Liability Coverage is typically the next section, and is often referred to as “Part A” of a personal automobile policy.
As the policy contains an “Agreement” clause, it also contains the insuring agreement for the liability coverage. This Agreement states that the insurance company will pay for damages for any bodily injury or property damage, including any interest awarded against any insured(s) prior to any trial for which any insured(s) becomes liable because of an automobile accident. The term “accident” means something that happened at a specific time and at a specific place.
The insurer always reserve the right to settle or defend any claim or damage suit, as they “deem appropriate”, including defense costs incurred by the insurer. Of course they will pay any judgement against the insured(s) up to the limits of the insurers liability, but they will not pay for any suit or judgement not covered by the policy. The insurance company’s obligations to defend any suit terminates when it has paid out damages to the limit specified in the contract. Certain salient points to remember in this respect:
If an insured is involved in a multiple car accident, for example, and his policy limits have been met in settling suits with two of the individuals involved, but two other individuals who were also involved, file suit, the liability limits have been met under the policy and the insurer is under no obligation to defend the insured in any of the subsequent suits - provided, of course, that the suits were all related to the same accident.
Defense costs (attorney’s fees, filing fees, witness expenses, etc.) are in addition to the limits of liability, as they are costs, and not damages.
Prejudgment interest (i.e. the interest on the amount awarded by the court for damages. If an award of $100,000, for example, is given to an injured person for damages suffered on January 15th, and the judgement is not given until January of the following year, the court then assumes a rate of interest that the injured party may have received on the $100,000 during this period of time. Therefore, in this example, if interest is awarded at $7,000, the total award (would be $107,000) is considered as damages and is therefore, part of the liability payment.
The “insured(s)” are defined as the insured or any family member, or any person using the insured (covered) auto. When a person or organization, other than the insured or family member, is involved, the liability is only for the legal responsibility for acts or omissions of the insured or family member. Of course, if the “other” person or organization hires the insured vehicle or trailer, that provision does not apply. A more specific definition of ‘insured” would be:
1. An “Insured” would be the named insured, a spouse resident in the same household, or any “family member” resident in the same household who owns, maintains or uses any auto or trailer.
2. An “insured” is any person outside the household who uses a vehicle covered under the policy.
3. A person who is not a resident of the household would be an “insured” if they are found legally responsible for the driving of a regular insured (i.e. legally responsible for the operation of a motor vehicle by the named insured), while that regular insured (named insured) is using one of the vehicles listed on the Declarations page of the policy.
4. An “outsider” would be an “insured if”
(a) there is an accident, and
(b) a named insured is driving the listed vehicle and is responsible for the accident, and
(c) the “outsider” is found to be legally responsible for the acts of the named insured, and
(d) the outsider does not own nor is he renting the vehicle involved in the accident.
You may notice that the some definitions change from section to section. For instance, the definition of “insured” has one meaning in this Liability section, but it has a different meaning in the Medical Payments section. “You”, and “Family Member” remain constant, however.
CONSUMER APPLICATION
James works for the Consolidated Printing Company as a printer. His car is insured as a private passenger vehicle under his PAP. Friday one of their best customers called and needed a rush job on 20,000 flyers for the weekend. James was able to get the flyers printed, but their delivery van was gone for the day and would not return until Monday. One of the Salesmen, Ben, offered to deliver the order, but he had no transportation as he rode in a carpool. James tossed Ben his car keys and they loaded the order in the trunk.
On the way to make the delivery, Ben, who was not used to driving a “stick-shift”, put on the bakes without engaging the clutch, and the momentum carried him through a red-light and into a passenger car, injuring the driver and a passenger.
The injured party was the wife and daughter of an attorney, who, upon hearing that Ben was on a delivery, initiated a lawsuit against both Ben and Consolidated Printing.
Under the provisions of James PAP, both Ben and Consolidated Printing would be covered by his policy.
PART A ‑ LIABILITY COVERAGE
INSURING AGREEMENT
A. We will pay damages for “bodily injury” or” property damage”, or which any insured becomes legally responsible because of an auto accident. Damages include prejudgment interest awarded against the “insured”. We will settle or defend, as we consider appropriate, any claim or suit , or asking for these damages. In addition to our limit of liability, we will pay all defense costs we incur. Our duty to settle or defend ends when our limit of liability for this coverage has been exhausted. We have no duty to defend any suit or settle any claim for “bodily injury;” or “property damage” not covered under this policy.
B. “Insured” as used in this Part means:
1. You or any “family member” for the ownership, maintenance or use, of any auto or “trailer.”
2. Any person using your “covered auto.”
3. or “your covered auto,” any person or organization but only with respect to legal responsibility for acts or omissions of a person for whom coverage is afforded under this Part.
4. For any auto or “trailer,” other than “your covered auto,” any other person or organization but only with respect to legal responsibility for acts or omissions or you or any “family member” for whom coverage is afforded under this Part. This provision (B.4.) applies only if the person or organization does not own or hire the auto or “trailer.”
Policies also provide coverage for other situations, other than those shown above. Some of those which are frequently offered are:
SUPPLEMENTARY PAYMENTS
In addition to our limit of liability, we will pay on behalf of an “Insured”:
1. Up to $250 for the cost of bail bonds required because of an accident Including related traffic law violations, The accident must result in “bodily injury” or “Property Damage” covered under this policy.
2. Premiums on Appeal bonds and bonds to release attachments in any suit we defend.
3. Interest accruing after a judgment is entered in any suit we defend. Our duty to pay interest ends when we offer to pay that part of the judgment which does not exceed our limit of liability for this coverage.,
4. Up to $50 a day for loss of earnings but not other income, because of attendance at hearings or trials at our request.
CONSUMER APPLICATION
Rob Cearsy has a PAP with Automobile Insurance Company, with limits of 25/50/10, the minimum required by state law. Rob ran a red light was struck another car driven by Smith. Smith’s car careened into another car driven by Brown. The result of the accident was that 5 persons were injured, and 3 automobiles were heavily damaged, including Rob’s car. The Bodily Injury Liability and Property Damage Liability payments would be as follows:
Bodily Injury Payments Property Damage Payments .
John Smith $30,000 Smith’s car $12,000
Mary Smith 30,000
Jonathan Smith 5,000
Wilfred Brown 15,000 Brown’s car 8,000
Pamela Brown 10,000 .
Total $90,000 $20,000
The limits chosen by Rob indicates that AIC will pay $25,000 per person, and $50,000 per accident for Bodily Injury. Therefore, $40,000 of the Bodily Injury payments will have to be paid by Rob personally.
His Property Damage limit is $10,00 so Rob will have to pay $10,000 personally.
If John and Mary Smith are the most severely injured, under typical adjusting rules, $25,000 may be awarded to John Smith, and $25,000 to Mary Smith, which is the maximum AIC will pay for any one accident. Rob is personally liable for the $5,000 for each of the Smith’s, and the $25,000 for the Brown’s.
In respect to Property damage to Smith’s and Brown’s cars, if the adjuster pays for the Smith’s car first, then Rob would have to pay the extra $2,000 on Smith’s car, and the full $8,000 on the Brown’s car.
Injuries to Rob and to his automobile are covered under a separate section and are not subject to these limits.
CONSUMER APPLICATION
Charles is a City employee and drives a city owned truck in his job. Charles drove the truck home for lunch one day, and on the way, he hit an ice patch on the road, losing control of the truck, striking a van owned by a local Florist. The driver of the van was injured and hospitalized..
The attorney for the van driver sued the City for damages and also sued Charles personally. Charles referred the matter to his PAP insurance company. The insurer informed Charles that he would not be covered under the PAP as that type of vehicle is not included in the PAP provision.
CONSUMER APPLICATION
Mel Harrison borrows his brother’s (John) pickup to bring home some trees from the local nursery. His neighbor, Henry, accompanies him to the nursery. At this point, Mel is responsible for the safe operation of the pickup.
While loading the trees into the pickup, Mel strains his back and is unable to drive home. He asks Henry to drive. Henry, however, has never driven a pickup and coming down a hill, he loses control of the pickup and skids into a van containing 2 adults and 3 children. They are all seriously injured, including Mel and Henry.
Henry, Mel and John all report the accident to their respective insurance companies.
John’s policy, as owner of the truck, will cover him as owner of the vehicle.
Mel was responsible for the truck, even though he was not driving at the time of the accident. However, Mel was responsible for Henry driving the truck.
Henry is primarily responsible as he was the driver.
All three are sued for their part in the accident with the following results:
Based upon the wording of the PAP, John is not an “insured” under Henry’s PAP because he owns the truck. Mel is not excluded as an “insured” because he doesn’t own the truck and he did not “hire” it from his brother, but was merely borrowing the truck with John’s permission. Under the terms of the PAP, Mel would be an “insured” as he is considered as “any other person” who is using the vehicle for which he is responsible for its safe operation. Even though he was not driving at the time, he should have been aware that Henry had never driven a pickup before, particularly a loaded pickup, and he should have made sure that Henry was driving carefully. Because he did not, he has “legal liability for acts or omissions of (the permitted driver) for whom coverage is afforded under this policy.” (Typical wording for this provision). Since Henry is covered for liability as a named insured under his own policy, Mel becomes a temporary “insured” for this one accident only under John’s policy.
CONSUMER APPLICATION
Ron Hooper, an insured of AIC, is involved in an accident in which there is no clear indication as to who is responsible. Before the dispute can be settled, the other party sues Ron. AIC defends Ron in the trial, but Ron loses the case. AIC decides to appeal the case, but because of the appeal, Ron must post an appeal bond. AIC cannot issue the bond, but they will pay the premium for the appeal bond. Further, if any of Ron’s property was attached (withheld) as evidence in the trial, AIC will pay the premium for any bond which may be required to release that property so that Ron can use it. (Continued on next page)
(Continued from previous page) Ron is found as the negligent party in the appeal and the judge awards monetary damages to the other party, including interest that accrued during the appeal process. AIC will pay the interest awarded.
If AIC agrees to settle the claim but Ron wants to continue the appeal process, AIC will not be responsible for any additional interest awarded.
“Exclusions” are often considered as the most frustrating portion of any policy for a policyholder or for an agent after a claim has been denied. As one policyholder put it: “I was driving along, minding my own business, and had a wreck. I wasn’t worried as I had been paying premiums to my insurance company for many years and had yet to get anything back from them. But when I asked them to pay for damages to my car and to the car of the guy I hit – they pulled out enough “exclusions” to keep a country lawyer busy for a month.” Stories such as this are heard by everyone and any agent who represents his company and his clients on a professional basis, must know the exclusions well enough to explain them to his policyholders, not only at time of accident, but also at time of sale.
Typical Liability Exclusions would read as follows
A. We will not provide Liability Coverage for any person:
that person.
This exclusion (A.3.) does not apply to “property damage” to a residence or private garage.
This exclusion (A.4) does not apply to “bodily injury” to a domestic employee unless workers’ compensation benefits are required or available for that domestic employee.
vehicles designed for use mainly on public highways. This includes road testing and delivery. This exclusion (A.6.) does not apply to the ownership, maintenance or use of “your covered auto” by:
A nuclear energy liability policy is a policy issued by any of the following or their successors:
However, this exclusion (B.3.) does not apply to you while you are maintaining r “occupying” any vehicle which is:
At this point, the “Exclusions” pertain only to the Liability Coverage. Each coverage has its own exclusions peculiar to that section.
Actually, exclusions are normally a product of common sense. The Insuring Agreement section tells what is insured, so anything other than that shown is not insured. But since many people have their own interpretation of almost any word or phrase, this section is needed.
Exclusions simply identify types of losses that are not covered by the policy and accomplish four broad purposes:
Obviously, the insurance company will not provide liability coverage for anyone who intentionally causes bodily injury or property damage. There was a movie about a man who had remodeled a pickup into a heavily armored vehicle, and then deliberately ran down those who ran traffic lights or otherwise broke traffic laws, and punished them with his truck. Even though he never technically broke a law, this policy would not cover such behavior. Further, the policy will not pay for property damage to property owned by or being transported by the person who intentionally causes bodily injury or property damage, including property rented to or used by that person, except for property damage to a residence or private garage if the insured is liable for damage.
CONSUMER APPLICATION
Pamela has an “Irish Temper” according to her boyfriend, Bob. Pamela and Bob got into a heated argument as to who is to be invited to their wedding, and Pamela rushed out of the house and jumped into her car. However, Bob’s car was parked so that his car partially blocked the driveway. Pamela deliberately ran her car into Bob’s front fender, causing more than $3,000 of damage to the car. Pamela had liability of $100,000 on her policy.
Her policy would not pay for these damages as they were intentional.
The policy will not provide liability coverage for any bodily injury to an employee of the policyholder during the course of employment. This does not apply to domestic employees unless they are required by law to have or be eligible for Workers Compensation. Obviously, a PAP is not intended to be a substitute for Workers Compensation.
Obviously, since this is a “Personal” automobile insurance policy, it does not cover any liability arising out of the ownership or operation of the auto while it is being used as a public or livery conveyance – in other words, as a limousine for hire, taxi, drayage service, etc. Further, liability coverage is not available while the insured(s) are engaged in selling, repairing, servicing, storing or parking vehicles, except for the “covered” auto usage by the insured(s) or family members or partner, agent, or employee of the insured or family member. This section differentiates between using the vehicle as a vehicle for hire, and that of car-pooling. A taxi is used for making money, a car-pool is designed to save money by sharing expenses.
CONSUMER APPLICATION
Walter started a carpool with 3 of his neighbors as they all worked within a 3 block radius of each other in the city. It started with Walter driving every 4th day.
One of the riders, Billie, had an older model car, which kept breaking down. All the other car-poolers liked Billie and felt sorry for her, so they decided that she could ride without driving on her day, if she would pay for the gas every fourth day.
Another rider, Hank, changed jobs, and his new job did not have enough parking for his car, so when he drove, he had to park 4 blocks away. During the winter months, he much preferred to ride with one of the other people and leave his car at home. He agreed to pay for the gas on the days that he normally would have driven.
The last rider, Charles, worked with investments and it was important for him to get the early Wall Street Journal and read it before he got to the office. Now that he found himself driving every other day, he felt that the time lost reading on the morning commute was too expensive for him to continue.
The participants all enjoyed riding with Walter, as he had a large newer car and was an excellent driver. They all met with Walter and made an agreement with him that they would each pay him for the gas used. Walter did not like this, as there was considerable wear and tear on his car, and he had to have it serviced frequently, so the cost of gas did not cover his expenses. The riders felt that if they each paid $3 a day ($15 a week, approx. $45 a month), the $135 a month should cover Walter’s expenses. He agreed to this, and they all paid him regularly on the first of each month.
Walter’s wife casually asked one evening if his insurance would cover any accident that he may have while he was “car-pooling” his neighbors. Walter called his insurance agent the next morning who informed him that the car-pooling provision would be in question when he started making money for transporting his neighbors. If the money paid to him just covered his expenses, then he would not have to make any changes in his policy. However, if he was making a profit by driving them to work, then he should either (2) charge less so that the money would only cover expenses, or (2) purchase a Business Auto Policy.
The policy will have a liability exclusion that removes coverage for property rented to, used by, or in the care of the person liable for damages. This applies to most types of property, including another automobile borrowed or rented by an insured. (Note: coverage for a rented auto or one that is borrowed may be provided under Part D – the physical damage section)
There will appear exclusions for bodily injury or property damage for any person who is covered under a nuclear energy liability policy.
Liability Coverage is not provided for any motorized vehicle that has less than four wheels (motorcyclists have to get their own insurance or be on endorsement on a PAP).
Liability Coverage is also not provided for any vehicle that is owned by the insured or a family member, other than those previously defined as a “covered auto”, even if the auto is owned by the insured or is furnished or available for regular use. This could pertain to automobiles furnished to an insured by his employer which can be used for personal use.
It should be noticed that any vehicles that is owned by the insured but is not listed on the policy, will not be covered. The insured cannot pay for insurance on one vehicle, and expect that all of his vehicles will be covered. For other vehicles furnished – or available for the usage by the insured on a regular basis – there is no coverage. If, for example, an employee has access to his employer’s fleet of cars, the exclusion would stand even if he regularly used the same car. Coverage can be provided by attaching an Extended Non-owned Vehicle Coverage Endorsement.
As a general rule, many, if not most, of the exclusions can be eliminated by proper Endorsement.
EXCLUSIONS
A. We do not provide Liability Coverage for any person:
1. Who Intentionally uses “bodily injury” or property damage.
2. For “property damage” to property owned or being transported by that person.
3. For “property damage” to property:
a. rented to;
b. used by; or
c. in the care of;
that person.
This exclusion (A.3.) does not apply to “property damage” to a residence or private garage.
4. For “bodily injury” to an employee of that person during the course of employment. This exclusion (A.4.) does not apply to “bodily injury” to a domestic employee unless workers compensation benefits are required or available for that domestic employee.
5. For that person's liability arising out of the ownership or operation of a vehicle while it is being used as a public or livery conveyance. This exclusion (A.5.),does not apply to a share‑the‑expense car pool.
a. selling; d. storing; or
b. repairing; e. parking;
c. servicing;
vehicles designed for use mainly on public highways. This includes road testing and de-livery. This exclusion (A.6.) does not apply to the ownership, maintenance or use of your covered auto by:
a. you;
b. any "family member;” or
c. any partner, agent or employee of you or
7 any “family member” maintaining or using any vehicle while that person is employed or otherwise engaged in any “business" (other than farming or ranching) not described in Exclusion A.6. This exclusion (A.7.) does *not apply to the maintenance or use of a:
a. private passenger auto;
b. pickup or van that you own; or
c. used with a vehicle described in
a. or b. above.
Note: The policy excludes coverage for people in the automotive business as, for instance, a Garage Liability Policy is needed for that purpose.
CONSUMER APPLICATION
Walter’s son, Walter Junior, works for the Sunoco Service Station during the summer months. He has his own car and is covered under his father’s policy.
The owner of the station knows Walter and his son very well, and on occasion he will trust Junior to deposit the week’s receipts in his bank, located a mile from the station. One Friday, Junior was taking the money to the bank when a dog ran in front of his car. He swerved to miss the dog, and temporarily lost control of the car, causing it to run into the side of a Corvette parked near the curb. When Junior reported this to his father, his father read the insurance policy before he called the agent, and was quite disturbed when he discovered in the “exclusions”, that since his son was engaged in the “business” of servicing vehicles, he was not covered.
However, his insurance agent assured him that coverage would still exist as it stated that this exclusion did not apply to the use of “your covered vehicle” (Junior’s car was listed on the policy) if the use was by a family member.
8. Using a vehicle without a reasonable belief that that person is entitled to do so.
9. For “bodily injury” or “property damage” for which that person:
b. would be an insured under a nuclear energy liability policy but for its termination upon its exhaustion of its limit of liability.
A nuclear energy liability policy is a policy issued by any of the following or their successors:
a. American Nuclear Insurers;
b. Mutual Atomic Energy Liability Underwriters
c. Nuclear Insurance Association of Canada.
B. We do not provide Liability Coverage for the ownership, maintenance or use of.
1. Any motorized vehicle having fewer than four wheels.
2. Any vehicle, other than “your covered auto,”
which is:
a. owned by you; or
b. furnished or available for your regular use.
3. Any vehicle, other than your covered auto,
which is:
a. owned by any family member or
b. furnished or available for the regular use of any “family member.”
However, this exclusion (B.3.) does not apply to you while you are maintaining or occupying any vehicle which is:
a. owned by a “family member,” or
b. furnished or available for the regular use of a “family member.”
CONSUMER APPLICATION
Wayne Jensen does not get along well with his neighbors, mostly because his son and the neighbor’s son seemed to always be fighting. The neighbor’s son made fun of Wayne’s son because of the way that Wayne’s son played basketball. When Wayne was backing out of his driveway, he deliberately swerved and ran over the neighbor’s son’s bicycle.
The neighbor’s son jumped on his brother’s bicycle and swore at Wayne, who started chasing the child (with his car). The child fell off his bicycle and broke his wrist.
Wayne is arrested for assault with a deadly weapon (his car), and bail is set at $1,000.
1. Wayne is responsible for the bicycle that he ran over, however his insurance policy will not pay for it as it was a deliberate act of the insured (not an accident).
2. Wayne is responsible for medical costs for the child who broke his wrist. (He would also be responsible for damages if the second bicycle is damaged). Again, his insurance company will not pay for these damages for the same reasons as stated above.
3. Even though the Supplementary Payments section will pay “up to $250 for the cost of a bail bond…(because of) an accident resulting in bodily injury or property damaged covered under the policy,” Note the italicized wording – the bodily injury and property damage was not “covered” under the policy, as stated in 1. and 2. above.
The policy will explain the Limits of Liability in detail as required or desired, which is simply stated as “the Insurer will not pay more than the maximum amount of liability as shown in the Declarations.” This is the maximum that the insurer will pay regardless of how many insured there are, how many claims are made, the number of vehicles or premiums, or the number of vehicles involved in the accident. Further, there are separate limits required by law for bodily injury and property damage, but these amounts combined will not exceed the total limit of liability
A. The limit of liability shown in the Declarations for this coverage is our maximum limit of liability for all damages resulting from any one auto accident. This is the most that we will pay regardless of the number of.‑
1. “Insureds;”
2. Claims made;
3. Vehicles or premiums shown In the Declaration
or
4. Vehicles Involved In the auto accident.
B. We will apply the limit of liability to provide any separate limits required by law for bodily injury and property damage liability. However, this provision (B.) will not change our total limit of liability.
Since state laws differ, if an auto accident occurs in a state other than the state in which the insured vehicles are garaged, and if the state in which the accident occurred has laws requiring a higher amount for bodily injury or property damage liability, the policy will provide the higher amount. If the state in which an auto accident occurs has laws which require a nonresident to maintain insurance, the policy will provide at least the minimum amounts and types of coverage. However, no one is entitled to duplication of coverage.
CONSUMER APPLICATION
Betty resides in Mississippi and has single limits of $25,000, satisfying the financial requirements of her home state. She went to visit her sister in Alabama and had an accident. Alabama has 20/40/10, so her liability coverage is automatically expanded to $40,000 per accident.
OUT OF STATE COVERAGE
If an auto accident to which this policy applies occurs in any state or province other than the one in which “ your covered auto” is principally garaged, we will interpret your policy for that accident as follows:
A. If the state or province has:
1. A financial responsibility or similar law specifying limits of liability for bodily injury or “property damage” higher than the limit shown In the Declarations, your policy will provide the higher specified limit.
2. A compulsory insurance or similar law requiring a nonresident to maintain insurance whenever the nonresident uses a vehicle in that state or province, your policy will provide at least the required minimum amounts and types of coverage.
B. No one will be entitled to duplicate payments for the same elements of loss.
Some states have financial responsibility laws, so policies will contain a statement stating that this policy will meet the requirements of such law.
FINANCIAL RESPONSIBILITY
When this policy is certified as future proof of financial responsibility, this policy shall comply with the law to the extent required.
The insurer will pay only their share of the loss if there is other liability insurance applicable. The insurer will pay the proportion that the total liability limit bears to the total of all applicable limits. If the vehicle involved is not owned by the insured(s) this policy will be excess over any other “collectible” insurance.
OTHER INSURANCE
If there is other applicable liability Insurance we will pay only our share of the loss. Our share is the proportion that our limit of liability bears to the total of all applicable limits. However, any insurance we provide for a vehicle you do not own shall be excess over any other collectible Insurance.
CONSUMER APPLICATION
Marilyn Dodge owns three vehicles, each insured on individual policies and with different companies. Her brother is an insurance agent and wrote the policies in different companies so that he could keep his license current with all of the insurers. Marilyn had an accident with her “98 Camero, insured with AIC, and was determined to be negligent and responsible for damages as a result of the accident. Marilyn’s policy has liability limits of 100/300/50. If another policy covers such contingencies, AIC will pay up to $100,000 per person, and the other company will pay up to $100,000 per person, so she has up to $200,000 total per person limit. If the injuries total $20,000 in medical bills, each company will pay $10,000 since each is providing half of the applicable limit.
CONSUMER APPLICATION
Marilyn borrows her boyfriend’s (Bobby) Explorer while her Camero was being repaired. Marilyn has another accident and there were medical bills involved. Bobby’s insurance would provide the primary coverage (as Bobby is the owner of the vehicle). However, Marilyn would be covered under the policy also as she was using the Explorer with Bobby’s permission. If the medical bills does not exceed the liability limits of Bobby’s policy, Marilyn’s policy would not be involved.
If the medical bills are greater than the limits of Bobby’s policy, then Marilyn’s policy would be involved, but only over and above the limits of the other policy. If Bobby’s insurance has limits of 50/100/10, and the victim's medical bills totaled $55,000, Bobby’s policy would pay the first $50,000 and Marilyn’s policy would pay the remainder.
CONSUMER APPLICATION
Sue Palmer is driving to the grocery story with her two children, Mark and David. At a stop light, her attention was drawn by an unruly child, with the results that she drove her car into a Corvette, pushing it into a Toyota pickup.
The driver of the Corvette, Nancy, sprains her back and neck, and suffers head cuts from hitting the windshield. Her medical bills were $15,000. Nancy’s sister, Marie, is a passenger and hurts her back also. Her doctor bills and therapy total, $8,000. The corvette is damaged to the amount of $18,000.
The Toyota pickup is driven by Don, who also hits his head on the windshield and suffers cuts and a concussion, hospitalized overnight for observation, with medical bills of $2,800. The truck is damaged to $2,600.
Sue Palmer sprains her wrist and cuts her legs on the steering column. Emergency Rooms costs are $1,700. Her children are not severely injured, but are checked into the Emergency Room for a combined cost of $1,000. Repairs to Sue’s auto is $2,400. (Continued on next page)
(Continued from previous page) Sue carries minimum coverage as required by the financial responsibility laws of her state: 10/20/10.
Expenses would be determined as follows:
` Medical Bills Property Damage
Nancy 15,000 18,000
Marie 8,000
Don 2,800 2,600
Sue 1,700 2,400
Mark & David 1,000 .
Total $28,500 $23,000
The total of all medical bills is $28,500. However, since liability coverage is under discussion at this time, expenses and property damage to Sue and her children are not of concern.
The total for all 3 vehicles is $23,000, but Sue’s auto will not be covered under liability coverage. Without Sue’s expenses, the above Medical Bills would be $25,800, and Property Damage is $20,600.
Sue’s liability limits are 10/20/10. The maximum payable under her policy is $10,000 per person and $20,000 per accident for bodily injury. The maximum it will pay for Nancy’s injuries would be $10,000, leaving Sue to pay $5,000.
Marie and Don’s medical bills total $10,800. The maximum that Sue’s policy will pay per accident is $20,000. Since it will pay $10,000 for Nancy, $10,000 is left for Marie and Don, leaving $800 to be paid by Sue.
Sue’s insurance company pays total $20,000, and Sue must pay $5,800.
The Property Damage limit per accident is $10,000. If Don’t truck is repaired first, the insurer will pay the $2,600 and will give Nancy $7,400. Sue must pay Nancy $8,000 and also pay Ron $2,600 for repairs on his pickup.
STUDY QUESTIONS
1. Under the Liability provisions of a PAP, an “insured” does NOT include
A. a family member residing in the insured’s house.
B. a neighbor who borrows the car without permission.
C. an adopted child who is a licensed driver and still lives at home.
D. a wife who has just learned to drive.
2. Under a PAP, if an insured is required to attend trial at the request of the insurer,
A. the policy will pay the average daily income of the insured.
B. the policy will pay a stipulated amount.
C. the policy will not pay for any loss of earnings.
D. the court will establish a “per diem”, and the insurer will pay 50%.
3. Bill has a PAP covering his new car. While waiting in line for a traffic accident to clear, another driver get impatient and drives on the curb and then suddenly darts in front of Bill. Bill loses his temper, and then rams the car in the back as hard as he can, causing damage to his new car and the other car.
A. Bill’s insurance will pay for damages only to his car.
B. Bill’s insurance will not provide liability coverage.
C. Bill’s insurance will pay only if the other party is injured.
D. No insurance is liable as they are both at fault.
4. The limits of liability of a PAP establishes a maximum amount that the policy will pay
A. for each accident.
B. for each insured.
C. regardless of how many accidents or insureds there are, or how many claims are made.
D. annually.
5. John is driving a company car. His employer carries only the minimum coverage required by the state. John carries a PAP with very high limits. If John is involved in an accident and a judgement is rendered which is higher than the limits on the company policy
A. the Company’s policy will pay the higher amount.
B. John’s PAP will pay the proportion that the total liability limit bears to the total of all applicable limits.
C. John’s PAP will pay in excess after the Company’s limits have been exhausted.
D. John’s PAP will not pay anything under the “Duplication of Benefits” provision.
6. Bill lives in Mississippi which has a financial responsibility law requiring 10/20/5. He moves to Colorado which has 25/50/15 and immediately has an accident. What will be the limits of his policy at that time.
A. 10/20/5
B. 25/50/15
C. No limits until a new policy has been issued.
D. He will automatically be issued a new policy with limits of 25/50/15, and the present
claim would be an average between the old limits and the new limits.
7. Which of the following occupations is not excluded under a PAP?
A. selling of automobiles.
B. repairing of automobiles.
C. storing of automobiles.
D. farming.
8. Which of the following vehicles is not covered for Liability under a PAP?
A. A pickup used on a farm.
B. A Minivan used as a family car.
C. A full-sized van configured with passenger seats.
D. A motorcycle used to go to and from work.
9. Bruce is a member of a car pool. The members of the car pool have changes so now he must drive twice as far to pick up other carpool members. In order to compensate Bruce for this, they all agree to let Bruce drive every day except Monday and Friday, and to pay Bruce $5 per passenger each day. Bruce has a PAP on his Minivan. If Bruce has an accident and he is considered liable for damages,
A. the insurer will probably not pay, as Bruce will be considered as running a “Taxi.”
B. the insurer will pay, no complications.
C. the insurer will cancel his insurance ab initio (void it from the date it was issued).
D. every member of the car pool that has insurance, will also be liable and their individual
policies will pay a portion of the damages.
10. Jim runs a print shop and has a company van. Recently, while the van was making a delivery, a “Rush” job was finished, but Jim was too busy to take it to the customer, so he told Sam, a printer at his shop, the take his (Jim’s) personal car and make the delivery. Sam runs a red light and hits another car. What would the insurer’s position be on a liability claim?
A. The insurance company would not cover this liability.
B. Sam’s PAP would cover the liability in this situation.
C. Jim’s PAP will cover the liability damages.
D. Jim’s insurance company would pay only half of the claim, Sam’s insure the rest.
STUDY QUESTION ANSWERS
1B 2B 3B 4C 5C 6B 7D 8D 9A 10A