Ch 4 | Personal Auto Policy

Question 1

Why were compulsory auto insurance laws established in (most) states?

Answer 1

to ensure at-fault drivers have a means to compensate auto accident victims

Question 2

What’s the difference between at-fault and no-fault automobile laws?

Answer 2

At-fault states use the tort liability system to determine who is responsible for the financial consequences of an auto accident. Typically, each insurer pays for damages according to the degree that the insured person is at fault (subject to policy limits). If the party that is not at fault doesn’t agree with the payout from the at-fault driver’s insurer, it can file a lawsuit to seek additional damages, both economic (such as medical expenses and lost wages) and noneconomic (such as pain and suffering, emotional distress, and disfigurement).

In no-fault states, an injured person does not need to establish fault and prove negligence to collect payment for bodily injuries. Automobile insurance covers accident victims on a first-party basis, allowing them to collect damages from their own insurers regardless of who was at fault. Most no-fault laws apply only to bodily injury and not to property damage.

Question 3

modified no-fault plans

Answer 3

These place some restrictions on the right to sue an at-fault driver but do not entirely eliminate this right. Under a modified no-fault plan, injured motorists collect economic losses from their own insurers through the PIP benefits mandated by the plan. They then have the ability to sue at-fault drivers for any economic losses that exceed the no-fault coverage limits and for noneconomic losses if their injuries exceed a threshold stated in the law.

Question 4

Add-on plans

Answer 4

These add no-fault benefits to auto insurance policies but place no restrictions on the injured person’s right to sue a negligent party for damages.

Question 5

Choice no-fault plans

Answer 5

Under these plans, insureds can choose whether to be covered on a modified no-fault basis. In most states with choice no-fault plans, insureds who choose not to be covered on a modified no-fault basis must purchase add-on no-fault coverages.

Question 6

What constitutes unfair discrimination in auto insurance rating?

Answer 6

Unfair discrimination occurs when an insurer applies different standards or treatment to insureds that present objectively similar loss potential. For example, charging higher-than-normal rates for an applicant based solely on the applicant’s race, religion, or ethnic background is unfair discrimination.

Question 7

In most circumstances, the spouse of the named insured under an auto insurance policy is also covered by the policy. But what if the married couple don’t reside in the same home? Is the spouse still covered by the policy?

Answer 7

Assuming the spouse and the named insured lived at the same address when the policy was issued, the spouse will continue to be covered by the policy if he or she moves out of the household but remains married to the named insured. But the spouse will only be covered for 90 days, until the policy expires, or until the spouse purchases other PAP coverage—whichever occurs first.

Question 8

You and Your definition

Answer 8

Refer to the named insured on the Declarations page. “You” and “your” can also include an unnamed spouse of the named insured when the spouse is a resident of the same household. If the spouse moves out of the household but remains married to the named insured, the spouse will remain covered for another 90 days or until the policy expires. Coverage ceases if he or she is named on another policy.

Question 9

Family member definition

Answer 9

A person who is related to the named insured or spouse by blood, marriage, or adoption and resides in the named insured’s household. Wards or foster children are also included.

Question 10

We, use, and our definition

Answer 10

These words refer to the insurer providing insurance under the contract, generally the insurer named in the Declarations page.

Question 11

Bodily injury definition

Answer 11

Bodily harm, sickness, or disease, including death.

Question 12

Occupying definition

Answer 12

Defined as in; upon; or getting in, on, out, or off. This is used in connection with Part B and Part C and clarifies the coverages provided. For example, if an insured’s friend was injured while leaning over an insured vehicle to check the battery connection, the friend would be considered to be occupying the vehicle.

Question 13

transportation network platform definition

Answer 13

An application designed to connect passengers and drivers who provide transportation for compensation.

Question 14

After getting married, Thomas and Carla lived together in New York City. Since public transportation was so accessible, Carla had never bothered owning a car. After the wedding, Thomas switched auto insurers and was assured that the new policy on his car would cover Carla as well. However, after receiving a promotion, Carla moved to Albany, where the public transportation network wasn’t as extensive. Before moving, Thomas bought another car for her use. One week after Thomas purchased the car and Carla moved to Albany, she was in an accident. Assuming Thomas had not yet added the new car to his policy, would Carla be covered if she was found liable for the accident?

Answer 14

The accident occurred within 14 days of the new car’s purchase and within 90 days of when Carla moved out, so Thomas’s policy would still provide coverage for her as his spouse.

Question 15

Pedro purchased a new sedan for his two teenage children to use and added the auto to his own PAP policy. Several months later, he and his wife opened their home to Francesca, a foster child, while she finished her last year of high school. Would Francesca be covered under Part A—Liability Coverage of Pedro’s PAP if she borrowed the sedan and caused an accident for which she was found liable?

Answer 15

Yes. Because foster children who live in the same household with the insured are considered family, Francesca would be covered under Part A—Liability Coverage of Pedro’s PAP.

Question 16

What is the coverage under PAP - Part A (Liability)?

Answer 16

damages for bodily injury or property damage from an auto accident for which an insured is legally responsible. These can include compensatory and punitive, or exemplary, damages.

The policy limits may apply to this coverage on a split-limits or single-limits basis.

Question 17

What are the four classes of insureds under Part A of the PAP?

Answer 17

Under Part A of the PAP, the four classes of insureds are the named insured and family members, any person using the named insured’s covered auto, any person or organization legally responsible for the acts of a covered person while using a covered auto, and any person or organization legally responsible for the named insured’s or family member’s use of any auto or trailer.

Question 18

intentional injury exclusion

Answer 18

Excludes liability coverage for an insured who intentionally causes bodily injury or property damage.

Question 19

property owned or transported exclusion

Answer 19

Excludes liability coverage for damage to property owned or being transported by an insured.

Question 20

property rented to, used by, or in the care of the insured exclusion

Answer 20

Excludes coverage of property the insured damaged and had rented or possessed and used. The exclusion does not apply to a residence or private garage.

Question 21

bodily injury to an employee of an insured exclusion

Answer 21

Excludes liability coverage for bodily injury to an employee of an insured when injured during the course of employment. However, injury to a domestic employee injured in the course of employment is covered if workers compensation benefits are not required or are unavailable for that employee.

Question 22

Public or Livery Conveyance exclusion

Answer 22

The Public or Livery Conveyance excludes liability coverage for an insured’s ownership or operation of a vehicle while it’s being used as a public or livery conveyance, even if the insured is only logged into a transportation network platform and has not yet picked up passengers. This exclusion does not apply to share-the-expense car pools or volunteer or charitable activities.

Question 23

garage business use exclusion

Answer 23

Excludes liability coverage for any insured while employed or engaged in the business of selling, repairing, servicing, storing, or parking vehicles designed for use mainly on public highways. It also applies to road testing and delivering vehicles, but not to the insured’s covered auto when it’s being driven by the named insured or anyone who would be an insured under the policy. For example, if a mechanic injures someone while driving his covered auto (rather than a customer’s auto) to a parts shop to pick up a part for his employer, the mechanic’s PAP liability insurance would cover the loss.

Question 24

other business use exclusion

Answer 24

Coverage is excluded for any vehicle other than a private passenger auto, pickup, van, or trailer (while it is being used with a covered vehicle) that is maintained or used in any business other than farming or ranching.

Question 25

vehicle used without reasonable belief of being entitled exclusion

Answer 25

If an insured uses a vehicle without reasonable belief of being entitled to do so, liability coverage is excluded. This does not apply when another family member (as defined) uses the owned auto of a named insured.

Question 26

nuclear energy liability losses exclusion

Answer 26

Coverage of liability for bodily injury or property damage caused by an insured who is also covered by a nuclear energy liability policy is excluded. Almost anyone can become an insured under a nuclear energy liability policy because some of these policies have broad definitions of who an insured is and may include a member of the public. For example, if an individual accidentally drives his vehicle into a nuclear energy facility, causing the release of harmful radiation, he could potentially be considered an insured under that facility’s nuclear energy liability policy.

Question 27

vehicles with fewer than four wheels or designed for off-road use exclusion

Answer 27

Excludes liability arising out of the ownership, maintenance, or use of any vehicle that has fewer than four wheels or those designed mainly for use off public roads. This does not apply to nonowned golf carts, vehicles being used by an insured in a medical emergency, or trailers.

Question 28

racing exclusion

Answer 28

Excludes coverage for any vehicle that is located inside a racing facility for the purpose of preparing for, practicing for, or competing in any organized racing or speed contest. Vehicles used in driver skill training events or designed for flight are also excluded.

Question 29

personal vehicle sharing exclusion

Answer 29

Excludes coverage for any covered auto while it is enrolled in a personal vehicle sharing program under the terms of a written agreement. The exclusion also applies to any operation of the vehicle in connection with such programs by anyone other than the insured or the insured’s family members.

Question 30

other vehicles owned by insured or available for insureds regular use exclusion

Answer 30

Excludes any vehicle, other than a covered auto, owned by the named insured or made available for the named insured’s regular use. Insureds can drive another person’s auto on an occasional basis and still have coverage under their own policy. If the nonowned auto is furnished for the insured’s regular use, the insured’s liability coverage does not apply.

Question 31

vehicles owned by or available for family members regular use exclusion

Answer 31

Excludes liability coverage for vehicles (other than covered autos) owned by any family member or furnished or made available for the regular use of any family member, but does not apply to the named insured and spouse while maintaining or occupying such a vehicle. Therefore, for example, liability insurance under a man’s PAP would cover him while he is borrowing a car owned by his daughter, who lives with him.

Question 32

Julieta works as a maid for Filip, who insures his auto under a PAP.

Filip asked Julieta to accompany him to the grocery store and crashed his car on the way there. Julieta is injured and files a liability claim against Filip. If workers compensation benefits are not required for domestic employees in this state, what liability coverage might Filip have for Julieta’s claim against him?

Answer 32

The PAP excludes liability coverage for bodily injury to an employee of an insured who is injured during the course of employment—except when workers compensation benefits are not required in the state where the injury occurred. Therefore, despite the exclusion, Filip’s PAP should provide coverage for Julieta’s liability claim against him.

Question 33

Common Part A split limits (3)

Answer 33

Bodily injury to each person
Bodily injury to all persons in each accident
Property damage in each accident

Question 34

What happens if an accident happens in another state than state where covered auto is principally garaged, and that state has higher minimum liability limits required?

Answer 34

If the accident occurs in a state that requires higher liability limits than the limits shown in the declarations, the PAP automatically provides the higher required limits for that accident.

Similarly, if another state requires a type of coverage that the insured’s state does not, such as no-fault personal injury protection (PIP) coverage, the insured would have that minimum PIP coverage when driving in that other stat

Question 35

Compensatory damages

Answer 35

A payment awarded by a court to reimburse a victim for actual harm.

Question 36

Punitive damages (exemplary damages)

Answer 36

A payment awarded by a court to punish a defendant for a reckless, malicious, or deceitful act to deter similar conduct; the award need not bear any relation to a party’s actual damages.

Question 37

Public or livery conveyance

Answer 37

In case law, a method of transportation that is indiscriminately offered to the general public, such as a taxi or public bus.

Question 38

Elizabeth’s son, Sam, is a family member as defined in his mother’s PAP. Although he is old enough to drive, Sam has promised Elizabeth that he won’t, after having been involved in a couple of serious accidents. However, late one Saturday night, he grows bored and takes his mother’s car for a drive while she is sleeping. Shortly afterward, he strikes a parked car and is injured. Explain what medical expense coverage Sam may have under Elizabeth’s PAP.

Answer 38

Part B of the PAP contains an exclusion that eliminates coverage if an insured sustains an injury while using a vehicle without a reasonable belief of being entitled to do so. Taking his mother’s car while she was sleeping and having made a previous promise that he would not drive would seem to suggest that the medical payments exclusion applies, but it does not apply to a family member who uses an owned auto of the named insured. For insurance purposes, a family member’s permission to use another family member’s car is assumed. Therefore, Sam’s medical expenses should be covered by his mother’s PAP within the limits of her policy.