As the heading implies, there are policy provisions that apply to all sections of the policy and therefore occur towards the end of the policy, prior to any Endorsements. However, some policies have the General Provisions immediately following the Declarations page. Some of the provisions are required by law or regulations, but in most policies, they are not voluminous.
If the insured becomes insolvent or declares bankruptcy, the insurance company will not be relieved of any obligations under the policy. This provision helps third – party claimants by not relieving the insurer of any duties to pay if the covered person becomes bankrupt.
Bankruptcy or insolvency of the insured shall not relieve us of any obligations under this policy.
The policy provisions may not be changed or waived except by endorsement issued by the insurance company. This statement relieves the insurer of any liability as a result of a verbal statement by an agent or company employee. Further, it limits the contract between the insurance company and the insured exactly to the written policy and to nothing else.
If the insurance company broadens coverage during the premium paying period without charge, the policyholder will have the new features if they have the coverage. This would pertain generally to mandated coverages.
The premium on the policy is derived from information in the hands of the insurance company, therefore any changes in the information in the possession of the insurer allows the insurer to make adjustments in premiums. Any rate change will be made using the rules, rates and forms on file in the state of residence of the insured.
Sometimes (actually quite frequently) coverages under an insurance policy is improved or made more liberal. Many changes can be made without additional premium charges and the insured will not have to wait to take advantage of the new provisions, nor will the insured have to cancel their policy and purchase a new policy with the more liberal provisions. Since there are a lot of changes continually being legislated by the various states, this provision allows the policy to be automatically interpreted to provide the better coverage on the date the coverage would become effective for all of the insurance companies in that state.
CONSUMER APPLICATION
Basil purchased a PAP on his Acura when it was used to drive to and from work one day a week (he belonged to a carpool). Basil changed jobs which entailed using his own car for sales trips throughout the state. His annual mileage increased from 8,000 a year to approximately 15,000 a year. Basil’s insurance company sends their policyholders a questionnaire each year on renewal, asking for present odometer readings.
The first year that Basil reported the odometer reading, it was higher than the previous year, but the large increase did not show until the renewal date following his second year of heavy travelling. Upon receipt of the questionnaire, the insurance company increased his premium by reclassifying his automobile as to usage.
A. This policy contains all the agreements between you and us. Its terms may not be changed or waived except by endorsement issued by us.
B. If there is a change to the Information used to develop the policy premium, we may adjust your premium. Changes during the policy term that may result in a premium increase or decrease include, but are not limited to, changes in:
1. The number type or use classification of insured vehicle;
2. Operators using insured vehicles;
3. The place of principal garaging of insured vehicles;
4. Coverage, deductible or limits.
If a change resulting from A. or B. requires a premium adjustment, we will make the premium adjustment in accordance with our manual rules.
C. If we make a change which broadens coverage under this edition of your policy, without additional premium charge, that change will automatically apply to your policy as of the date we implement the change in your state. This paragraph (C.) does not apply to changes implemented with a general revision that includes both broadening and restrictions in coverage, whether that general program revision is implemented through introduction of.
1. A subsequent edition of your poll; or
2. An Amendatory Endorsement.
The insurer does not provide coverage for any insured who has made fraudulent statements, or engaged in fraudulent conduct in connection with any accident or loss for which coverage is sought under the policy.
We do not provide coverage for any "insured" who has made fraudulent statements or engaged in fraudulent conduct in connection with any accident or loss for which coverage Is sought under this policy.
This provision states that the insured cannot take legal action against the insurance company until such time that the insurance company and the insured agree (in writing) that the insured has an obligation to pay or the amount has been determined by judgement after trial. This provision also excludes the insurer from any action to determine the liability of an insured.
A. No legal action may be brought against us until there has been full compliance with all the terms of this policy. In addition, under Part A, no legal action may be brought against us until:
1. We agree in writing that the “insured” has an obligation to pay; or
2. The amount of that obligation has been finally determined by judgment after trial.
B. No person or organization has any right under this policy, to bring us into any action to determine the liability of an “Insured.”
Sometimes called the “Subrogation” provision, this provision states that if the insurance company makes a payment under the policy, and the person to or for whom payment was made has a right to recover damages from another source, the insurance company shall be “subrogated” (substituted) to that right. The policyholder must cooperate fully with the insurer in these cases, and may not hinder any action taken for the insurer to recover these funds. Further, the person that has received funds from others, must hold in trust for the insurance company these funds, and reimburse them to the company.
This provision usually comes into play when a company compensates their own policyholder without determining liability and when the case is finally settled.
CONSUMER APPLICATION
Betty is driving her new Pontiac, when she collides at an intersection with Bruce’s Olds. It was not apparent as to who caused the accident, as they both receive traffic citations. There were no witnesses and there were no traffic signals involved (only a 4-way stop), so it was difficult to establish blame. Therefore, since both drivers had PAP coverages, the companies each covered the medical expenses of their own insureds.
Betty’s insurance company finds a witness who is willing to testify that Betty was at fault as she went through the 4-way stop without stopping. The witness said that Betty was apparently looking for something that had fallen on the floor when she went through the intersection. She also testified that Bruce had arrived at the stop sign first, stopped, and then proceeded.
Based upon the new information, Betty’s insurance company agreed to a settlement. Therefore, the expenses of Bruce that had been paid by his insurer, would be reimbursed by Betty’s company.
A. If we make a payment under this policy and the person to or for whom payment was made has a right to recover damages from another we shall be subrogated to that right. That person shall do:
1. Whatever is necessary to enable us to exercise our rights; and
2. Nothing after loss to prejudice them.
However, our rights in this paragraph (A.) do not apply under Part D, against any person. using your covered auto with a reasonable belief that that person is entitled to do so.
B. If we make a payment under this policy and the person to or for whom payment is made recovers damages from another, that person shall:
1. Hold in trust for us the proceeds of the recovery; and
2. Reimburse us to the extent of our payment.
Standard wording applies: “The policy period is shown in the Declarations page, and applies only to losses and accidents which occur within the United States of America, its territories or possessions, Puerto Rico, or Canada.” Coverage to include Mexico can be purchased and added as an Endorsement by most companies. However, a Mexican coverage Endorsement can be purchased, but liability insurance must be purchased through a Mexican insurer in order to comply with the Mexican laws. This endorsement only provides coverage for trips of ten days or less in Mexico. Coverage can be easily obtained at most border crossing points.
Coverage during transport applies only to the covered auto – not a non-owned vehicle – and only between points in the United States, its possessions and Canada. Interestingly, distance makes no difference, as an automobile shipped to London from New York will not be covered; however an automobile shipped to Honolulu from San Francisco would be covered.
A. This policy applies only to accidents and losses which occur
1. During the policy period as shown in the Declarations; and
2. Within the policy territory.
B. The policy territory is:
1. The United States of America, Its territories or possessions‑.
2. Puerto Rico; or
3. Canada.
This policy also applies to loss to, or accidents involving your covered auto while being transported between their ports.
The policy may be cancelled during the policy period by returning the policy to the insurance company, or giving advance notice of the date of cancellation. The insurer can cancel by mailing to the insured a notice at least 10 days if the cancellation is for nonpayment of premiums, or, if the notice is mailed during the first 60 days the policy is in effect. Otherwise, 20 days notice must be given.
NOTE: These periods of time are typical, but vary by state.
If the insured obtains other insurance on the covered auto, similar coverage under this policy will automatically terminate on the date that the coverage on the other auto became effective.
If the insured is entitled to a premium refund, the insurer will compute the premium refund according to its manuals and according to state laws or regulations.
Some states have a provision that the policy may not be cancelled by the insured during the first 2 months following the issue date, except if the insured auto was totally demolished, ownership was transferred to another person, or if another policy covering the insured auto was purchased. The insurer may cancel during the first 60 days of coverage if the check remitted was dishonored. After 60 days, the insurer may cancel for the normal reasons.
The reason for this variance is that states that require Financial Responsibility want to make sure that the policy that is in force when the vehicle is licensed, remain in force for at least 60 days.
If the insurer elected not to renew of continue the policy, notice of 20 days prior to the renewal date will suffice. If the insurer offers to renew or continue, and the insured does not accept, the policy will automatically terminate at the end of the current policy period. Failure to pay the premium means the insured has not accepted the offer. Some states require more than the 20 days notice. Mid-term cancellations by the insurer may be accomplished only by nonpayment of premium, licenses suspensions or revocations, or material misrepresentation.
Some policies also have a stipulation that after 60 days, the company will cancel only “…if your driver’s license or that of any driver who lives with you; or any driver who customarily uses ‘your covered auto;’ has been suspended or revoked. This must have occurred during the policy period; or since the last anniversary of the original effective date if the policy period is other than one year; or since the last anniversary of the original effective date if the policy period is other than one year or if the policy was obtained through material misrepresentation.” Material misrepresentation is interpreted as the insured withholding or lying about information on the application, which, if the company had been aware of this information, the company would have declined to accept the application.
CONSUMER APPLICATION
Bob is a new insurance agent for AIC and while working in the local office he received a telephone call from a lady in Virginia, who identified herself as Bernice W., a policyholder whose agent has since retired. She wanted to cancel the insurance on her automobile as she was moving to Virginia and would get a new policy and insurance agent in that state. She stated she had no idea as to where her policy was, but Bob looked it up on the computer and the information she gave appeared to be correct. Bob asked for a written notice, and when it arrived he notified the insurance company and filled out the necessary forms for return of unearned premium, which was such a small amount as to be insignificant.
Three weeks later, a claim is filed by Bernice W. for an accident that had just occurred. Her claim was denied as the policy had been cancelled. Bernice hired an attorney who informed the insurance company that Bernice had never cancelled her auto insurance, had not moved to Virginia, and had no intention of taking out new insurance with another company. Further, her former sister-in-law had a history of harassing Bernice on financial matters. Upon the insistence of the attorney, it became apparent to the insurance company that the signature on the letter was a forgery. (Continued on next page)
A very similar situation has happened, but most insurers will check a signature before they cancel a policy. This is another reason that the company requests that the policy be returned, but does not require it to be surrendered. In an event such as this, the policy is reinstated as though it had not been terminated.
A. Cancellation. This policy may be cancelled during the policy, period as follows:
1. The named insured shown in the Declarations may cancel by:
a. returning this policy to us; or
b. giving us advance written notice of the date cancellation is to take effect.
2. We may cancel by mailing to the named insured shown in the Declarations at the address shown in this policy:
a. at least 10 days notice:
(1) If cancellation is for nonpayment of premium; or
(2) if notice is mailed during the first 60 days this policy is in effect and this is not a renewal or continuation policy, or
b. at least 20 days notice In all other cases.
3. After this policy is in effect for 50 days, or if this is a renewal or continuation policy, we will cancel only:
a. for nonpayment of premium; or
b. if your driver's license or that of
(1) any driver who lives with you; or
(2) any driver who customarily uses “your covered auto;” has been suspended or revoked. This must have occurred:
(1) during the policy period; or
(2) since the last anniversary of the original effective date if the policy period is other than 1 year, or
c. if the policy was obtained through material misrepresentation.
B. Nonrenewal. If we decide not to renew or continue this policy, we will mail notice to the named insured shown in the Declarations at the address shown In this policy. Notice will be mailed at least 20 days before the end of the policy period. If the policy period is other than 1 year, we will have the right not to renew or continue it only at each anniversary of its original effective date..
C. Automatic Termination. If we offer to renew or continue and you or your representative do not accept, this policy will automatically terminate at the end of the current policy period. Failure to pay the required renewal, or continuation premium when due shall mean that you have not accepted our offer.
If you obtain other insurance on “your covered auto,” any similar insurance provided by this policy will terminate as to that auto on the effective date of the other insurance.
D. Other Termination Provisions.
1. If the law in effect in your state at the time this policy is issued, renewed or continued:
a. requires a longer notice period;
b. requires a special form of or procedure for
giving notice; or
c. modifies any of the stated termination reasons; ‑
we will comply with those requirements.
2. We may deliver any notice instead of mailing it. Proof of mailing of any notice shall be sufficient proof of notice.
3. If this policy is cancelled, you may be entitled to a premium refund. If so, we will send you the refund. The premium refund, if any, will be computed according to our manuals. However, making or offering to make the refund is not a condition of cancellation.
The effective date of cancellation stated in the notice shall become the end of the policy period.
Any rights and/or duties under the policy cannot be assigned without the written consent of the insurance company. However, if the insured should die, coverage will be provided for the surviving spouse (if living at the same address at time of death) and in effect, the surviving spouse will become the insured. If there is no surviving spouse, the legal representative shall become the insured. In any event, coverage will be provided only until the end of the policy period.
TRANSFER OF YOUR INTEREST IN THIS POLICY
A. Your rights and duties under this policy may not be assigned without our written consent. However, if a named insured shown in the Declarations dies, coverage will be provided for:
1. The surviving spouse if resident in the same household at the time of death. Coverage applies to the spouse as if a named insured shown in the Declarations; and
2. The legal representative of the deceased person as if a named insured shown in the Declarations. This applies only with respect to the representative's legal responsibility to maintain or use your covered auto.
3. Coverage will only be provided until the end of the policy period.
An interesting but common provision in automobile policies states that if the policyholder has another automobile insurance policy issued by the same insurer, and if they apply to the same accident, the maximum limit of liability under all policies shall not exceed the highest applicable limit of liability under any one policy.
If this policy and any other auto insurance policy issued to you by us apply to the same accident, the maximum limit of our liability under all the policies shall not exceed the highest applicable limit of liability under any one policy.
CONSUMER APPLICATION
For an in-depth study of the various provisions of a Personal Automobile Insurance Policy, the following CONSUMER APPLICATION illustrates many of the provisions of such a policy. Particular sections will be so noted by heading, e.g. situations wherein Liability provisions would be applicable, are labeled “Liability Coverage”, etc. In addition, certain instructive comments are made regarding the various PAP coverages – which may be repetitive but are presented in this fashion as instructional.
(Liability Coverage)
Cindy McKay is driving home from the supermarket. Her daughter Lauren is strapped into her child 'safety seat' next to her. Seat belts hold both Cindy and the safety seat in place. As Cindy turns the corner onto her street, Lauren spits the pacifier out of her mouth, it falls next to her on the child seat and she begins to cry. As Cindy tries to figure out why her daughter is making such a fuss, she doesn’t see her neighbor Marilyn backing out of her driveway. Cindy finds the pacifier and puts it back in Lauren's mouth to calm her down. Marilyn had not backed into the street yet, but was waiting at the end of her driveway for Cindy to pass. Unfortunately, while Cindy was tending to Lauren, her car swerved toward Marilyn's. By the time Cindy looked up she was dangerously close and tried to get back into her lane to avoid the accident. She couldn't. Because she jerked the steering wheel hard to the left, Cindy was able to avoid a direct hit on the passenger's side of Marilyn's car. However, her right front bumper did hit the right rear bumper of her neighbor's station wagon tearing it half off. Marilyn suffered a minor cut on the side of her head when she hit it on the driver’s door window. The collision and sharp turn of the wheel by Cindy caused her to lose control of the car, sending it across to the other side of the road where it hit her next door neighbor's mailbox and smashed through their fence coming to a stop on their lawn (luckily, that wasn't damaged!).
Neither Lauren nor Cindy was injured, their seat belts had worked perfectly. Plus, the car wasn't moving that fast as she came around the corner.
Once everyone had calmed down, the police, paramedics and a tow truck were called in .
Marilyn was taken to the emergency room for precautionary x‑rays of her head. Luckily they were negative. However, she did need a couple of stitches for the cut. Her car was able to be driven so her husband took it to the body shop for an estimate and repair. Cindy's car was more severely damaged and had to be towed to the shop. After all that, she finally got the chance to call her insurance company, Auto Mutual, to report the accident.
Cindy, and her husband, Mark, have liability limits of 100/300/50 on their personal auto policy. Therefore, it provides bodily injury liability protection of up to $100,000 per person and $300,000 per accident if either of them is found negligent (at fault) in an accident. And it will pay up to $50,000 for property damage per occurrence. In this case, Cindy was found to be clearly at fault. So, Auto Mutual will pay for the losses. The following details how the adjuster will handle each part of the loss.
The bodily injury liability coverage would be used to pay for the medical bills Marilyn incurs for her head injury. If complications attributable to the accident develop at some point in the future, for example, dizziness or double vision, and further treatment is required, the policy would pay for that also. If Marilyn had been more seriously injured and was hospitalized, her medical bills could have been much higher. If that were the case, Auto Mutual would have paid up to $100,000 for Marilyn's injuries, rehabilitation, pain and suffering, etc. Anything over that amount would have to be paid for by Cindy and Mark . If there were more people in Marilyn's car (whether they are family members or not) their medical bills would also have been paid for up to $100,000 each. The maximum amount of $300,000 per occurrence would come into play if more than three people were injured, and their medical bills reached the person limit of $100,000. If that happened, Auto Mutual would stop paying once the $300,000 had been reached.
The property damage liability is a little more complicated. Once again, Cindy's negligence comes into play. Since she was at fault, Auto Mutual will have to pay for the repairs to Marilyn's car. Instead of hitting Marilyn broadside, Cindy swerved and just tore off part of the rear bumper, but the entire bumper had to be replaced. As it ripped away from the car, the right rear quarter panel was pulled out so that had to be straightened out and repainted. The tailgate of Marilyn's station wagon was also damaged and had to be repaired. The bill came to $3600. However, the accident didn't stop there.
Remember that Cindy's car then crossed the road and smashed into her next door neighbor's mailbox and through their fence before it came to a stop on their front lawn. The mailbox was not too expensive to replace and only a relatively small section of the fence had to be replaced and painted. That totaled $150 which Auto Mutual also paid. If the neighbor's lawn had been severely damaged and needed resodding, that would have been paid for also.
So Cindy's little misadventure turned out to be very nerve wracking but not too expensive in the long run. In this case, if the McKays had liability only auto policy they would be all set. The damages are paid for and everyone is happy. But are Marilyn and the next door neighbors the only ones who suffered a loss?
(Physical Damage Coverages)
A definition of loss is a decrease in value or out of pocket expenses to repair the insured item. We already know that the victim's losses are paid for out of the bodily injury and property damage liability coverages of the auto policy. This is how Marilyn's injuries and the damage to her car and the neighbor's mailbox and fence were paid for. But what about Cindy's car?
When the McKay's car was new, they had to consider how they wanted to protect themselves against the risk of financial loss if the car was damaged or destroyed. Once again, the questions of avoiding, assuming or transferring that risk came into play. Because they purchased the car, avoiding the risk was out of the question. And even if they are wealthy enough to be able to afford to assume the risk, another factor may come into play ‑ an auto loan.
Anyone can finance an automobile purchase. When this is done, the option of assuming the risk for damage to that vehicle is eliminated. The financing institution will require that physical damage coverage be purchased to protect their interest in the vehicle. In fact, the borrower may be required to have a binder or declaration page showing coverage for the new car before they can drive it off the lot. If they don't provide their own insurance, the lending institution will notify them that they are providing the coverage and charge them the premium. That usually doesn't happen because most borrowers purchase physical damage coverages from their own liability carrier.
"Physical damage" is a term used to group two coverages ‑ collision and comprehensive ‑which provide protection for the insured against loss to their own vehicles. Each of the coverages insures against certain kinds of losses.
(Collision Coverage)
Collision coverage pays for the repair or replacement of the insured’s vehicle if it is damaged in a collision with another vehicle or any other object ‑ (e.g., a tree or a telephone pole). The insured's company will pay for the loss regardless of who was at fault. As a means of holding down the costs of providing this coverage and to discourage small claims, the company will require that the insured choose a deductible which will be subtracted from the amount of the loss before payment is made. If the other party is at fault, the insured's company will first pay to repair or replace the insured vehicle, then try to collect all of the money from the other driver or their insurance company, if they have one, including the deductible.
In respect to Cindy McKay's accident, it is easy to determine that she was at fault and that Auto Mutual would pay for Marilyn's medical treatment and for the damage to her car and the other neighbor's property. It was also noted that Cindy's car was damaged severely enough to require towing to the body shop. The car is only a couple of years old so she still has physical damage coverage for it. Auto Mutual will pay to have the car repaired minus the deductible on Cindy’s policy. Since Cindy was the negligent party, the company will not get the money back for the collision payment and Cindy will not get her deductible either. In fact, depending on the dollar amount of the damages, Cindy may be surcharged additional premium at her next renewal as a penalty for having the negligent loss.
Because, it was easily determined that Cindy was at fault in the accident, her property damage liability coverage paid for the repair of Marilyn's car. However, if there was a dispute as to who was at fault, Marilyn could have used her own collision coverage to pay for repairs to her car and then let the two insurance companies decide who was at fault.
(Comprehensive Coverage)
Comprehensive coverage is sometimes called "other than collision" because those are the kinds of losses for which it pays. It covers losses caused by theft, vandalism, fire, glass breakage, falling objects, explosion, flood and other acts of God. Once again, there may be a deductible involved which would be absorbed by the insured. For comprehensive coverage, though, the company may allow the insured to have no deductible, or "buy back the deductible." Buying back means the insured will pay a higher premium for the coverage. In fact, for both physical damage coverages, the insured can control their premium by changing their deductibles. Some companies may allow an insured to choose comprehensive coverage only, without selecting collision coverage.
There are also several minor, but important, optional coverages that may be available to an insured who chooses the physical damage package. They include towing and labor, substitute transportation, rental reimbursement, and CB radio coverage. There may be others depending on the company, but these are the basics.
In respect to the repairs to the McKay's car, if rental reimbursement was available to them and they chose the coverage, Auto Mutual would pay for a rental car while theirs is in the body shop. There would be a maximum number of days and money the company would pay for the rental. Using this information regarding the accident, none of the other physical damage coverages would be used.
(No‑Fault Or Medical Payments)
Up to this point, four coverages were used to make payments for Cindy McKay's accident ‑ bodily injury liability, property damage liability, collision and rental reimbursement. Comprehensive was not used because both vehicles were damaged as a result of the accident. What the other available coverages are should be determined at this point, and if they would have been used in this case.
Luckily, Cindy and her daughter were not injured in the accident. If they were, they could have used their no‑fault or medical payments coverage for the medical bills. In most states, the laws require auto insurance companies to offer one or the other of these coverages. A very few states give the insured the chance to choose both. No matter which is available, they generally work on the same idea. Each of the coverages is designed to have the insured's company pay for the bodily injuries of the people in their vehicle without immediate concern for who is at fault. This serves two purposes. First, it allows the injured people to get immediate medical attention without worrying about who will pay for the bills. We are all familiar with the movie scene where a critically injured person is wheeled into the emergency room and the nurse has to get all this medical coverage information before the doctor can see them. Second, these coverages are supposed to reduce the number of lawsuits by eliminating fault as a consideration for paying for the claim.
If Cindy McKay and/or her daughter had been injured in the accident, their immediate medical bills (ambulance, emergency room, etc.) would have been paid for by their no‑fault or medical payments coverage. We said earlier that Marilyn's medical bills were paid for from Cindy's bodily injury liability coverage. They could have been paid from Marilyn's own no‑fault or medical payments coverage.
Some states allow people to reject this coverage. There may be different limits to choose from. There could be deductibles involved. Payments could be made for lost wages and death. Lawsuits may be allowed once a certain dollar amount has been reached for the injuries. Naturally, all these choices affect the premium.
(Uninsured Motorists Coverage (UM))
Basically, Uninsured motorist coverage protects the insured if they are injured and their car is damaged (Uninsured Motorists Property Damage - UMPD) in an accident with an uninsured or hit‑and‑run driver. (NOTE: UMPD may not have to be offered in some states.) Some states allow the insured to reject UM (and/or UMPD if offered). Some allow the insured to choose the limits of coverage while others require that these limits match the liability limits chosen. Once again, the options chosen affect the premium.
In this CONSUMER APPLICATION, Marilyn could have used her Uninsured Motorist coverage to pay for her head injury if Cindy had no coverage or if the accident were caused‑by a hit‑and‑run driver. If Marilyn had Uninsured Motorist Property Damage coverage and the same situation existed, she could use the coverage to pay for the repairs to her car.
(Underinsured Motorist Coverage)
Underinsured motorist coverage is used only if the negligent driver is insured but their limits are not high enough to pay for the bodily injury or property damage of the victim. Many times, this coverage is optional. As an example, in this instance of Mrs. McKay's accident. suppose Cindy only had liability limits of 10/20/10 and the accident was a little more serious than previously indicated. In this instance, Marilyn's medical bills were $25,000 and her car was totaled and was worth $15,000. If her Underinsured Motorist coverage limits were 100/300/50, her company would pay the difference of $15,000 for her medical bills (25,000‑10,000) and $5,000 for her car (15,000‑10,000). However, as stated earlier, Cindy and her husband have liability limits of 100/300/50, so underinsured motorist coverage does not come into play when settling the claim,
STUDY QUESTIONS
1. Henry purchases a PAP from Agent Brady. Brady assures Henry that his policy will always pay the actual cash value, of prime importance to Henry, and sends Henry a letter so stating upon Henry’s insistence. If Brady has an accident that does not “total” his automobile,
A. the insurance company will pay the Actual Cash Value in all cases.
B. the insurance company will only pay to have the auto repaired, according to the terms of the policy, as there was no Endorsement stating otherwise attached to the policy.
C. if the insurance company does not pay the actual cash value, Henry can sue the insurance company.
D. he can go to court and the court will almost always rule in favor of the insured.
2. If Henry (above) elects to sue the insurance company prior to any judgement being rendered by a court,
A. he can take legal action before a judgement has been rendered.
B. he cannot take legal action against the insurer until the insurer and Henry verbally agree that Henry has an obligation to pay for the damage to the auto.
C. he cannot take legal action against the insurer until the insurer and Henry agree in writing that Henry has an obligation to pay for the damage to the auto.
D. the insurance company may cancel the policy and refund the premiums.
3. If an insurance company, under a PAP, makes a payment under the policy, and the person for whom the payments were made has a right to recover damages from another source, the insurance company shall be substituted to that right. This is called
A. Duplication of Coverage.
B. Subrogation.
C. Contractual Substitution.
D. Substitution Provision.
4. A PAP can be cancelled by the insured by
A. notifying the Department of Insurance.
B. calling the insurance company.
C. returning the policy to the insurance company.
D. throwing the policy away.
5. Percy has a PAP with Supreme Insurance on his new Toyota. He pays the first annual premium in full. Eight months after issue, his brother-in-law goes to work for Premier Insurance, and Percy purchases the same coverage for less money from Premier. Before he notifies Supreme, he has an accident. Which PAP would cover the damage to his new Toyota?
A. Supreme would cover the damage as they were the first insurer.
B. Premier would cover as Supreme’s policy automatically terminated when the new policy with Premier was purchased.
C. Both insurance companies would on a pro-rata basis.
D. Neither company would pay.
6. John lost his auto insurance policy but he knew it was up for renewal in a couple of months, and since he decided to raise his liability limits, he applied for a new policy with higher liability limits. He was issued a binder by the new agent with higher limits. If John was involved in an accident where he was liable, which liability limits would apply, if any?
A. The highest applicable limit of liability under any new policy.
B. The total of the applicable limits of liability under the policies.
C. None, as this is Duplication of Coverage and the policies both automatically are void.
D. The lowest applicable limit of liability under either policy.
7. Bernard and his wife take a trip from their home in Alaska, with the intention of going as far South as they want to find warmer weather. After a week of travel and sightseeing, they find themselves in San Diego. They want to continue travelling through Mexico and decide that Mexico City is their final destination before returning home. Under their PAP
A. they will have no coverage through Canada.
B. they will have coverage until they reach Mexico.
C. they will be covered for the entire trip.
D. they will have to get an Endorsement for travelling through the contiguous 48 states.
8. Mid-term cancellations of a PAP by the insurer may not be cancelled by
A. nonpayment of premium.
B. license suspensions or revocations.
C. material representations.
D. excessive claims.
9. An insurance company is not happy with the number and size of claims from an insured. What can they do to cancel the policy?
A. Give the insured a 20-day notice prior to renewal date.
B. They must keep the policy in force as long as the insured wishes.
C. They can notify the agent 30 days in advance, and he can then inform the insured.
D. Send a letter of cancellation at any time that they want.
10. Walter owns a PAP and passes away suddenly. His wife Mathilda, does not drive. His son Pierce also is covered under the policy, and his daughter, Cynthia is learning to drive. What will happen to the policy now?
A. Pierce will become the insured as long as he wishes.
B. Pierce and Cynthia will become co-insureds.
C. The policy will be automatically cancelled at time of death of the insured.
D. Mathilda automatically becomes the insured until the end of the policy period.
STUDY QUESTION ANSWERS
1A 2C 3B 4C 5C 6A 7B 8D 9A 10D