Chapter 18: Personal Auto and Umbrella Liability Insurance

Question 1

No pay, no play

Answer 1

No pay, no play statutes limit the rights of uninsured drivers to collect damages from insured drivers. A few states have recently enacted such laws.

Question 2

Financial Responsibility Laws

Answer 2

These laws require proof of future financial responsibility, generally proof that liability insurance is in force after:

• an auto accident
• conviction of serious offense i.e drunk driving
• loss of drivers license
• failure to pay legal judgement

Question 3

A few states (all of which also have compulsory insurance requirements) have unsatisfied judgment funds?

Answer 3

Established to compensate persons who are unable to

collect legal judgments that result from auto accidents.

Question 4

Uninsured Motorists Coverage

Answer 4

Under uninsured motorists coverage, the injured insured is able to collect the amount he or she would have collected from the insurer of an insured driver if that driver had been carrying insurance. In effect, the insured’s own company acts as the insurer of the uninsured driver.

Question 5

No-Fault Auto Insurance

Answer 5

Your insurance company pays all or some of the bills for an accident regardless of who’s fault the crash was.

Question 6

pure no-fault

Answer 6

each owner of an auto would be required to carry first-party insurance that compensated all persons injured in auto accidents involving that vehicle. The right to sue a negligent party, even for pain and suffering, would not exist. No state has adopted a pure no-fault law. The types of laws that do exist fall into three broad categories—modified no-fault laws, add-on plans, and choice no-fault laws.

Question 7

Modified No-Fault Laws

Answer 7

The most common form of no-fault legislation limits the right of an injured party to recover damages from a negligent party but does not eliminate it.

Question 8

Add-On Plans

Answer 8

An add-on plan has no restriction on the right to sue a negligent party, but first-party no-fault type benefits are available. The insurer that pays these benefits has subrogation rights against the negligent party. Some argue that add-on plans should not be referred to
as a type of no-fault because the traditional tort system has not been altered.

Question 9

Choice No-Fault Laws

Answer 9

A choice no-fault law, used in only a few states, gives the insurance buyer two choices: coverage under the traditional tort liability system or coverage under a modified no-fault law at a reduced premium.

Question 10

Types of No-Fault Laws

Answer 10

• Pure no-fault: right to sue negligent party would be eliminated.
• Modified no-fault: right to sue negligent party only if injuries exceed a dollar or verbal threshold.
• Add-on no-fault: right to sue negligent party in addition to right to collect first-party no-fault benefits.
• Choice no-fault: right to sue neglige.

Question 11

P.I.P

Answer 11

Personal Injury Protection

Question 12

P.A.P

Answer 12

Personal Auto Policy

Question 13

PAP provides four types of insurance

coverage:

Answer 13

• Part A—Liability Coverage
• Part B—Medical Payments Coverage
• Part C—Uninsured Motorists Coverage
• Part D—Coverage for Damage to Your Auto

Question 14

A PAP can be written on?

Answer 14

A PAP can be written on eligible vehicles owned or leased by an individual or by a husband or wife residing in the same household. Vehicles with other forms of ownership (such as a father and a son) can also be insured with an endorsement. A vehicle rented to others or used as a public or livery conveyance is not eligible and must be insured under a commercial policy.

Question 15

PAP

Policy territory

Answer 15

The PAP applies only to accidents and losses that occur in the United States, its territories or possessions, Puerto Rico, or Canada.

Question 16

PAP Part A

Answer 16

Part A of the PAP provides bodily injury and property damage liability protection to any insured who is legally responsible for an auto accident.

Question 17

Uninsured Motor Vehicle

Answer 17

• One with no insurance
• One with liability limits lower than the applicable state law requires
• One driven by a hit-and-run driver
• One whose insurer denies coverage or becomes insolvent

Question 18

Part C ( provides uninsured motorists coverage) specifically excludes certain vehicles from the definition of an uninsured vehicle. These are vehicles that are:

Answer 18

• owned by or furnished for the regular use of any family member
• owned or operated by a self-insurer under an applicable motor vehicle law unless
the self-insurer is or becomes insolvent
• owned by any government agency unit
• operated on rails or crawler treads
• designed mainly for use off public roads
• located for use as a residence or premises

Question 19

Collision

Answer 19

Collision is defined as the upset of the covered auto or any nonowned auto or its impact with another vehicle or object.

Question 20

Do most no fault laws eliminate the right to sue negligent parties?

Answer 20

Under most no-fault laws, the right to sue the negligent party exists once a dollar or verbal threshold has been met. No state has adopted a pure no-fault law.

Question 21

If Jim has an accident while driving his friend’s car and is sued for $250,000 for bodily injury and property damage, the friend’s liability insurance would pay first and Jim’s liability coverage would be excess and thus pay only if needed.

Answer 21

TRUE

Question 22

Other than collision coverage

Answer 22

The PAP never specifically defines the term other than collision. Technically, if a loss is
not caused by a collision, it must be a result of other than collision.
Specific sources of loss covered under other than collision policies are:
• missiles and falling objects
• fire
• theft or larceny
• explosion or earthquake
• windstorm
• hail, water, or flood
• malicious mischief or vandalism
• riot or civil commotion
• contact with a bird or animal
• breakage of glass. However, the policyowner may choose to consider this part of the collision loss if it is caused by collision.

Question 23

A client driving to Mexico should be advised to purchase liability coverage from a Mexican insurer.

Answer 23

TRUE

Question 24

Despite the highly competitive market, the cost of auto insurance differs significantly from company to company in most states.

Answer 24

TRUE

Question 25

Two common package policies for boats are:

Answer 25

Boat owners policy for smaller boats and the yacht policy for larger boats.

Question 26

Umbrella Policy

Answer 26

A personal umbrella policy is designed primarily to provide liability coverage for catastrophic legal claims or judgments. The smallest limit of coverage available from most insurers is $1 million, and limits up to $5 or $10 million are often available. The policy covers not only bodily injury and property damage liability but also personal injury liability.