Chapter 7 Auto Flashcards
Auto Liability - The purpose of Auto Insurance
Auto coverage can serve many purposes depending on a person’s needs and situations. Mainly, states require motorists to carry a policy at their required limits in order to ensure that there is compensation in place in teh event that a traffic accident occurs and there are injuries and/or property damage as a result. Additionally, it can provide valuable protection to an insured’s assets, liabilities, personal injuries, vehicles, and financial hardship.
Aside form state laws making it mandatory, having the property coverage can help motorists avoid financial hardships resulting from auto accidents. Most commonly, states require drivers to have a liability policy in order to operate vehicles legally. The main intention is to make sure that other motorists will be compensated for injuries and/or damages that are caused by another party, but this benefits the policyholder as well. By having one of these policies, the insured’s provider will pay for injuries and/or damages that they cause up to the limits purchased.
This can be quite beneficial considering the cost of medical expenses and the price of repairs or the replacement vehicles. Many individuals get more extensive protection in order to further protect their property & assets. Raising liability limits can help pay for serious injuries and damage to property. If a person suffers a permanent injury, dismemberment or disfigurement, the chances are that the state’s requirements won’t be sufficient in order to cover the cost of medical bills and/or rehabilitation.
Structure of Personal Auto Policies
As with HOI policies, there is a standard personal auto policy published by the Ins Svc Office. The provisions of the standard ISO personal auto policy and the proprietary policies sold by other insurers tend to be more alike in their basic coverage provisions than they differ.
Coverage provisions in the ISO personal auto policy are grouped as follows:
- definitions coverages
- liability coverages
- medical payments coverage
- uninsured motorist coverage
- first party physical damage
- insured’s duties after accident or loss
- general provisions
Proprietary personal auto policy forms used by insurers that do not employ the ISO personal auto policy forms may differ in the order in which these categories of provisions appear. Personal auto policies issued in no-fault states also differ from the ISO personal auto policy.
Insurable Interest
Before discussing the actual provisions of auto policies, the concepts of insurable interest and insured capacity, as they relate to the coverages afforded by auto policies, should be discussed. As with HOIs, the concept of insurable interest relates to the coverages for physical damage to your auto. A person must have an insurable interest in the auto in question to be entitled to payment of a loss. They easy insurable interest concepts are those of the registered owner and lien holder, such as your auto loan lender or leasing company of a covered vehicle. However, coverage also extends to non-owned autos. The common definitions of non-owned autos include rental vehicles and borrowed vehicles as long as they are not regularly available for use by a named insured or a family member. Spouses will generally be considered to have an insurable interest even if not a registered owner of the vehicle.
The concept of insured capacity is mostly a question of the definitions of insured, covered person, family member, or eligible injured person, as well as those arising under the vehicle codes and other state laws.
For example, the laws of a particular state may require that a person using a vehicle with the named insured’s expressed or implied permission be covered as an insured under the named insured’s policy. Such requirements are related to the named insured’s statutory liability as the vehicle owner for the bodily injury or property damage arising out of its use.
Texas Auto Insurance Coverage
The Texas Auto Policy is composed of many types of coverage. Texas law requires individuals to have a t least hte state limits minimum liability coverage. The current minimum limits of liability coverage for Bodily Injury (BI) are $30k per person, and $60k per accident. The Property damage limit is $25k per accident. This is known as 30/60/25.
The other coverages are optional, but if a person owes money on their car, their bank/lender will require them to have full coverage which consists of comprehensive and collision coverage.
Liability Coverage (mandatory)
Bodily Injury will pay the other person’s expenses for accidents caused by drivers covered under your policy, up to your policy’s liability limits. These can include:
- Medical expenses for bodily injury;
- Emergency aid at the scene;
- Medical services for disease or sickness;
- Compensation for loss of income;
- Legal defense fees; and
- Funeral expenses.
Property Damage will pay if another person’s property is damaged in an accident that’s your fault. It can help pay for:
- Structural damage to homes, storefronts, etc;
- Vehicle repair or replacement costs; and
- Repair or replacement costs for other stationary objects.
Liability coverage protects you, your family members, and other people driving your car with your permission, even if they don’t have their own liability insurance and are not named on your policy. You and your family members are also covered when driving someone else’s auto - including a rental car - but not a car that you don’t own but have regular access to, such as a company car.
Medical Payments Coverage (Optional)
Includes medical & funeral bills arising from accidents, including a pedestrian or a bicyclist. It will cover you, your family members, and passengers in your car, regardless of who caused the accident.
Personal Injury Protection (PIP) Coverage (optional)
Same as medical, plus 80% of lost income and the cost of hiring a caregiver for an injured person. It covers you, your family members, and passengers in your car, regardless of who caused the accident.
Uninsured Motorist coverage (optional)
It will pay your expenses from an accident caused by an uninsured motorist or if the other driver did not have enough insurance. It also pays for accidents caused by a hit-and-run driver if you reported the accident promptly to the police.
Underinsured Motorist (UIM) coverage (optional)
This auto coverage provides protection in the event an insured is involved in an accident caused by another who is carrying insurance coverage lower than the amount of the damages and lower than the claimant’s Underinsured Motorists Coverage.
Bodily injury UM/UIM covers medical bills, lost wages, pain and suffering, disfigurement, and permanent or partial disability
Property damage UM/UIM pays for auto repairs, a rental car, and damage to items carried in your car. There is an automatic $250 deductible.
Uninsured/Underinsured motorist coverage covers you, your family members, passengers in your car, and others driving your car with your permission. If you don’t want UM/UIM, you must reject it in writing.
Collision coverage (optional)
Covers the cost of repairing or replacing your car after an accident, regardless of who was driving or who was at fault. Payment is limited to your car’s actual cash value, less your deductible. Actual cash value is the market value of a car like yours before it was damaged.
Comprehensive coverage (optional)
Covers the cost of replacing or repairing your car if it is stolen or damaged by fire, vandalism, hail, falling objects or other causes other than collision. Comprehensive coverage also pays for a rental car or other temporary transportation if your car is stolen. Payment is limited to your car’s actual cash value, less your deductible.
Towing & Labor coverage (optional)
Will pay for towing charges when your car can’t be driven. Also pays labor charges, such as lock-out service, battery jump start, and changing a tire, at the place where your car broke down.
Rental Reimbursement Coverage (optional)
Pays for a set daily amount for a rental car if your car is stolen or is being repaired because of damage covered by your policy.
Texas Guaranteed Auto Protection– GAP (optional)
Comprehensive & collision coverage only pay up to the actual cash value of the insured vehicle. If you bought your car brand new, there is a strong possibility that your car could depreciate in value more quickly than you are able to pay for it. In these cases, GAP coverage comes to the rescue, paying the difference between the actual cash value of the vehicle and the amount you still owe on the loan.
Driving in other states, Canada & Mexico
Your insurance should cover you if you drive in other states & Canada. Your policy will NOT cover you in Mexico because Mexico does not recognize US auto liability policies.
Mexican authorities may hold drivers criminally & financially responsible for any auto accidents they cause. If you’re in an accident that results in an injury. policy may keep you until they decide who is at fault. you will be asked to show you have insurance that the Mexican government will accept or prove that you can pay any judgment against you. Some US insurance companies provide a free endorsement for your policy for your policy that covers occasional trips of up to 10 days and 25 miles into Mexico. You can buy coverage for longer stays, but it usually only covers you within 25 miles of the border. These endorsements might not meet Mexican legal requirements. Some companies sell a Mexico tourist endorsement to attach to your Texas policy. This endorsement extends your liability coverage to pay costs exceeding a Mexican liability policy’s limits. It covers trips of any distance and any length of time.
Proof of Financial Responsibility
When you buy an auto policy, your insurance company will send you a proof-of-insurance card. You must show your current card when you:
- are asked for it by a police officer;
- have an accident;
- register your car or renew its registration;
- get or renew your driver’s license; and
- have your car inspected.
The penalties for violating the state’s financial responsibility laws are:
- First offense: Fine of $175 to $350
- More offenses: Fine of $350 to $1000, suspension of your license, and impoundment of your auto.
- Offense without a license: $2000 max fine, 180 days in jail, or both.
- Offense if you cause an accident with serious injuries or death: $4000 max fine, one year in jail, or both.
Factors that affect your premium
Companies use the underwriting process to decide whether to sell a policy and what rate to charge you. Companies must file their UW guidelines with TDI and update them each time they make a change.
The factors companies typically use to set premiums include:
Your age and marital status. Men under 25 and unmarried women under 21 have the highest rates. Drivers over 50 may get discounts.
Your driving record and claims history. A good driving record can save you money. ICs will charge you more if you have accidents or tickets on your driving record. Companies may also charge more for major convictions, some driving violations, and accidents that damage property. Some surcharges are mandatory and will apply to your premium for three years.
Where you keep your car. Rates are typically higher for people who live in cities because they have more accidents and thefts than people who live in rural areas.
Your car’s primary use. Your rates will be higher if you drive your car to and from work or for business. Rates are lowest for people who only drive for pleasure.
Your car’s type. Collision and comprehensive rates are highest for luxury, high-performance, and sports cars. Rates may also be higher for cars that damage easily or cost more to repair.
Your credit score. Companies often use your credit scores to decide if they want to sell you a policy and at what cost. A company can’t refuse to sell you a policy or cancel or non-renew your policy based only on your credit.
Whether you drove uninsured in Texas. Companies may charge more if you drove uninsured in Texas for more than 30 days in the 12 months before you applied for insurance. If you didn’t, a company can’t charge you more for liability coverage because of your prior lack of coverage.
Duties after loss
Part E of the personal auto policy list the duties of an insured following an accident or loss.
The insured must:
- cooperate with the insurer in the investigation, settlement, or defense of any claim;
- provide the insurer and police information regarding a hit-and-run driver;
- protect the damaged property from further damage int he event of a damage to your auto coverage loss;
- notify the police promptly if the auto is stolen; and
- notify the company promptly and permit the insurer to inspect and appraise the damaged property before it is repaired or replaced.
General Provisions
Inception of coverage - Begins at 12:01am on the inception date.
Territory - Coverage applies only to losses, accidents, or occurrences that take place during the policy period and within the US, its territories and possessions, PR, or Canada, or while being transported between the ports in any of those places.
Action against the company - an insured agrees not to sue the insurance company to provide coverage until:
- he has complied fully with all terms of the policy; and
- the obligation to pay has been determined by judgment after trial or the insurer agree-s in writing that the insured has an obligation to pay.
Bankruptcy - the insured’s bankruptcy or insolvency does not relieve the insurance company of its obligation.
Fraud - The personal auto policy provides no coverage for an insured who has made fraudulent statements or engaged in fraudulent conduct.
Subrogation - the insurer has subrogation rights under all coverages of the personal auto policy except under coverage D (collision) against a person using a covered auto with a reasonable believe that he or she is entitled to do so. The insured must reimburse or hold in trust for the insurer any recovered damages the insured collects after the insurer has made payment.
Policy changes - a written endorsement by the insurer that forms part of the policy is the only way to change the policy. Premiums are computed from the effective date of the change. If the insurer changes its personal auto policy to provide more coverage, without additional premium, or if a statute requires a change in coverage, any PAP policy already issued provides the additional coverage.
Assignment - the PAP may not be assigned without the insurer’s consent. However, if a named insured dies, coverage will be provided for the surviving spouse if a resident of the same household at the time of death, or the legal representative of the deceased person to maintain or use a covered auto. This coverage is provided only until the end of the policy period.
Termination
Non-renewal – the company may non-renew the policy by providing the named insured with 20 days written notice. State regulations may modify the requirements by restricting the notice or grounds.
Cancellation – during the policy period, the insured may cancel the policy by giving advanced notice.
If the insurer cancels the policy, it must provide 10 days written notice when the cancellation is made for nonpayment of premium or during the first 60 days of a new policy for almost any UW reason.
The insurer must give 20 days written notice when the policy has been in effect for 60 days; if it is a renewal or continuation policy, and cancellation occurs because the license of the insured, someone who lives with the insured, or someone who normally drives the insured’s auto is revoked or suspended during the policy period or since the last anniversary of the effective date; or the policy was obtained through material misrepresentation.
State regulations may modify the notice requirements.
Rationg
Auto insurance premiums are based on several criteria, including the type and amount of coverage desired, the individuals who will operate the auto, where the vehicle is garaged, the deductible amount, the make and model of the auto, the use of the auto, number of miles driven, age and sex, and so forth.
Claims Settlement
The claims department depends on several provisions that direct the methods for paying auto claims.
- Aftermarket parts regulation; ICs cannot require repairs at specific repair facilities or require that parts other than window glass be replaced with parts other than original equipment parts.
Auto repair claims settlement - auto claims are settled at cash value, and the insurer will:
- total the vehicle when the repair cost exceeds the value of the vehicle (the insured is paid the value of the vehicle and the insurer retains the vehicle for salvage);
- repair the vehicle when the repair cost is less than the value of the vehicle (the insurer pays all costs necessary to repair the damage); or
- replace the vehicle when the insurer can find another vehicle of like kind and quality and offer it to the insured as a replacement vehicle
Arbitration - this settlement option between the insured and the insurer is used to resolve any disagreement except those regarding the value of a loss.
Appraisal - this settlement outlines a procedure to be used when the insured and the insurer disagree on the amount of a loss. Each selects an appraiser and the two appraisers then select an umpire. If the appraisers cannot agree, the umpire is consulted. An amount agreed to by two out of the three is the amount paid for the loss.
Auto Insurance Plans
AKA assigned risk plans, these are the oldest type of residual (shared) market plans. They provide auto coverage for drivers who are unable to obtain coverage in the normal or standard market.
- When a driver is refused coverage in the standard market due to being a high risk driver, they may apply to the state’s auto ins plan.
- The plan is a pool made up of all licensed auto insurers in the state. The application made by the driver is assigned to one of the insurers of the plan.
- A notice of eligibility in in the assigned risk pool must be provided to the insured if an auto liability policy is non-renewed or canceled for other than non-payment of premium. This notice is a state notifying the insured that they may be eligible for liability ins through the assigned risk plan.
Commercial Auto
Coverage for autos used primarily for business purposes may be added to the commercial package policy. As with other coverages added to the commercial package policy, the common conditions with declarations apply to commercial auto coverage. In addition, if this coverage is desired, a commercial auto coverage part is attached. A specific commercial auto declarations page (including a schedule of all the covered autos owned by the insured) will be added, and then the appropriate coverage form (which includes specific commercial auto conditions) will be attached, depending on the type of coverage the insured needs and desires.
A. Business Auto Coverage Form - this form covers vehicles used to conduct business. It does not cover vehicles that are sold, stored, or repaired for clients.
- Types of covered autos - this coverage includes trucks, auto, trailers, and busses.
- Mobile equipment - Not included in this policy are off-road vehicles, bulldozers, forklifts, cherry pickers, and backhoes. These are insured for physical damage by a property floater, and for bodily injury by a commercial general liability policy. Liability extends from the power unit while the mobile equipment is hauled or towed.
- Covered persons - covered persons include the named insured and anyone (with permission) using the auto.
- Coverage provided - bodily injury and property damage liability coverage are provided up to the limits of the policy. Physical damage coverage is also available (comp & collision) subject to a deductible.
- Many of the exclusions, definitions, conditions, rating information, and supplementary payments provided under the business auto policy (commercial auto) are similar to those found in the personal auto policy.
B. Garage Coverage Form - This type of liability insurance is a package of coverages suited for dealers. It consists of premises and operations coverages, contractual liability coverage for insured contracts, products and completed operations, coverages, premises medical payments insurance, dealers physical damage, and some auto liability coverage depending on the nature of the operation.
- Premises and operations coverages (garage liability) - the premises and ops coverage of a garage liability policy is similar to coverage provided under commercial general liability.
- these coverages apply when bodily injury or property damage arises out of garage ops. Garage ops includes the ownership, maintenance, or use of the premises for purposes of a garage and all operations necessary or incidental to it.
- premises is defined as the premises where the insured conducts garage operations including the areas immediately adjoining. I.e. if a dealer decides to sell household appliances, these operations are not likely to be considered necessary or incidental to the operation of the business and would not be covered by this contract.
- Dealers physical damage - damage to the autos of an auto dealer may be covered under the this section of coverage, including autos used on the operation of the business or those being held for sale.
- Exclusions - Most exclusions are similar to those that apply under a commercial general liability policy, such as damage to property in the care, custody, and control of the insured. However, liability assumed by insured contracts are covered.
- Garagekeepers coverage - Garagekeepers insurance is a type of bailee coverage (protecting the business for damage to the property of their customers) available to auto dealerships. GK insurance provides coverage for damage to autos of others arising out of the general operations of business.
- The need for GK ins arises from the fat that garage liability insurance does not cover property damage losses to autos in an insured’s care, custody, or control;
- Specified peril coverage is available. I.e. fire, explosion, theft, and vandalism. Comprehensive and collision coverage are also available. All subject to a deductible.
- Losses not covered: GK policy does not cover losses caused by:
– theft by an insider (insured, employees, or shareholders);
– contractual liability;
– products or work loss;
– sound reproducing or receiving equipment, unless permanently installed in the auto; or
– other losses not covered such as those caused by war, rebellion, racing, and so forth.
