SPECIAL AUTOMOBILE PROGRAM ARCHIVE
(November 2020)
This article is a repository of articles and analyses that
relate to earlier editions of the above captioned program or coverage form.
Related Article: ISO '18 Ed. Special Personal Auto
Policy Analysis
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Archive Index |
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|
Analysis |
ISO '06 Ed. Special Personal
Auto Policy Coverage Form Analysis
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Comparisons |
A Comparison Of The ‘05 Ed. Personal Auto And ’06 Ed.
Special Auto Policies |
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Quiz |
A Comparison Of The ‘05 Ed. Personal Auto And ’06 Ed. Special
Auto Policies Knowledge Tester Quiz |
PP 90 01–ISO SPECIAL PERSONAL AUTO POLICY COVERAGE
FORM ANALYSIS
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.
This analysis is based on the
original, 07 06 edition.
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.
|
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. |
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.
|
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.” |
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.
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.
|
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. |
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.
Following are situations
that would qualify as covered vehicles under an SPAP’s liability coverage.
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Example: A ‘14 Chrysler the insured borrowed from his
mother-in-law while his car is having its engine replaced |
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Example: A ‘15 Honda minivan 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.
The auto definition
section on substitute vehicles (definition J.4 in the policy) does not apply to
“Coverage for Damage to Your Auto."
The exception for situations involving “Coverage For Damage
To Your Auto” is very important. If an insured is using a car that he or she
DOES NOT own and that car suffers a loss that normally is covered under either
Collision or Other than Collision coverage, then that loss does not qualify for
protection as a “covered auto.”
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Example: Sara
and Cindy are roommates who are transporting their belongings to a new
apartment on the other side of town. Sara’s car suddenly breaks down on the
freeway. She pulls it over to the breakdown lane and puts on her flashers.
Cindy sees this and pulls up behind Sara. Since Sara knows the town better,
Cindy says she’ll stay with Sara’s car while Sara drives Cindy’s car to a
garage to get a tow truck. While turning into a towing service that’s just a
few miles away from the freeway, Sara doesn’t apply the brakes hard enough
and runs Cindy’s car into a cement barrier. The barrier is fine, but the
front end of Cindy’s car is heavily damaged. This damage would NOT be covered
by Sara’s policy. |
In the above example, although Cindy’s car is a substitute
for Sara’s car and would be covered if, while using Cindy’s car, she caused
bodily injury to someone else or damage to their property; there is no coverage
for damage suffered by the vehicle she is using. Such coverage would have to be
provided by Cindy’s policy.
Note: This should
be considered to be a fair application of coverage. If Cindy carries “Coverage for
Damage to Your Auto” on her policy, the damage to her car is covered. If Cindy
only carries liability coverage under her policy, the result is that she
doesn’t acquire broader coverage if a person she allows to drive her car
damages that car.
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.
|
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 replacement does not have to be reported for
liability coverage. The liability coverage that applies to the vehicle being
replaced also applies to the replacement vehicle. Reporting is not required.
b. 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. If
the replaced vehicle did not have Coverage for Damage to Your Auto, the
replacement vehicle does not have such coverage either.
Now this is an area that should be clarified by the policy
wording. The implication is that a vehicle would have to be reported by the
renewing term because, once the policy renews, the replacing vehicle loses its
status as a newly acquired auto. However, since the policy states “If a
’newly acquired auto’ replaces a vehicle shown in the Declarations, coverage is
provided for this vehicle without your having to ask us to insure it,” a
case may be made that the insured has no obligation to EVER report the vehicle.
While there are other portions of the policy which would support an implicit
requirement that a vehicle should be reported, it would help matters if the
policy specifically stated that such a vehicle would have to be reported at the
policy’s renewal.
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 ’13 Mercury and has a
policy period of April 15, 2017 to October 15, 2017. 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 |
|
Other Than Collision |
n/a |
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Uninsured Motorist |
$25,000/$50,000 |
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On September 3, 2017, Dill
buys a second vehicle, a ‘13 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.
PART
A - LIABILITY COVERAGE
Insuring
Agreement
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 as 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.
Under Part A - Liability
Coverage, an insured is:
1. You. 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 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. |
No-Fault Insurance
This is an important issue that merits a mention. Many
states have implemented different methods of handling compensation of persons
injured in automobile accidents. Instead of compensation based on tort
liability (where payment of damages is based upon fault of the driver[s]), a
number of states have modified or replaced this approach.
Supplementary
Payments
This section advises the insured
of several payments that are made in addition to the limit of insurance.
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.
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.
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 $200 per day 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.
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.
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: |
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, except
if the situation is a typical car pool (where the insured gets gas and
maintenance money from his riders).
|
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. |
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.
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.
|
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.
|
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 Secondhand 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. |
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. |
|
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.
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.
|
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. |
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.
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.
|
Example: Carl and Josie’s Saturn slid
through a red light and struck another car. They were unable to stop in time
due to 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. |
Category C exclusions
The
following situations are denied coverage under the SPAP but only for the amount
of the limits that exceed the minimum financial responsibility limits in that
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 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.
|
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. |
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.
|
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.
|
Example: Dawson & Paige have an
SPAP with the following limits: |
||
|
Bodily
Injury |
$100,000/$300,000 |
|
|
Property
Damage |
$100,000 |
|
|
Medical
Payments |
$10,000 |
|
|
Collision |
$500
Deductible |
|
|
Other Than
Collision |
$500
Deductible |
|
|
Uninsured
Motorist |
$25,000/$50,000 |
|
|
|
||
|
Claimant |
BI Claim Amount |
|
|
One |
$43,000
(burns, plastic surgery) |
|
|
Two |
$12,000 |
|
|
Three |
$51,500
(paralyzed) |
|
|
Four |
$24,000 |
|
|
Five |
$17,800 |
|
|
Six |
$8,500 |
|
|
Seven |
$26,500 |
|
|
Total |
$183,300 |
|
|
Car |
PD Claim Amount |
|
|
One |
$23,000 |
|
|
Two |
$14,700 |
|
|
Three |
$19,600 |
|
|
Four |
$83,000 |
|
|
Five |
Total - $140,300 |
|
|
The above
claims under the one accident could be settled in a wide 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. |
||
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.
|
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.
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.
|
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: |
|
|
SPAP |
$7,000 |
|
Other
Source |
$7,000 |
|
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: |
|
|
SPAP |
$5,600 |
|
Other
Source |
$8,400 |
|
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: |
|
|
SPAP |
$0 |
|
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.
|
Example: Laury is insured under an SPAP and she collided with
Harry at an intersection in January 2014. Harry suffered some deep cuts to
his thighs and legs and Laury’s policy paid for an ambulance trip and for
stitches. In January 2017, Harry visits his doctor about continued pain in
his legs. His doctor catches bone deterioration resulting from trauma suffered
in the January 2014 accident. He is scheduled for February 2017 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. Further,
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.
If the injury takes place in a vehicle being used to transport persons or
property for income.
Note: The SPAP does cover
carpooling arrangements in which riders help the driver with pooling expenses
such as gas, oil, and maintenance.
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.
|
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.
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 doctor’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.
|
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. |
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.
|
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.
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.
|
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.
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 if a bodily injury claim
is settled without the company’s consent, the insured is in a vehicle that’s
transporting people or property for pay, or if the vehicle was 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.”
Uninsured motorist is also denied when loss involves the use of a car to carry
either goods or persons as a business activity (volunteer situations are
eligible for coverage).
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.
|
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.
|
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.
|
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: 131_C083,
“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.
|
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.
|
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.
“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”).
|
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. |
|
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. |
|
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. |
|
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
|
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. |
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. An exception is made for carpools, where the driver
gets money for gas and wear and tear.
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).
|
Example: It took Pete two hours to
start his car during a typical winter’s morning in |
|
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.
|
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.
|
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.
|
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. |
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.
|
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.
|
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).
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. Coverage is
not available when preparing or participating in the race or contest. However,
in order for this exclusion to apply the contest or race must have been
scheduled in advance. That means an exception to this exclusion is a
spontaneous event.
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.
|
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.
|
Example:
Tonya’s new Chevy Malibu is insured under an SPAP for both liability and for
physical damage. She was very upset when, while attempting to negotiate a
curve on hill, she lost control of her car, crashed through side rails, and
slid a couple hundred feet along a rocky terrain next to the road. 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.
|
Example: Stacia wasn’t able to brake
her car in time for a red light and she hit a stopped vehicle. Besides the
damage to the other car, her front-end damage exceeds $2,000. 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 doctor, as long as the medicine is
used per doctor’s orders.
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.
|
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.
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.
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, rather than the amount of payment and/or
whether payment is due. 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.
|
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.
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.
|
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.
|
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.
|
Examples:
These are situations that could affect the policy’s rates: 1. The ’09 Sedan is replaced by
a ’13 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.
|
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.
|
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.
|
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.
|
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.
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.
|
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 ’14 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. |
||||
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.
COMPARING THE ‘05 ED. PERSONAL AUTO AND ’06 ED. SPECIAL AUTO POLICIES
(November 2017)
ISO’s Special Personal Auto Policy (SPAP) is designed,
primarily, for handling non-standard driving risks. This article compares a
number of policy features contained in both forms.
|
Policy Feature |
Personal Auto
Policy ’05 Edition |
Special Personal Auto
Policy ’06 Edition |
|
|
Definition -"You and Your” |
Refers to the person named in the policy, that person’s
spouse who shares the household and a non-resident spouse for up to 90 days
after leaving the household (subject to policy term’s expiration or that spouse
being listed on separate coverage). |
Refers to the person named in the policy and that person’s
spouse who shares the household. Non-resident spouses are not included in the definition. |
|
|
Definition -"Newly Acquired Auto” |
Includes additional autos with limited, automatic coverage
regarding Collision and Other Than Collision Coverage |
Only applies to new vehicles that are replacements of
described vehicles. 14-day automatic coverage available regarding Collision
and Other Than Collision Coverage ONLY when that coverage exists for the
vehicle being replaced. A newly acquired additional vehicle is only covered when
reported to the insurer. |
|
|
Insuring Agreement - “Insured” |
Includes any person
using a covered auto up to the policy’s stated limit of liability. |
Persons other than the
named insured or resident family member using a covered auto are only insured
up to the applicable jurisdiction’s financial responsibility requirements. |
|
|
Supplementary Payments |
Pays additional amounts
of coverage for cost of bail bonds (max. $250), appeal bond premiums,
post-judgment interest, loss of earnings (max. $200 per day) and other
expenses. These payments do not reduce the policy's insurance limit. |
Same as PAP |
|
|
Part A Exclusions |
Includes an exception,
providing liability coverage for off-road trailers and non-owned golf carts. |
Includes an exception
providing liability coverage for off-road trailers – NO REFERENCE to
non-owned golf carts. |
|
|
Part A Exclusions |
Includes an exception for the insured while either
occupying or maintaining a vehicle either owned by, or regularly furnished to
a family member. |
Does NOT include an exception for insureds regarding
maintaining or occupying vehicles owned by or furnished to family members. |
|
|
Part A Exclusions |
Does not include a Part C |
Under Part C of exclusions, liability coverage is limited
to the applicable state’s minimum financial responsibility requirement when a
loss involves the following: - An insured being
impaired by alcohol or a controlled substance (except valid prescriptions) - BI or PD that is
caused by an insured committing a felony - BI or PD
occurring while an insured is fleeing law enforcers - an operator who
does not have a valid license/permit - a covered
vehicle’s maintenance when that vehicle is used in any ineligible business
activity - a covered vehicle
that is operated by an unreported family member/household resident |
|
|
Policy Feature |
Personal Auto
Policy ’05 Edition |
Special Personal
Auto Policy ’06 Edition |
|
|
Part A Exclusions (continued) |
Does not include a Part D |
Under Part D of exclusions, liability coverage does not
apply to awards that are exemplary/punitive. |
|
|
Part A Limit of Liability |
Part A and B of this provision is the same as Part A and C
of the SPAP. Explains that state limit is not affected by the number of insureds,
claims, vehicles displayed or vehicles involved in a given loss; nor is any
insured eligible for duplicate payments. |
Policy includes Part B which states that a lower limit (a
given state’s minimum financial responsibility requirement) applies to insureds
who are neither the named insured nor the named insured’s resident family. |
|
|
Out Of State Provision |
Provision allows the policy’s
liability coverage to respond at least with an applicable state’s minimum FR
and benefit requirements. |
Same as PAP |
|
|
Terminating Defense Obligation |
Limits exhausted by paying judgment or settlement
terminates defense. |
Same as PAP |
|
|
Other Insurance Provisions |
Policy responds on a proportional basis with respect to
other insurance available to owned autos. Policy responds on an excess basis with respect to other
insurance available to non-owned autos. |
Same as PAP |
|
|
Medical Payments Exclusions |
Med Pay exclusion 8. contains an exception that covers
private passenger autos, trailers and owned pickups and vans that are used in
an insured's business. |
Med Pay exclusion 8 does NOT include the exception that appears
in the PAP |
|
|
Medical Payments Exclusions (cont.) |
These exclusions are not found in the PAP |
The SPAP does not respond when a loss involves the
following: - any loss during a
time that a vehicle is used for deliveries (except when it is a volunteer activity) - an insured being
impaired by alcohol or a controlled substance (except valid prescriptions) - BI or PD that is
caused by an insured committing a felony - BI or PD occurring
while an insured is fleeing law enforcers - an operator who
does not have a valid license/permit - a covered
vehicle’s maintenance when that vehicle is used in any ineligible business
activity - a covered vehicle
that is operated by an unreported family member/household resident |
|
|
Policy Feature |
Personal Auto
Policy ’05 Edition |
Special Personal
Auto Policy ’06 Edition |
|
|
Uninsured Motorists - Insureds |
Policy insures the named insured, that insured’s family
members and all others that occupy an insured auto. Coverage is up to the
limits shown in the policy. |
Policy insures named insured and family for up to the
policy limit. Other persons occupying an insured auto are protected only up
to the applicable state’s minimal financial responsibility limit. |
|
|
Uninsured Motorists Exclusions – Part B |
Policy excludes unauthorized settlements that harms
insurers recovery rights, incidents involving public transport/delivery and
incidents where a covered car is operated without an insured’s permission. |
Same items as PAP as well as excluding loss involving
business activity of delivering food or products. |
|
|
Uninsured Motorists Limit of Liability |
Part A and B of this provision are same as Part A and C of
the SPAP. Explains that state limit is not affected by the number of
insureds, claims, vehicles displayed or vehicles involved in a given loss;
nor is any insured eligible for duplicate payments. |
Policy includes Part B which states that a lower limit (a
given state’s minimum financial responsibility requirement) applies to
insureds who are neither the named insured nor the named insured’s resident
family. |
|
|
Coverage For Damage To Your Auto |
For owned autos, Collision and
Other Than Collision applies when those coverage selections are indicated on
the policy. For Non-owned autos, the policy will apply the broadest coverage
that appears on the form. |
For owned autos, Collision and
Other Than Collision applies when those coverage selections are indicated on
the policy. For Non-owned autos, the policy will apply the broadest coverage
that appears on the form, except for non-owned trailer or autos that are
temporary substitutes. Substitutes are covered according to the coverage
selected for the vehicle they are temporarily replacing. |
|
|
Coverage For Damage To Your Auto - Transportation Expenses |
Transportation expense is paid for theft of trailer (as
well as a car) for a maximum of $20 per day or $600. |
Transportation expense is not provided by the SPAP |
|
Damage To Your Auto Exclusions - Electronic Equipment |
Loss to radios,
stereos, tape or CD players, CB radios, mobile radios, phones, TVs, video or
audio cassette recorders, PCs, navigation equipment or scanners is excluded,
EXCEPT for such equipment that is permanently installed in a console. |
Loss to radios,
stereos, tape or CD players, CB radios, mobile radios, phones, TVs, video or
audio cassette recorders, PCs, navigation equipment or scanners is excluded,
EXCEPT such equipment that is permanently installed in a console BY THE
AUTO MANUFACTURER. |
|
Damage To Your Auto Exclusions – Custom Equipment |
This exclusion does NOT
appear in the PAP |
There is no coverage for features used to customize a vehicle and the
bar to coverage applies to both furnishings and equipment |
|
Damage To Your Auto Exclusions – Business Transportation |
This exclusion does NOT
appear in the PAP |
There is no coverage for any
loss when the vehicle is either transporting persons or property as a
business activity |
|
Damage To Your Auto Exclusions – Impaired Driving - |
This exclusion does NOT
appear in the PAP |
There is no coverage for any
loss involving any driver impaired by alcohol or by a substance that meets
the definition of a controlled substance (except incidents involving a
properly prescribed and used substance) |
|
Policy Feature |
Personal Auto
Policy ’05 Edition |
Special Personal
Auto Policy ’06 Edition |
|
Damage To Your Auto
Exclusions – business use of non-owned car |
This exclusion does NOT
appear in the PAP |
There is no coverage for loss
involving non-owned vehicle that is used in business activities other than
those specifically mentioned in the policy |
|
Damage To Your Auto
Exclusions – vehicles used or maintained for business |
This exclusion does NOT
appear in the PAP |
There is no coverage for losses
surrounding vehicles that are used or maintained for business purposes
(except for instances previously reported and accepted by the insurer) |
|
Damage To Your Auto Exclusions – unreported drivers in household |
This exclusion does NOT
appear in the PAP |
There is no coverage for loss
that 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) |
|
Damage To Your Auto Exclusions – rented vehicles |
This exclusion does NOT
appear in the PAP |
There is no coverage for loss to
a described vehicle that has been rented to an entity who is neither the
named insured nor a family member |
|
Damage To Your Auto – Limit of Liability – Non-owned Trailers |
Pays up to $1,500 for a non-owned trailer |
Pays same for trailer, but only when it is a temporary substitute
for a covered vehicle. |
|
Damage To Your Auto – Limit of Liability – Electronic Equipment |
Non-auto manufacturer, permanently installed electronic
equipment is covered for a maximum of $1,000. |
The SPAP does not offer coverage for Non-auto manufacturer,
permanently installed electronic equipment |
COMPARING THE ‘05 ED. PERSONAL AUTO AND ’06 ED.
SPECIAL AUTO POLICIES KNOWLEDGE TESTER QUIZ
Questions
1. Is there any difference in how the Out Of State provision
applies in the SPAP and the PAP?
2. How does the SPAP differ from the PAP regarding
Transportation Expenses under Coverage for Damage To Your Auto?
3. What physical damage coverage is available under the PAP
and SPAP for non-owned trailers?
4. What restriction is faced by an insured driver who causes
a loss while impaired by alcohol or drugs?
5. How does the SPAP differ from the PAP in its treatment of
non-resident spouses?
6. How does a SPAP respond to an uninsured motorist loss
that occurs while the insured is being paid to make a product delivery?
Answers
1. No, in both forms the provision
allows the policy’s liability coverage to respond at least with an applicable
state’s minimum FR and benefit requirements.
2. The PAP provides up to $20 a day ($600 maximum) for such
expenses while this coverage is not available under the SPAP.
3. The PAP provides up to $1,500 for any non-owned trailer.
The SPAP also provides up to $1,500, but only for non-owned trailers that are
temporary substitutes for listed vehicles.
4. Under the SPAP, covered loss involving an insured who is
found to be impaired by alcohol or controlled substance is subject to the
applicable state’s minimal financial responsibility requirements rather than
the policy’s stated limits.
5. Under the SPAP, a non-resident spouse has NO status as an
insured while, under certain situations, the PAP extends up to 90 days of
recognition of such persons as insureds.
6. The SPAP would NOT respond since such instances are
excluded from coverage.