Chapter 6 – Part E – Duties After an Accident or Loss and
Part F – General Provisions
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Introduction
As we conclude our discussion of the specifics of the Personal Auto Policy, we will review Part E - Duties after an Accident or Loss that both parties are obligated to fulfill. Part F will present the General Provisions that apply to the entire policy.
Part E - Duties after an Accident or Loss
Part E of the Personal Auto Policy outlines a number of duties the insured must perform after an accident or loss. The insurer has no obligations to provide coverage unless there is full compliance with these duties. Additional duties are also imposed if the insured is seeking protection under Part C-Uninsured Motorists Coverage or Part D-Coverage for Damage to Your Auto. If these duties are not carried out, the insurance company is not obligated to pay a loss.
General Duties
The following general duties must be met after an accident or loss in order to have protection under the policy.
addresses of any insured person and witnesses. The policy does not state that the notice of accident or loss must be in writing. The word “promptly” can mean many things to people but it is written into the contract to provide needed flexibility. Example: an insured might be hospitalized and be in serious condition for several days or weeks and other family members might be unaware of the insurance policy requirement. Such inability to report immediately after an accident would be taken into consideration by the insurance company in reviewing a later claim made by the insured and coverage would not be denied because of this delay.
2. Cooperation with the Insurer - The insured must cooperate with the insurer in the investigation, settlement or defense of any claim or suit.
3. Submission of Legal Papers to Insurer -The insured must promptly submit to the insurer copies of any notices or legal papers received in connection with the accident or loss.
4. Physical Examination and Examination under Oath - The insured must agree to submit to a physical examination at the insurer's expense. In addition, the insured must agree to an examination under oath if required by the insurer.
5. Authorization of Medical Records - The insured must authorize the insurer to obtain medical reports and other pertinent records.
6. Proof of Loss - The insured must submit a proof of loss when required by the insurer.
Example: Marcus has a Personal Auto Policy with Uninsured Motorist Coverage of $10,000 per accident. He submits a claim for $5,000 to his insurance company stating he was badly injured when a hit-and-run driver struck his car. Marcus did not report the accident to the police. When the insurance company asks to see copies of medical reports, as well as, bills for treatment, Marcus refused to authorize his doctor to release any information. In addition, Marcus claims there were two witnesses to the accident but will not give their names claiming "they don't want to get involved". He also refuses to submit to a physical examination by a physician selected by the insurance company. Obviously, Marcus's actions will prevent the insurance company from paying the claim since he refused to cooperate.
Keep in mind, the six duties itemized under this part our general duties applying to any person seeking coverage under any part of the policy.
Additional Duties for Uninsured Motorists Coverage
In addition to the general duties, a person seeking benefits under Part C - Uninsured Motorists Coverage must perform the following two additional duties:
1. Notify the Police - The insured must notify the police if a hit-and-run driver is involved. This is required to reduce fraudulent claims.
2. Submission of Legal Papers - If the insured sues the uninsured motorist, a copy of the legal papers must be sent to the insurance company. These duties described in the policy apply in addition to the other duties.
Additional Duties for Physical Damage
Three additional duties are required if the insured is seeking benefits under Part D- Coverage for Damages to Your Auto, as follows:
1. Prevent Further Loss - The insured must take reasonable steps after a loss to protect a covered auto or Non-Owned Auto and its equipment from further loss. The insurer will pay the reasonable expenses incurred to protect the vehicle from further damage. Example: the insurer will pay the cost of having a tow truck trans port the damaged car to another location for safekeeping.
Covered Auto or Non-Owned Auto is stolen, the insured must promptly notify the police of the theft. Prompt notification significantly increases the possibility of recovering the stolen vehicle.
3. Inspection and Appraisal - The insured must permit the insurer to inspect and appraise the damaged property before its repair or disposal. Some insurers have drive-in claim centers where damaged but driveable vehicles may be appraised. For more severely damaged cars, appraisers see the car at the insured's home or at the garage or body shop where the car is located. For small losses, the insurer sometimes waives its right to inspect and appraise the damaged auto and allows the insured to submit two or three repair estimates that serve as the basis for the loss settlement.
Example: Bill's sports car is struck by another driver who speeds away. Bill walks a mile to a phone to call the police, leaving his car in the middle of the highway so that he can show the police exactly where it was after being hit by the other driver. While he is gone, another driver does not see Bill's car in time and crashes into the rear, damaging the previously undamaged trunk. Bille erred by not moving the car to a safe area.
Example: Al struck a bridge abutment, damaging his van so badly that the steering would not work. He was unable to push the van off the highway as it was heavily loaded with boxes of books. So, he set out a flare and walked a mile to find the phone. While he was gone, another driver did not see his van in time and ran into it damaging the previously undamaged rear fender. In this example, Al fulfilled his duty, as he could not physically move the car.
Keep in mind that the uninsured is obligated to notify the police in the event of the theft of a Covered Auto or Non-owned Auto. Also, the police do require a person Seeking Physical Damage Coverage to permit the insurance company to inspect and appraise the vehicle.
Example: Stan had an accident in which his front right fender was damaged. He was anxious to repair the car since he was leaving on a long driving trip in just a day, so he had the fender repaired and then submitted the receipt to his insurance company along with a request that he be paid for the loss. Stan had violated the inspection and appraisal duty and the insurance company will deny his claim.
Part F - General Provisions
The General Provisions Section is the final part of the Personal Automobile Policy. It presents general provisions and conditions that apply to the entire policy.
Bankruptcy of Insured
The insurer is not relieved of any obligations under the policy even if the insured declares bankruptcy or becomes insolvent. Example: if the insured is sued for an amount exceeding the policy limits and declares bankruptcy to escape payment of the judgment, the insurer is still required to pay the part of the judgment covered by insurance.
Change in the Policy
The policy contains all the agreements between the named insured and the insurer. The terms of the policy cannot be changed except by an endorsement issued by the insurer. If the change requires a premium adjustment, the adjustment is made in accordance with the manual rules of the insurer. Changes during the policy term that can result in a premium increase or decrease include changes in (1) the number, type, or use of insured vehicles, (2) the operators of insured vehicles, (3) the place of principal garaging the insured vehicles and (4) the coverage deductibles or Limits of Liability.
If a change is made that broadens the coverage without an increased premium, the change automatically applies to the policy on the date the revision is effective in the named insured's state. Keep in mind that both the insured and the insurance company may have occasion to make a change to a part of the policy and this section describes the conditions for making any such change. The policy states that its terms may not be changed or waived except by Endorsement issued by the insurance company.
If a policy change requires that there be an adjustment to the premium, the insurance company will adjust the premium. Changes that may require a premium adjustment include changes in:
1. operator using the insured vehicles
2. the location where vehicles are garaged
3. coverage limits or deductibles
4. the number of types of covered autos
The Liberalization Clause states that if the insurance company makes a change to its policy form which provides broader coverage without a premium charge (for example, if it drops a policy exclusion), that change will automatically apply to the insured's policy on the date the change goes into effect in the insured's state. This simply eliminates the need of the insurance company to endorse all existing policies when coverage is expanded without a change in premium.
Example: If Joe's insurance company decides to provide all its insureds with broader Uninsured Motorists Coverage for no additional premium, Joe will not have to request that an endorsement be added to his policy. This broader coverage automatically applies to Joe's policy on the date the company makes the change effective in Joe's state and no endorsement is necessary!
Fraud
The PAP also contains a specific provision dealing with fraud. There is no coverage for any insured that makes fraudulent statements or engages in fraudulent conduct in connection with any accident or loss for which a claim is made. Example: if a car owner deliberately abandons a covered auto and reports the car as stolen, the insurer will not provide coverage for the claim.
Example: Matilda is driving her car with her friend Gloria as a passenger. Matilda drives the car off the road. Both Matilda and Gloria submit claims for bodily injury to be paid by the Medical Payments Coverage of Matilda's Personal Auto Policy. When the insurance company requires Matilda and Gloria to undergo physical examinations, doctors discover that Matilda was not hurt at all in the accident but faked her injuries in an attempt to collect medical payments. Obviously, Matilda's fraudulent claim that she was injured will prevent her from collecting medical payments. However Matilda's fraudulent claim does not affect Gloria's medical payments for her injuries. The fraud provision states the policy will not provide coverage for any insured that has committed fraud. Other insureds (like Gloria) involved in the same accident are not affected by this provision, as long as, they are not guilty of fraud themselves.
Legal Action against the Insurer
Because of a dispute, an insured may wish to bring legal action against the insurer. However, the PAP states that no legal action can be brought against the insurer until the insured has fully complied with all of the policy terms.
In addition, under Part A - Liability Coverage, no legal action can be brought against the company unless the insurer agrees in writing that the insured has an obligation to pay damages or the amount of that obligation has been finally determined by a judgment after a trial. Finally, no person or organization has any right under the policy to involve the insurer in any action to determine the liability of an insured.
Example: George and Beth are involved in an accident in which Beth is injured. George insists that he is not responsible for the accident. Beth, who is determined to "cash in" on her injury, sues George and also sues his insurance company because she believes that this will make her case stronger. In reality, the insurance would not be part of Beth's lawsuit against George, however, if the court does find that George is indeed liable for the injury to Beth and enters a final judgment against him and awards damages to Beth, then the insurance company does become involved. If George's insurance company refuses to pay Beth, she would now be entitled to bring legal action against George's insurance company to require payment.
Insurer's Right to Recover Payment
This provision is essentially a Subrogation Clause. If the insured makes a loss payment to a person who has a Right to Recover damages from a negligent third party, the insurer has a legal right of subrogation against that property. The covered person must do whatever is necessary to enable the insurer to exercise its subrogation rights. In addition, the person to whom the loss payment is made is not allowed to do anything after the loss that would prejudice the insurer's right of subrogation.
Finally, if the person to whom a loss payment is made recovers damages from another party, that person is required to hold the proceeds of the recovery in trust for the insurer and must reimburse the insurer to the extent of its loss payment. Keep in mind that to be "subrogated" simply means to be substituted in the place of another.
Example: John is in an accident and his car is damaged. He files a claim for $3,000 with is company and they pay $2,500 under his collision coverage ($3,000 minus the $500 deductible) but John also indicates to his insurance company that the other driver was liable and gives his company the names of two witnesses who verify his story. The insurance has the right to try to recover the amount of its payment to John from the other driver who is responsible. If the driver accepted responsibility for the accident and gave John a check for $3,000 after John had received $2,500 from his insurance company, according to the policy provisions John should return $2,500 to his insurance company and keep the $250 he paid due to his deductible.
Example: John lets his girlfriend Pam borrows his car. While using it, she hits a light post and causes $2,000 of damage to John's car. The insurance company would then pay for his damage minus the deductible. John's insurance company does not have the right to recover from Pam the amount it paid to John.
Note: For Physical Damage Coverage, the insurance company does not have subrogation rights against anyone using a covered auto with permission because that would undermine the intent of the coverage. It may only seek recovery from other parties who may be liable and who should have their own insurance policy.
Policy Period and Territory
The PAP applies only to accidents and losses that occur within the policy period and within the policy territory. The policy period is stated in the declarations and is usually a six-month or one year period. In some high-risk specialty insurers, the policy period can be as short as one month.
The policy territory includes the United States, its territories and possessions, Puerto Rico and Canada. The policy applies to a covered auto while being transported between the ports of the United States, Puerto Rico or Canada. Insureds are not covered anywhere outside of the policy territory. Example: as an insured drives his/her car into Mexico, the insured must have valid Liability Insurance from a Mexican insurer. A motorist from the United States who has not purchased valid insurance from a Mexican insurer and is involved in an accident can be detained in jail, have his/her car impounded, and be subject to other penalties.
Termination
The Personal Automobile Policy also contains a provision that applies to termination of the policy by either the insured or insurer. The termination provision consists of four parts.
Cancellation - The named insured can cancel any time during the policy period by returning the policy to the insurer or by giving advance written notice of the date the Cancellation is to become effective.
The insurer also has the right of cancellation. If the policy has been in force for less than 60 days and is not a renewal or continuation policy, the insurer can cancel by mailing a Cancellation Notice to the named insured. If the cancellation is for non-payment of premiums, the named insured must be given at least 10 days notice; at least 20 days notice must be given in all other cases. Thus, the insurer has sixty days to investigate and determine whether a new applicant meets the insurer's underwriting standards.
After the policy is in force for 60 days, or if it is a Renewal or Continuation Policy, the insurer can cancel for only 3 reasons:
1. the premium has not been paid.
2. the driver's license of an insured has been suspended or revoked during the policy period (or since the last anniversary of the original effective date, if the policy is for other than one year).
3. the policy has been obtained by a material misrepresentation. Example: if an insured knowingly provides false information to the insurer regarding a poor driving record, the insurer has the right to cancel that person's coverage after this information is discovered.
It is important to keep the "numbers" straight. Remember, when the insurance company decides to cancel a new policy during the first 60 days of coverage, or at any time when it decides to cancel a policy for non-payment of premiums, the insurance company must give 10 days advanced notice. However, if the insurance company is canceling a policy for any reason other than non-payment of premium, after it has been in effect for at least 60 days, the insurance company must give the insured 20 days advanced notice.
Also note, after a policy has been in effect for at least 60 days, or it is a renewal policy, the reasons for which the insurance company are permitted to cancel are limited. The common reasons an insurance company can cancel would be:
1. loss of the driver's license by one or more of the people who commonly use a covered auto.
2. non-payment of premium.
3. material misrepresentation in obtaining the policy.
Non-Renewal - Rather than cancel, the insurer may decide not to renew the policy. If the insurer does not renew, the named insured must be given at least 20 days notice before expiration of the policy period. If the policy period is other than one year, the insurer has the right not to renew only at the anniversary of the policy’s original effective date. Thus, a policy written for only six months will not be subject to non-renewal by the insurer more than once a year. Insurance companies have many different reasons for deciding not to renew an Automobile Insurance Policy when it comes due. The company might take exception to accidents, traffic violations or other factors that the insured has accrued during the years. The insurance company could deem this individual an undesirable risk.
Automatic Termination - The Automatic Termination Provision becomes effective once the insurer decides to renew the policy. Under this Provision, if the named insured does not accept the insurer's offer to renew, the policy automatically terminates at the end of the current policy period. Failure to pay the renewal premium means that the named insured has not accepted the insurance company's offer to renew the policy. Thus, once the named insured is billed for another period, the premium must be paid or the policy automatically terminates on its expiration date.
Finally, if the named insured obtains other insurance on a covered auto, the PAP automatically terminates on that auto on the effective date of the other insurance.
To summarize this section, remember in some cases automatic termination could mean the termination of the entire policy, while in others it may only mean termination of coverage for one covered auto. The following two Examples would merit Automatic Termination.
Example: Two months after the effective date of his Superior Auto Policy, Mel purchases a Personal Auto Policy with Prairie Insurance Company for the same coverages and limits on one of the two cars he has had insured with Superior. Superior will automatically terminate the one car that he now has duplicate coverage for.
Example: One month after the effective date of his policy with Superior, Patrick purchases a policy with Prairie Insurance Company to insure his home against loss by fire. Obviously Patrick is protecting another asset, his home, and not purchasing duplicate coverage.
Example: Three months after the effective date of his policy with Superior, Patrick requests that they drop Medical Payments Coverage from his policy. Since this is well within his rights to drop such coverages, the remainder of the policy would still be in force.
Other Termination Provisions - Several additional termination provisions are stated in the policy:
1. Many states place additional restrictions on the company's right to cancel or renew. If State Law requires a longer notice period, requires a special form or procedure for giving notice, or modifies any termination provision, the Personal Auto Policy is automatically adjusted to con form to those requirements.
2. The insurer may choose to deliver the cancellation notice rather than mail it. However, proof of mailing of any cancellation notice automatically is considered sufficient Proof of Notice.
3. If the policy is canceled, the named insured may be entitled to a premium refund. Any premium refund is computed according to the insurer's manual rates. Making or offering to make the refund is not a condition of cancellation.
4. The effective date of cancellation states in the Cancellation Notice becomes the end of the policy period.
Example: If the law in Wilber's state requires that insurance companies give 30 days notice when canceling for non-payment of premiums, Wilber's Personal Auto Policy will automatically comply with the 30-day requirement.
Example: The insurance company sends a representative to the insured's house to hand the insured a notice of cancellation. The policy considers this delivery sufficient proof of notice.
Example: The insurance company must refund any premium that is due to the insured if the policy is canceled. The insurance company will refund premiums after the insured receives a cancellation notice.
Transfer of Insured's Interest in the Policy
This provision is essentially an Assignment Clause. The named insured's rights and duties under the policy cannot be assigned to another party without the insurer's written consent. However, if the named insured dies, the coverage is automatically continued to the end of the policy period for both the surviving spouse (if a resident of the same household at the time of death) and the legal representative of the deceased person. Keep in mind, that since the premium charged for some auto coverages is affected by facts about the particular named insured (such as driving record, age, use of the car for business or pleasure) the insurance company restricts the transfer of coverages under the policy from the named insured to another person (about whom the insurance company does not know) without the company's prior written consent.
Example: Jason gets married during the policy period but soon dies and his widow decides to keep his car rather than sell it. In this situation the rights and duties under Jason's policy would automatically be transferred to his wife.
Example: Jason dies during the policy period and his attorney then drives his Lexus on several occasions during attempts to sell it as part of Jason's estate assets. Once again the rights and duties under Jason's policy will automatically be transferred to his attorney, acting as his executor. However, if Jason's attorney decided to use the Lexus to go on summer vacation, the transfer of interest in the policy would not apply. Coverage for a legal representative of a deceased person only applies while acting in the capacity of a legal representative with respect to the use of covered auto.
Two or More Auto Policies
If two or more auto policies issued by the same insurer apply to the same accident, the insurer's maximum Limit of Liability is the highest applicable Limit of Liability under any one policy. Example: if Bo has two cars insured with the same insurer and has an accident while driving a Non-Owned Auto, the most the insurer will pay under both policies is the highest Limit of Liability under either of the policies. The intent of this provision is to prevent the stacking or pyramiding of policy limits when the same insurer insures two or more cars.
Example: Mark has a Personal Auto Policy with Alpha Insurance Company on his Lincoln Town Car with a liability of $100,000 and another policy with Alpha on his VW with a liability limit of $50,000. One day Mark is driving his neighbor to the doctor in the neighbor's car and has an accident for which Mark is liable. The most Alpha Insurance Company will pay for Mark's liability for this accident is $100,000.
Summary
Part E - Duties After an Accident or Loss lists 6 general duties of the insured under the Personal Auto Policy: give prompt notice to the insurer, cooperate with the insurer, submit legal papers to the insurer, submit to a physical examination or an examination under oath, authorize the release of medical records and submit a proof of loss. If benefits are sought under the Uninsured Motorists Coverage, the insured also must notify the police of the accident and submit to the insurer any legal papers involved in a suit against the uninsured motorist. An insured seeking payment under the Auto Physical Damage Coverage is required to prevent further damage to the vehicle. Notify the police if the auto has been stolen and permit the insurer or its agents to inspect and appraise the damaged auto before its repair.
Chapter 6 - Review Questions
1. Which of the following are general duties that must be met after an accident or loss:
A. cooperation with the insurer
B. submission of legal papers to insurer
C. prompt notice
D. all of the above
2. Notifying the police is a duty under:
A. general duties
B. additional duties for Uninsured Motorists Coverage
C. additional duties for Physical Damage Coverage
D. all of the above
3. The general provisions of Part F relate to:
A. Just Liability Section
B. Medical Payment Section
C. Entire Policy
D. Non-Insured Section
4. If John has a PAP and has an accident and is sued for $50,000 and has coverage for $25,000, thus forcing him into bankruptcy, how much would the insurance company have to pay:
A. $25,000
B. nothing, since John is bankrupt
C. $50,000
D. none of the above
5. If a change is made in the policy that extends coverage without an additional premium, the change automatically applies to the policy?
A. anniversary date
B. policy period
C. inception date
D. date the revision is effective in state
Answers
1. D
2. B
3. C
4. A
5. D