Chapter 8

Question 1

Identify the three basic categories of commercial auto loss exposures.

Answer 1

1) liability loss exposures, 2) property loss exposures, 3) personal loss exposures

Question 2

Identify the most common way a business can incur auto liability.

Answer 2

through negligent injury of persons or damage to property by an employee operating an auto owned by the business.

Question 3

Identify situations in which an organization can become liable for injury or damage to others that results from the use of autos it does not own.

Answer 3

An employee may use his or her own auto to further an employer’s business. Another example is when an organization hires autos from other organizations for terms ranging from a few hours to a number of years. Whatever the period of time, the hiring organization dan be held legally liable for injury that results from the vehicle’s operation. Similarly, a person or an organization that borrows an auto from another can be held liable for injury arising from its operation.

Question 4

Identify the purpose of garagekeepers coverage.

Answer 4

To insure customers’ autos while they are in the custody of the insured auto or trailer dealer.

Question 5

Describe the main consequences of damage to or destruction of an auto from the perspective of the auto’s owner.

Answer 5

Decrease in or loss of the auto’s value and loss of use of the auto until it can be repaired or replaced.

Question 6

Describe the various commercial auto coverages that cover personal loss exposures arising from auto accidents.

Answer 6

Medpay, PIP and UM coverage cover personal loss exposures arising from auto accidents.

Question 7

Identify what types of insureds are eligible for the Business Auto Coverage form.

Answer 7

Any organizations other than auto or trailer dealers and motor carriers (businesses that transport the property of others) are eligible for the BACF.

Question 8

Describe the purposes for adding endorsements to commercial auto coverage forms.

Answer 8

Endorsements are commonly used to add coverages, to designate additional insureds, to add or omit exclusions, and to bring standard coverage forms into conformity with state insurance regulations.

Question 9

Explain the numerical symbol system used to indicate the covered autos for the various coverages available under the BACF.

Answer 9

They are used to indicate covered autos. One or more of these numeriacal symbols are entered beside each coverage listed in the policy schedule to indicate which types of autos are covered.

Question 10

Identify the 10 symbols the BACF uses to signify coverage.

Answer 10

1) Any auto, 2) Owned autos only, 3) Owned PP autos only, 4) Owned autos other thann PP, 5) vehicles subject to no-fault, 6) owned autos subject to a compulsory UM law, 7) specifically described auto, 8) hired autos only, 9) nonowned autos only, 19) Mobile equipment subject to compulsory or financial responsibility or other motor vehicle insurance law only.

Question 11

Contrast the coverage for newly acquired autos provided by symbols 1-6 or 19 with that provided by symbol 7 in the BACF

Answer 11

If symbols 1-6 or 19 are used, newly acquired autos of the type indicated by the symbol are automatically covered. The insurer will learn of newly acquired autos at the end of the policy period (during the audit), an the insured will pay the additional premium. If symbol 7 is used, newly acquired autos are covered from the time of acquisition only if the insurer insures all autos owned by the named insured, or the newly acquired auto replaces a covered auto and the named insured asks the insurer to cover the newly acquired auto within 30 days after the acquisition.

Question 12

Identify the main situation in which symbol 19 is useful.

Answer 12

When an insured has coverage through symbol 9 (specifically described autos)

Question 13

Howard is a local beverage distributor who owns four delivery trucks. In ordinary circumstances, these vehicles handle all of his business needs. On occasion, when one of the vehicles is out of service, Howard’s employees will use their own cars to make small deliveries. For liability coverage in his BACF, what symbol or symbols are appropriate for Howard’s business?

Answer 13

Howard will have coverage for any auto, owned or nonowned, if symbol 1 is entered for liability coverages. Because vehicles used in the business are limited to owned vehicles and those of his employees, he can alternatively use symbols 2 and 9.

Question 14

Identify the 3 distinct duties that an insurer has under the BACF liability coverage agreement.

Answer 14

A duty to pay claims, a duty to pay “covered pollution cost or expense,” a duty to defend the insured.

Question 15

What determines whether a vehicle qualifies as a covered auto under the BACF?

Answer 15

Depends on which coverage symbols are indicated in the schedule of coverages and what covered autos are listed in the business auto declarations.

Question 16

Identify the circumstances under which the BACF will cover pollution cost expense.

Answer 16

It must be caused by an accident and must result from the ownership, maintenance, or use of a covered auto. In addition, the same accident that causes the pollution cost or expense must also result in BI or PD covered by the policy.

Question 17

Describe who is an insured under the BACF.

Answer 17

The named insured is an insured for any covered auto. Anyone other than the named insured is an insured while using with the insured’s permission a covered auto owned, hired, or borrowed by the named insured, subject to certain restrictions.

Question 18

Identify the 6 supplementary payments BACF liability coverage provides.

Answer 18

All expenses incurred by the insurer, 2) Up to $2,000 for bail bonds, 3) The cost of bonds to release attachments in any suit against the insured that the insurer defends, 4) All reasonable expenses incurred by the insured at the insurer’s request, 5) All court costs taxed against the insured in any suit against the insured defended by the insurer, 6) All interest on the full amount of any judgment that accrues after entry of the judgment in any suit against the insured that the insurer defends

Question 19

Identify the categories of exclusions in the BACF.

Answer 19

Expected or intended injury; workers comp and related exclusions; care, custody, or control exclusion; exclusions related to loading and unloading; operations and completed operations exclusions; pollution, war, and racing exclusions.

Question 20

Identify the three basic physical damage coverages from which the insured may choose under the BACF

Answer 20

Collision, Comprehensive, Specified Causes of Loss

Question 21

Explain what is included in the BACF collision coverage.

Answer 21

Direct and accidental loss or damage to a covered auto caused by collision with another object or overturn.

Question 22

Explain what is included in the BACF’s comprehensive coverage.

Answer 22

Direct and accidental loss or damage to a covered auto by any peril except collision or overturn or a peril specifically excluded.

Question 23

Identify examples of perils insured under the BACF’s Specified Causes of Loss Coverage.

Answer 23

Direct and accidental loss caused by fire, lighning, explosion, theft, windstorm, hail, earthquake, flood, mischief, vandalism, or loss resulting from the sinking, burning, collision, or derailment of a conveyance transporting the covered autos.

Question 24

Identify examples of the types of electronic equipment excluded under the BACF.

Answer 24

Tapes, records, discs or similar devices; radar detectors, laser detectors, and similar devices; any equipment, regardless of whether it is permanently installed, that reproduces, receives, or transmits audio, visual, or data signals; any accessories used with the previously described equipment.

Question 25

Describe the BACF’s determination of the most the insurer will pay for a physical damage loss.

Answer 25

The lesser of ACV or replacement cost (with LKQ)

Question 26

Describe the insured’s duties after a loss.

Answer 26

They are essentially the same as those imposed by the CGL policy. The named insured must give prompt notice of accident or loss to the insurer or its agents and assist the insurer in obtaining the names of injured persons or witnesses. Also, both the named insured and any other person who seeks liability coverage under the policy (ex. driver of insured’s vehicle) must do these: cooperate with the insurer in its investigation and defense of the accident or loss; immediately send to the insurer copies of any notices or legal papers received in connection with the accident or loss; submit to physical examinations by physicians selected and paid by the insurer as often as the insurer may reasonably request, Authorize the insurer to obtain medical reports and other medical information.

Question 27

Describe the insurer’s loss payment options with regard to damaged or stolen property under the BACF.

Answer 27

Pay to repair or replace the property; Return the property at the expense of the insurer and repair any damage caused by theft; Keep all of the property and pay an agreed or appraised value.

Question 28

Describe the insurer’s right known as subrogation.

Answer 28

Entails the right to recover from a loss from some other party, usually because the other party caused the loss. If the insurer pays the loss, it is entitled, under this condition, to take over the insured’s right of recovery from the other party.

Question 29

Hector runs a cheese shop in a large city. One of his trucks is involved in a liability claim and two primary business auto policies apply to the claim. Policy A has a $300k liability limit and Policy B has a $500k liability limit. The covered anyone of the claim is determined to be $160k. Using the Other Insurance provision of the business auto conditions, how much coverage, if any, is provided to Hector by policy A and Policy B?

Answer 29

Policy A, which has 3/8 of the total limits $300k/$800k would pay $60k ($160k x 3/8). Policy B, which has 5/8 of the total limits ($500k/$800k) would pay $100k ($160k x 5/8)

Question 30

Describe the coverage provided by the auto medical payments insurance available by endorsement to the Business AutoCoverage Form.

Answer 30

Reasonable and necessary medical and funeral expenses incurred by a person injured by an auto accident. The coverage applies regardless of fault.

Question 31

Identify the persons covered by auto medical payments insurance in the BACF.

Answer 31

Persons injured in an accident while occupying a covered auto. If the named insured is an individual, the named insured and members of his or her family are covered while occupying any auto or if struck by an auto while a pedestrian.

Question 32

Describe the benefits provided by a typical PIP endorsement to a BACF.

Answer 32

Cover expenses from BI to occupants of a covered auto because of an auto accident, and the consist of the following: medical and rehabilitative expenses; income loss benefit; substitute services benefit; death benefits to survivors

Question 33

Describe the coverage provided by UM insurance in the BACF.

Answer 33

Covers any person injured by a legally liable uninsured motorist while riding in an auto insured under the policy. Benefits are paid to the injured person by his or her own insurer.

Question 34

Lorena owns an electrical repair business and insures her service vehicles under the BACF. she lives and works in a state that has a no-fault law. Her BAP includes liability, PIP, $300k UM and UD. She is injured in an accident involving the service truck she was driving. In court, the other party is found to be 100% responsible for the accident, and Lorena is awarded $100k for her pain and suffering. The negligent party carried auto liability limits of $250k. Lorena also incurs $150k of medical expenses. What coverage, if any, from Lorena’s BAP will apply?

Answer 34

PIP will pay medical benefits regardless of fault. UIM covers all damages resulting from BI (including medical expenses that exceed the PIP limit) Unlike PIP coverage, Lorena may find compensation under IUM for her noneconomic losses (pain and suffering) related to injuries sustained in the auto accident. The UIM coverage would pay the $75k portion of her pain and suffering award (the amount that exceeds the $25k provided by the negligent party’s insurer.

Question 35

Identify the 3 components of the primary factor used in rating trucks, tractors, and trailers for business auto insurance.

Answer 35

size, class, business use, and radius class.

Question 36

Explain how base liability premiums and base physical damage coverage are determined for non zone-rated vehicles.

Answer 36

Base premiums for liability and physical damage coverage for non-zone rated vehicles are multiplied by the combined factors (sum or primary and secondary factors). Base liability premiums are determined on the basis of the policy limit and territory in which the auto is principally garaged. Base physical damage premiums are determined on the basis of the vehicle’s age and its cost new.

Question 37

Explain how base liability premiums and base physical damage coverage are determined for zone-rated vehicles. Base premiums for zone rated vehicles are affected by the various geographical zones in which the vehicles are operated because liability and collision losses are more likely in metropolitan areas than on the open road. Base physical damage premiums depend on the vehicle’s cost new, the current age of the vehicle, the type of vehicle (with respect to collision coverage), and the chosen deductible.

Answer 37

After the primary factor has been determined for the zone rated vehicle, its physical damage and liability premiums are calculated by applying the primary factor to base premiums. Secondary factors are not used for zone rated autos.

Question 38

Shays has a small chain of grocery stores in 5 states. It has 6 trucks and trailers to purchase organic produce from wholesalers and carry the produce to its stores. Shares entered into agreements with other organic grocers with whom it shares the produce distribution within a 5 state area so that its trucks and trailers were only transporting produce in a 275 mile radius.. However, due to the demand for fresh produce in the winter, Shaws is regularly sending some trucks with trailers 700!miles to warmer states for produce. Explain how Shaws’ insurer will determine the rates for the vehicles that are now raveling the longer distances.

Answer 38

The trucks and trailers that are now traveling a 700-mile radius will be zone rated. The primary rating factors will not change. However, the zone rating for these vehicles, which will apply to the collision and liability premiums, will be based on the geographical zones in which the vehicles are operated.

Question 39

When is a truck, tractor, or trailer zone rated?

Answer 39

If operating over 200 miles from place of principal garaging and is a medium or large truck.

Question 40

How are business autos rated ?

Answer 40

Determine primary factor using size class, business use (service, retail, or commercial) and radius class.

If not zone rated, you add the primary to a secondary factor, which is based on industry classifications. Then you multiply by the combined factor.

If zone rated, determine primary factor and apply to base premiums.