PP 90 01–ISO SPECIAL PERSONAL AUTO POLICY COVERAGE FORM ANALYSIS
(November 2020)
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Insurance Services Office’s PP 90 01, Special Personal Auto Policy (SPAP) is designed for driving exposures that are not generally accepted in either the standard or preferred auto markets.
The SPAP is really quite similar to the '18 edition of the Personal Auto Policy (PAP). This analysis is based on the 09 18 edition and, where applicable, will comment on significant differences between these forms.
Related Article: Special Automobile Program Archive
Note: The article contains an analysis of the original, 07 06 Edition of the SPAP.
DEFINITIONS
This section defines the terms that have special meaning in the SPAP. The following is a summary of the defined terms:
A. The policy uses the terms "you" and "your" in reference to the "named insured" shown in the declarations and the named insured's spouse (if the spouse lives in the same household).
B. The terms "our," "us" and "we" mean the company that issues and maintains the special personal auto policy coverage.
C. The SPAP considers any private passenger type of auto to be an owned vehicle if there is a written lease that covers a period of six months or longer.
D. "Bodily injury" refers to sickness, disease, or bodily harm. This definition even includes death if it is a direct result of sickness, disease, or bodily harm.
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Example: Karen
is insured under a SPAP. She filed a claim after she received notice of a
lawsuit by a bicyclist she hit when she rushed through a stop sign. Two
months later, she receives an additional notice. It amended the request for
damages as the bicyclist later died of her injuries. |
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Related Court Case: “Bodily Injury from Physical Attack after Auto Accident Not Covered” in Court Cases
E. "Business" means any trade, profession, or occupation. In other words, it is any regular activity that generates income.
F. A "family member" is any person who is a relative by blood or by marriage. Any persons who are adopted, wards or foster children also qualify as "family members." However, no person is a family member under this policy if they are not considered a current resident of the same household as the named insured.
G. "Occupying" refers to anyone who is in, upon, getting in, getting on, getting out or getting off a vehicle.
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Example: Jordi
is popular with the young children in her neighborhood. One young neighbor
runs over to see her as she returns home from work. Jordi parks and turns off
her car in her driveway. She hears a thud as she opens her door and is upset
to find that she has struck her young neighbor. The accident results in
several deep facial cuts and a need for dental surgery. This is a use of a
vehicle that qualifies for coverage under the SPAP since it falls within the meaning
of “occupying.” |
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Note: The SPAP definition doesn't mention whether being under a vehicle is occupying it. Therefore, there could be some confusion for certain accidents that could arise from odd situations. Consider an accident that involves an insured who injures another while servicing the undercarriage of a covered vehicle.
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Example: Let’s
change the Jordi situation. One young neighbor runs over to see Jordi, who happens
to be under her car, making a repair. Jordi doesn’t notice her neighbor as
she slides out from under the car. She knocks her neighbor off her feet.
Again, the accident results in several deep facial cuts and a need for dental
surgery. This is a situation that would not qualify for coverage under the
SPAP. It falls outside the meaning of “occupying.” |
Related Court Case: Injured Party On Median Is Covered As Car's Occupant
H. "Property damage" means the loss of use of, damage to or destruction of tangible property.
Note: Inclusion of loss of use in its “Property Damage” definition can involve a variety of situations; the most common is theft of an insured vehicle. Otherwise, a vehicle claim for loss of use will typically require that the loss be related to some physical loss that is covered by the SPAP.
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Example: An insured sends a bill to his insurer for reimbursement. He had to rent a car for nearly two weeks because his insured car was unavailable. His insurer denies his request. The car was unavailable because it was in a shop, having customized equipment and painting added…it was never in an accident. |
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I. "Trailer" is any vehicle made to be pulled by a private passenger auto, pickup or van. The definition includes a farm wagon or farm implement while towed by a private passenger auto, pickup or van.
Note: Farm implements and farm wagons qualify as trailers ONLY for the time that they are being towed by an eligible vehicle (which includes SUVs, crossovers, hybrids, etc.).
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Example: An insured’s
neighbor falls and is injured while helping unload a boat trailer that’s
parked in an insured’s driveway – covered by SPAP. |
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Example: An insured’s
neighbor is hurt when she falls off a fertilizer sprayer that’s parked on the
insured’s property - NOT covered. |
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J. The definition of “your covered auto” refers to:
· Vehicles that are described in the SPAP declarations
· Autos that an insured acquires after the beginning of the policy period that meet the requirement set out in the definition of "newly acquired autos"
· Trailers that are owned by any insured
· Trailers or other vehicles that, while not owned by an insured, are used as a substitute for a covered vehicle. However, the substitution has to be due to the other vehicle being serviced, repaired, lost, or destroyed.
Related Court Case: Rental Vehicle Ineligible As A Covered Article
Following are situations that would qualify as covered vehicles under an SPAP’s liability coverage.
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Example: An ‘18 Chrysler the insured borrowed from his
mother-in-law while his car is having its engine replaced |
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Example: A ‘19 Honda mini-van that is a “loaner” from the body shop which is replacing a faulty exhaust system on the insured’s SUV |
If the operator caused an accident during the above situations, it would qualify as a covered vehicle for injury or damage caused to other parties.
K. “Newly acquired
auto”
1. Any private passenger auto, pickup, or van that any insured obtains possession of during the policy period (but after the policy period's inception date) qualifies as a newly acquired auto. However, van and pickup eligibility is subject to a weight and a use restriction. Pickups and vans are ineligible as covered autos if they are used for business activities.
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Example: Hannah had her sedan insured under a new SPAP. Two weeks after she received the policy, she bought a used van. It was in a collision less than a week later. Scenario 1: Hannah bought the van to better handle her personal chores and transporting kids. This vehicle is covered. Scenario 2: The van was purchased
and used in her start-up leasing company. The van is not eligible for
coverage. |
The policy makes an exception for incidental business use (as part of a repair or maintenance business). It also allows covered auto status for such vehicles that are used on a farm or ranch business. Though not specifically referenced, SUVs are treated as private passenger autos and therefore are not subject to the following weight restriction.
In order to be eligible, a pickup or van has to have a Gross Vehicle Weight of no more than 10,000 lbs. The use of the term GVW Rating conforms to what is used in the U.S. Government's vehicle classification manual.
However, even if an additional car, pickup or van clears the vehicle type, vehicle use and date of acquisition hurdles, there are other requirements. Item K.2. covers the issue of when to report an additional vehicle to the insurance company. The timing of reporting the vehicle has a direct impact upon coverage.
Note: The reporting requirements depend upon the type of coverage involved and whether the vehicle is a replacement.
2. Coverage for a “newly acquired auto” (but only when it is a replacement) is provided along the basis discussed below. The policy states that, if the insured fails to report a newly acquired auto within the applicable time period requested by the policy, coverage will not begin until the date the late request is made.
a. The liability coverage that applies to the vehicle being
replaced also applies to the replacement vehicle. The vehicle replacement
does not qualify for coverage after 14 days from the date of acquisition as an
owned vehicle unless the change is reported to the insurer. (09 18 change).
b. (1) If the replaced vehicle had Coverage for Damage to Your Auto, the replacement vehicle has the same coverage but only for 14 days. If a report is not provided to the insurance company within 14 days of its acquisition the physical damage coverage ends on the replacement vehicle.
b. (2) If the replaced vehicle did not have Coverage for Damage to Your Auto, the replacement vehicle does not have such coverage either. The only way that the replacing vehicle secures protection under “Coverage for Damage to Your Auto” is to specifically request it and the effective date of physical damage coverage is that date of that request.
A newly acquired ADDITIONAL car qualifies for coverage ONLY when it is reported to the insurer and that coverage begins upon the date the vehicle is reported. THERE IS NO automatic coverage provided for newly acquired autos that are in addition to the insured autos appearing on the policy.
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Example: Dill E. Dally’s SPAP covers a ’16 Mercury and has a policy period of April 15, 2020 to October 15, 2020. It has the following coverage limits |
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Bodily Injury |
$100,000/$300,000 |
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Property Damage |
$100,000 |
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Medical Payments |
$10,000 |
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Collision |
n/a |
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Other Than Collision |
n/a |
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Uninsured Motorist |
$25,000/$50,000 |
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On September 3, 2020, Dill buys a second vehicle, a ‘18 Ford Ranger. On September 16, Dill collides with another car when he ignores a stop sign. He causes $22,000 in injuries to the other driver, $4,500 in damages to the other driver’s car and $6,700 in damages to his Ranger. Dill reports the accident to his insurance company on September 18 and that is the same day that the insurance company learns of the new car. Under these circumstances, there is no coverage for either the vehicle or the damage or injuries caused by its use. It is an additional vehicle. |
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Like the PAP, the SPAP considers pickups and vans eligible vehicles as long as their gross vehicle weight does not exceed 10,000 pounds and they aren't used commercially. This auto policy is intended to provide coverage for personal exposures. Where the language regarding pickups and vans excludes business use of such vehicles (since commercial policies are available), its approach is reasonable since it makes exceptions for incidental business use and for farming or ranching. The exceptions recognize the fact that such use is still consistent with what an insurer would consider a personal loss exposure. Another qualifier for providing coverage to pickups or vans is that no other coverage applies. Both owned and non-owned "trailers" are defined as covered autos. Finally, if they're pulled by an eligible vehicle, farm wagons and implements are also defined as "trailers," which are eligible for coverage.
L. “Transportation network platform”
This term refers to certain online transportation
services. Specifically, it means any such service that is accessed through a
mobile electronic device application or through a digital network. The service
must involve matching riders to drivers who are compensated for picking up and
transporting persons between agreed-upon locations. (09 18 addition)
This is a new, defined term, added to align with the revisions made to the PAP in response to the exposure from ride-on-demand services that have arisen and become common in recent years.
PART
A - LIABILITY COVERAGE
Insuring
Agreement
A. The SPAP protects against loss involving both "bodily injury" and "property damage" for which a covered person is legally obligated to pay because of an auto accident. The agreement also obligates an insurer to defend a claim or lawsuit. However, once the policy's limit of liability has been exhausted, the insurer's obligation to continue paying to legally defend an insured ends. Other circumstances, though, may also permit a carrier to end its obligation concerning a loss.
An insurer can decide to settle a claim when facing very high defense costs and this option has some merit. The SPAP contains the potential of an unlimited defense obligation since it has no specific monetary limit on the amount paid to defend a covered person. However, the policy does allow a company to have some control over their financial duty to protect a covered person in a given claim. Of course, a natural control against an insurer’s unlimited obligation to defend an insured is that a company does not have to provide a defense under ALL situations. An insurer doesn’t have to defend any "bodily injury" or "property damage" loss that isn't covered by the policy.
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Example: Jim Hyperfast is sued after he is involved in a rear-end collision. Jim sends his lawsuit paperwork to his carrier, Drive-it-up Insurance. The company opens a claim file and begins a legal defense. However, Drive-it-up soon ends its work on the loss when they discover that Jim was chasing the other driver and admitted so to the police. It turns out that the other driver was involved in an affair with Jim’s wife and Jim intentionally rammed into the car. |
The SPAP is designed to pay for accidents. Webster’s Encyclopedic Unabridged Dictionary defines an accident as: 1. an undesirable or unfortunate happening, unintentionally caused, and usually resulting in harm, injury, damage, or loss. If an insurance policy protected an insured against ANY action, it would no longer be insurance...and it could not be provided as a viable product.
B. Under Part A - Liability Coverage, an insured is:
1. You are an insured for the autos described under “your covered auto.” You are also an insured for any other trailers and private passenger autos. In addition, you are insured for other pickups and vans provided they weigh less than 10,000 pounds.
2. Any family member (as defined by the policy) but only for autos described under “your covered auto.”
The SPAP also considers other persons and organizations to be covered persons in certain circumstances.
3. Non-family members who use an auto described under an SPAP are insureds while using such vehicles. However, the protection granted is limited to the financial responsibility limit of the state where the vehicle is principally operated. In other words, only minimal limits would apply to such situations, regardless of the actual limit that appears on a policy.
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Example: Sharilee’s Honda is insured under an SPAP. Her old college roommate has flown into town for a week-long visit. Sharilee lets Wanda take her to and from work so she can use the car during her stay. While Wanda is trying to find a restaurant where she is supposed to meet another college friend for lunch, she runs a light and hits another car. Since Wanda had permission to use Sharilee’s car, she is covered as an insured but only for that state’s minimum limits. |
4. Other persons or organizations are eligible for coverage when they have a legal liability imposed upon them because of acts or omissions of a named insured, a resident spouse or a "family member." This applies only when the acts or omissions are related to the covered auto.
5. Other persons or organizations are eligible for coverage when they have a legal liability imposed upon them due to damage that results from acts or omissions of a named insured or resident spouse. This applies only when the acts or omission are related to a non-owned auto or trailer. The person or organization cannot own or hire the particular non-owned vehicle. (In such instances, that party should secure its own insurance coverage.)
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Example: A member of your church asks you to drive some children to a church picnic using a van provided by another church member. On the way to the park (picnic site), the van hits an oil slick on the road, slams into a couple of parked cars, and one of the children suffers a broken leg. This policy provision allows the SPAP to defend both you and the church as defendants in a claim involving the damages caused by a vehicle that is not owned or hired by either party. |
Supplementary
Payments
This section advises the insured of several payments that are made in addition to the limit of insurance.
1. One item is the cost of bail bonds, but this coverage is limited to a total of $250. However, the bond has to be connected with an accident. A bond that is due solely to a traffic violation isn't covered.
2. The policy pays for the costs of premiums on appeal bonds and attachment bonds, but only those involved in a suit that the insurance company is defending.
3. The SPAP also pays for any interest on judgments that have been entered. However, any payment obligation ends if the policy's limit of insurance is reached.
4. The SPAP pays for loss of earnings caused by hearings or trial attendance and other reasonable expenses caused by an insurance company's request.
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Example: Carrie’s insurer asks her to travel to another part of the state. She has to be deposed as part of a lawsuit a family filed against her because of a highway collision. Since she had used up her vacation time, she won’t be paid for missing a day’s work. Carrie’s insurer tells her that her policy will reimburse her. |
Concerning loss of pay, the policy pays a maximum of $250 per day (09 18 change) because of lost earnings; this supplemental coverage does not include loss of other sources of income. However, the loss of earnings limit used to be a fraction of the current coverage. There is no other limitation regarding loss of earnings, so the limit could be paid for one or 100 occurrences of lost pay.
5. Finally, under Supplementary Payments, the policy will pay any reasonable expenses that are due to activity requested of an insured by the insurer.
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Example: Carrie, in the above situation, has to stay over for additional testimony. Her insurer tells her that she will be reimbursed for the hotel and the cost of her meals. |
Exclusions
This coverage part's exclusions fall under categories A, having to do with "insureds," and B, which concerns vehicle ownership, maintenance, and use.
Category A.
Exclusions
There are a number of situations that fail to qualify for coverage under the SPAP, such as the following:
1. The Special Personal Auto Policy doesn't provide liability protection to insureds that intentionally injure other persons or property. Because this point sometimes causes confusion, it's important to examine what is meant by intent.
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Example: Nicole is fed up with her neighbors. Their teen and his
friends often loiter in front of her house and lean against her sports car,
though she’s yelled at them about this. One day, after shooing them away, she
starts her car and decides to throw a scare into the kids. She steers the car
toward them, but then her hand slips on the steering wheel and she hits the
group, causing a variety of injuries. When Nicole’s insurer denies coverage
for the subsequent lawsuits, Nicole argues that she meant to scare the kids,
not hit them. |
If you think the fact that something is foreseeable should determine intent, how about the following?
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Example: |
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Related Court Case: Unlicensed Driver "Borrows" Grandparents' Van
2. The SPAP excludes coverage for property damage to property that any insured owns or transports.
3. Any property that an insured has rented, uses or is caring for is also without protection if damaged or destroyed. The good news is that an exception is made for an insured’s home or garage.
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Example: Henry is unloading his car after returning from a two-week vacation. While he is removing an expensive roof-top carrier, he loses his grip and the carrier falls onto his concrete driveway. The carrier cracks along its entire length and is ruined. He borrowed the carrier from his neighbor. The SPAP will not cover this loss. |
4. This exclusion removes consideration for coverage of bodily injury to any person who is hurt while working for an insured. However, an exception is made for domestic employees who aren’t covered AND aren’t required to be covered by workers compensation.
5. If an insured is using a covered auto to make money by transporting either people or property, that insured has just made the vehicle ineligible.
This
exclusion has been revised to make coverage intent clearer. It now makes
reference to the coverage ineligibility when any insured driver is actively
using any vehicle in conjunction with a transportation network platform. Active
use means providing such use as a driver. The exclusion applies both while
seeking passenger contacts and during transporting passengers. (09 18 change)
The exclusion
also has a couple of exceptions.
a. Coverage still applies if the situation is a typical carpool (where the
insured gets gas and maintenance money from his riders).
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Example: Marni finally got her own car, her mom’s old minivan. Odd for a teenager, she is actually happy to have the hand-me-down vehicle. Marni is the lead singer and drummer for “The Blonde Squad” and the van is perfect for hauling her bandmates and their equipment to practices and gigs. At the moment, there’s no problem since the band isn’t being paid. However, problems will arise once “Blonde” starts getting paid to play. At that point, a loss while going to or from a paid gig may not be eligible for coverage. |
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b.
An additional exception is referenced, allowing coverage for a vehicle during
its use in charity and volunteer situations. Protection extends to instances of
both ownership and operation during such instances. (09 18 change)
6. No coverage is provided if the accident happens while selling, fixing, caring for, keeping, or parking automobiles that are operated on public roads, including road testing or vehicle delivery. However, you don’t have to worry about this exclusion if the accident involves your covered car that’s being handled by “you” or any “family member,” partner, agent, or employees of any of these insured parties.
Related Court Case: “Mechanic's Driving Of Customer's Car Held Excluded”
7. This exclusion takes coverage away from any insured while involved in any “business” that is NOT described in exclusion 6, unless the business is ranching or farming. HOWEVER, the exclusion is voided if it involves a private passenger auto, van, or pickup that either is owned or is a temporary substitute for a covered auto that is inoperable because it is broken down, lost, destroyed, or being repaired or serviced. Further, any trailer used with an owned auto, van or pickup, or a temporary substitute, is covered.
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Example: |
8. Don’t look for coverage under the SPAP unless you’re operating a covered car in the belief that you have an insured’s permission.
Note: This standard is subjective and means that evaluation of a loss must include consideration of the operator’s thoughts on whether the car was operated with an insured’s permission.
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Example: A friend of an insured borrows a car a second time during a weekend that the insured is away from home. The insured gave permission for the first use, but not the second. However, since the friend can’t get in touch with the insured and it was okay to use the car before, she assumes that a second use is also permitted. If the friend causes an accident while using the borrowed car, her belief that she had permission should support coverage being extended to cover the loss. |
However, a significant change in circumstances can render a different evaluation.
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Example: Again, let’s use the situation of an insured’s friend who borrows a car twice while the insured was away for a weekend. Again, the friend received permission for the first use, which was to go on a downtown shopping trip. All of this was with the insured’s knowledge and permission. The second use is without the insured’s knowledge or permission but, as it was in the original situation, the friend can’t get in touch with the insured and as it was okay to use the car before, she assumes that a second use is fine. However, in this scenario, rather than using the insured’s SUV for personal use, the friend uses it to make deliveries for persons who bought furniture from her Second-hand Shop. If the friend causes an accident while using the borrowed car, her belief that she had permission might be challenged by an insurer. While the friend’s assumption that a second personal use might be okay, this assumption might not hold when the second use is for business. It is possible that coverage for this situation could be denied. |
Related Court Case: Non-Permissive
Use, Ineligible for Coverage
This exclusion DOES NOT apply to the use of a covered auto that is owned by an insured and being operated by a “family member.”
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Example: Junior storms out of the house and uses his set of keys to the pickup immediately after his mom just said that he could not use the truck for a date - This is still a covered situation. |
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Example: An insured borrows his neighbor’s dual axle pickup to help his mother-in-law move out of state. After he returns home from the move, the insured goes out in his own car to celebrate the fact that his mother-in-law is gone. While he is away, his son and a friend decide to go cruising in the borrowed truck - this is NOT a covered situation. |
9. No bodily injury or property damage is covered if separate coverage exists (or would exist except for exhausted limits) under a nuclear energy liability policy issued by three named sources of nuclear liability insurance or their successors.
10. No coverage for any liability related to a vehicle that is used for deliveries. Food, publications, and other delivery uses are specifically barred from coverage. There is an exception though when the insured makes deliveries as a volunteer.
a. There is a written contract under which the vehicle is part
of a personal vehicle sharing program
b. That vehicle is being used by a person other than the named insured or a
family member (as defined) of the named insured who is participating in a program
referenced in 10.a above (09 18 Change)
Category B. exclusions
1. If a vehicle doesn’t have at least four wheels and/or is principally designed for off-road use, it isn’t protected under the SPAP. An exception is if such a vehicle is used by an insured in a medical emergency. Trailers are still covered.
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Example: Jeri and her teen-aged twins are on their way to a weekend camping trip. She is towing a small trailer that has an all-terrain vehicle (ATV) loaded on it. The trailer and ATV were lent to her by her ex-husband. A mile away from the campground, Jeri's car slips off the road and onto a soft shoulder. She loses control and crashes. Her son is seriously hurt in the crash. The car is inoperable, but Jeri is able to unload the ATV and drive it on the road into town (after instructing her daughter to watch her brother). During this emergency trip, the ATV becomes a covered vehicle. |
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2. A definite coverage problem exists for any car that’s not a “covered auto,” which the named insured either owns or has available for regular use. Why? Because such a vehicle should either be listed or rated on the policy, or coverage should exist under another party’s policy. There is no coverage for it under this policy.
3. Similar to exclusion 2., the SPAP disqualifies any car that’s not a “covered auto” that a “family member” either owns or has available for their regular use.
4. Exclusion B.4 explains that the SPAP is not meant to cover racing exposures. This item bars coverage for vehicles that are participating in or that are preparing to compete or practice for an organized race or speed competition.
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Example: Carl and Josie’s Saturn slid
through a red light and struck another car. They were unable to stop in time
due to: |
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Scenario 1: They were challenged to a race
by a driver at a previous intersection. They won the impromptu race, but they
weren’t able to brake their vehicle in time. Scenario 2: They had just won a race that
they had planned a week earlier. They wanted to prove that their regular
vehicle could outperform their neighbor’s customized vehicle. However, their brakes
couldn’t stop the vehicle before running the stoplight. Under these circumstances,
the SPAP would cover scenario 1, but exclude the second situation. |
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The latest edition of the SPAP has been revised. Besides the activities
just listed, exclusion 4. (a. and b.) also applies to driver skill training and
driver skill events. In addition, the exclusion applies to those participating
in any of the above instead of being limited to only those competing. (09 18 change)
5. This exclusion is new. It bars coverage
for loss involving flying vehicles, whether flight is their sole capability or
is among their features. (09 18 change)
Category C exclusions
The following situations are denied full coverage under the SPAP. In these instances, protection is limited to the minimum financial responsibility limits of the applicable garaging state:
1. There is no coverage for loss that occur when an insured is driving while impaired by alcohol or any controlled substance. The only exception is for incidents involving validly prescribed substances that are used according to a doctor’s (or health care professional’s) instructions.
Note: There may be a question of whether an insurer might challenge a loss that involves the use of medically prescribed marijuana. A key issue would, of course, be the loss circumstances. Is it likely that operating a vehicle while under the influence of medical marijuana would be following prescription instructions?
Note: The issue of jurisdictions that have legalized marijuana sales may have an impact on this exclusion in the future.
2. No coverage applies to loss that takes place while breaking a serious (felony) criminal law.
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Example: Ariandra turned in a collision claim for extensive
damage to the rear of her car. Her insurance company did two things after
looking into the claim. 1. It denied the claim. 2. It contacted the police as
the damage was due to Ariandra smashing into a convenience store during a
burglary. |
Related Court Case: Insured Guilty Of Fraud
3. The policy denies coverage involving attempts to escape from law enforcement officers.
4. No coverage is granted when the loss involves an operator who does not have a driver’s license or permit. The license or permit must be valid.
Note: This is substantially different than the standard PAP. The rationale is that this policy is designed for getting the right rate for significantly riskier driving exposures. Part of the strategy for getting the correct rate is to eliminate unidentified drivers.
5. This exclusion for any loss that involves a vehicle’s business use contains a valuable exception. It permits policy coverage for a described vehicle’s business use, but only if the insurance company has been notified of such use. The notification has to take place before any loss.
6. There is no coverage for loss involving a car that is operated by either a family member or other person who lives in the insured’s household, but the insurance company has not been made aware of this operator.
Category D Exclusion
The SPAP does not provide liability coverage for awards that are classified as either punitive or exemplary.
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Example: Kenny was sued for the injury and damages he caused. A
couple years earlier, he lost control of his car while speeding through a
neighborhood’s cul-de-sac. He smashed into a home and seriously injured a
young child who was playing on the home’s porch. Besides speeding, Kenny had
failed to replace his brakes which had been functioning very poorly for
months before the accident. The judge levied an additional $25,000 amount
along with what was awarded for the injury and damage. Kenny’s SPAP will not
pay any portion of the punitive award. |
Limit
of Liability
Item A of this provision explains that the monetary limit that appears on the policy declarations page is the maximum amount of coverage that applies to the damages from any single loss. This maximum is not affected by the number of vehicles, insureds, or claims involved, or the number of vehicles or premiums appearing on the declarations page. This arrangement is true of both bodily injury and property damage claims. The particulars of a given loss may well affect how payments may be distributed, but the maximum remains the maximum.
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Example: Dawson & Paige have an SPAP with the following limits: |
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Bodily Injury |
$100,000/$300,000 |
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Property Damage |
$100,000 |
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Medical Payments |
$10,000 |
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Collision |
$500 Deductible |
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Other Than Collision |
$500 Deductible |
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Uninsured Motorist |
$25,000/$50,000 |
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Claimant |
BI Claim Amount |
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One |
$43,000 (burns, plastic surgery) |
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Two |
$12,000 |
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Three |
$51,500 (paralyzed) |
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Four |
$24,000 |
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Five |
$17,800 |
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Six |
$8,500 |
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Seven |
$26,500 |
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Total |
$183,300 |
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Car |
PD Claim Amount |
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One |
$23,000 |
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Two |
$14,700 |
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Three |
$19,600 |
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Four |
$83,000 |
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Five |
Total - $140,300 |
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The above
claims under the one accident could be settled in a variety of ways. Under
bodily injury, all of the individual claimants qualify under the per person
insurance limits and the entire amount may also be paid under the per
accident limit. Under property damage, all of the cars individually qualify
for coverage under the insurance limits, but the total amount exceeds the limits.
Depending upon how the loss is settled, one or more of the claimants may only
get partial settlement or could be squeezed out from any coverage at all, say
if car four received total payment for its huge loss. |
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Item B of the Limit of Liability section addresses third party claims involving insureds who are NEITHER the named insured nor a family member. The SPAP will:
1. Only pay the applicable state’s financial responsibility minimum for bodily injury for a single person in a single loss. Such payment includes the minimum requirement for medical payments/expenses.
2. Only pay the applicable state’s financial responsibility minimum for bodily injury for all persons in a single loss. Such payment includes the minimum requirement for medical payments/expenses.
3. Only pay the applicable state’s financial responsibility minimum for property damage for all property damage involved in a single loss.
The payments are not affected by the number of claims, persons or vehicles involved in a single accident.
Item C of the Limit of Liability section explains that, regardless of whether coverage exists under more than one coverage part (specifically parts A, B and/or C), no duplicate payments will be made under the SPAP. This limitation means that, even if portions of a single claim qualify for coverage under Part A - Liability as well as Part B - Medical Payments and/or Part C - Uninsured Motorists coverage, an insured will not be paid more than once for any portion of his loss. This clarifies the purpose of the SPAP to indemnify rather than enrich a claimant for their accidental loss.
Out-Of-State
Coverage
The Special Personal Auto Policy emphasizes being able to perform in compliance with the legal realities of the environment that surrounds an eligible loss. Consistent with this objective, this provision allows the SPAP to respond to a loss according to a given state’s requirements. Item A.1 of this provision states that the policy will provide a higher limit for bodily injury or property damage liability coverage to meet whatever is minimally required by the state in which a covered loss occurs. Item A.2 indicates that the SPAP will comply with the minimum amounts and types of coverages that may be required by a state’s compulsory insurance law while the covered auto is being operated in that state.
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Example: A policy is written in state
A, which requires combined single limits, and the policy has a limit of
$300,000. As it happens, a loss occurs while the insured is traveling in
state B, which mandates the limit of liability to be applied in split limits
for bodily injury and property damage liability. The SPAP would respond to
the accident by applying the $300,000 maximum consistent with the split limit
requirement, but it would not increase the maximum available. |
Item B of this provision states that no one is eligible for duplicate payments. In total, this provision makes the policy a much more reasonable coverage document by preventing technicalities to bar or limit coverage because of the different ways that states structure their coverage requirements. Imagine if no such provision existed and a person from state A had to travel across the country and had the misfortune of being in an accident or having to show proof of valid insurance in several states with different laws.
Financial
Responsibility
The SPAP, when considered as valid proof of financial responsibility, is to be interpreted as complying with the governing financial responsibility law. This is helpful and flexible since financial obligations required of drivers vary significantly by state.
Related Article: Financial Responsibility Limits
Other
Insurance
When other sources of liability insurance exist, Part A of the Special Personal Auto Policy will pay on a basis that equals its share of the total amount of insurance available to cover an eligible loss involving an owned auto. If the loss involves a non-owned auto, the policy responds on an excess basis, paying only after the primary policy has paid its limit.
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Example: Let us examine a total auto accident loss of $14,000 in damages. The loss is covered by an SPAP and some other source of coverage. Assume that both sources have coverage limits greater than the loss amount. Scenario 1: The loss involves an auto owned by the insured and the SPAP and the other coverage source offer the same coverage limits. In this case, payment would be: |
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SPAP |
$7,000 |
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Other Source |
$7,000 |
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Scenario 2: The loss involves an auto owned by the insured and the SPAP and the other coverage source offer different coverage limits. Let us assume that the SPAP’s limit represents 40% of the available coverage. In this case, payment would be: |
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SPAP |
$5,600 |
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Other Source |
$8,400 |
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Scenario 3: The loss involves an auto that is NOT owned by the insured and the SPAP and the other coverage source offer the same coverage limits. In this case, payment would be: |
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SPAP |
$0 |
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Other Source |
$14,000 |
Note: If a nonowned auto is involved, it would not matter if the SPAP and the other source had different limits. The other source would have to pay out its complete limit before the SPAP would contribute any payment.
PART B - MEDICAL PAYMENTS
COVERAGE
Insuring
Agreement
Item A of this coverage part explains that it will pay for necessary medical and funeral services incurred by an “insured” suffering from accidental “bodily injury.” Like the latest edition of the Personal Auto Policy, the SPAP also contains clear wording regarding the eligibility of such expenses. It states that only those expenses incurred within 3 years from the date of the accident will be paid.
The intent is to limit payment to accident-related expenses that actually were paid for services provided no later than three years after an accident. Early editions of the PAP (from which the SPAP was developed) were open for interpretation and that situation led to broader coverage than intended, such as providing coverage for services that were merely identified within three years of a loss date. It also led to payment for services that were incurred in the three-year window and then continued beyond that period.
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Example: Laury is insured under an SPAP and she collided with
Harry at an intersection in January 2017. Harry suffered some deep cuts to
his thighs and legs and Laury’s policy paid for an ambulance trip and for
stitches. In January 2020, Harry visits his doctor about continued pain in
his legs. His doctor catches bone deterioration resulting from trauma
suffered in the January 2017 accident. He is scheduled for February 2020
surgery and he undergoes two months of rehabilitation. Harry contacts Linda’s
insurer to handle the latter recently identified expenses. The situation is
not covered by the SPAP since the expenses were incurred later than three
years from the accident date. |
The insuring agreement’s current wording is meant to eliminate such long-tailed obligations.
Item B of this coverage part defines “insured,” differently than under Part A. An insured is only the named insured, resident spouse, and any family member. Furthermore, they are insured only while occupying a vehicle that’s primarily meant to be operated on public roads, including trailers. They are also insureds if struck by such a vehicle. Further, any person while in “your covered auto” is also an insured under this coverage part.
Exclusions
Not all injuries are covered. There is no coverage under the following circumstances:
1. If injury happens while the insured is in a vehicle with fewer than four wheels.
2. When the injury takes place
while the vehicle is being used to transport persons or property for income. This exclusion has been revised to make
coverage intent clearer. It now makes reference to coverage ineligibility when
any insured driver is actively using any vehicle in conjunction with a
transportation network platform. Active use means providing such use as a driver.
The exclusion applies both while seeking passenger contacts and during transporting
passengers. (09 18 change)
Both the 01 06 and the 09 18 SPAP editions retain an important exception to this exclusion, but there is a difference.
a. Coverage is still permitted for vehicles used in traditional carpools (where the insured gets gas and maintenance money from carpool riders).
b.
An additional exception is referenced, allowing coverage for a vehicle during
its use in charity and volunteer situations. Protection extends to instances of
both ownership and operation. (09 18 change)
3. If the injury happens while the vehicle is set up and being used as a premise or residence.
4. If it occurs while on the job, and workers compensation coverage is either available or required for the bodily injury.
5. If the bodily injury happens while an insured is occupying or is hit by a vehicle that should be covered by this policy (but is not listed on the policy) because it is either owned by the insured or regularly available to him or her.
6. If the bodily injury happens while an insured is occupying or is hit by a vehicle that could be covered by this policy (but is not listed on the policy) because it is owned by or is a vehicle that is regularly available to a “family member.”
Note: Exclusions 5. and 6. describe situations that represent a regular personal auto exposure that should either be rated under an insured’s SPAP or under the insurance carried by the applicable vehicle’s owner.
7. No coverage applies if bodily injury occurs to a person occupying a vehicle without the belief that she or he has the vehicle owner’s permission. This exclusion does not apply when a family member is using a vehicle covered under this policy that is owned by the named insured.
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Example: John is walking
to school on a freezing winter’s day. He sees that, as usual, one of the
neighbors has left their car running in order to defrost the windows. Without
thinking, John enters the car and starts backing it out of the drive….he
misjudges the driveway’s end as well as its iciness and the car plunges into
the steep culvert, damaging the rear of the car. John suffers a strained neck
and severe back injuries. His medical treatment costs are uncovered since he
had no permission to operate the car. |
8. This item prohibits coverage for bodily injury suffered while in a vehicle that’s being used in an insured’s “business.” The only exception is when the vehicle is covered under this policy.
9. and 10. eliminate coverage for bodily injury caused directly or indirectly by a nuclear weapon, reaction radiation or contamination; or by war, civil war, insurrection, rebellion, or revolution.
11. Under Part B - Medical Payments
Coverage also contains the clarification that denies coverage for injury
involving any vehicle while it is preparing for or competing in a race. The latest edition of the SPAP has been
revised. This exclusion also applies to driver skill training and driver skill
events. In addition, the exclusion applies to those
participating in any of the above instead of being limited to only those
competing. (09 18 change)
12. No coverage exists when a listed car is used for transporting food or products (except when it involves volunteering).
13. There is no coverage for loss that occur while an insured is driving while impaired by alcohol or any controlled substance. The only exception is for incidents involving validly prescribed substances that are used according to a health care professional’s instructions.
14. No coverage applies to loss that takes place while breaking a serious (felony) criminal law
15. The policy denies coverage involving attempts to escape from law enforcement officers
16. No coverage is granted to an individual operating a vehicle without a driver’s license or permit. However, other insureds injured in an accident caused by that operator could still have coverage.
17. This is an unusual exception that permits policy coverage for a described vehicle’s business use, but only if the insurance company has been notified of such use. The notification has to take place before any loss.
18. There is no coverage for loss involving a car that is operated by either a family member or other person who lives in the insured’s household, but the insurance company has not been made aware of this operator.
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Example: Kim has an
SPAP from Ruinrok Casualty and the policy’s declarations page lists her ’15
Dodge Charger. Further, Kim is the only driver listed on the policy. Kim’s
teenage brother, Tom, comes to live with her and, to help him out, she buys
him a ’10 Civic so he can get to and from work. When Tom hits another car
while returning from work, Kim turns in a loss report. However, since neither
Tom nor the car were ever listed on Kim’s policy, no coverage applies. |
The following exclusions were added in the latest edition of
the SPAP:
19. No medical
payment protection extends to an insured for incidents of vehicle ownership,
maintenance or use during the period that both of the following apply to the
vehicle:
a. There is a written contract under which the vehicle is
part of a personal vehicle sharing program
b. That vehicle is being used by a person other than the
named insured or a family member (as defined) of the named insured. (09 18 Change)
20. This exclusion is also new. It bars
coverage for loss involving flying vehicles, whether flight is their sole
capability or is among their features. (09
18 Change)
Limit
of Liability
Item A explains that the monetary limit that appears on the policy declarations page is the maximum amount of coverage that will apply to the damages from any single loss. The number of vehicles, insureds, or claims involved in a given loss does not affect this maximum amount. It is also unaffected by the number of vehicles or premiums appearing on the declarations page. The details of a given loss may well affect how payments may be distributed, but the maximum remains unaffected by such loss-handling details.
Item B of the Limit of Liability section explains that, regardless of whether coverage exists under more than one coverage part (specifically parts A, B and/or C), no duplicate payments will be made under the SPAP. This limitation means that, even if portions of a single claim qualify for coverage under Part B - Medical Payments as well as Part A - Liability and/or Part C - Uninsured Motorists coverage, an insured will not be paid more than once for any portion of his loss. Please refer to the example under the Part A - Limit of Liability section for an illustration of this provision.
Other
Insurance
In the event that other sources of medical payments insurance exist, Part B of the Special Personal Auto Policy will pay on a basis that equals its share of the total amount of insurance that is available to cover an eligible loss involving an owned auto.
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Example: Jason is eligible for medical payments coverage and two other sources of recovery. The SPAP has limits of $3,500; source two, $5,000; and source three, $6,500. The loss amount is $6.500. The total amount available for the loss is not $15,000 (the sum of the three sources) but $6,500, the amount of the loss. However, the SPAP will pay only on a basis that equals its share of the total amount of insurance that is available to cover an eligible loss involving an owned auto. This means that the SPAP would pay $3,500/$15,000 X $6.500 = $1,517. |
If the loss involves a non-owned auto, the SPAP responds on an excess basis, paying only after the other available coverage has paid its limit.
Note: Regardless of the existence of other sources, the SPAP will only pay a maximum of its applicable, displayed limit.
PART C - UNINSURED MOTORISTS
COVERAGE
Insuring
Agreement
This part protects an “insured” against “bodily injury” caused by an accident with an “uninsured motor vehicle.” In such instances, an insured’s own policy will respond to injuries resulting from an accident where the driver who caused the injury doesn’t have the resources to handle the legal obligation. However, this coverage part is not bound by any judgment for damages determined by a lawsuit that’s filed without the company’s written consent.
Note: Different states vary on the uninsured motorists issue. The common differences include whether the coverage is mandatory, what limits must be offered, the availability of underinsured coverage (including if UIM is considered part of UM coverage), and if UM coverage can be rejected.
Related Article: Auto Uninsured/Underinsured Motorists Coverage Requirements
Uninsured motorist losses continue to be a major concern for insurers. Operating an auto is commonly (and in our opinion, wrongly) considered a right. Unfortunately, that attitude is frequently unaccompanied by the financial responsibility associated with it. Insurance companies have a very difficult time trying to price and control this loss exposure. One reason for the difficulty is that the exposure is hard to predict. Other than determining if a given territory has a higher number of uninsured drivers, how can a company gain insight on the likelihood of a loss involving a driver who is not insured?
Item B of the uninsured motorists coverage insuring agreement defines who is considered an insured. An insured includes the named insured and resident spouse, any “family member,” any other person “occupying” “your covered auto,” and any person eligible for payment because of bodily injury damages suffered by an insured.
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Example: Mindy is the executor of the estate for Beebe, who dies after being in a collision with an uninsured motorist. Mindy drives Beebe’s damaged, but functioning car to Beebe’s insurer’s auto claims facility. During that time, Mindy is an insured under Beebe’s policy. |
Of course, no matter how well a policy tries to explain who is considered an insured, anything can be questioned in court.
Related Court Case: "Family Member Definition Held Not to Extend to Son," – contains information on a judicial ruling on the meaning of the term "family member.”
Precisely what is considered an “uninsured motor vehicle” is the subject of Item C of this section’s insuring agreement. Part C differs from other parts of the policy because it uses the broadest definition of a vehicle. Any “land motor vehicle” or trailer may be an “uninsured motor vehicle” if no bodily injury liability policy or bond applies to the vehicle. Such a vehicle could still qualify as an “uninsured motor vehicle” if a bond or policy does apply but the writer of the coverage denies coverage or becomes insolvent. Finally, a hit-and-run vehicle is also an “uninsured motor vehicle” when it hits the named insured (includes resident spouse) or a family member, or any car occupied by these classes of people, or it hits a “covered auto.”
However, the policy’s definition of an uninsured vehicle doesn’t include any vehicle or equipment that either belongs to or is regularly available to the named insured or any family member, or any vehicle owned by a governmental entity. Vehicles used as a residence, vehicles which operate upon crawlers or treads, or vehicles made primarily for off-road use also are disqualified as uninsured motor vehicles.
The logic behind excluding many of the types of vehicles is that the SPAP is not designed to handle exposures that should be handled by other types of policies such as motor home, recreational vehicle, or mobile home policies. The exclusion also intends to avoid a very high source of “uninsured” vehicle operation - off-the-road recreational activity.
Exclusions
Under Item A, the following situations bar coverage for bodily injury:
1. No coverage exists for any insured if he or she is hit by or hit while occupying a vehicle owned by that insured (including a trailer) that isn’t insured under this uninsured motorists coverage.
2. No family member is covered if they are hit by or occupying a vehicle that is owned by the named insured, but that is covered by any other policy.
Under Item B, No insured qualifies for uninsured
motorists coverage for bodily injury under the following circumstances:
1. If a claim is settled
without the company’s consent. However, this applies only if the settlement hinders
the insurance company’s recovery rights. In the instance of an unapproved
settlement of a bodily injury claim, it is only excluded if the action
prejudiced (damaged or eliminated) the insurer's rights. This eliminates the
application of an exclusion when, for all intents, an insurer's position has
not been adversely affected by an insured’s action. Previously, certain losses
could have been denied, purely on technical grounds. Nationwide, courts have
been rejecting such results.
2. There is no coverage for an insured while in a vehicle that’s transporting people or property for pay
This
exclusion has been revised to make coverage intent clearer. It now makes
reference to coverage ineligibility when any insured driver is actively using
any vehicle in conjunction with a transportation network platform. Active use
means providing such use as a driver. The exclusion applies both while seeking
passenger contacts and during passenger transportation. (09 18 change)
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Example: When not working at her regular job, Karen is a CityShare driver. Her SUV is written under a 09 18 Special Personal Auto Policy. While on the way to pick up her night’s first CityShare passenger, she causes a collision. This accident would be ineligible under the SPAP as it involved active use of a transportation network platform. |
Both the 01 06 and the 09 18 SPAP editions maintain an important exception to this exclusion, with a difference.
a. Coverage is still permitted for vehicles used in traditional carpools (where the insured gets gas and maintenance money from carpool riders).
b.
An additional exception is referenced, allowing coverage for a vehicle during
its use in charity and volunteer situations. Protection extends to instances of
both ownership and operation during such instances. (09 18 change)
3. Further, uninsured motorists protection is not extended when the loss involves a vehicle while being used without permission. However, the question of permission does not apply to a “family member” who is operating a vehicle that qualifies as a “covered auto.”
Related Court Case: Son Did Not Qualify As A Permissive Driver
4. No coverage is
granted for any incidence of vehicle use during an accident that involves moving
persons or products for reimbursement. Similar use that is voluntary is exempt
from the exclusion.
5. No uninsured motorist protection extends to
an insured for incidents of vehicle ownership, maintenance or use during the
period that both of the following apply to the vehicle:
a. There is a written
contract under which the vehicle is part of a personal vehicle sharing program
b. That vehicle is
being used by a person other than the named insured or a family member (as
defined) of the named insured who is participating in a program referenced in 4.
a. above. (09 18 addition)
6. This exclusion is also new. It bars
coverage for loss involving flying vehicles, whether flight is their sole capability
or is among their features. (09 18 addition)
Items C and D explain that no coverage exists if coverage should be handled by either workers compensation or disability benefits law, and those payments are not made for punitive or exemplary damages.
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Example: Jonah’s car is insured under an SPAP that includes UM limits of $50,000/100,000. Jonah is going through an intersection when he is struck by Millie’s clunker of a pick-up. Millie was speeding and she ran the red light. She ended up demolishing Jonah’s sports model Escalade and Jonah suffers a severe hip injury. Jonah sues Millie who, unfortunately, was also driving without insurance and without a valid license (her license had been suspended for previous accidents and violations). Jonah wins a settlement of $75,000 but $35,000 of the award is classed as punitive damages. Jonah’s insurer pays Jonah $40,000 under his UM coverage However, the punitive portion of the award is ineligible for coverage under the SPAP. |
Limit
of Liability
Item A explains that the monetary limit that appears on the policy declarations page is the maximum amount of coverage that will apply to the damages from any single loss. This maximum is not affected by the number of vehicles, insureds, or claims involved, or the number of vehicles or premiums appearing on the declarations page. The particulars of a given loss may well affect how payments may be distributed, but the maximum remains the maximum.
Item B of the Limit of Liability section explains that, when a UM loss involves a covered driver who is neither the named insured or a member of the named insured’s household, the maximum coverage available is the amount of financial liability required by the given state where the covered auto is primarily garaged. This maximum is not affected by the number of vehicles, insureds, or claims involved, or the number of vehicles or premiums appearing on the declarations page.
Item C of the Limit of Liability section explains that, regardless of whether coverage exists under more than one coverage part (specifically parts A, B and/or C), no duplicate payments will be made under the SPAP. This limitation means that, even if portions of a single claim qualify for coverage under Part C - Uninsured Motorists Coverage as well as Part B - Medical Payments and/or Part A - Liability Coverage, an insured will not be paid more than once for any portion of his loss. This limitation also applies to any coverage available under any underinsured motorists coverage provided by the policy. It exists because the SPAP is meant to indemnify rather than enrich a claimant for their accidental loss. Please refer to the example under the Part A - Limit of Liability section for an illustration of this provision.
Item D affirms that the SPAP will not pay for any portion of a loss that already has been paid by any party responsible for that loss.
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Example: Carla Applecheek and her son are on their way back home from a victory at a pee-wee ice hockey game when they’re hit by Jonni, who ignores a stop sign. Jonni drives an old, rusty ‘00 Chevy that is, surprise, not insured. Therefore, the Applecheeks apply for coverage under the $25,000 uninsured motorist coverage part of their own SPAP. Their company pays them $6,700 for their injuries but later, after finding out that Jonni paid them $1,250 that he was saving for a new car, the insurer requires the Applecheeks to return $1,250 of its payment. |
Item E explains that no coverage exists if coverage should be handled by either a workers compensation or a disability benefits law.
Other
Insurance
If other sources of insurance or other policy provisions apply to an uninsured motorist loss, this provision intends to make sure that such sources are contemplated when compensating an insured for a loss. This provision of the Special Personal Auto Policy provides that the total amount of coverage available to pay for losses involving uninsured motorists is no higher than the greatest amount provided for a single vehicle.
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Example: A covered loss of $70,000 occurs. There are three different sources of recovery to pay for the loss. The SPAP has limits of $25,000; source two, $50,000; and source three, $15,000. The total amount available to pay for the loss is not $90,000 (the sum of the three sources), but instead it is $50,000 because it is the highest limit available of the three sources. This means that the loss is capped at $50,000 not $70,000. The amount the SPAP will pay is determined by dividing its limit by the total limits available. Therefore, the amount paid by the SPAP is computed as $25,000/$90,000 X $50,000 = $13,889. |
The total amount that may be paid on the loss may not exceed the total amount of primary and excess coverage available for any single auto. If the loss involves a non-owned auto (including autos that qualify as temporary substitutes), the uninsured motorist coverage part responds on an excess basis, paying only after the other available coverage has paid its limit.
Arbitration
A. If we and an “insured” do not agree
If the company and their insured aren’t on the same wavelength regarding whether a loss payment is due and/or how much is due in an uninsured motorist loss, the argument may go to arbitration. However, both the company and the insured must want the disagreement to be handled by representatives of their own choosing. A judge may be called upon to select a third arbitrator if that person isn’t selected by the first two arbitrators within 30 days.
Related Court Case: “Insurer Must Accept Decision Of Its Approved Umpire” - though the case does not involve a personal auto, it illustrates the power of an arbitration clause.
B. Distribution of arbitration costs
Each party will handle their own out-of-pocket expenses, as well as share in the cost of the third arbitrator. The arbitrators must follow the local rules of law in their discussions.
C.
Unless both parties agree otherwise
The insurance company and the insured must accept the decisions agreed on by any two arbitrators as legally binding in the areas of determining a valid claim and the amount to be paid. An exception is made if the arbitrated amount is greater than the minimum bodily injury liability established by the applicable financial responsibility law. If this disparity occurs, either the insurer or the insured can insist on going to trial. However, if no party contests the amount within 60 days, the decision, regardless of the amount, is binding.
PART D - COVERAGE FOR DAMAGE
TO YOUR AUTO
This section is much different than the policy’s earlier sections. Instead of liability to other injured parties, it deals with actual damage to the insured’s covered vehicle (including expenses because of loss of use of the same).
Insuring
Agreement
Under item A of the insuring agreement, the Special Personal Auto Policy agrees to protect “your covered auto” or a “non-owned auto” against accidental loss. Any payment includes compensation for loss to auto equipment but does not include the applicable deductible. If you’re unlucky enough to have more than one covered vehicle involved in the same collision loss, only a single, highest deductible will count against any loss payment.
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Example: Barney and Kloorene Runarown have two Minivans that are covered by a SPAP. The vans aren’t their vehicles of choice, but they also have four lovely offspring who keep them incredibly busy with their sports and other activities. It’s fall and the Runarowns often have to split up in order to handle four kids on four different sports teams. It’s not unusual to have one parent zoom into their driveway to pick up some little Runarowns, while the other is zooming out with the others. One day, instead of zooming in and out of their driveway, they zoom into each other. While there was $4,200 in damages to his van and $2,900 to hers, they were glad that only a single $500 deductible applied to the loss to their two vehicles. |
This section clearly applies only to collision and other than collision losses, but only if the policy’s declarations page shows a deductible choice to indicate that these coverages apply. Should a loss involve a non-owned auto, the broadest coverage written for “your covered auto” applies.
There is an exception. If the non-owned vehicle is substituting for a scheduled vehicle, coverage for the non-owned vehicles is only as broad as the vehicle for which it is a substitute.
Item B of the insuring agreement explains that “collision” refers to your covered auto or your non-owned auto which has either hit or been hit by another vehicle or some other inorganic item. It’s implied that the event has to result in damage to your car.
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Example: While parking your car at a
supermarket, you slam headfirst into a fully inflated helium balloon that’s
being used to promote their fresh cucumber sale. Besides creating a lot of
laughter, no harm is done to your car or the store’s balloon. Collision? Yes.
A loss under Part D? No, because nothing was damaged or destroyed. |
“Other than collision” simply refers to those events that aren’t collision. The SPAP lists 10 events that qualify as other than collision losses. If your covered car is damaged by items falling from the sky, fire, theft, explosion or earthquake, windstorm, hail or flood, vandalism, rioting, contact with birds and animals, or if glass has broken, you’ve experienced an other than collision loss. The SPAP is flexible about losses involving glass. If any vehicle glass is broken during a collision, an insured may choose to have it covered under the collision portion of the policy.
Item C. “Non-owned” auto issues - These are private-passenger vehicles (including trailers), vans and pickup trucks that, while being operated or used by an insured, aren’t owned by or regularly available to any insured (which includes any “family member”).
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Example: A SPAP is written for a husband and wife. The wife is late coming home from work, so the husband borrows his neighbor’s car to take his daughter to a sleep-over. This is an eligible non-owned situation. |
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Example: Your son’s Little League coach has to stay at the park to prepare the baseball diamond for the next day’s game, but he promised his team a pizza dinner. You agree to take the kids over to the restaurant in his minivan while he uses your Chevy in order to join you in an hour. This is an eligible non-owned situation. |
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Example: You borrow your neighbor’s car to go to the mall. The car belongs to the neighbor’s daughter, who’s away at college. They gave you an extra set of keys so that you can use it as needed, as long as you keep gas in it. This is NOT an eligible non-owned situation. |
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Example: Mom has to pick up some groceries for a dinner party. Dad has the insured, family car, so she jumps into her son’s car. It’s an old “beater” that’s not registered or licensed...the son is going to take care of that after it’s completely fixed up and painted. This is NOT an eligible non-owned situation. |
Note: This definition is similar to other parts of the policy by only covering pickups or vans with a gross vehicle weight of 10,000 or less
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Example: Joe is in a hurry to pick up his fiancée from the airport. He hasn’t seen her in nearly three months. He jumps into his ‘13 Miata, turns the key and, nothing. He then notices that he left his glove compartment open. Its small light must have been on until it drained his battery. Joe’s neighbor, Sonny, says he can borrow his truck. The truck is a two-ton flatbed truck with wood stake sides and is from “Sonny’s Tree Barbers.” Joe’s fiancée, Sylvia, won’t be thrilled...and neither would anyone involved in an accident with Sonny. While the truck is a substitute, its weight disqualifies it for coverage. |
Further, vehicles that fall under the policy’s temporary substitute definition are not non-owned autos.
Exclusions
Part D - Coverage for Damage to Your Auto will not pay for:
1. Loss to an owned or non-owned
auto that occurs while it is used for hire to transport persons or goods. This exclusion has been revised to make
coverage intent clearer. It now makes reference to the coverage ineligibility
when any insured driver is actively using any vehicle in conjunction with a
transportation network platform. Active use means providing such use as a driver.
The exclusion applies both while seeking passenger contacts and during transporting
passengers. (09 18 change)
Both the 01 06 and the 09 18 SPAP editions maintain an important exception to this exclusion, with a difference.
a. Coverage is still permitted for vehicles used in traditional carpools (where the insured gets gas and maintenance money from carpool riders).
b.
An additional exception is referenced, allowing coverage for a vehicle during
its use in charity and volunteer situations. Protection extends to instances of
both ownership and operation during such instances. (09 18 change)
2. Damage resulting from your car’s aging, extremely cold weather, mechanical or electrical breakdown, or road damage. An exception is made for such damage that results from the total theft of a covered auto (owned or non-owned).
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Example: It took Pete two hours to
start his car during a typical winter’s morning in |
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Example: Pete gets a new car and is leaving a restaurant to get his car from his parking space when he notices that a stranger is breaking into the car. The thief sees Pete, starts the hot-wired car, and drives out of the lot. The thief is in such a hurry that she doesn’t bother to avoid a loose sewer cover while escaping. The police discover the car the next day with the interior stripped of electronics. The front end, including the tires, is severely damaged. Normally, the destroyed tires would be excluded, but since it happened during a theft, Pete’s settlement would include reimbursement for the tire damage. |
3. There’s no coverage for any loss caused by radioactive contamination, nuclear weapons, war, insurrection, rebellion, or revolution.
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Example: Alan Newtron is coming home from work and he rear-ends a panel truck from a hospital that just started operating in his area. He is puzzled when, as he gets out to trade insurance information, the doors of the truck are flung open. Screaming, the truck’s driver and two passengers jump out and run from the truck. Alan also wonders why they were wearing protective suits. Alan’s curiosity is satisfied when he peers into the truck and notices that a new X-ray machine is laying in the back...cracked into two pieces. Any damage caused by the ongoing irradiation is excluded from coverage. |
4. Part D of the SPAP does not cover loss to electronic equipment intended to reproduce sound, including any accessories or related equipment. For instance, the SPAP begins by excluding coverage for equipment such as radios, tape decks, stereos, or compact disc players. However, there are some exceptions. There IS coverage for equipment and accessories IF the equipment is permanently installed in your covered auto or any non-owned auto by the auto manufacturer.
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Example: Henni Oldmun loves his ’10 Lexus. Even though it came with a beautiful sounding CD player, Henni has a friend put a special CD recorder/player into the car. Henni is a senior project manager who spends much of his business day in his car traveling between job sites. Since he has to produce reports on how his projects are progressing, he records updates and later has them transcribed. Last week he was late for a meeting and he ran out of his car without arming the alarm system. Henni came back to a Lexus that was minus everything that wasn’t tied down and this included his recorder. Henni’s mood wasn’t improved when his insurance company adjuster said that the recorder was not covered. Henni said that it should be covered because the unit was permanently installed in his car. The adjuster pointed out it had not been installed by the auto manufacturer. |
5. This exclusion is for any media (tapes, CDs, records, etc.) that is used with such equipment as well as any accessories used with the equipment described in exclusion 4.
6. This exclusion explains that the Part D - Damage to Your Auto doesn’t respond to a loss of either an owned or non-owned auto that’s destroyed or taken by legal authorities. Of course, an exception is made for the financial interests of loss payees. It isn’t in the public interest to deny protection to lenders because of the illegal acts of their borrowers.
7. There’s no coverage for a camper body, motor home or trailer owned by an insured, but not listed on the declarations page. Neither is there any coverage for awnings, cabanas (lightweight structures with living facilities) and equipment designed to create additional living facilities including cooking, refrigerating, or plumbing equipment. Are there any exceptions? Yes. This exclusion doesn’t affect coverage for trailers (including their facilities or equipment) that are NOT owned by an insured.
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Example: Sarah Grizzled was a poor, but avid, backpacker. While she usually just liked to camp with a tent, a friend convinced her to borrow his camper trailer for an excursion out West. Sarah was initially skeptical but, after a week’s use, came to truly enjoy the trailer. Sarah was as upset as her friend when, while cresting a narrow, twisting mountain road, a quick maneuver caused the trailer to swing into the mountainside, obliterating the camper. This loss would be eligible for coverage under the SPAP. |
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The SPAP also provides coverage for trailers (including their facilities or equipment) that are newly acquired by the insured and which are reported to the insurer within 14 days. The intent of the policy is to make sure that all vehicle exposures are reported and rated.
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Example: A retired couple buys a
travel trailer without reporting it to their insurance company. Two weeks
later, they take off on an extended vacation, a cross-country trip. Just as
they’re entering the third week of travel, the trailer detaches from the
hitch while heading toward |
Of course, coverage would also apply to such equipment that the insured already owns on the date that the property is reported and coverage requested by the insured. However, most companies have their own additional restrictions in order to protect themselves against insureds who try to save money by requesting coverage while a trailer is being used (such as the summer) and then removing coverage while the property is in storage.
8. Any insured, including a family member, who has a loss involving a non-owned auto will find himself without coverage if he doesn’t believe he has permission to use the auto.
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Example: Kerri and her friends go outside to play a game of basketball and are disappointed to see a car parked in the driveway, blocking the basketball goal. The car belongs to a friend of Kerri’s mom and that friend left her keys in the ignition. Kerri and her friends jump inside, planning to move the car onto the street. Instead, they decide to drive several blocks to pick up some snacks at a convenience store. On the way back, they cause a collision. This loss is not covered by Kerri’s Mom’s SPAP. |
9. Any equipment used to detect or locate radar or lasers isn’t protected if it is lost or damaged.
10. All custom furnishings and equipment are excluded from coverage. Examples of such items are carpeting, insulation, furniture or bars, ovens, microwaves, beds/couches, roof extensions, murals, paintings, etc. These items should be separately endorsed since their value is rarely included in the vehicle value used to rate the basic physical damage coverage.
ISO provides a special endorsement where these items can be listed and rated (PP 93 18 Special Personal Auto Policy Customizing Equipment Coverage).
Related Article: Special Personal Auto Policy Endorsements
Is there an exception to exclusion 10? Yes. The exclusion is not extended to a pickup truck’s cap, cover, or bed liner. However, an insured MUST be the owner of the pickup that is equipped with this property.
11. This eliminates coverage for any non-owned auto that is being held or used by any insured while working at selling, repairing, servicing, storing, or parking cars. The exclusion specifically mentions road testing and delivery. HOWEVER, this exclusion just applies to vehicles that are made for use on public highways.
12.
There is no coverage for any auto used in a speed contest or race. The latest edition of the SPAP has been
revised. Besides the activities just listed (racing and speed contests), this exclusion
also applies to driver skill training and driver skill events. In addition, the
exclusion applies to those participating in any of the above instead of being
limited to only those competing. (09 18
change)
13. This is no protection for any loss to a non-owned auto (including loss of use) rented by an insured when any applicable state law or rental agreement prohibits a rental car company from collecting for any loss or loss of use. In other words, the SPAP won’t provide protection when either state law or a rental contract provides that coverage must be part of the rental transaction. Such a legal requirement makes coverage under an SPAP unnecessary.
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Example: Karen Sufistakatid and her fiancé are on vacation and Karen has suggested spending a week traveling in the bordering western state. Although Karen’s late model car is covered by an SPAP, she prefers to rent a car since she doesn’t want to affect the mileage use of her leasing agreement. Before renting the car, she asks her insurance agent if she should get coverage for the rental. The agent says, “I guess so, but I think your policy covers rentals.” Karen then calls a local car rental company. A rental clerk says that she can use her auto policy as coverage but must sign a special agreement to allow her credit card to be automatically billed for any losses to a rental including a daily charge for lost car rental income. Karen is relieved when she finds that the state, she is vacationing in requires all rental companies to provide full coverage for ANY loss to a rental car for only a few dollars a day. |
14. There is no coverage for features used to customize a vehicle and the bar to coverage applies to both furnishings and equipment. The policy specifically mentions such items as power-enhancing equipment, roll/sway bars, winches, custom tires, tire covers (including spinners), custom chrome, paint, decals, etc. However, these are mentioned only as examples, any component added onto a vehicle to customize it would be ineligible for coverage.
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Example: Tonya’s new Chevy Malibu is
insured under an SPAP for both liability and for physical damage. She is very
upset when, while attempting to negotiate a hilly curve, she lost control of
her car. She crashed through side rails and slid a couple hundred feet along the
road’s pitted shoulder. Her injuries were very minor, but the car was
totaled. The |
15. The policy will not cover any loss when the vehicle is being used to deliver items food or product. Examples are newspapers and magazines but the exclusion is not limited to merely these situations. There is one exception. Coverage is granted for such transport when it is for volunteer purposes.
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Example: Stacia wasn’t able to brake her car in time for a red light and she hits a stopped vehicle. Besides the damage to the other car, her front-end damage exceeds $3,000. Scenario 1: The damage to Stacia’s car is not covered because the collision occurred while she was delivering a food order for her employer, Peking Pasta. Scenario 2: The damage to Stacia’s car is covered because the collision occurred while she was delivering a food order for her church’s shut-in members. |
16. The policy will not cover any loss when it involves any driver impaired by alcohol or by a substance that meets the definition of a controlled substance, such as illegal narcotics. An exception exists for incidents involving a substance that is properly prescribed by a health care professional, as long as the medicine is used per instructions.
17. The SPAP also excludes coverage for any non-owned vehicle that is used in business activities other than those specifically mentioned in exclusion 11 above.
18. With the very important exception of instances that are previously reported (and accepted) by the insurer, losses surrounding vehicles that are used or maintained for business purposes do not qualify for coverage.
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Example: During a storm, a large tree-branch falls and crushes the cabin roof of Larry’s 4 X 4 truck. He turns in a claim that his insurer rejects. His truck was parked in front of a house where he was delivering some repaired P.A. equipment for his business, SoundMasturz Inc. |
19. An owned or non-owned car that is damaged is disqualified from coverage if the loss takes place while it is being driven by any person who lives in the insured household but who has NOT been reported to the insurer (as a resident and driver).
20. The SPAP does not protect a loss to a described vehicle when a loss occurs while that vehicle has been rented to an entity who is neither the named insured nor a family member.
The following items were added with the latest edition of the SPAP.
21. No loss to a covered vehicle applies during the period that both of
the following apply to the vehicle:
a. There is a written
contract under which the vehicle is part of a personal vehicle sharing program
b. That vehicle is
being used by a person other than the named insured or a family member (as
defined) of the named insured who is participating in a program referenced in 12.a
above. (09 18 Change)
22. No coverage extends to claims involving
a non-owned vehicle that involves damage, destruction, or loss of use of that
vehicle when such claims are related to the use of the vehicle under a personal vehicle sharing program. This
exclusion applies when both of the following apply:
·
A non-owned vehicle is used by the named
insured or a family member (as defined) of the named insured
·
No recovery can be demanded from the named
insured or family member due to the parameters of the sharing program’s written
agreement or due to state law. (09 18 Change)
23. This exclusion bars coverage for loss
involving flying vehicles, whether flight is their sole capability or is among
their features. (09 18 Change)
Limit
of Liability
The SPAP does have restrictions on the total amount of coverage available for a loss to a covered vehicle. Specifically, Item A of Part D - Coverage for Damage to Your Auto - states that the policy is obligated to pay the actual cash value of the lost (stolen or damaged [including total losses]) property or to pay what’s needed to repair or replace the property, whichever is the LEAST EXPENSIVE option. This provision includes the option of settling a loss by using property of like kind and quality.
This section also explains that the maximum available for the loss of a non-owned trailer is $1,500.
Item B explains that any settlement includes an adjustment for a vehicle’s decreasing market value (depreciation) and physical condition when determining its actual cash value after a total loss.
Under Item C, the policy indicates that if the repair or replacement of a covered vehicle results in an insured being better off than before the loss, the SPAP won’t pay the value of the improvement.
As the cost of vehicles and vehicle parts continues to increase, insurers face more pressures to find options that indemnify rather than enrich their insureds. Often, the repair of damaged property put an insurer in the position of having to actually improve an insured’s position after a loss. It also became problematic to use new parts to make repairs and then attempt to make adjustments to the value of the settlement. Requesting insureds to participate in loss settlements above their coverage deductibles is a hard sell, so the option of introducing the “like kind and quality” concept made increasing sense, at least from the insurer’s side of the equation.
Insurers and other parties routinely disagree about what is fair when replacing or repairing property. Auto manufacturers and consumer groups continue to battle the insurance industry’s use of generic auto parts instead of original manufacturer parts. The resistance has been greater when the settlement option goes to the “extreme” of offering a similar, but different, vehicle. Much of the controversy may settle as time goes by and claimants become more familiar with the concept.
Payment
of Loss
This provision discusses a company’s options in making a settlement on a loss to a covered vehicle, stating that the settlement may be in the form of a cash payment, a repaired vehicle, or a replacement vehicle. The insurer has the option to return any stolen property to the named insured or to the latest address shown on the declarations page. If any property is returned, the insurer must pay for doing so, and only after any damages have been repaired. Further, should the company exercise the right to keep the property it has to be at a price that’s acceptable to both parties. Finally, if the settlement is made in cash, the total has to include any sales tax.
No
Benefit to Bailee
The SPAP states:
Bailees and other carriers for hire are not
to benefit from this insurance.
The policy’s intent is to perform its contractual obligations to the named insured and other parties defined in the definitions, insuring agreements, and other policy provisions. To do otherwise would be to open the policy up to parties who haven’t been rated or underwritten for coverage and for more exposures than contemplated. Other parties may benefit unintentionally from the policy without this provision.
Related Court Case: "Car Wash Assumes Liability When Customer Relinquishes Vehicle For Service"
Other
Sources of Recovery
This provision is to make sure that any payment under Part D of the Personal Auto Policy takes other sources of loss payment into account.
Owned Autos - If other insurance policies, provisions or sources of recovery apply to a physical damage loss, the policy will only pay its proportion of the total available coverage. But the proportional payment is only for owned autos. Non-owned Autos - If other sources of payment exist for a loss involving a non-owned (including a temporary substitute) auto, Part D of the SPAP responds on an excess basis. It is excess over every other available source of payment, including the policy of the owner of the car.
Note: The provision to pay its proportionate share on owned auto losses effectively assures that the policy won’t pay more than the limits of liability listed on the declarations page. Of course, it has no other way to control the amount paid by other sources.
Appraisal
This system works quite similarly to an arbitration clause, except that the only point of dispute is the amount of payment. This provision may be invoked when the company and the insured don’t agree on the amount of the loss. Each party must select its own qualified appraiser. The two appraisers then select an umpire. The appraisers then submit their opinion of the actual cash value and the amount of the loss. If they don’t reach agreement, they submit this information to the umpire. An agreement by any two persons is binding on both parties.
The company and the insured have to pay for the expenses of their own appraiser, as well as equally share the expenses of the umpire. No other insurer rights are affected by their agreeing to an appraisal. For instance, if another party has some responsibility for the loss, the insurer, after paying the appraised amount of loss, may still subrogate the claim.
PART
E - DUTIES AFTER AN ACCIDENT OR LOSS
This section
explains what an insured must do in order to fulfill his obligations once a
loss occurs. It is important that these conditions be met, since failing to
comply may relieve an insurer from having to pay for a loss. However, while the insured
risks endangering his or her coverage by failing to comply with their
post-loss duties, the provision states
that coverage may be lost only if the failed duty harms or violates
(prejudices) the insurer's position. In other words, the provision does not
permit a loss of protection for a mere technicality.
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Example: The Smiths are insured under a SPAP and have been sued by a driver due to an intersection accident. The Smiths call their insurer to tell them that they received some important paperwork. The insurer asks the Smiths to send the paperwork and that it would be good if they mailed it within a week. However, they mailed the paperwork later than requested (see scenarios below). The insurer later sends a letter saying they will not defend against the claim because the “late” mailing was a breach of the policy’s cooperation requirement. Scenario 1: The paperwork was mailed five days later so that the insurer received it nine days after requested. This represents a technicality as it is extremely unlikely that receiving the papers two days later than requested would affect coverage. Scenario 2: The paperwork was forgotten but eventually mailed such that the insurer received it three months after requested. This represents a serious breach. Receiving the papers so late may have harmed the insurer’s ability to investigate/handle the loss. It could be grounds for denying coverage. |
A. Notification. The insured must tell the company the accident details as soon as possible. The notification may be to an agent, and, ideally, should include the identity and addresses of any people hurt in the accident, as well as accident witnesses.
Item A is critical, since it initiates the entire claims process, and it gives the insurer its first and best opportunity to control the expense of the claim.
B. If an insured wants coverage, he/she must:
1. Assist the insurer in the claim’s investigation and settlement, as well as help with defending against any claim or suit.
2. Immediately send the company copies of ANY material received that’s related to the accident.
3. Agree to attend as many:
a. physical exams, involving doctors selected by the insurer and/or
b. interviews under oath
as are reasonably requested by the insurer. These requirements are at the insurer’s expense.
4. Permit the insurer complete access to medical and other records that relate to the accident.
5. Give the insurer any requested proof of loss.
The conditions under item B allow an insurer to evaluate whether a loss payment is due and how much has to be paid. This area has a lot of potential for straining relations between the insurer and the insured, since the two parties may differ over what is “reasonable.” The insured may quickly become concerned with their privacy, as well as their community standing. It is important that this provision spells out an insured’s contractual obligations in order to document their cooperation and possibly mitigate any hard feelings over repeated requests for help or information.
Related Court Case: Insured Fails To Cooperate.
C. If the loss involves uninsured motorists coverage, the insured is further obligated to notify the police quickly if the accident was caused by a hit-and-run driver, and to send the insurer copies of any legal papers should a suit be filed. Hit-and-run losses are always difficult to investigate and are always favorites for exaggerated, inaccurate, or fraudulent claims. The requirement that such losses be immediately reported to the police is a way to guard against claim problems.
D. If the loss involves collision or other than collision coverage, the insured is further obligated to:
1. Protect their property from further loss. The company is obligated to reimburse the insured if any additional expense is involved.
2. Quickly notify the police if the covered vehicle is stolen.
3. Allow the company to inspect and evaluate the damage property BEFORE it is repaired or removed.
Preserving the damaged property after a loss is extremely important.
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Example: Tina returns home early in the morning in her convertible and hits a very large landscape rock that’s in front of her house. The damage is minor, but it includes damage to a mechanism that makes it impossible to close the convertible top. Instead of moving the car into the garage or covering the car, it’s left in the driveway. Tina’s car remains outside, sitting exposed to a downpour that severely damages the interior and the car’s electrical systems. This situation creates a need to tow the car to have the damage inspected (when, originally, it could have been driven), and it complicates the adjustment and settlement. |
In the last instance, having any damage repaired or getting rid of the damaged property is an extremely serious breach of contract on the part of the insured, and could easily result in an insurer’s refusal to make payment. If the insured vehicle is repaired or disposed of, the insurer has no chance to evaluate whether coverage was due, nor determine how much was due.
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Example: Jeremy’s older car has a significant number of body dents, scratches, etc., but still has collision and other than collision coverage. On the way to work, he rear-ends another car. The damage to his own car is restricted to his bumper and right front end. However, Jeremy takes the car to a garage and has the accident damage repaired, as well as having all of the body dents removed and the vehicle repainted. He then reports the loss, submitting the total repair bill to his insurer. This late reporting complicates the third-party situation, since there is a delay in contacting the owner of the car that Jeremy hit. Further, it’s now impossible to determine what, if anything was due to be paid to Jeremy. |
PART F - GENERAL PROVISIONS
Bankruptcy
This provision says that an insured’s bankruptcy or insolvency doesn’t release the company from any obligations under this policy. This fact appears clear enough. But what happens if an insured can prove that his bankruptcy prevented payment of the policy premium in time, the policy then cancels and the insured has a loss a day after the final cancellation date? Can this situation be interpreted as still obligating the insurance company to adjust the loss and possibly make settlement? This writer is stumped. It would be interesting to have the right circumstances argued to see what a court might think.
Changes
A. This states that the policy is a complete agreement that can’t be changed, except by the company issuing an endorsement.
This is important. If the insured were allowed to change the policy, the most common changes would involve waiver of premiums for life, guaranteed renewals, and unlimited liability limits. Not that, from a consumer’s point of view, these wouldn’t be good policy features; it’s just that the provisions would make it a little tough to earn a profit. Fortunately, insurers are eager to help their customers make valid changes to their policy to fit their current circumstances.
B. The second item explains that the policy premium was based on a certain set of facts. If any of this information changes, it could affect the rating of the auto policy, and the insured’s premium may be changed. Items that could cause the policy’s cost to change include the number, type, or use of vehicles; the operators using the cars; where the vehicles are kept; and coverage, deductible or limit changes.
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Examples: These are situations that could affect the policy’s rates: 1. The ’14 Sedan is replaced by a ’18 subcompact, sports car. 2. A teenager gets his driver’s license and is now a regular driver. 3. The minivan that used to be driven one mile to and from school is now being used to drive to work 42 miles one-way. 4. The insured requests that the deductibles on collision and other than collision coverage be changed from $100 to $500. |
Finally, item B of the changes provision makes a reference that falls outside of the policy. It states that if a rating change is necessary, the change will be performed in compliance with the applicable company’s filed rating plan and rules.
Item C is a liberalization clause for the benefit of consumers. If a company does something to expand the coverage under the SPAP without charging additional premium, then the change immediately applies to all similar parties in a given state. This provision does not apply when an edition change occurs which both expand and restrict coverages.
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Example: On May 1st, Company A amends the SPAP to provide theft protection for Beach Boys vinyl albums for up to $500, free of charge. Effective May 1st, policies that don’t renew until after May 1st automatically gets this additional, valuable protection. |
Fraud
This provision is particularly brief and straightforward. The insurer advises that, if an insured speaks or acts with the intent to mislead others regarding any loss or claim, the insurer can deny coverage. Of course, this part of the insurance contract is implied throughout the policy. Naturally, the wording does nothing to deter fraudulent activity.
Legal
Action Against Us
This provision forces the parties to use all of the tools within the policy before a suit is attempted. In other words, an insured, disputing the existence of liability or the amount that should be paid, cannot skip arbitration or appraisal or cooperation with the company or providing proof of loss, etc., and go straight to filing a suit. Further, even after compliance with all of the policy provisions has occurred, no action can be filed unless there’s been a written agreement that the “insured” is responsible for a loss payment OR the amount of the payment has been settled via judicial proceedings.
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Example: Theresa collided with a minivan owned by a day care center. While Theresa was unhurt, the van’s driver and several children had to be hospitalized for various injuries. Theresa was unhappy with the defense provided by her insurer and was enraged that, while her policy limits were for $50,000, the judgment against her was for $212,000. Theresa filed suit against her insurer, claiming that they failed to properly investigate the accident and that an inadequate defense was provided. The suit was allowed under the policy provision since a judgment was made. |
Item B of this provision denies any person or organization’s right to bring action against the insurer to determine if the “insured” is liable for an accident. This item is needed to limit the persons who may rightfully expect performance under the auto contract. Without this clause, the SPAP would provide an umbrella of protection to parties who, rightfully, should secure their own protection.
Our
Right to Recover Payment
This policy provision specifically states that, while an insurer will fulfill any valid obligation to make payment under the policy, when payment is made, it acquires the insured’s right to recover payment from another responsible party. Just as important as acquiring this right is the duty it imposes on the insured. The insured must cooperate fully with the insurer to pursue recovery AND must be certain that he or she does nothing to undermine this right. However, this provision doesn’t apply under Coverage Part D - Damage to Your Auto when the responsible party is a person who operates the covered car with an insured’s permission.
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Example: James is a self-employed business owner who prides himself on getting things accomplished. His parked car was involved in a hit-and-run accident. James filed a police report, and his car was repaired. A couple of weeks later, Teri, James’ friend, confesses that she hit his car while driving through his neighborhood late at night. Since he knows that Teri has no insurance (they’re friends and James has already had his car fixed), he keeps this information a secret. James’ decision is a SERIOUS breach of the “Our Right To Recover Payment” provision. He has shielded the responsible party from criminal and civil responsibility, preventing the insurer from seeking reimbursement or legal action against Teri. If the insurer found out, they could seek damages from James. OOPS, almost forgot - the police probably wouldn’t mind talking to James about his decision. |
Item B of this provision explains that if the company compensates the insured for a loss and then collects payment from the responsible party for the same damages, the insured HAS to hold onto the money on behalf of the insurance company and then reimburse the company up to the amount of the settlement.
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Example: Let’s say that in the
immediate example, James’ friend Teri comes along and confesses to the
hit-and-run, goes to the police and accepts her legal probation and fine, and
then gives James money to pay for the damages. To comply with the provision,
James must hold the money, tell his company about the payment, and forward
part or all of it to the insurer (depending upon whether Teri’s payment is
less or greater than the company’s settlement). |
This duty of both parties regarding subrogation has been long established.
Related Court Case: “Subrogation Examined In Automobile Claim”
Policy
Period and Territory
To trigger
the SPAP’s response to a loss, the event must happen within the policy period
shown on the declarations page and within the territory shown. The territory
described in the Special Personal Auto Policy includes the
Termination
This policy item addresses both cancellation and non-renewal of an auto policy. However, a detailed discussion of this topic is fairly academic since it may be the most frequently amended or replaced policy provision. This provision is necessary due to various state requirements, as well as individual company preferences. It is critical to keep in mind that state and company rules are what must be followed when terminating a customer’s coverage. Understanding this provision provides a grasp of the mechanics, rather than the actual events that create non-renewals or cancellations. One exception may exist concerning an insured’s request to cancel the policy. Still, individual companies may adopt their own rules requiring return of original policy, a lost policy receipt, or other requirements that make it careless to make any assumptions.
A. Cancellation
The insured has it simple. All she or he has to do is either return the policy to the company or send prior written notice of the date the policy is to be canceled. The insured can request cancellation at any time during the policy period.
It’s a little more complicated for the insurer to cancel coverage. The company has to mail written notice to the named insured at the address shown on the policy declarations page. The insurer must give 20 days’ advance notice of cancellation unless the cancellation is for not paying the premium or if it is done within the first 60 days of coverage (new business). In the latter instances, the insurer may give 10 days’ advance notice.
After new business has been in effect for 60 days or after a renewal of a continued policy, cancellation may take place only for nonpayment of premium or after the license of the named insured or a regular driver of the covered vehicles is suspended or revoked. Any suspension or revocation must have occurred either during the last policy period or, if the policy period is other than annual, since the last anniversary date. Another reason for cancellation is any significant misrepresentation set forth to get coverage.
Note: A misrepresentation has to be important enough to affect a company’s decision to accept coverage. Minor items may call for premium adjustments, but not cancellation. For example, finding out that the insured gave you a wrong model year or name isn’t an important misrepresentation. The fact that he or she hid their recent conviction for serial vehicular homicide is kind of important and sending a legal notice of cancellation would be justified.
B. Non-renewal
This option to end coverage is just a company privilege. However, if an insured sent in advance a written notice not to renew coverage at the policy’s expiration date, it technically would be an insured’s request to non-renew.
In any case, if a company doesn’t want to continue coverage, it has to give an insured at least 20 days’ advance notice of non-renewal. If the policy period is less than six months, coverage may be non-renewed at any six-month period after the anniversary of the original effective date. If the policy period is six months, annual or longer, the policy may be non-renewed at any anniversary. As with the cancellation provision, many states and companies vary from this portion of the Personal Auto Policy. It is critical, absolutely critical, that you understand the rules of your company and state provisions since the differences center around the amount of notice (nearly always longer) and have specific reasons for non-renewing. Further, for both cancellations and non-renewals, many states require that the legal notice includes the reason for the action and any available recourse.
C. Automatic Termination
This section of the termination provision allows for coverage to end without any written request or notice being required. If a company sends a renewal policy, and if the insured or insured’s representative doesn’t accept it, coverage ends at the latest expiration date. Nonpayment of the renewal premium is considered non-acceptance. If an insured obtains another insurance policy, coverage automatically terminates at the effective date of the replacing coverage.
D. Other Termination
Provisions
Item D of the TERMINATION provision informs the insured that a cancellation notice may be delivered or mailed and that proof of mailing acts as sufficient proof of notice. IMPORTANT: Many states mandate how the notice has to be delivered (for instance, registered or certified mail), so you need to be aware of state law and any form that amends or replaces this provision.
The insured is also told that the company may be refunding the premium if a policy is canceled, but that the refund transaction has no effect on the cancellation. In other words, an insured may not claim that, after receiving legal notice as well as any other notification requirements, the cancellation is voided because of a delay in returning the premium.
Transfer
of Your Interest in This Policy
A policyholder can assign his rights and duties under the policy to another person, BUT ONLY with the written permission of the insurer.
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Example: The Yungadriva family has reached a milestone. Sylvie
Yungadriva has just turned 16 and passed her test to become a driver. Sylvie
is delighted when her parents tell her that, not only does she get sole use
of the family’s ‘10 Hyundai, her father has changed the title of the car to
Sylvie. Now the bad news. Since she now owns a car, she will also have to be
responsible for her own insurance policy. Mr. Yungadriver sends in a request
to his insurer to show Sylvie as the principal driver and to make her the
named insured. The request has an explanation that Sylvie is now the legal
owner and operator of the car. Their agent says that the insurer will process
the change without a hitch. |
There is one exception to the rule of having to get the insurer’s permission to assign a policy: if the policyholder dies. In this event, this policy provision automatically transfers coverage either to a surviving spouse (if he/she lives at the same address) or the deceased’s legal representative. Either party achieves the status of named insured. However, the legal representative is protected only to the extent of his/her duties to maintain or operate the covered vehicles.
|
Example: Paul Graybeard just died a couple of weeks ago. Before his death, he asked his niece, Justa, to be his estate’s executrix. As part of the will, Paul’s ’11 Mercury was given to Paul’s grandson. Because Justa lived only a few miles away from her nephew’s family; she arranges to drive the car over to her nephew, join her relatives for a home-cooked meal and then have her nephew try out the car by driving her home. On the way over to her nephew’s home, Justa nods off at the wheel, runs a stoplight and hits a young couple who were attempting to cross the street. The couple suffers some scrapes, cuts, and broken bones. Since Justa was her uncle’s legal representative and as she was executing a portion of his will, the loss is covered. However, if Justa had the accident while doing some task that was unrelated to the estate, her uncle’s policy would not cover the loss. |
The insurer will only recognize such a transfer until the policy’s expiration date. The working assumption is that appropriate coverage reflecting the change in circumstances will be obtained or that coverage will either be terminated or allowed to expire.
Two
or More Auto Policies
The final provision of the Special Personal Auto Policy is important. What happens if the insurer issues more than one auto policy to an insured and all of the policies are available to respond to the same accident? Simple enough: this provision designates the company’s total liability to its insured. The total amount that the company is obligated to pay equals the highest limit of insurance written under any single, applicable policy.
|
Example: Ober N. Shord owns a ’17 Landmaster Sports Utility
Vehicle that is insured by Slumbertyme Mutual. Their underwriters must have
been asleep because Ober ended up with three policies applying to an at-fault
collision. Slumbertyme’s policies had the following coverages and limits: |
||||
|
Coverage |
Policy A |
Policy B |
Policy C |
Policy Limit Totals |
|
Bodily Injury |
$25,000/$50,000 |
$250,000/$500,000 |
$100,000/$300,000 |
$375,000/$850,000 |
|
Property Damage |
$25,000 |
$250,000 |
$100,000 |
$375,000 |
|
Medical Payments |
$3,000 |
$10,000 |
$5,000 |
$18,000 |
|
Uninsured Motorist |
$15,000/$30,000 |
$100,000/$300,000 |
$25,000/$50,000 |
$140,000/$380,000 |
|
Although it might be a comfort to Ober and the person, he injured to have the insurance limits added together (stacked), the Two Or More Policies provision prevents this scenario. In this instance, Slumbertyme’s total possible obligation is limited to the insurance limits shown under Policy B above, the highest single set of limits. The limits may not be combined in any way to increase coverage beyond the limits available under a single policy. |
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Related Court Case: Insured Not Permitted To Stack UIM Benefits
Note: There are laws in a number of states that, depending upon circumstances and coverages, limits may be stacked. Therefore, applicable state law is always relevant.