PERSONAL AUTO AND. UMBRELLA LIABILITY INSURANCE. THE PROBLE

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CHAPTER 18 PERSONAL AUTO AND UMBRELLA
LIABILITY INSURANCE
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THE PROBLEM OF THE INNOCENT VICTIM
Compulsory Auto insurance Financial
Responsibility laws Unsatisfied judgment
funds Uninsured motorist coverage Underinsured
motorist coverage No-fault auto insurance
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COMPULSORY AUTO INSURANCE
Used in most states. Problems that still exist
are 1. victims must go though the legal
system 2. there is no guarantee that an
innocent victim will be paid drivers
without a license drivers who drop their
insurance hit and run drivers out of
state drivers without insurance stolen car
drivers fraudulently registered cars Also,
required limits are relatively low, e.g.,
25,000/50,000/10,000
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FINANCIAL RESPONSIBILITY LAWS
All states. After 1. an accident involving
bodily injury or property damage over a certain
amount 2. conviction of a serious driving
violation 3. loss of drivers license
4. failure to pay an auto judgment the driver is
require to show financial responsibility for
future accidents. Otherwise, driver privileges
are lost. UNSATISFIED JUDGMENT FUNDS A
victim can collect from the state fund if he can
obtain a judgment and show that it is
unsatisfied. Maximum collections are
relatively low. Negligent driver is supposed
to repay the fund.
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UNINSURED MOTORIST COVERAGE The insureds own
policy acts for the uninsured. Uninsured
includes uninsured drivers hit and run
drivers drivers whose insurers have become
insolvent (does not include those who have
inadequate limits) Might have low limits (unless
higher limits have been purchased) Other party
(except for hit and run) must be legally
liable. Covers bodily injury only in many
statesmay or may not cover property damage. The
victim pays the cost UNDERINSURED MOTORIST
COVERAGE Applies when the negligent driver is
underinsured.
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NO FAULT INSURANCE Tort system has many
faults. Pure no fault No right to sue. Each
person carries insurance to pay for losses to
people injured in his car. Not used in any
state. Modified No Fault Lawsuits are not
allowed unless damages exceed a specified
threshold. In some states the threshold is not
a dollar amount but is one that involves
serious injuries. Add on plans Right to sue
still exists but no fault benefits can be
added. Choice No Fault laws Gives the
insurance buyer a choice of traditional tort
system or no fault benefits.
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SUMMARY OF PAP COVERAGES PART A
LIABILITY PART B MEDICAL PAYMENTS PART C
UNINSURED MORTORIST PART D DAMAGE TO YOUR
AUTO PART E DUTIES AFTER AN ACCIDENT PART
F GENERAL PROVISIONS
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Eligible Vehicles Four wheel motor vehicle owned
by the insured or leased for at least six
continuous months. Other vehicles (motor homes,
motorcycles, golf carts, snowmobiles, etc.)
can be insured by endorsement. Your Covered
Auto includes 1. Any vehicle shown in the
declarations 2. A newly acquired auto
3. A trailer owned by the named insured 4. A
temporary substitute vehicle
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Insured includes 1. named insured
2. spouse -- until the earliest of a) 90 days
after change of residency b) effective
date of new policy for spouse c) end of the
policy period 3. a family member who is a
resident of the same household 4. any
person using a covered auto (who has permission
or has reasonable belief of permission)
5. other persons or organizations who are legally
liable for the use of the auto
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NEWLY ACQUIRED AUTO (For liability, med. pay,
and uninsured motorist) REPLACEMENT AUTO
Coverage is automatically provided.
ADDITIONAL AUTO You have 14 days to notify
the insurer for the coverage to be effective
from the purchase date. Separate Rule for
insurance on the car If there is no previous
coverage on any vehicle you have only 4 days to
notify the insurer. If there is previous
coverage on a vehicle, you have 14 days.
TEMPORARY SUBSTITUTE AUTO A temporary substitute
vehicle is a nonowned car or trailer that you
are temporarily using because of mechanical
breakdown, repair, servicing, loss, or
destruction of a covered auto.
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PART A LIABILITY COVERAGE Typically written
with split limits Insurer agrees to defend
(paid in addition to policy limit) The insurers
duty to settle or defend the claim ends when
the limit of liability has been exhausted by
payment of judgments or settlements. The
limits are per accidentregardliess of the
number of insureds, claims, or vehicles in the
accident. For example, husband, wife, and
daughter are involved in an accident. One set of
limits will apply.
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INSURED PERSONS (PART A) 1. The named
insured and resident family members Includes
coverage for 90 days for a spouse who no longer
resides in the insureds household or until the
spouse obtains a separate PAP or the policy
period ends, whichever occurs first. 2.
Any other person using the named insureds
covered auto if there is a reasonable belief
that there is permission to use. 3. Any
person or party for liability arising out of the
use of a covered auto. 4. Any person or
organization legally responsible for the acts
of a covered person while using a covered auto.
(Person on errand for employerthe employer
would be covered)
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SUPPLEMENTARY PAYMENTS Cost of bail bond (up to
250) Premiums on other bonds Interest accruing
after a judgment Loss of earnings (up to 200
per day) Other reasonable expenses
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EXCLUSIONS Intentional injury of
damage Property owned or transported Property
rented, used or in the insureds care Bodily
injury to an employee Use as a public or livery
conveyance Vehicles used in the automobile
business Other business vehicles Using a
vehicle without reasonable permission Vehicle
with fewer than four wheels (or is designed for
use mainly off public roads) Vehicle
furnished or made available for the named
insureds regular use Vehicle owned by,
furnished, or made available for the regular
use of any family member Racing vehicles
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OTHER INSURANCE Ken is the named insured and
borrows Karens car. Both policies will cover
any loss. Ken has 50,000 of liability insurance
and Karen has 100,000. Ken negligently injures
another motorist and must pay damages of
125,000. How much will each insurer pay? The
rule is that insurance on the borrowed car is
primary and other insurance is excess. Karens
insurer (primary) 100,000 Kens insurer
(excess) 25,000 If
other applicable liability insurance applies to
an owned vehicle, the insurer pays only its pro
rata share of the loss.
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PART B MEDICAL PAYMENTS COVERAGE Pays for all
reasonable medical and funeral expenses incurred
by an insured for services rendered within 3
years of the accident. Limits typically are
1,000 - 10,000 per person. Not based on
fault. INSURED PERSONS Named insured and family
members These people are covered if they are
injured while occupying an motor vehicle or
are injured as pedestrians when struck by a
motor vehicle designed for use mainly on
public roads. Other persons Others are covered
while occupying a covered auto. If you are
operating a nonowned vehicle, other passengers
in the car are not covered under your policy.
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• PART C UNINSURED MOTORIST COVERAGE
• Uninsured motorist coverage pays for the bodily
  injury caused by
• 1. an uninsured driver
• 2. a hit-and-run driver
• 3. a negligent driver whose insurance company is
  
• insolvent
• Important points
• In some states the coverage covers property
  damage
• (to your car)
• Coverage applies only if the uninsured driver is
  legally liable.
• A person cannot receive duplicate payments
  (between Med. Pay.
• and Parts A and B, workers compensation, etc.)
• An arbitration clause is similar to the appraisal
  clause.

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PART D COVERAGE FOR DAMAGE TO YOUR AUTO
COLLISION COVERAGE Collision is defined as the
upset of a covered auto or its impact with
another vehicle or object. Collision with a
bird or animal is not a collision loss.
These payments are made regardless of fault.
OTHER-THAN-COLLISION COVERAGE
(Comprehensive) Covers theft, falling objects,
glass breakage, etc. In fact, it covers
everything that is not collision. Together, the
two provide all-risk coverage. Why does the
PAP divide the physical damage coverage this
way? Some people do not want to pay for
collision coverage. Other-than-collision
coverage often has a lower deductible.
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SHOULD A PERSON BUY Collision Damage Waiver
(CDW) on rental cars? The cost is outrageous
if not unconscionable. It can increase the
rental cost by 10, 20 or more per day. Even
experts disagree. Some say the CDW is not needed
if (1) you carry collision and comprehensive
insurance on your own car, (Part D coverages
also apply (on an excess basis) to non-owned
autos (if they are not used regularly by an
insured). This includes temporary substitute
vehicles) and (2) some credit cards cover the
theft or physical damage on a rental car if
you used the card to rent the car. The
Independent Agents Assoc. has a list of 10
reasons why a person should buy CDW coverage.
For example, the PAP pays the ACV but the rental
agreement may obligate you to pay the RC.
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SHOULD A PERSON BUY GAP INSURANCE? Lease or
loan payoff at the time of the loss 20,000 ACV
of the car 15,000 Your deductible
500 Payment from insurer
14,500 GAP 5,500 GAP insurance
pays 5,500 1. GAP insurance may be
included in the lease. 2. GAP insurance is
available for owned cars. 3. GAP insurance is
not available in some states.
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PART F GENERAL PROVISIONS TERRITORY Coverage
in provided only in the U.S., its territories and
possessions, Puerto Rico, and Canada. Mexican
insurance must be purchased if you drive in
Mexico. TERMINATION Many states have termination
provisions that differ from those in the PAP.
The PAP conforms to state law. Cancellation
Provisions The insured can cancel at any time.
The insurer can cancel for any reason within
the first 60 days. After 60 days, the insurer
can cancel only for specified reasons.
Non-renewable If the insurer decides not to
renew, the insured must be given at least 20
days notice before the end of the policy
period. If the insured does not accept the
insurers offer to renew, the policy
automatically terminates at the end of the policy
period. (Some companies give a short grace
period).
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NOTIFICATION The insurance agent should be
notified after any accident. APPRAISAL The
same as in the Homeowners policy
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PAP ENDORSEMENTS Extended Non-owner
Coverage Provides liability and medical payments
coverage for non-owned vehicles that are
furnished or available for the regular use of the
individual named. Named Non-owner
Coverage Provides coverage to individuals who do
not own a car. Limited Mexico Coverage Available
only if a person has purchased liability
insurance through a Mexican company. The
endorsement provides higher limits. Stated
Amount Endorsement Used for antique or restored
cars. Joint Ownership Coverage Used for
non-traditional couples or when a vehicle is
jointly owned. Trust Endorsement Allows a trust
to be a named insured.
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Towing and Labor-Cost Endorsement Pays 25-100
per disablement for towing and labor (at the
place of disablement). Very popular but not
necessary because (1) limits are low, (2)
coverage may be available through an auto club,
and (3) some manufacturers provide this coverage
under the cars warranty. Trip Interruption
Coverage (new) It pays up to 600 (total) for
reasonable transportation expenses, lodging, and
meals when a vehicle cannot be used for 24 hours
or more because of an accident or breaks down
more than 100 miles from home.
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HARD-TO-INSURE DRIVERS Specialty
Insurers State Programs (Assigned Risk Plans)
Automobile Insurance Plans Each auto company
in the state is assigned its share of drivers
who can show that they have been unable to get
insurance. Joint Underwriting
Associations A limited number of companies issue
and service these policies and all companies
share the experience (in proportion to their
share of the aggregate business in the
state). Reinsurance Same as above except a
reinsurer is used instead of a JUA.
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PERSONAL UMBRELLA LIABILITY COVERAGE High
limitsoften 5 or 10 million Required Basic
Coverageauto, homeowners, and watercraft
and/or aircraft (if applicable) with specified
limits. The umbrella provides excess coverage.
Some companies require the basic coverages to
be purchased from them. Exclusions are very
important.
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AUTO QUESTIONS
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• AUTOMOBILE INSURANCE QUESTIONS
• Fred has a PAP with the following coverages
• Liability coverages 100,000/300,000/50,0
  00
• Medical payments coverage 5,000 each
  person
• Uninsured motorist coverage 25,000 each
  person
• Collision loss 250 deductible
• Other-than-collision loss 100 deductible
• With respect to each of the following situations,
  indicate whether
• the loss is covered and the amount payable, if
  any, under the
• policy. Assume that each situation is a separate
  event.
• Freds son, age 16, is driving a family car,
  runs a red light, and
• kills a pedestrian. The family of the
  deceased pedestrian
• sues for 500,000.
• Covered. Fred is covered as a member of the
  family. The
• maximum amount paid would be 100,000.

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b) Freds daughter, Heather, attends college in
another state and drives a family auto.
Fred tells her that no other person is to
drive the family car. Heather lets her boyfriend
drive the car, and he negligently injures
another motorist. The boyfriend is sued
for 50,000. If the boyfriend can establish a
reasonable belief that permission would have
been granted, he would have coverage under
Freds policy, and 50,000 would be paid if he
were legally liable.
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c) Freds wife is driving a family care in a
snowstorm. She loses control of the car
on an icy street and smashes into the
foundation of a house. The property damage to
the house is 20,000. The damage to the
family car is 5,000. Freds wife has
medical expenses of 3,000. Covered. Property
damage to the house in the amount of 20,000
would be paid. The amount paid for damage to
the family car is 4,750. The wifes medical
expenses in the amount of 3,000 would be
paid. d) Fred is walking across a street and
is struck by a motorist who fails to stop.
He has bodily injuries in the amount of
15,000. Covered. Under the uninsured
motorist coverage, Fred would recover 15,000.
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e) Freds car is being repaired for faulty
brakes. While road testing the car, a
mechanic injures another motorist and is sued for
50,000. Not covered under Freds policy.
If a person is employed or engaged in the
automobile business, liability is excluded.
f) Freds car hits a cow crossing a highway.
The cost of repairing the car is
2,500. Covered. This loss is covered under
Part D (coverage for damage to your auto).
Loss caused by contact with a bird or animal
is considered to be other than a collision
loss. The amount paid would be 2,400.
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g) A thief breaks a car window and steals a
camera and golf clubs locked in the car. It
will cost 400 to replace the damaged window.
The stolen property is valued at 500. The
broken window is covered as other than a
collision loss the amount paid is 300. The
theft of the camera and golf clubs is not
covered under the PAP. h) Freds wife goes
shopping at a supermarket. When she
returns, she finds that the left rear fender has
been damaged by another driver who did not leave
a name. The cost of repairing the car is
1,000. Covered. This is considered to be a
collision loss. The amount paid is 750. i)
Fred works for a construction company. While
driving a large cement truck, he negligently
injures another motorist. The injured
motorist sues Fred for 20,000. Not covered.
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• j) Freds son drives a family car on a date. He
  gets drunk, and his girlfriend drives him home.
  The girlfriend negligently injures another
  motorist who has bodily injuries in the amount of
  200,000.
• Covered. However, the amount paid would be only
  100,000.
• k) Stereo tapes valued at 500 are stolen from
  Freds car.
• The car was locked when the theft occurred.
• Not covered. Theft of stereo tapes from a car
  is not covered
• even if the car is locked. Coverage can be
  obtained by
• endorsement.
• l) While driving a rented golf cart, Fred
  accidentally injures
• another golfer with the cart.
• Covered.

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• Karen is the named insured under a PAP
  that provides coverage for bodily injury and
  property damage liability, medical payments, and
  the uninsured motorists coverage. For each of
  the following situations, briefly explain
  whether the claim is covered by Karens PAP.
• a) Karen ran into a telephone pole and submitted
  a medical
• a medical expense claim for Jason, a passenger
  in Karens car at the time of the accident.
• Since Jason is a passenger in a covered auto,
  his medical
• expenses would be covered.
• b) Karen loaned her car to Scott. While
  operating Karens car, Scott damaged Grays car
  in an accident caused by Scotts negligence.
  Karen is sued by Gray for damages.
• Covered. Any person using a covered auto is
  covered under the insureds policy if there is a
  reasonable belief that permission to use the car
  exists. Karen is also covered under her PAP for
  the suit.

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• Karens husband ran over a bicycle while driving
  the car of
• a friend. The owner of the bicycle demands that
  Karens
• husband pay for the damage.
• The husband is insured under Karens policy.
  The liability
• coverage also extends to the occasional use of a
  non-owned
• car. However, the liability insurance on the
  friends car would
• apply first, and Karens insurance is excess.
• d) In a fit of anger, Karen deliberately ran
  over the wagon
• of a neighbors child that had been left in
  Karens driveway
• after repeated requests that the wagon be left
  elsewhere.
• The childs parents seek reimbursement.
• Not covered. Intentional loss.

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• Janet has a PAP with the following coverages
• Liability 100,000 / 300,000 / 50,000
• Med Pay 5,000 each person
• Uninsured motorist 25,000 each person
• Collision 250 deductible
• Other-than-collision 100 deductible
• Towing and labor 25 each disablement
• To what extent, if any, is each of the
  following losses covered
• under Janets PAP? Treat each event separately.

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• Janet rents a car while on vacation. She is
  involved in an
• accident with another motorist when she fails to
  yield the right
• of way. The injured motorist is awarded a
  judgment of
• 100,000. The rental agency carries only
  liability limits of
• 30,000 on the rental car. The rental agency
  carries no collision
• insurance on its cars and is seeking 15,000
  from Janet for
• repairs to the rental car.
• Covered. The liability insurance on the rental
  car is primary,
• and Janets insurance is excess. The insurance
  on the rental
• car pays 30,000, and Janets insurance pays the
  remaining
• 70,000. The rental agency does not carry
  collision insurance
• on the rental car. Therefore, Janets collision
  insurance is primary and will pay 14,750.

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b) Janet borrow her friends car with permission.
She is in an accident with another motorist in
which she is at fault. The cost of repairing
the friends car is 2,000. The friends auto
policy has a 500 deductible for collision losses
and 100 for other-than-collision losses. The
insurance on the friends borrowed care is
primary. The friends collision insurance,
therefore, pays 1,500 for the physical damage
loss to the car. The remaining 500 is
submitted to Janets insurer. Since she has a
250 deductible, her insurer pays only 250.
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c) Janet is employed as a salesperson and
is furnished a company car. She is
involved in an accident with another
motorist while driving the company car during
business hours. The injured motorist
claims Janet is at fault and sues her for
100,000. Damage to the company car amounts
to 5,000. Not covered because the car is
furnished and made available for Janets use on
a regular basis. Adding the extended nonowned
coverage endorsement to her policy can
cover the company car.
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d) Janets car will not start because of a
defective battery. A wrecker tows the car to a
service station where the battery is replaced.
Towing charges are 60. The cost of replacing
the battery is 100. The towing charges are
covered up to 25 since this is the applicable
limit of liability. The cost of replacing the
battery is not covered. Only labor performed at
the scene of the breakdown is covered.