not available; a John Deere tractor which is used to pull plows and other farming equipment; and a combine that he drives from farm to farm doing contracting combining in the Fall. Which of these vehicles, if any, would be covered under a Personal Auto policy?
A. The station wagon, the pickup and the tractor.
B. The station wagon only.
C. The pickup, the station wagon and the combine.
D. The station wagon and the pickup only.

 

 

 

STUDY QUESTION ANSWERS

 

1C     2C     3A     4B     5B     6A     7B     8B     9D     10D