Chapter 4 – Part A – Liability Coverage and Part B – Medical Payments Coverage
“Always do your best. What you plant now, you will harvest later.”
O. G. Mandino
Introduction
Throughout this chapter we will begin our examination of the Personal Automobile Policy by reviewing the first two parts of the policy.
Part A - Liability Coverage
In terms of protection, Liability Coverage provides for the insured and is the most important coverage in the PAP. It provides protection against legal liability arising out of the ownership or operation of an automobile. Keep in mind that Part A only pays for damage the insured causes to others. It does not pay for the insured's own injuries or damage to the insured's car.
Insuring Agreement - In the insuring agreement, the company agrees to pay for Bodily Injury or Property Damage for which the insured is legally responsible because of an automobile accident. The liability limit is written as a single limit that applies to both Bodily Injury and Property Damage Liability. Example: a single limit of $300,000 could apply to both Bodily Injury and Property Dam-age Liability. The policy also can be written with Split Limits in which the amounts of insurance for Bodily Injury and Property Damage are stated separately. Example: Split Limits of $100,000/$300,000/$50,000 means that the
insured Has Bodily Injury Liability limits of $100,000 per person, $300,000 for each accident and a limit of $50,000 for Property Damage Liability. Example: when an insured is found legally liable for damage caused when his/her foot slipped off the brake and caused his/her car to crash into his neighbor's house, thus breaking the window.
The damages paid also include any prejudgment interest awarded against the insured. The laws of many states now allow plaintiffs (injured persons) to receive interest on a judgment from the time a suit is entered to be part of the award for damages and is subject to the policy Limit of Liability. Example: assume an insured is legally liable for a $30,000 judgment and $3,000 of prejudgment interest. If the policy has adequate limits, the liability payment is $33,000. Another Example: Sam has Personal Auto Liability Coverage in the amount of $100,000 per accident. After causing an accident in which three people were injured, lawsuits for the injury dragged on for an extended period of time. Ultimately, the court awarded the injured people a total of $80,000 for their injuries plus prejudgment interest of $30,000. Sam's policy will pay $100,000, not $110,000, which would be the total award.
In addition to the payment of damages for which an insured is legally liable, the insurer
also agrees to defend the insured and pay all legal defense costs. The defense costs are in addition to the policy limits. However, the insurer's duty to settle or defend the claim ends when the Limit of Liability has been exhausted. Thus, once the policy limits (including prejudgment interest) are paid, the insurer also has no obligation to defend any claim that is not covered under the policy. Example: if an insured intentionally causes Bodily Injury or Property Damage and is sued, the company has no obligation to defend the insured. The PAP specifically excludes intentionally caused Bodily Injury or Property Damage. Defending such a suit in court can be very expensive and the payment of defense costs is an important part of the Liability Insurance Coverage. In some cases, the cost of defense can be as much as, or more than, the amount ultimately awarded as damages. It is important to remember that the insurance company pays unlimited defense costs and that defense costs are paid in addition to the Limit of Liability. Most insured's would have to purchase much higher limits of insurance to be adequately protected. Example: if an insured has a $50,000 Limit of Liability and the insurance company defended a claim for which the insured's liability was questionable, but lost the case anyway and incurred $45,000 of expenses for defense costs, there would only be $5,000 of coverage available for damages. If the damage award were for $50,000, the insured would then have to pay $45,000 out of his/her own pocket!
Insured Persons
The following four groups are insured for Liability Coverage under the PAP:
Example: Wayne Drake is the named insured under a Personal Auto Policy. Wayne's 18-year-old son, Greg, lives with him. Greg borrows his friend’s car and becomes involved in an accident. Greg would be considered insured under his father's policy with respect to his liability for using his friend’s car.
As Greg is a family member, as defined in his father's policy, he is insured for Liability Coverage with respect to his use of any auto, including the one he borrowed from his friend. Keep in mind, that being an insured does not automatically mean that one will be covered in any particular situation, as we shall see when we look at policy exclusions. However, in order to have coverage, one must first be an insured.
The named insured and family members are insured for Liability Coverage. The named insured is covered if he or she is a resident of the same household. Family members are also covered, as noted. Family members are persons related to the named insured by blood, marriage or adoption and who reside in the same household, as well as, a ward or foster child. While children are temporarily away at college, they are still covered under their parent's policy.
Any person using the named insureds’ covered auto is also covered provided that person has a reasonable belief that permission exists to use the covered auto. Example: assume that Mark has allowed his roommate to drive his car several times during the past month. If Mark is not around and the roommate drives his car believing that Mark would have granted him permission, the roommate is covered under Mark’s policy.
Any person or organization legally responsible for the acts of a covered person while using a covered auto is also covered. Example: assume that Don's employer asks him to drive to the post office to buy some stamps. While driving his covered auto on company business, Don negligently injures another person. If Don's employer is sued because of his negligence, the employer is also covered under Don's PAP. Here we see vicarious liability at work. This means liability is applied to a person or organization who did not actually cause damage or injury, but who is responsible for actions of the person who did cause the damage or injury.
Finally, any person or organization legally responsible for the named insured's or family member's use of any automobile or trailer. Other than a covered auto or one owned by that person or organization is also covered. Using the previous Example: if Don borrows the car of a fellow employee to go to the post office and negligently injures another motorist, Don's employer is covered under Don's PAP if the firm is sued because of his negligence. However, the PAP does not extend coverage to the employer if Don were to use an automobile owned by the employer. Thus, if Don drives to the post office in a company car, the employer is not covered under Don's PAP.
Supplementary Payments
The following supplementary payments are paid in addition to the liability limits and legal defense costs:
Premiums on a bail bond can be paid up to $250 because of an accident that results in Bodily Injury or Property Damage, however, there must be an accident. Bail bond premiums are not paid for speeding tickets.
Example: Mr. Nickerson was in a separate car driving drunk when he had an accident. He struck another car injuring the driver and damaging his car. Mr. Nickerson's $100 for a bail bond would be covered under the Supplementary Payments.
Premiums on Appeal Bonds and Bonds to Release an Attachment of Property in a lawsuit defended by the insured are also paid as a Supplementary Payment. If interest accrues after a judgment, the accrued interest is also paid as an additional payment, however, prejudgment interest is part of the Liability Limits.
The insurer also pays up to $50 daily for an insured's loss of earning (but not other income) because of attendance at a hearing or trial at the insurer's request.
Finally, other reasonable expenses incurred at the insurer's request are also paid. Example: an insured may incur travel and transportation expenses for testifying at a trial at the insurer's request. These expenses are paid as a Supplementary Payment. Other examples will help illustrate the workings of this section.
Example: Kenny Lane has an accident in which he drives his car into the wall of someone's garage. The garage owner has the right to "attach" Ken's car (take it into custody) as a way of guaranteeing that Ken will pay for repairing the damage. If Ken's insurance company decides to defend the suit against Ken rather than settling with the garage owner, under the supplementary payments coverage it will pay the premium for a bond to release the attachment of Ken's car.
Example: A claim was made against George Dwyer for injuries he caused to Mr. Hendricks in an auto accident. Dwyer's insurance company decided to defend the suit. The court's finding, on May 1, was that Dwyer was liable and ordered a judgment of $100,000. Dwyer's Limit of Liability is $150,000. The insurance company did not pay the $100,000 until July 1 and was ordered by the court to pay interest to Hendricks amounting to $700 as of July 1. Hendricks did not deposit the check until August 1, then later requested interest of $150 from the insurance company for the period between July 1 and August 1. Even though Hendricks is demanding more interest, the insurance company is only responsible for $700. The insurance company had offered to pay (and had in fact paid) the portion of interest incurred after the judgment.
Example: Beth Davenport earns $40 per day as a Bookkeeper. She must take two days off to attend a trial at her insurance company's request. Beth will receive $80 for her attendance even though the policy does pay up to $50 per day for loss of earning.
Example: Mavis was requested by her insurance company to take off work and submit to a medical examination by Dr. Lerch, in the next state, to check her reflexes. Her loss of income, transportation expense and the charge for the exam totaled $200. The full $200 would be covered as this is an example of other reasonable expenses.
Liability Coverage Exclusions
A lengthy list of exclusions applies to the Liability Coverage under PAP. Exclusions simply identify types of losses that are not covered by the policy. While the insuring agreement defines the coverage in broad terms, by describing what is covered, the exclusions help to shape and narrow the scope of coverage by specifying losses that are not covered. Exclusions are generally included in insurance policies to accomplish these four purposes:
The major exclusions are summarized in the following paragraphs:
Intentional Injury - Bodily Injury or Property Damage intentionally caused is specifically excluded. Example: An angry teenager who lost his job deliberately and repeatedly rams the vehicle in front of him on a crowded expressway. The Intentional Property Damage to the other motorist's car would not be covered under the teenager's PAP.
Property Owned or Transported - Liability Coverage does not apply to Property Damage Owned or being Transported by that person. Example: if Aaron's suitcase and clothes are damaged in an automobile accident while he is on vacation, the loss is not covered under the PAP, however, a Homeowners Policy would cover the loss.
Property Rented, Used or in the Care of the Insured - Property Damage to property rented to, used by, or in the case of the insured is not covered under the PAP. Example: if Ted rents skis and they are damaged in an automobile accident, damage to the skis is not covered. The exclusion, however, does not apply to damage to a residence or private garage. Thus, if Ted rented a vacation house and carelessly backed his car into the side of the house, the property damage claim by the landlord would be covered.
Bodily Injury to an Employee of a Covered Person - The Liability Coverage also excludes bodily injury to an employee of a covered person who is injured during the course of employment. The intent is that compensation for the employee's injury should be provided under a Workers’ Compensation Law. One exception, however, is that a domestic employee in the course of employment is covered if Workers’ Compensation Benefits are not required or available.
Example: Herbie lives in a state Where Workers' Compensation is not required for domestic employees and Herbie does not have the coverage. He picks up the maid at the bus stop and she is injured in an accident on the way to his house. In this situation, Herbie would have Liability Coverage under His Personal Auto Policy.
Public or Livery Conveyance - Liability Insurance does not apply to a vehicle while it is being used as a public or livery conveyance to carry people or property for a fee. This exclusion is designed to both clarify the intent of the coverage and to exclude something that should be covered by other insurance. Example: if the city taxicab drivers are on strike and Herbie decides to capitalize on the situation by transporting people in his car for a fee, Herbie's Liability Coverage does not apply to this activity. This exclusion does not apply to share-the-expense car pools.
When people participate in a car-pool and only share the expenses for fuel, tolls and parking, the driver is not charging a fee for the service.
Example: Mr. Raoul damages another car in an accident on the way to work. At the time of the accident he is carrying two passengers who work where he does and who each pay one-third on the gas. Mr. Raoul's Personal Auto Liability Coverage would apply.
Example: Although Mr. Raoul usually charges for rides, he knows his next-door neighbor is having a difficult time financially, so he agrees to do him a favor and take him across town at no charge. On the way he has an accident and his neighbor is injured. Once again, Mr. Raoul's personal auto Liability Coverage would apply.
Garage Business Exclusion - Liability Insurance does not apply to any person while employed or engaged in the business of selling, repairing, servicing, storing, or parking vehicles designed for use mainly on public highways. This includes road testing and delivery. Example: if an automobile mechanic has an accident while road testing a customer's car, the mechanic's PAP Liability Coverage does not apply. Likewise, if a parking lot attendant accidentally injures someone while parking cars, the loss is not covered under the attendant's PAP. The intent is to exclude a loss exposure that should be covered under the employer's Liability Policy, such as a Garage Policy. The preceding exclusion does not apply to the operation, ownership, or use of a covered auto by the named insured, family member, any partner, agent or employee of the named insured or family member. Example: referring to the previous example, if an auto mechanic drove his covered auto to a parts shop to pickup a part for his employer and he injured someone on the way, the mechanic's PAP Liability Insurance would cover the loss.
Example: Mr. King owns a dealership that sells services and repairs Chrysler automobiles. Mr. King's own car, covered by a PAP, is a Chevy. A customer leaves his Chrysler at Mr. King's dealership for repair and Mr. King gives the customer a ride home in his Chevy. On the way, Mr. King accidentally dents the bumper of another car on the highway. Mr. King's PAP would cover these damages.
Example: If Mr. King's partner or wife had been driving Mr. King's Chevy, his PAP would cover both situations.
Other Business Use - Liability Coverage does not apply to any vehicle maintained or used in any business other than farming or ranching. This exclusion is similar to the preceding garage exclusion except that it applies to all other business use with certain exception. The intent is to exclude Liability Coverage for commercial vehicles and trucks used in a business. Example: if an insured drives a city bus or operates a large cement truck, the insured's PAP Liability Coverage does not apply. The above Exclusion does not apply to the maintenance or use of a private passenger auto, owned or non-owned, a pickup or van owned by the insured, or a trailer while it is being used with a covered vehicle. Example: if Bob drives his covered auto on company business the Liability Coverage is in force.
Example: Jim works for a small construction company. Assuming that Jim owns a pickup truck, which is insured under a Personal Auto Policy and Jim has an accident while driving his own pickup to deliver tools to a job, coverage would be provided for the damages. Also, if Jim has an accident while driving another employee's station wagon to a job site, then once again, damages would be covered by Jim's PAP.
Because this exclusion does not apply to private passenger autos or owned pickups and vans, Jim would have Liability Coverage in both situations. The exclusion does apply to commercial vehicles, such as dump trucks, pickups and vans not owned by Jim and coverage would not be provided.
Using a Vehicle Without Reasonable Belief or Permission - If a person uses a vehicle without a reasonable belief that he or she is entitled to do so, the Liability Insurance does not apply. Thus, a thief who steals an insured's car and injures someone is not covered under the PAP.
Example: Mike forgot to take his keys out of his car when parking at the bank. A passerby stole the car and hit a pedestrian. There would be no Liability Coverage for the driver causing the accident under Mike's policy.
If Mike lets his sister, Bertha, use his car to go to basketball practice and the supermarket and she collides with another car on the way home, these damages will be covered.
Nuclear Energy Liability Losses - Liability of insureds who are covered under special Nuclear Energy Liability contracts are also excluded under the PAP.
Motorized Vehicles with Fewer Than Four Wheels - Liability arising out of the ownership, maintenance or use of any motorized vehicle having fewer than four wheels is specifically excluded. Thus, motorcycles, mopeds, motor scooters and similar vehicles are excluded under the policy. However, adding a Miscellaneous Type Vehicle Endorsement to the PAP can insure these vehicles. This endorsement will be discussed in a later chapter.
Vehicles Furnished or Available for Regular Use - Any vehicle other than a covered auto that the named insured's regular use is also excluded. An insured can occasionally drive another person's automobile and still have coverage under his/her policy. However, if the non-owner automobile is driven regularly, or is furnished or made available for the insured's regular use, the insured's Liability Coverage does not apply. The key point is not how frequently one drives someone else's automobile but whether it is furnished or available for regular use. The intent of this exclusion is to limit the insurance company's exposure. Otherwise, the insured could insure on vehicle and pay premiums for only one vehicle even though several cars are also being driven on a regular basis. Thus, without this exclusion the exposure to the insurance company could be substantially increased.
Example: Bill has two cars, a Chevy and a Corvette. He has a Personal Auto Policy covering the Chevy but carries no insurance on the Corvette since he doesn't drive it very often. Bill has an accident while driving the Corvette causing damage to a neighbor's wall. There would be no coverage for damages since the corvette is owned but not a covered auto.
Example: Kim works for an advertising agency, and regularly uses a company town car, which is insured under a Business Auto Policy. Kim owns a Ferrari, which is insured under a Personal Auto Policy. In order to save wear and tear on her car, Kim takes the town car on a camping trip and has an accident. Kim's Personal Auto Policy would not provide Liability Coverage since the town car is furnished for her regular use and is not a covered auto.
Vehicle Furnished or Available for Regular Use of Any Family Member - A similar exclusion applies to a vehicle (other than the covered auto) that is owned by any family member or is furnished or made available for the regular use of any family member. However, the exclusion does not apply to the names insured and spouse while maintaining or occupying such a vehicle.
Therefore, if the father occasionally drives a car owned by another household member, such as the son, the Liability Insurance under the father's PAP would cover him while driving the son's car.
Example: Mr. Magoo has $100,000 of Liability Coverage on the Personal Auto Policy covering his Cadillac. His son, Marvin, has forgotten to buy insurance for his VW. Mr. Magoo is driving the VW when he has an accident and is held liable for $50,000 of injuries and damages. Mr. Magoo's Personal Auto Policy would cover these damages.
Limit of Liability
The PAP also states that regardless of the number of insureds involved in an accident, the Limit of Liability for the policy will not be increased. The most any claimant can recover for one accident is the limit stated in the declarations. Example: if Betsy were doing an errand for the Red Cross in her personal automobile and caused an accident, the claimants would sue both Betsy and the Red Cross, since she was acting on its behalf. Betsy's insurer would handle the claim and answer a lawsuit on behalf of both Betsy and the Red Cross; however, the insurer would not pay more than Betsy's Limit of Liability even though it is responding on behalf of two parties.
Example: Barbara is held liable for an accident that occurred November 1989, in which three cars were damaged and five people hurt. Property Damages amounted to $35,000 and awards for bodily injuries amounted to $100,000 ($20,000 for each of the five people). The total amount that Barbara's insurance company will pay for this accident would be $100,000.
Example: Barbara was found liable for another accident on December 1st of the same year in which injuries and damages totaled $30,000. Once again Barbara's policy would cover the $30,000.
Example: In a third accident, on December 22nd of the same year, Barbara is liable for an accident in which she injures two people. One person's claim is $50,000 and the other's claim is $100,000. The insurance would pay $100,000 for this accident. The insurance company would give each claimant that share of the Limit of Liability that the claim represents as part of the total of all claims submitted.
Keep in mind that the declarations for a Personal Auto Policy are set up to reflect a single Limit of Liability, however, a policy may also be written with what is called Split Limits of liability. (Usually an endorsement is used for this purpose).
This means that the policy has separate limits of Liability for Bodily Injury and for Property Damage. The bodily injury limit is usually further split into a limit per person and a higher limit per accident. A policy with Split Limits will display limits similar to those shown:
Bodily Injury Property Damage
$10,000 per person $5,000 per accident
$25,000 per accident
In a case in which the insured had the Split Limit, see reference, and in which the insured was liable for both injuries and damages in an accident, the most the insurance company would pay is $30,000.
Example: If a policy is written with Split Limits of $50,000 per person, $100,000 per accident for Bodily Injury and $25,000 for Property Damage, the most the insurance would pay for any one accident would be $25,000.
Out-of-state Coverage
The PAP also contains a provision that applies when an automobile accident occurs in a state other than the one in which the covered auto is principally garaged. If the accident occurs in a state that has a Financial Responsibility Law, or similar law that requires higher liability limits than the limits shown in the declarations, the PAP automatically provides the higher required limits.
In addition, if the state has a Compulsory Insurance Law or similar law that requires a non-resident to maintain insurance whenever the non-resident uses a vehicle in that state, the PAP provides the required minimum amounts and types of coverage. Thus, this provision ensures compliance with an out-of-state No-Fault Law and the payment of required benefits. A driver not insured for No-Fault Benefits in his/her state would have No-Fault Insurance in a state that requires it. (No- Fault Insurance will be discussed in a later chapter.)
Drivers often take their cars into a state other than the one in which they live. Because of Liability Laws varying from state to state, settling a claim can become complicated if an accident occurs when the driver is away from his/her home state. Remember that a covered auto is considered "out-of-state" when it is in any state or province other than the one in which the auto is principally garaged.
In providing required Out-of-State Coverage for an insured, it is possible that a Personal Auto Policy will make coverage for the same loss available under more than one part of the policy. Example: No-Fault Benefits paid to a passenger in an insured's car and pay some of the same losses for which Liability Coverage or Medical Payments Coverage would have applied. As we will see in the next section, duplicate payments for the same elements of loss will not be paid under the policy.
Other Insurance
The PAP also has a provision that applies when more than one automobile policy covers a liability claim. If there is other applicable Liability Insurance to an owned vehicle, the insurer pays only its pro rata share of the loss. The insurer's share is the proportion limits, however, if the Liability Insurance applies to a non-owned vehicle, the PAP Coverage is excess over any other collectible insurance. These rules are illustrated by the following two examples:
Example: Fred negligently injures another motorist and must pay damages of $60,000. If two Automobile Liability Policies cover an owned vehicle, each company pays its pro- rata share. Assume Fred is insured for $100,000 in Company A and also has coverage of $50,000 in Company B. Each company pays as follows:
Company A $100,000 x $60,000 = $40,000
$150,000
Company B $ 50,000 x $60,000 = $20,000
$150,000
Example 2: Ken borrows Scott's car with his permission. Ken has a $100,000 liability limit and Scott has a $50,000 limit. Ken negligently injures another motorist and must pay a judgment of $15,000. Scott's insurance is primary and Ken's is excess. Each company pays as follows:
Scott's Insurer (primary) $50,000
Ken's Insurer (excess) $25,000
Compliance with Financial Responsibility Law
Many states have Financial Responsibility Laws that require proof of financial responsibility after an accident occurs (covered in a later chapter). When the PAP Policy is used to demonstrate proof of Financial Responsibility, the PAP policy will comply with the law to the extent required. Thus, if the Financial Responsibility Law is changed, the PAP is adjusted to comply with the law. The purpose of these laws is to protect the public against the inability of vehicle owners or operators to pay future judgments that they may be responsible for. The simplest way to meet this requirement is to purchase Liability Insurance. If an insurance company certifies a policy as Proof of Financial Responsibility, the company guarantees that the policy will provide the insured with adequate coverage to meet the requirements of the Financial Responsibility Law in the insured's state.
Part B - Medical Payments Coverage
Medical Payments Coverage is an accident benefit that can be optionally added to the PAP. This benefit pays the medical expenses up to a certain specified limit of insureds that are injured in an automobile accident. Although these provisions are included in the policy form, the coverage applies only when a limit of insurance appears in the declarations and a premium is shown for each covered auto, Part B is divided into four sections; (Insuring Agreement, Exclusions, Limit of Liability, Other Insurance) with the names of the sections printed in bold capital letters.
Insuring Agreement - The insurer will pay all Reasonable and Necessary Medical and Funeral Expenses incurred by an insured because of bodily injury caused by an accident. The company will pay only those expenses incurred within three years from the date of the accident. The types of expenses paid include those incurred for medical, surgical, x-ray, dental and funeral services. Medical Payments Coverage typically ranges from $1,000 to $10,000 per person and applies to each insured person who is injured in an automobile accident.
Medical Payments Coverage applies without regard to fault. Thus, if an insured and other occupants of the car are injured in an automobile accident caused by the insured, medical payments benefits will be paid for the insured and the injured occupants of the insured's covered auto. Examples of this coverage would be:
1. John, who is injured, while riding in a car with his father.
2. Henry's girlfriend Helen, who is injured while getting into his car.
3. Phyllis, who is injured, when hit by a car as she is walking across the street.
4. Henry, who is injured, while riding in a friend's car to a ball game.
5. Oscar, who is injured, while getting out of his car.
Insured Persons - As our examples indicate, two groups of persons are considered insured persons for Medical Payments Coverage. They are (1) the named insured and family member, and (2) any other person while occupying a covered auto.
The named insured and family members are covered for their medical expenses if they are injured while occupying a motor vehicle, or are injured as pedestrians when struck by a motor vehicle designed for use mainly on public roads. As indicated above, “occupying” is broadly defined to mean, ‘in, upon, getting in, on, out, or off of a motor vehicle’. Examples of covered losses include payment of medical payments if the named insured is injured in an automobile accident, if a child's hand is injured when the insured's car door slams on it and if a guest of the insured breaks a leg while getting out of the insured's vehicle.
If the named insured or any family member is struck by a motor vehicle or trailer while walking as a pedestrian, his/her medical expenses are also paid. However, because the injury must be caused by a vehicle designed for use mainly on public roads, if an insured is struck by a farm tractor, Example: Medical Payments Coverage does not apply, since the tractor is not designed for use mainly on public roads.
Any other person while occupying a covered auto is also insured. Therefore, medical expenses of other passengers in the car are covered if the vehicle is a covered auto. Example: if Mary owns her car and is the named insured, all passengers in her car are covered for their medical expenses under her policy. However, if Mary is operating a non-owned vehicle, other persons in the car, other than family members, are not covered under Mary's Medical Payments Coverage. The purpose of this restriction is to have other persons in the non-owned vehicle, who are not family members, seek protection under their own contracts or under the Medical Expense Coverage that applies to the non-owned vehicle.
Medical Payments Exclusions
Numerous exclusions also apply to medical payments coverage.
Vehicles With Fewer Than Four Wheels Medical expenses for bodily injury sustained while occupying a motorized vehicle with fewer than four wheels are excluded.
Example: Charley is injured in an accident when he falls off his friends’ motorcycle. Medical Payments Coverage does not apply.
Example: Charley's Medical Payments Coverage does apply to injuries to himself and his passengers while he is driving them to school in a car pool in which the participants share the expenses. However, Charley's Medical Payments Coverage would not apply to injuries to himself and his passengers while driving the passengers two miles to the airport for a charge of $5.00 each.
Vehicles Used as a Residence or Premises If the injury occurs while the vehicle is used as a residence or premises, Medical Payments Coverage does not apply. Example: if an insured owns and occupies a house trailer and uses it as a residence, the Medical Payments Coverage of the PAP does not apply to injuries arising out of the use of this vehicle.
Example: Gloria keeps her van parked at a building site where she uses it as an office to manage the construction of a housing development. The project has been under way for six months and won't be completed for another year.
Example: Stewart goes to school 600 miles from his home and cannot afford an apartment, so he sleeps in his Chevy van during the nine months of the school year.
Injury during the Course of Employment - If the injury occurs during the course of employment and Workers’ Compensation Benefits are available, Medical Payments Coverage does not apply. Example: if an insured is injured while driving his/her car on company business and Workers’ Compensation Benefits are available, the medical payments of the PAP do not apply.
Example: Glen and an employee are on their way to a ball game together after work. Glen does carry workers compensation coverage for the employee. Medical Payment Coverage would apply.
Vehicle Furnished or Available for Regular Use - Medical Payments Coverage does not apply to an injury sustained by an insured while occupying or when struck by a vehicle, other than a covered auto, that is owned by the insured or is furnished or available for his/her regular use. The purpose is to exclude Medical Payments Coverage on an ‘owned or regular use’ of any family member; however, there is an important exception. The exclusion does not apply to the named insured and spouse. Example: assume that a son living at home owns a car that is separately insured. If the parents are injured while occupying the son's car, their medical expenses are covered only under their Personal Auto Policy.
Using a Vehicle Without Reasonable Belief of Permission - If a person sustains an injury while using a vehicle without a reasonable belief that he/she is entitled to do so, Medical Payments Coverage does not apply. Example: if a thief steals a car and is injured in an automobile accident, the Medical Payments Coverage under the auto owner's PAP does not apply.
Vehicle Used in the Business or Occupation of an Insured - Medical Payments Coverage does not apply to bodily injury sustained by a person while occupying a vehicle used in the business or occupation of an insured. The intent is to exclude Medical Payments Coverage for non-owned trucks and commercial vehicles used in the business or occupation of an insured. However, the exclusion does not apply to a private passenger automobile, an owned pickup, van, or a trailer while used with the preceding vehicles. Example: Jarrett is injured while riding in a dump truck owned by his construction company.
Bodily Injury from Nuclear Weapons or War - Injury from the discharge of a nuclear weapon (even if accidental) or from war, insurrection, rebellion, or revolution is also excluded. Example: A passenger in a car is injured by radiation leaking from a container in the car. Injuries would not be covered.
Limit of Liability
The Limit of Liability for Medical Payments Coverage is stated in the declaration. This limit is the maximum amount that will be paid to each injured person in a single accident regardless of the number of injured persons, claims made, vehicles or premiums shown, or vehicles involved in the auto accident. The purpose is to prevent an insured person from "stacking" medical payments under a policy that covers more than one car.
In addition, the amount paid for medical expenses is reduced by any amounts paid for the same medical expense under Part A - Liability Coverage or Part C - Uninsured Motorists Coverage. The purpose of this provision is to avoid a double payment for the same medical expenses. Example: assume Janice has $5,000 of Medical Payments Coverage and an uninsured motorist injures her. Janice's medical bills are $1,000. Without this provision, Janice could collect $10,000: $5,000 under Medical Payments Coverage and $5,000 under the Uninsured Motorists Coverage. However, if the amount paid under the Uninsured Motorists Coverage is $5,000, nothing is paid to Janice under the Medical Payments Coverage. Finally, no payment is made from medical expenses unless the injured person agrees in writing that any such payment shall be applied toward any settlement or judgment that the person receives under the Liability or Uninsured Motorists Coverage.
Other Insurance
If other automobile Medical Payments Insurance applies to a covered auto, the company pays its pro-rata share based on the proportion that its Limit of Liability adheres to the total of applicable limits.
With respect to a non-owned Vehicle, Medical Payments Coverage is excess over any other collectible automobile insurance that provides payment for medical or funeral expenses. Example: assume that Mary is driving her own car and picks up Pat for lunch. Mary loses control of the car and hits a tree. Mary has $2,000 of Medical Payments Coverage under her PAP and Pat has $5,000. If Pat's medical expenses are $3,000, Mary's insurer pays $2,000 as primary insurance and Pat's insurer pays the remaining $1,000 as excess insurance.
Summary
Part A - Liability Insurance
If the PAP pays damages for Bodily Injury or Property Damage for which the insured is legally responsible because of an auto accident, the policy has a combined single limit. Therefore, the policy's Limit of Liability is available to pay for any combination of bodily injury for which the insured is legally liable. The insurer agrees to defend the insured and pay all legal defense costs, in addition to the policy limits, until the limits are exhausted by settlement or payment of a judgment.
Four groups of persons are insured under the PAP Liability Coverage: the named insured and family members, person using the named insured's covered auto with permission, a person or organization held responsible for liability arising out of insured's use of a covered auto on behalf of that person or organization, and a person or organization legally responsible for the named insured and family member's use of any auto or trailer other than a covered auto or one owned by that person or organization.
Excluded from Liability Coverage are intentional injury, damage to the insured's own property, non-owned property in the care of the insured, bodily injury to an employee of the insured, Bodily Injury or Property Damage when the vehicle is being used as a public or livery conveyance, and claims arising out of the use of the auto by someone in the garage business. Other business uses of the auto are also excluded, with certain exceptions. A person using the auto without reasonable belief that he/she is entitled to do so is not protected under the PAP Liability Coverage. Other exclusions relate to Nuclear Energy Liability Losses, motorized vehicles with fewer than four wheels, vehicles made available for the insured's regular use, and vehicles owned by, furnished or available for the regular use of any family member.
Part B - Medical Payments Coverage
Pays medical expenses up to specified limits of insured persons who are injured in an auto accident. The medical expenses must be incurred within three years of the date of the accident. The insureds under this part of the policy are the named insured and family members, as well as any other person while occupying a covered auto. A number of the exclusions mentioned above also apply to the Medical Payments Coverage.
Chapter 4 - Review Questions
1. The most important coverage in the PAP for the protection it provides the insured is:
A. Medical Payment Coverage
B. Liability Coverage
C. No-Fault Coverage
D. All of the above
2. Part A coverage only pays for damage the insured:
A. causes to others
B. suffers due to accident
C. both A and B
D. neither A or B
3. Supplementary payments are paid ______________ the liability limits.
A. as part of
B. included in defense costs
C. not part of coverage A
D. in addition to
4. These are used to shape the coverage of the insuring agreement and narrow the scope of coverage:
A. modifications
B. exclusions
C. medical payments
D. endorsements
5. Part B coverage is divided into:
A. Insuring Agreement
B. Exclusions
C. Limit of Liability
D. All of the above
Answers
1. B
2. A
3. D
4. B
5. D