3-C PERSONAL AUTO Flashcards
The Personal Auto Policy (PAP)
A policy that combines liability insurance with other optional coverages
PAP policies can cover:
● Individuals and residing family members
● People driving car with owner’s permission
● Four-wheeled vehicles under 10,000 lb
Remember: insurable interest is required (i.e. auto owners, lessors, or lenders).
PAP Coverage
What is covered?
The PAP will indemnify for:
● Property damage
● Personal injury
● Legal defense
PAPs will ____ punitive damages.
not pay
Insurer must defend policyholder against liability claims, in or out of court.
PAP Coverage Example
If Junior takes the family car out for a joyride, hits the mayor’s car, and is sued, your PAP will cover the car repairs and any injuries the mayor may have, but it will not pay any punitive damages a judge might assign to teach him a lesson.
PAP Sections
● Declarations Page ● Six Sections: 1. Part A Liability 2. Part B Medical Payments 3. Part C Uninsured Motorist 4. Part D Coverage for Damage to Your Auto 5. Part E Duties After an Accident or Loss 6. Part F General Provisions ● Endorsements
Declarations Page
● Named insured’s name and address
● Policy period
● Applicable insurance coverages and their limits
● Deductible
● “Loss payees” (all parties to be indemnified when losses occur)
● Make, model, and VIN of insured automobiles
● Endorsements added to the policy
Example
If Eduardo buys a car with the help of an auto loan, the bank that financed his loan may require that he add it as a loss payee on his auto policy. This ensures that the bank can recover its investment in the vehicle if Eduardo wrecks it.
Auto Insurance Deductibles:
● Fixed: one specific, predetermined amount
● Per Claim Basis: insured is responsible for paying this amount on every claim
Note: Deductibles typically only apply to Collision and Comprehensive coverages, not Liability.
Auto Insurance Deductibles Example
Tom’s car suffers $3,500 worth of damage and he has a $500 fixed deductible on his auto insurance policy. Tom will receive $3,000 from the insurance company because of his fixed deductible of $500.
You, Your
The named insured and the insured’s spouse living in the same household
We, Us, Our
The insurer providing the policy
Family member
Any relation of the insured who lives in the insured’s household
Owned
A car that the insured owns or has leased for 6 months
The Use Of
Any activity involving the car
Occupying
Being in or on a vehicle, getting in or out, getting on or off, sitting on, or leaning against the vehicle
Bodily Injury
Bodily harm, sickness, or disease, or the resulting death
● Does not include mental distress or psychological trauma
Property Damage
Destruction of, or physical damage to, tangible property
● Includes the loss of use of damaged property
Business
A trade, profession, or occupation
Trailer
A vehicle designed to be towed
Your Covered Auto:
- The car specified on declarations page
- A newly acquired auto
- A trailer that the insured owns
- A temporary substitute for car or trailer listed on dec page, due to:
a. breakdown b. repair
c. servicing d. loss
e. destruction
Newly Acquired Auto
Any new or used vehicle that the insured gets during the current policy period
A “newly acquired auto”:
● Must weigh less than 10,000 lbs
● May not be covered under another insurance policy.
● May not be used for the transport of goods and materials (with some
exceptions)
● Automatically gets the broadest coverage provided to any one car listed in
policy
Reporting (according to the standard PAP):
Is the “newly acquired auto” replacing the auto currently listed on the dec page?
● If yes, no reporting needed
● If no, insured typically has 14 days to report newly acquired auto
However: Most states and insurers actually require that you report any new auto within 10 to 30 days.
Comprehensive and Collision coverage:
● Can be added within 4 days of getting new car
● Automatically applies for first 4 days with $500 deductible
Note: These grace periods can vary by insurer.
Part A – Liability Coverage
● Not for insured’s own injuries or damages
● Covers the insured’s liability for the injuries or property damage of others
● Defense in court is included, if necessary
Insuring Agreement
Establishes what the insurer will do for the insured if the insured becomes liable for losses:
● Pay liability costs, up to policy limits
● Covers injury or damage caused by “your covered auto” or any car the insured
drives with permission
● Settle or defend liability lawsuits
● Insurer reserves the right to settle liability cases out of court
Example
Say a policyholder with a liability limit of $100,000 causes an accident that injures three people, and each of those three ends up suing the policyholder for $50,000.
If the insurer settles with the first two parties for $50,000 each, the policyholder will have exhausted his $100,000 coverage. Therefore, the insurer will no longer have to defend the policyholder against the third pending lawsuit for $50,000.
The insurer is only liable for coverage up to policy limits.
Covered Person:
- The named insured and family members living in the same household
- Someone using covered auto with permission
Example
Say your neighbor Wanda does not own a car. She borrows your car one day and causes an accident. Your liability insurance will cover the accident, since Wanda borrowed your car with permission.
Liability Limits example
Let’s use as an example the minimum amount of coverage required by some states: 25/50/10.
The first number is the maximum amount the insurer will pay for bodily injury to any one individual involved in an accident, in this case $25,000.
The second number is the maximum amount the insurer will pay for bodily injury in total, no matter how many individuals were injured in an accident. In this case it is $50,000.
The third number is the maximum amount the insurer will pay for damages to someone else’s property, in this case $10,000.
Split Limits Example
Say Robert, an insured driver with a 25/50/10 liability policy, causes an accident that results in $40,000 of injuries to another driver, $35,000 to his passenger, and $15,000 in property damage.
Robert’s auto liability policy would pay the injured driver $25,000 to cover bodily injury, leaving Robert personally responsible for the remaining $15,000.
The injured passenger would get $25,000 for bodily injury, and Robert would have to pay $10,000.
Lastly, the policy would pay $10,000 for property damage to the other car, leaving Robert responsible for the remaining $5,000.
Primary vs. Secondary Coverage
● Coverage is “primary” if it involves a car the insured owns.
● Coverage is “secondary” if it involves a car the insured does not own
Example
Say Nancy borrows Micah’s car and then gets into an accident with it. Micah’s insurance will pay first, not Nancy’s.
Since it was Micah’s car, his coverage is primary, and Nancy’s coverage is secondary. Nancy’s insurance will pay any damages that Micah’s policy does not pay.
Out of State Provision
If you meet your home state’s requirements, it is assumed you meet the requirements of any other state.
Part A – Supplementary Payments
● Assist policyholder with a variety of accident-related expenses
● Not subject to liability limits
Part A – Supplementary Payments
May include:
● Lost wages (due to court hearings): up to $200/day
● Expenses due to insurer’s request such as retrieving accident reports or
records, copy fees
● Bail bonds: up to $250
● Accrued interest after a judgment is entered
● Premiums on appeal bonds and attachment bonds
Auto Liability coverage does NOT include:
● Intentional damage or injuries (e.g. vehicular assault)
● Property owned or being transported by the insured
● Damages incurred under the scope of employment, except domestic
employees ineligible for workers’ comp
Example
Imagine Emily gets into an accident while returning her friend’s laptop, and the laptop is destroyed in the collision. Emily’s liability coverage will not cover the laptop, even though someone else owns it.
Auto Liability coverage also excludes:
● Properties rented to or used by the insured (not including rented dwellings or
private garages)
● Hired vehicles transporting people or goods (i.e. taxis)
● Company-owned business vehicles
● Damages or injuries caused while repairing, servicing, parking, or storing
vehicles (i.e. mechanics, valets, vehicles released to storage facility)
● Vehicles taken without permission
No-Fault Insurance
● Designed to indemnify the insured for his own injuries, regardless of fault
● Covers bodily injury only (usually not property damage)
● Mandatory in some states
Example
So, if Megan rear-ends Bob and causes him a severe neck injury, Bob will have to file a claim with his own insurer for his injury, even though it was Megan’s fault!
Part B - Medical Payments:
● Provides coverage for the insured
● Pays medical expenses of the insured et al, no matter who caused them
● Applies when anyone considered an insured under the policy is occupying or
struck by auto or trailer designed for public roads
● Includes vehicle-pedestrian accidents
The Part B insuring agreement:
● Says the insurer will pay for medical and funeral costs when an insured (i.e. anyone considered insured under the policy) is injured in an auto accident
● Covers eligible medical payments for up to three years
● Applies a single limit for each person per incident
Common limits: $500, 1,000, $2,000 $5,000, etc.
Covered Person
“Insured”
- The named insured or a family member
2. Any person occupying “your covered auto”
Common Exclusions to Medical Payments:
● Accidents where an insured is occupying a vehicle with fewer than four wheels
● Autos rented or leased for hire
● Autos used without permission (or reasonable belief of permission)
● Commercial vehicles covered by a Business Auto Policy (BAP)
● Vehicles located for use as a residence
● Injuries sustained under scope of employment (if covered by Workers’ Comp)
Medical payments begin only after Personal Injury Protection (PIP) coverage is fully exhausted.
Part C – Uninsured/Underinsured Motorist Coverage
● Covers bodily injuries caused by people with insufficient or no insurance.
● Coverage for physical damage can be added by endorsement.
Uninsured Motorist (UM):
- Driver with no liability insurance
- Driver whose insurer won’t pay
- Hit-and-run driver
Underinsured Motorist (UIM):
Driver who does not have enough insurance to pay for all damages
Part C Insuring Agreement:
Insurer agrees to pay for an “insured’s” injuries or damages caused by driver of an uninsured vehicle.
“Insured”:
● The named insured or a family member
● Anyone in a “covered auto” with permission
Exclusions to UM/UIM Coverage:
● The insured’s own auto that is not listed in the policy
● Government vehicles
● Off-road vehicles (but only while not on public roads)
● Vehicles used as a premises
● Covered autos that are rented or used for hire (although the interpretation of this phrase varies)
● Cars used without reasonable belief that permission was granted
Part D – Damage to Your Auto
● Also called “Physical Damage”
● Protects the insured’s financial interest in her car
● Two types: Collision and Other Than Collision
● Often required by finance companies
Part D – Collision
● Pays for damage to insured’s vehicle caused by collision or rollover
○ a car that has been tipped or rolled over is known as an “upset vehicle”
● Applies even when insured is at-fault
● Includes “your covered auto” and any “non-owned” car the insured is driving
(unless the insured borrows it frequently: then it is not covered)
Payment After a Collision
● Total damage: insurer pays ACV of the car at the time of collision
● Partial damage: insurer pays to repair the car with similar materials
● Transportation (car rental) expenses: $20/day, up to $600
Part D – Other Than Collision
● Also called Comprehensive Coverage
● Covers damages not caused by collision or overturn
● Essentially “open-peril” coverage, minus exclusions
Comprehensive Coverage
Covered perils:
● Theft ● Hail, water, or flood ● Windstorm ● Fire ● Vandalism ● Explosion ● Earthquake ● Riot/Civil unrest ● Missiles or falling objects ● Contact with birds or animals
Payment After a Loss
Same as Collision Coverage:
● Total damage: insurer pays ACV of the car at the time of collision
● Partial damage: insurer pays to repair the car with similar materials
● Transportation (car rental) expenses: $20/day, up to $600
Exclusions for Damage to Your Auto
● Normal wear and tear
● Freezing
● Mechanical or electrical breakdown
● Tire damage
● Government or civil confiscation
● Losses to non-owned autos taken without permission
● Losses involving any racing or speed event or facility
● Stereo equipment and electronics (unless permanently installed, then subject
to limits)
● War and nuclear events
Personal Injury Protection (PIP)
Features of Personal Injury Protection:
● Covers injuries to the insured et al caused by an accident, no matter who was
at fault
Advantages of No-Fault PIP:
● Fewer lawsuits
● Helps contain rising automobile insurance costs
● First party rather than third party claims
● Quicker reimbursements
● Pays up to the policy limit without recourse
PIP pays for the bodily injuries of:
● The insured and members of household, whether in the insured’s or another vehicle
● Children of the insured while on a school bus
● Certain passengers without their own PIP
● Licensed drivers who drive the insured’s vehicle with permission
After a covered accident, PIP will pay:
● Medical costs, sometimes up to a set percentage
● Lost wages (percentage of wages before injury)
● Medical transportation expenses
● In-home caregivers
● Death benefits
PIP Example
Say Jill has PIP coverage with a limit of $2,500. Her policy covers 100% of medical expenses, but only 80% of lost income. One day, her car is rear-ended, and she suffers $2,000 in injuries. On top of that, she has to skip a week of work, which costs her $400 in lost wages. PIP will pay $2,000 for Jill’s medical bills, plus $320 for her lost wages (80% x $400 = $320).
Primary vs. Excess
● PIP is primary coverage
● Medical Payments is secondary: it pays after PIP is exhausted
● PIP restricts insured’s right to go to court
The PAP: Part E
Part E: Duties After an Accident or Loss
● Report all accidents
● Cooperate with insurer’s investigation, settlement, and any court proceedings.
● Promptly send the insurer copies of all pertinent legal papers
● Submit to a physical examination if insurer requests.
● Submit to examination under oath (EUO) and verify that your statements are
true and accurate
● Authorize the insurer to obtain medical reports
● Authorize the insurer to obtain other pertinent records
● Provide proof of loss if insurer requests
The insured has additional duties if policy includes:
● Part C – Uninsured/Underinsured Motorist
● Part D – Damage to Your Auto
Additional Duties for UM/UIM Claims
- Notify the police in the event of hit-and-run
2. If filing a lawsuit, forward legal documents to the insurer
Additional Duties for Collision or Comprehensive Claims
- Protect covered vehicles from further loss
- Promptly notify the police in the event of theft
- Allow insurer to inspect and appraise damaged vehicles
PAP coverage only applies to accidents and losses that occur:
● During the policy period
● Within the United States, its territories and possessions, and Canada
○ territories and possessions include Guam, Puerto Rico, military bases, embassies, etc.
● During shipment between ports in the policy territory
Mexico is not part of the policy territory.
Policy cannot be changed or waived without a ____ and signed endorsement.
written
Insurer may increase premiums immediately for:
● Changes to the number, type, or use of automobiles ● Changes in coverage, deductibles, or limits
● Address changes
● Changes in covered persons
For policies spanning more than ____ year, insurers may annually review the premium rate for the following year.
one
Insurer’s Rights to Recover Payment
● Enforces subrogation
● If insured is paid by both the insured and at-fault party, excess funds must be
paid back to the insurer
Subrogation does not apply to Part D Physical Damage.
Suspension of Insurance
Lets the insured suspend coverage and premium payments for a specified period of time.
Towing and Labor
● Pays for towing expenses, plus labor charges from the scene of the damage
● Per occurrence limit
Extended Non-Owned Coverage
● Liability and medical payments coverage for non-owned vehicles
● Covers non-owned vehicles carrying people or property for a fee
● Coverage only applies to the named insured
Customized Equipment
Provides extra coverage for valuable equipment that is not covered in standard policy
Miscellaneous Vehicle Coverage
Lets the policyholder add specialized vehicles to the policy, such as motorcycles, motorhomes, mopeds, etc
Non-Owner Coverage
Provides liability, medical payments, and UM/UIM insurance for people who have no car, but who often borrow other people’s vehicles
