Chapter 5 – Part C – Uninsured Motorists Coverage and
Part D – Coverage for Damage to Your Auto
"Man's mind, stretched to a new idea, never goes back to its original dimensions." Oliver Wendall Holmes |
Introduction
In this chapter, we will be discussing the next two important parts of the PAP. Part C - Uninsured Motorists Coverage and Part D - Coverage for Damage to Your Auto. As in the past two parts already discussed, we will break Part C down into five sections: the Insuring Agreement, Exclusions, Limits of Liability and Other Insurance. Part C also includes An Arbitration Process. In Part D, there area nine sections to be discussed: the Insuring Agreement, Other-Than-Collision Loss, Auto, Transportation Expenses, Exclusions, Limit of Liability, Payment of Loss, Other Sources of Recovery and, finally, the Appraisal Process.
Part C - Uninsured Motorists Coverage
The Uninsured Motorists Coverage is designated to meet the problem of Bodily Injury caused by an uninsured motorist. The Uninsured Motorist Coverage pays for Bodily Injury of a covered person who is injured by an uninsured motorist, a hit-and-run driver or by a driver whose insurer is insolvent.
Insuring Agreement
The insurer agrees to pay compensatory damages that the insured person is legally entitled to recover from the owner or operator of an uninsured motor vehicle
because of Bodily Injury caused by an accident. Example: if an uninsured driver
fails to stop at a red light and injures an insured, the Uninsured Motorist Coverage would pay for the insured's bodily injury up to the limits of the policy.
Many states also include Property Damage as part of the Uninsured Motorists Coverage. In such states, the Property Damage is subject to a deductible, such as $200 or $300.
The coverage for Bodily Injury and Property Damage applies only if the uninsured motorist is legally responsible for the accident.
Although a covered person is not required to sue the uninsured driver, legal liability must be established. The insurer will not pay for the bodily injury if the uninsured driver is not legally responsible for the injury. The key points to remember are that this coverage is only for Bodily Injury and only applies to Compensatory Damages amounts awarded as actual damages for the injury.
Example: while driving his car, Carl is hit by another driver and is injured. The other driver is liable for the accident but has no Liability Insurance. Carl's Uninsured Motorists Coverage would pay for the damages.
Insureds - The groups that are considered insureds under the Uninsured Motorist Coverage: (1) the named insured and family members, (2) any other person occupying a covered auto, and (3) any person legally entitled to recover damages. The named insured and family members are covered if injured by an uninsured motorist while occupying a covered auto or non-owner auto. They are also covered as pedestrians if they are injured by a hit-and-run motorist.
Any other person who is injured while occupying a covered auto is also covered. The coverage applies only if the individual is occupying a covered auto. Thus, passengers in an insured's car have protection against injuries caused by an uninsured. However, other persons in an auto operated by the named insured or family member generally are not covered, since they are insured under their own Uninsured Motorists Coverage or have protection under the coverage on the non-owned auto.
Finally, any person legally entitled to recover damages is insured. An individual may not be physically involved in the accident but may be entitled to recover damages from the person or organization legally responsible for the bodily injury to the insured person. If an uninsured motorist killed an insured, a surviving spouse could still collect damages under the Uninsured Motorist Coverage.
Example: All of the following would be covered under Chip's Uninsured Motorists Coverage:
1. Chip's wife is injured by a car while she was walking across the street with Chip.
2. Chip's neighbor, who is injured while riding to the store in Chip's car.
3. Chip's wife, who is injured while riding in the neighbor's uninsured car.
4. Chip's wife, who is injured while riding in Chip's car.
Uninsured Vehicles
The Uninsured Motorists Coverage clearly specifies the types of vehicles that are considered uninsured vehicles. An uninsured vehicle is a land motor vehicle or trailer of any type that meets one of the following criteria:
1. No Bodily Injury Liability Insurance Policy or Bond applies at the time of the accident.
2. A Bodily Injury Liability Policy or Bond is in force but the limit for Bodily Injury Liability is less than the minimum amount required by the Financial Responsibility Law in the state where the named insured's covered auto be principally garaged.
3. The vehicle is a hit-and run vehicle whose operator or owner cannot be identified and hits (a) the named injured or any family member, (b) a vehicle that the named or family member is occupying or, (c) the named insured's covered.
4. A Bodily Injury Liability or bond applies at the time of the accident but the insurance or bonding company (a) denies coverage or, (b) becomes insolvent. Example: if Chip has a valid claim against a negligent motorist whose liability insurer becomes insolvent before the claim is paid, Chip can still collect under the Uninsured Motorist Coverage of his PAP.
Certain vehicles, however, are not considered to be uninsured motor vehicles. If an insured were injured by one of these vehicles, Uninsured Motorists Coverage would not apply. The definition of uninsured motor vehicle does not include the following types of vehicles or equipment:
1. owned by, furnished or available for the regular use of the named insured or any family member.
2. owned or operated by a self-insurer under any applicable Motor Vehicle Law, except a self insurer that is or becomes insolvent.
3. owned by a governmental unit or agency.
4. operated on rails or crawler treads.
5. designed mainly for use off public roads while not on a public road.
6. Located for use as a residence or premises.
Example: Chip takes his car into a neighboring state where the required financial responsibility limit is $15,000 (the required limit in Chip's state is $25,000). Chip is injured when Tom, a resident of the state Chip is visiting, negligently drives his car through a red light and drives right into Chip. Although Tom has purchased Liability Coverage with limits required in his state, Chip's Personal Auto Policy will consider Tom's car an uninsured motor vehicle.
Example: To collect under Chip's coverage, Chip's neighbor must be occupying Chip's covered auto when injured.
Keep in mind, the importance of the term "self-insured". Individuals or corporations that decide to "act as their own insurance company", rather than purchase an insurance policy to satisfy state Financial Responsibility Laws, must comply with some rather strict rules about setting aside specified amounts of money to be available in case of an accident. Self-insurance generally is done by large organizations because the practice of self-insurance is so carefully regulated. The insurance industry recognizes a self-insured as being covered by insurance just as if a policy had been purchased from an insurance company.
Uninsured Motorists Exclusions
The Uninsured Motorist Coverage also has several general exclusions. The following is a capsule summary of these exclusions:
1. No Uninsured Motorist Coverage on vehicle. There is no coverage for bodily injury sustained by any person who occupies or is struck by a motor vehicle or trailer owned by the named insured or family member if that vehicle does not have Uninsured Motorists Coverage under the policy.
2. Settling the claim without insurer's consent. The Uninsured Motorists Coverage does not apply if a Bodily Injury Claim is settled without the insurer's consent. The purpose of this exclusion is to protect the interest in the claim.
3. Public or Livery Conveyance. If a person is injured while occupying a covered auto when it is being used as a Public or Livery Conveyance to carry persons or property for a fee, the Uninsured Motorists Coverage does not apply. The exclusion, however, does not apply to a share-the-expense car pool.
4. Using a vehicle without belief of permission. The coverage does not apply to any person who uses a vehicle without a reasonable belief that the person is entitled to do so.
5. Cannot benefit Workers’ Compensation Insurer. The Uninsured Motorists Coverage cannot directly or indirectly benefit any insurer or self-insurer under a Workers’ Compensation Law or Disability Benefits Law. In some states, if an employee is injured and Workers’ Compensation Benefits are paid, the Workers’ Compensation Insurer has a legal right of subrogation against a third party to re cover the amounts paid. Thus, the Workers’ Compensation Insurer could sue the uninsured driver or attempt to make a claim as a derivative insured under the injured Employee's Uninsured Motorists Coverage. This exclusion prevents the Workers’ Compensation Insurer from benefiting through the Uninsured Motorists Coverage.
6. Punitive damage not paid. The PAP excludes payment for Punitive or Exemplary Damages under the Uninsured Motorists Coverage, thus, only compensatory damages are paid under this coverage.
The following examples will conclude this section:
Example: Sandy steals George's Buick from a parking lot and is injured when she is struck by a hit-and-run driver. She will not be able to collect under George's policy.
Example: George owns three cars: a Buick and a Lexus insured under a Personal Auto Policy and a Ford, which is not insured. George is driving the Ford when he runs into their Lexus being driven by George's wife, injuring her. There would be no Uninsured Motorist Coverage in this situation.
Final Example: George is injured by an uninsured motorist and accepts a check for $500 directly from the motorist. He doesn't feel this is adequate since medical bills total $800, so he tries to collect under his Uninsured Motorist Coverage. George would not be able to collect.
Limit of Liability
The minimum amount of Uninsured Motorists Coverage available under PAP is equal to the amount required by the Financial Responsibility or Compulsory Insurance Law of the state in which the named insured's covered auto is principally garaged. This amount is usually $25,000 per person but higher amounts can be purchased by payment of an additional premium.
The Limit of Liability for Uninsured Motorists Coverage is shown in the declarations and is the maximum amount that will be paid for all damages resulting from any one accident. That amount is the most that will be paid regardless of the number of insured motorists payments under a policy that covers more than one car owned by the insured. Example: assume the insured owns three cars that are all covered by a PAP with an uninsured motorist limit of $25,000. If the insured is injured by an uninsured motorist, the most the insured can recover is $25,000 not $75,000.
The amount paid under the Uninsured Motorists Coverage may be reduced in certain situations. Amounts payable is reduced by all sums paid: (1) by the person or organization legally responsible for the accident, or (2) under a Workers’ Compensation or Disability Benefits Law. In addition, any payment made under the Uninsured Motorists Coverage reduces the amount recoverable for the same damages under the Liability Coverage of the PAP. Example: Glenda and her friend Mel are going to the movies. Glenda is driving when they are hit by a driver who speeds away and is never identified. They are entitled to damage for their injuries in the amounts of:
$2,000 for Glenda
$6,000 for Mel
If Glenda's policy limit is $10,000, then all of the damages are paid by Glenda's policy. However, if the damages for the injuries were:
$ 5,000 for Glenda
$10,000 for Mel
Mel could collect under Glenda's policy under the Medical Payments Section (since the limit of liability would be exhausted at $10,000 in the Uninsured Motorists Coverage section).
Other Insurance
If other insured motorists insurance applies to the loss, the PAP pays only its pro-rata share of the loss, which is the proportion that its Limit of Liability bears to the total of all applicable limits with respect to a non-owned vehicle. However, the Uninsured Motorist Coverage is excess over any other Collectible Insurance. Example: assume that Larry has $25,000 of Uninsured Motorist Coverage under his PAP. He is injured by an uninsured motorist while riding in Louis' car. Louis also has $25,000 of Uninsured Motorist Coverage. If Louis has $35,000 of bodily injuries, Larry's insurer pays the first $25,000 as primary insurer and Louis' insurer pays the remaining $10,000 as Excess Insurance.
Example: Don is injured while riding in a friend's car when they are struck by a hit-and-run driver. Don's friend has an Uninsured Motorist Coverage limit of $25,000 and Don has his own policy with an uninsured motorist limit of $25,000. Don's policy would not have to pay anything on a $1,500 claim but his friend's policy would pay the $1,500 if an uninsured driver caused this claim.
Arbitration
If the insurer and insured cannot agree as to whether the insured is entitled to recover damages, or on the amount, the dispute can be settled by Arbitration. Under this provision, either party can make a written demand for Arbitration. Each part selects an arbitrator and the two arbitrators select a third arbitrator. Within 30 days, either party can request that the selection be made by a judge of a court having jurisdiction. Each party pays the expenses it incurs and both parties share the expenses of the third arbitrator.
A decision agreed to by two of the three arbitration’s is binding as to: (a) whether the insured is legally entitled to recover damages, and (b) the amount of damages. However, this decision is binding only if the amount of damages does not exceed the minimum limit for bodily injury specified by the state's Financial Responsibility Law. If the amount of damages exceeds that limit, either party can demand the right to a trial within 60 days of the arbitrator's decision. If this demand is not made within the time limit, the amount of damages agreed to by the arbitrators is binding on all parties.
Keep in mind, that arbitration means negotiation by impartial persons when an insured and the insurance company cannot agree on settling a claim. Disagreement might involve whether the insured is entitled to collect anything or the amount of recovery.
Points to remember under the arbitration process:
1. Both the insured and the insurance company can ask for arbitration.
2. When arbitration is decided upon as a course of action, three arbitrators will be selected.
3. The first two arbitrators are selected by the insured and the insurance company. The third one is selected by the first two arbitrators.
Summary
Part C - Uninsured Motorists Coverage pays for bodily injury to an insured that is injured by an uninsured motorist, a hit-and-run driver or a driver whose insurer becomes insolvent. Many states also include Property Damage as part of the Uninsured Motorists Coverage. The minimum amount of Uninsured Motorists Coverage is equal to the amount of the state's Financial Responsibility or Compulsory Insurance Law. The named insured, family member, and any other person occupying a covered auto are insured under the uninsured motorist’s coverage. Vehicles considered to be uninsured and not uninsured are described in the policy.
Part D - Coverage for Damage to Your Auto
Part D of the Personal Auto Policy provides Physical Damage Insurance for the damage or theft of a covered auto. Coverage also applies to Non-Owned Auto, including temporary substitute vehicles. Part D is commonly referred to as Physical Damage Coverage and is broken into seven parts: Insurance Agreement, Transportation Expenses, Exclusions, Limit of Liability, Payment of Loss, Other Sources of Recovery and Appraisal.
Insuring Agreement
In the Insuring Agreement, the insurer agrees to pay for any direct and accidental loss to a covered auto or to any non-owned auto, including its equipment, minus any applicable deductible shown on the declarations page. Two coverage options are available: a covered auto can be insured for (1) Collision Loss and (2) loss caused by Other-Than-Collision. Collision Losses are covered only if the declarations page indicate that Collision Coverage is in effect. Likewise, coverage for Other-Than-Collision Losses is effective only if the declarations page indicates that Other-Than-Collision Coverage is provided for that auto. If the insured elects to purchase both coverages, the premium for each coverage is shown separately on the declarations page.
Collision Loss - Collision is defined as the upset of a covered auto or a Non-Owned Auto or the impact with another vehicle or object. The following are Examples of Collision Losses:
Collision losses are paid regardless of fault. Example: if Paul is responsible for an accident, his insurer will pay for any physical damage to his car, minus any deductible that applies. If another driver causes damage to Frank's car, Frank can collect either from the other driver (or the driver's insurer) or from his own insurer. If Frank collected from his own insurer, the insurer has the right to recover payment from the driver who caused the accident. A few examples will help clarify the above.
Example: Rob's foot slips off the brake while he is parking and he rolls into a light pole which causes a dent in his front bumper. It will cost $400 to repair the damage. This is an example of a direct and accidental loss to a covered auto.
Example: Rob tries to avoid an oncoming car that is in the wrong lane and turns his car over in a ditch causing $2,500 of damage. Another example of a direct and accidental loss.
Other-Than-Collision Loss - the PAP makes a distinction between a Collision Loss and any Other-than-Collision loss. This distinction is important because many motorists wish to purchase only the less expensive coverage for Other-than-Collision Losses and do not desire Collision Insurance for the car. In addition, coverage for loss caused by Other-than-Collision is frequently purchased with no deductible, or the deductible may be lower than the deductible that applies to a Collision Loss. Certain losses are considered to be caused by Other-Than-Collision. Under Part D, loss caused by any of the following is considered
Other-Than-Collision:
Such losses are self-explanatory but two important points should be emphasized: first, colliding with a bird or animal is not a Collision Loss. Thus, if Freda hits a bird, deer, or cow with her car, any physical damage to her car is considered to be as Other-Than-Collision Loss. Second, if glass breakage is caused by a collision, the insured can elect to have it considered as a Collision Loss. This distinction is important because otherwise the insured would have to satisfy two deductibles if the car suffers glass breakage and other physical damage in the same collision (assuming both coverages are taken). By electing to treat the glass breakage as part of the Collision Loss, only one deductible has to be satisfied.
Non-Owned Auto - As noted, the Part D coverages also apply to a Non-Owned Auto. A Non-Owned Auto is any private passenger auto, pickup, van or trailer that is not owned by, furnished or made available for the regular use of the named insured or any family member while such a vehicle is in the custody of, or being operated by, the named insured or any family member. Therefore, if Louise borrows a car that belongs to her friend, the Physical Damage Coverage that applies to Louise's covered auto also applies to the borrowed vehicle.
The Physical Damage Coverage applies only if the Non-Owned Auto is not furnished or made available for the regular use of the named insured or any family member. An insured can drive a borrowed automobile occasionally and physical damage insurance will cover the borrowed vehicle. However, if the vehicle is driven on a regular basis, or is furnished or made available for regular use, the insured's coverage does not apply. Example: if an employer furnishes an insured with a company car, or the car is made available for regular use in a car-pool, the Part D coverage of the insured's PAP does not apply. The key point is not how frequently the insured drives a Non-Owned Auto but whether the Non-Owned Auto is furnished or made available for the insured's regular use.
The definition of a Non-Owned Auto also includes any auto or trailer that is being used as a temporary substitute for a covered auto that is out of normal use because of its breakdown, repair, servicing, loss or destruction. Example: if Jim's car is in the shop for repairs and he is furnished a loaner car, his Physical Damage Insurance also applies to the loaner car.
If there is a loss to a Non-Owned Auto, the PAP provides the broadest coverage applicable to any covered auto shown in the declarations. Example: assume that Omar owns two cars that are insured by his PAP, one car has coverage only for Other-Than-Collision Losses. If Omar borrows his neighbor's car, the borrowed car is covered for both collision and Other-Than-Collision losses.
Deductible - A flat deductible of $100, $200, $250 or some higher amount typically applies to each covered Collision Loss. In addition, a deductible usually applies to Other-Than-Collision Losses. The deductible for Other-Than-Collision Losses, however, is generally lower in amount than the collision deductible.
A deductible is used for Part D in order to reduce small claims, hold down premiums and encourage the insured to be more careful in protecting his/her car from damage or theft by requiring the insured to share all losses.
All of the following would be Examples of a Non-owned Auto being covered for Physical Damage Coverage under Ed's Personal Auto Policy:
1. Ed borrows his neighbor's car to run an errand because Ed's wife has taken his car to work.
2. Ed's daughter, Missy, who lives with them, borrows her friend's van to go to the movies.
3. While on a business trip in another city, Ed drives a rented car so that he won't have to take a taxi to his meeting.
Transportation Expenses
Part D also provides a Supplementary Payment that applies in the event of the total theft of a covered auto or a Non-Owned Auto. The coverage applies only if it is indicated in the declarations that Other-Than-Collision Coverage is in effect. If a covered auto is stolen, the insurance company will pay up to $15 per day to a maximum of $450 for transportation expenses the insured may incur. If a non-Owned Auto is stolen, the insurer will pay loss of use expenses for which the insured becomes legally responsible, subject to the $15 per day and $450 maximum limit. Coverage applies only to the transportation or loss of use expenses incurred during the period beginning 48 hours after the theft and ending when the auto is returned to use or payment is made for its loss. Such expenses may be incurred to rent a car or to pay train, bus or taxi fares. No deductible is applied to payments made for transportation or loss of use expenses. Example: assume that Henry's car is stolen and is returned to him by the police seven days later. If Henry rented a car for those seven days at a cost of $30 per day, his insurer would pay him $15 per day for five days or a total of $75 (no payment is made for the 48 hours immediately following the theft).
Keep in mind that transportation expenses are subject to a number of limitations and that the coverage is conditional. To sum up such limitations, we have chosen three key points:
1. transportation expenses are covered only in the event of total theft of a covered or Non-Owned Auto for Physical Damage Loss.
2. transportation Expense Coverage applies only if the declarations indicate Other- Than-Collision Coverage, is provided.
3. Transportation Expense Coverage is sub-ject to a time limitation. Benefits are paid only for expenses, which are incurred beginning 48 hours after the theft and ends as soon as a covered auto is rented to use or the insurance company pays for its loss.
Exclusions
Twelve exclusions apply to the Part D coverages. These exclusions are summarized in the following paragraphs.
Public or Livery Conveyance - The physical Damage Insurance does not apply if the vehicle is used as a Public or Livery Conveyance to carry persons or property for a fee. The exclusion does not apply to a share-the-expense car pool. Example: if Karl uses his covered auto as a taxi on the weekends, any physical damage loss to the auto while it is being used as a taxi is not covered under Part D of Karl's PAP.
Wear and Tear, Freezing, and Mechanical and Electrical Breakdown - Loss due and confined to wear and tear, freezing, mechanical or electrical breakdown or failure, or road damage to tires is excluded. The intent is to exclude regular maintenance expenses, however, the exclusion does not apply if the damage results from the total theft of a covered auto or Non-Owned Auto. Example: if the wiring harness in Bill's covered auto fused due to a short circuit, the cost of replacing the wiring harness would not be covered. However, if the wiring harness fused because a thief had damaged it while hot-wiring and stealing the car, the cost of replacing the wiring harness would be covered.
Radioactive Contamination or War - Loss due to radioactive contamination, discharge of a nuclear damage, insurrection, rebellion or revolution is excluded. Example: if a covered auto is damaged from radioactive contamination because of a nuclear melt down at a public utility plant, the damage is excluded.
Electronic Equipment - The PAP excludes a wide variety of automobile electronic equipment and their accessories. Loss of electronic equipment designed for the reproduction of sound is excluded. Such equipment includes, but is not limited to, radios, stereos, tape decks and compact disc players. The exclusion does not apply if the equipment and accessories are permanently installed in a covered auto or Non-Owned Auto. Example: if a permanently installed tape deck were stolen from a covered auto, the theft of the tape deck would be covered. The policy also excludes loss to any other electronic equipment that receives or transmits audio, visual, or data signals. Such equipment includes: citizens band radios, telephones, two-way mobile radios, scanning monitor receivers, television monitor receivers, video cassette recorders, audio cassette recorders and personal computers. An endorsement can be added to cover loss to such equipment for an additional premium.
Finally, loss to tapes, records, discs, other media or accessories used with previously described electronic equipment is also excluded. Example: the theft of stereo tapes from an insured's car is not covered even if the car is locked, however, coverage can be obtained by an endorsement to the policy.
There are two major exceptions to the previous exclusions. First, as stated, equipment and accessories designed for the reproduction of sound are covered if the equipment is permanently installed in the auto. Second, electronic equipment that is necessary for the normal operation of the auto or the monitoring of the auto's system would also is covered.
Government Destruction or Confiscation - The PAP also excludes coverage for loss to a covered auto or Non-Owned Auto due to destruction or confiscation by governmental or civil authorities because the named or a family member has engaged in illegal activities. Example: loss resulting from confiscation of a drug dealer's van by a Federal Drug Agency would not be covered. The policy also excludes loss due to failure to comply with Environmental Protection Agency or Department of Transportation standards. The exclusion for government destruction or confiscation does not apply to the interest of any loss payees in the covered auto. Two examples will illustrate the above:
Example: If Herb is dealing illegal narcotics and his car is confiscated by federal authorities during a drug bust, he will not be able to collect for loss of his car under his Personal Auto Policy's Physical Coverage.
Example: Herb's car is confiscated for the same reason but it is financed by Love National Bank, who continues to have an interest as the loss payee, the bank would be able to collect for its loss under Herb's Personal Auto Policy Physical Damage Coverage.
Camper Body or Trailer not Shown in the Declarations - Loss to an owned camper or trailer not shown in the declarations is excluded. However, the exclusion does not apply to a newly acquired camper body or trailer acquired during the policy period. The insurer is asked to insure it within 30 days. It is important to note, from our earlier discussion of what is meant by an insured's covered auto, that Physical Damage Coverage will apply to newly acquired vehicles (whether additional or replacement vehicles) only if the insured requests the coverage within 30 days. Liability Coverage for a replacement vehicle is automatically provided until the end of the policy period. The reason for this is that physical damage rates and premiums are more dependent upon the value of the vehicle than are rates and premiums for other coverages, and an auto must be declared in order to be covered beyond the 30-day period. This exclusion accomplishes a similar purpose.
Example: Jason had a camper body installed on the back of his Datsun shortly after buying the pickup but had not notified his insurance company. Six months later he has a collision which does $2,000 damage to the camper body. As Jason did not inform his insurance company within the 30-day period, he does not have coverage on the camper body.
Non-Owned Auto Used Without a Reasonable Belief of Permission - There is no coverage for loss of a Non-Owned Auto when it is used by the insured or family member without reasonable belief of being entitled to do so.
Example: Randale's Ford is in the shop for two weeks being repaired, so he rent's a "T- Bird” to drive to and from work. Randale specifically forbids his son, Lance, who has had several speeding tickets, from driving the rented “T-bird”. Lance takes the “T-bird” out for a ride anyway and drives into a ditch causing $300 damage. Randale's Physical Damage Coverage will not pay for any part of the damage to the rented “T-bird”.
Awnings or Cabanas - Loss to awnings, cabanas or equipment designed to create additional living facilities is excluded.
Radar Detection Equipment - Loss to equipment designed for the detection or location of radar is excluded. Therefore, damage to a "Fuzz Buster" or other radar detection devices in the insured's auto is not covered. The exclusion is justified, since these devices are designed to circumvent Federal or State Speed Laws. Some states have enacted legislation banning these devices and it is questionable whether radar-detection devices should be considered as auto equipment, since such devices are not normal to the use of the auto. In short, radar detectors are excluded from damage to Auto Coverage because they make it easier for drivers to exceed the speed limit.
Customized Equipment - It has become popular to equip and customize pickups and vans with special equipment so that the vehicle has living quarters and can be occupied as a mobile home. However, the Part D Coverages exclude loss of any custom furnishings or equipment in or on any pickup or van. Custom furnishings and equipment include but are not limited to the following:
It is possible; however, to add a special endorsement that covers the excluded equipment and facilities by payment of an additional premium. This endorsement will be discussed later. This exclusion is another Physical Damage Exclusion that removes coverage for the above furnishings or equipment.
Non-Owned Auto Used in the Automobile Business - Also excluded under Part D is loss to a Non-Owned Auto maintained or used in the business of selling, repairing, servicing, storm, or parking of vehicles designed for use on public highways, including road testing and delivery. Example: if Ray is employed as an automobile mechanic and damages a customer's car while road testing it, the Physical Damages Loss to the car is not covered under Ray's PAP. This is a commercial loss exposure that should be insured by the Repair Shop's Garage Liability Policy.
Example: Mick works at a small garage. While backing a customer's car out of the garage, he cut a corner too sharply and scraped the car's fender. The cost of repairing the scrape would not be covered by the Physical Damage Coverage of Mick's Personal Auto Policy.
Example: Howard owns a real estate agency. One day he borrows a car, a four-door sedan, from one of his employees to take a client to look at a house and becomes involved in an accident on the way. Howard's Personal Auto Damage Coverage will pay for the damages to the employee's car.
Example: Sheila, a plumbing contractor, is supervising some of her plumbers at a construction site when they run out of pipe. Sheila borrows a Chevy owned by one of her workers to go to the warehouse and get the needed pipe. In her hustle to get back, she misjudged a sharp curve and the vehicle rolled over resulting in extensive damage. Sheila's Personal Auto Physical Damage would pay for damages.
Non-Owned Pickups and Vans Used in Any Other Business - The final exclusion applies to Physical Damage Coverage for Non-Owned Pickups and Vans that are used in any business not described in the previous exclusion. This exclusion does not apply to the maintenance or use of any Non-owned Private Passenger Auto or Trailer. Example: if Larry borrows his friend's pickup for use in a landscaping business, Larry's Physical Damage Coverage does not apply to the borrowed pickup truck. This is a Business Exposure that should be insured under a Commercial Policy covering the landscaping business.
In summary, let's look at a final example and an explanation. Example: Ralph's camper caught fire and sustained severe damage but was not a total loss. Ralph lost a factory-installed tape player, a camera, two rear tires, a suitcase filled with clothes, a wallet containing $500 in cash and the campers refrigerator. Only the factory-installed tape player and the two rear tires would be covered by Ralph's Physical Damage Coverage. The camera, suitcase and wallet are not covered because they are not part of the vehicle or its "equipment" as mentioned in the Insurance Agreement. The refrigerator is considered a custom furnishing and is therefore excluded.
Explanation: It may seem unfair that contents of a vehicle or personal effects are not covered under a Personnel Auto Policy, because all drivers carry belongings around in their car. When a car owner purchases insurance on a car, the premiums that the insurance company charges for Physical Damage Coverage (Collision and/or Other-Than-Collision) are based on the maximum amount that the insurance company might have to pay if the vehicle were a total loss. They might charge, for Example: $300 for one year's coverage on a $10,000 car. The most the company could expect to repair or replace the car would be $10,000. The insurance company has no control over the value of any items the insured might carry in the vehicle. If an insured is transporting a $60,000 item in a $10,000 car and the car is destroyed in a collision, the insurance company would be unfairly penalized if it had to pay out $70,000 when it had collected only $10,000 of value.
Personal property items (such as clothing, cameras, sporting equipment, tools, etc.) should be insured under a different type of policy, such as a Homeowners Policy. Coverage is also available under Personal Property Floaters and Other Property Insurance Policy Forms.
Limit of Liability
The insurer's Limit of Liability for a Physical Damage Loss to a covered automobile is the lower of (1) the actual cash value of the damaged or stolen property or (2) the amount necessary to repair or replace the property. In determining Actual Cash Value, an adjustment is made for depreciation and physical conditions of the damaged property. If the vehicle has only a partial loss (such as damaged grill and fender), the cost of repairing the vehicle is usually the amount that is paid, less any applicable deductible. However, if the Physical Damage to the vehicle is extensive and the cost of repairs exceeds the vehicle's actual cash value, the car may be declared a total loss. In such cases, the amount paid by the insurer is limited to the actual cash value of the damaged vehicle, less any applicable deductible.
The maximum amount paid for a physical damage loss to a Non-Owned Trailer is $500. Example: if an insured rents a trailer to move his or her personal property to another house or apartment and the trailer is damaged in an accident, the most that will be paid under the insured's PAP is $500.
Payment of Loss
The insurer has the option of paying for the loss in money or repairing or replacing the damaged or stolen property. If a covered auto is stolen, the insurer pays the cost of returning the stolen car or its equipment to the insured and also pays for any damage resulting from theft. However, the insurer has the right to keep all or part of the stolen property at an agreed or appraised value.
Example: Jimmy's pickup had a current market value of $6,000 when it was stolen. His company paid him $5,900 ($100 deductible) for the loss, then six months later the car is located in good condition.
The policy does not obligate the insurance company to return the stolen car to Jimmy.
Example: Ralph's Chevy was stolen but, before the insurance company paid for the loss, it was located. The thief had apparently been in a collision and the car had sustained $1,100 of damage. After the $100 deductible, Ralph's insurance company will pay $1,000 and return the car to him.
Other Sources of Recovery
If the insured drives a Non-Owned Auto that is damaged in an accident or stolen, other sources of recovery may be available to cover the loss. Example: the owner of a vehicle may be a rental car company that self-insures its vehicles; a travel or accident policy may provide coverage if the vehicle is damaged; or a credit card company may automatically cover damage to a rental car rented with their credit card. In such cases, where other sources of recovery are available to cover the loss, the insurer pays only its share of the loss, which is the proportion that its Limit of Liability bears to the total of all applicable limits. However, any Physical Damage Insurance provided by the insurer to a Non-Owned Auto is excess over any other collectible source of recovery that applies to the loss. Example: if Andy borrows a car and damages it, the owner's Physical Damage Insurance applies first and Andy's insurance is excess, subject to his deductible. If the owner's collision deductible is $200 and Andy's collision deductible is $100 and the damage is $1,000, the owner's policy pays $800 ($1,000 minus $200) and Andy's pays $100 ($200 minus $100). The remaining $100 would have to be paid either by Andy or by the owner of the car. In effect, if the owner's collision deductible is larger than Andy's deductible, Andy's insurer will pay the difference between the two deductibles.
Example: Glen lets his friend Tim use his car for a weekend trip. Tim wrecks Glen's car while on the trip and the damage amounts to $800. Glen has a Personal Auto Policy on the wrecked car with a $250 deductible for Collision Coverage.
Tim also has a Personal Auto Policy with a collision deductible of $100. According to the other sources of recovery provisions in each policy, Glen's policy will pay $550 ($800 minus $250) for this accident and Tim's policy will pay $150 ($250 minus $100).
Assume that in this situation Glen has no Collision Coverage on the car he lent to Tim. In that case, Glen's policy would pay $0 and Tim's would pay $700.
Appraisal
In some cases, the named insured and insurer cannot agree on the amount of the loss. This is especially true if the insured has a value that exceeds the value listed in the various publications of car prices. In the event of a disagreement on the amount of loss, either party may demand an appraisal of the loss. Each party selects a competent appraiser. The two appraisers then select an umpire. If the appraisers cannot agree on the Actual Cash Value and the amount of loss, any differences are submitted to the umpire. A decision by any two is binding on all. Each party pays its chosen appraiser and shares equally the expenses of the appraisal and the umpire. If the insurer agrees to an appraisal, it does not waive any of its rights under the policy.
Summary
Under Part D - Coverage for Damage to Your Auto of the PAP, the insurer agrees to pay for Direct and Accidental Loss to a Covered Auto or Non-Owned Auto, less the deductible that applies to this coverage. The auto can be insured for collision, loss of Other-Than-Collision or for both. Limited coverage is also provided for transportation expenses in the event that a covered auto is stolen.
If a Non-Owned Automobile is being operated by an insured, the insured's coverage is available to pay losses in excess of any Physical Damage Coverage carried by the owner of that auto. If a Non-Owned Auto replaces a covered auto, which is out of use due to a breakdown, destruction or it is considered a temporary substitute vehicle, Part D also applies.
Remember, the Insurer's Liability for Physical Damage Losses is the lower of the Actual Cash Value of the property or the amount necessary to repair or replace it. If the cost of repairs exceeds the auto's value, the auto may be declared a total loss.
Chapter 5 - Review Questions
1. Uninsured Motorists Coverage pays for bodily injury of a covered person who is injured by:
A. a hit-and-run driver
B. driver whose insurer is insolvent
C. uninsured motorist
D. all of the above
2. Coverage for Bodily Injury and Prop¬erty Damage applies only if the unin¬sured motorist:
A. is the driver of the car
B. is legally responsible for the accident
C. has Liability Coverage
D. all of the above
3. Individuals or corporations that decide to "act" as their own insurance com¬pany are actually:
A. self-insuring
B. negligent in their duties to society
C. do not have to comply with state requirements
D. none of the above
4. Part D is commonly referred to as:
A. Liability Coverage
B. Medical Payments
C. Physical Damage
D. Supplemental Coverage
5. A covered auto, under Part D, can be insured for:
A. Collision Loss
B. loss caused by Other-Than-Collision
C. both A and B
D. neither A or B
Answers
1. D
2. B
3. A
4. C
5. C