Personal Auto Insurance (PAP) | Achievable Casualty

Automobile Insurance

An automobile insurance policy is a type of package policy which may provide:

Property coverage as a result of damage to the insured’s auto
Legal liability protection for bodily injury or property damage to others arising out of the operation, maintenance, or use of the insured auto
Injury to the insured or members of the insured’s family

Personal Auto Policy

The policy form primarily used today to provide coverage for automobile exposures is the Personal Auto Policy (PAP). The definitions section of a PAP identifies several important aspects of the auto insurance contract. These definitions generally appear on the first page of the PAP and include:

Bodily Injury (BI)

The definition of "bodily injury” to others includes death.

Family Member

A person related to the named insured by blood, marriage, or adoption who is a resident of the insured’s household (includes a ward or foster child.)

Occupying

In or upon; or getting in, on, out of, or off of the covered auto.

Sidenote

Know this...

Getting out of an auto is also referred to as “alighting” from the auto.

Trailer

A vehicle designed to be pulled by a private passenger auto. A farm wagon or farm implement, while towed by a private passenger auto, is also considered to be a trailer.

Covered Auto

The specific vehicle described on the face page of the policy.

Coverage Territory

The U.S. and its possessions, Puerto Rico, and Canada.

Owned Auto

The vehicle that appears on the declarations page; the auto that the named insured owns and insures under the Personal Auto Policy.

Four Principal Coverage Parts

As previously mentioned, a PAP is a package policy providing property and liability protection. There are four principal coverage parts which make up the PAP including: liability coverage; medical payments coverage; uninsured motorist coverage; and coverage for damage to the insured’s auto.

Part A Liability Coverage

This PAP coverage states that the insurer will pay damages for bodily injury or property damage to others. Damages include prejudgment interest awarded against the insured. The insurer will also settle or defend any claim or legal suit asking for these damages. In addition to the limit of liability provided by the policy, the insurer will pay all defense costs it incurs.

Liability coverage is provided on a split-limits basis. The limits are expressed as a series of three numbers, such as 15/30/10. This means the policy will pay:

$15,000 per person for bodily injury to a maximum of $30,000 per accident for bodily injury and $10,000 per accident for property damage.

An auto policy provides liability insurance protection when a named insured or any covered family member is legally accountable for bodily injury or property damage to others when operating an owned auto. In addition, the Personal Auto Policy also covers insured and/or family members if they are responsible for Bodily Injury (BI) and Property Damage (PD) to others while operating a non-owned auto. If an insured injures a person while operating a non-owned auto and the owner of that auto carries no liability protection, the insured will have protection under his/her own policy. Therefore, a Personal Auto Policy provides coverage for an insured (and family members) while operating an owned or non-owned motor vehicle.

The actual policy language provides a description of who is considered to be an insured; an insured is:

The named insured or any resident family member participating in the ownership, maintenance, or use of the covered auto or trailer
Any person using the auto with the permission of the insured

In addition to the policy’s limits of liability for bodily injury or property damage to others, the insurer, on behalf of the named insured, will also pay for certain additional expenses incurred as a result of the operation, maintenance, or use of the covered auto. The following are supplementary payments as listed in the policy:

Up to $250 for the cost of bail bonds required because of an accident, including related traffic violations;
Premiums on appeal bonds and bonds to release attachments in any suit the insurer defends
Interest accruing after a judgment is entered in any legal suit the insurer defends
Up to $200 a day for loss of earnings, but not other income, because of attendance at trials or hearings at the insurer’s request
Other usual or likely expenses incurred at the insurer’s request as long as they are reasonable

Endorsements

The following endorsements may be added to the PAP (usually for an additional cost):

Extended non-owned coverage for the named individual

An insured who has no personal automobile may purchase an endorsement to a personal auto policy, which provides liability protection to the insured while driving any non-owned vehicle

Towing and Labor costs

Pays the cost of moving a stranded automobile (towing or emergency roadside repair). If the vehicle is towed to a garage before the labor is performed, it will not be covered.

Part A Exclusions

The insurer will not provide liability protection for any person with regard to any of the exclusions listed in the policy, which commonly include:

Intentional BI/PD
Property owned/being transported by insured
BI to injured employee (except a domestic employee who does not qualify for Workers’ Compensation)
Liability from ownership/operation of a vehicle for hire
Liability from using any vehicle in a business that is not farming or ranching
Liability coming from the use of a vehicle the insured does not have permission to use (stolen car)
BI/PD covered by nuclear liability policy
Motorized vehicles having less than 4 wheels or designated to be used off public roads
Vehicle furnished for insured’s regular use (company car)
Competing and/or practicing for an organized racing or speed contest

Part B Medical Payments Coverage

Under Part B, the insurer will pay for expenses incurred for necessary medical and funeral expenses resulting from bodily injury to an insured or guest occupants of the auto. The insurer will pay only those medical expenses incurred within three years from the date of the accident. The “insured" is the named insured, family members and anyone else (guest passengers) while occupying or getting out of the vehicle. Any named insured hit by a vehicle while a pedestrian is covered as long as the vehicle is designed for use on a public road.

The exclusions applying to Part B are similar to those appearing in Part A, but also include injuries sustained while using a vehicle as a residence.

Part C Uninsured Motorist Coverage

Part C will pay compensatory damages that an insured is entitled to collect (from his own policy) if he suffers bodily injury as a result of being struck by another driver who does not have auto liability insurance. The coverage limits provided for this coverage part are based on a per person/per accident basis. The limit of liability appearing in the declarations for this coverage is the maximum amount that the insurer will pay for damages resulting from any one accident.

An uninsured motor vehicle is a vehicle that is:

Uninsured (someone who simply doesn’t have insurance);
Hit-and-run drivers (some states have adopted the phantom driver law, which does not require physical contact to be considered hit-and-run);
Insuring company denies coverage or becomes insolvent.
Vehicles not considered to uninsured include:
Vehicle owned by the government
Vehicle owned by self-insurer approved by licensing authority
Vehicle operated on rails or a vehicle located for use as a residence

Underinsured Motorist Coverage is also available to anyone who purchases uninsured motorist coverage. It covers BI sustained by an insured when the negligent operator possesses insurance, but the limits of liability carried are not sufficient to cover the damages.

Often, an applicant for a PAP insists on “state minimum” or “the cheapest available policy”, and is in for a shock when they are hit by an uninsured motorist and must pay out of pocket. As a preemptive measure to defend their position as to why there is no coverage in place, the insurer will require the applicant to “opt out” in writing if they do not want to pay for uninsured motorist coverage.

Part D Coverage for Damage to the Insured Auto

Part D of the PAP provides property insurance protection for the covered auto. There are two primary forms of coverage provided by Part D, collision coverage and other than collision coverage (comprehensive). Both are subject to a deductible before the policy pays according to its limit of liability.

Collision is defined as "the upset of the covered vehicle or damage resulting from impact with another auto or object.” Collision damages are paid regardless of fault. If an insured is unable to collect from an at-fault third party, his/her policy will pay for the loss, less any deductible. The insurer then attempts to subrogate against the at-fault party to recoup what was paid to the insured as part of the claim. If an insured is responsible for the collision damage to the covered auto, the policy will pay up to its limit, less any deductible. Collision coverage also applies to damage to a non-owner auto that is being operated by the named insured. This coverage is excess over other coverage applicable to the non-owned auto.

Sidenote

Know this...

Part D will pay only $500 for damage to a non-owned trailer.

Other than Collision (comprehensive) coverage will cover any direct and accidental damage to the covered auto as a result of any cause “other than collision,” such as:

Falling objects
Fire
Explosion
Earthquake
Windstorm, hail, water, flood
Theft or larceny
Malicious mischief or vandalism
Riot or civil commotion
Breakage of glass
Contact with a bird or animal

Part D will pay, in addition to its limits, without the application of a deductible, up to $20 per day to a maximum of $600 for transportation expenses incurred if the vehicle is damaged as a result of a collision or other than collision provided the insured carries these coverages.

Sidenote

Know this...

If the covered auto is stolen, the insurer will pay only expenses incurred during the period beginning 48 hours after the theft and ending when the covered auto is returned to use, or the insurer pays for its loss (maximum of 30 days).

Part D Exclusions

Losses to covered auto being used as passenger carrier for hire
Damage due to wear and tear, mechanical, electrical breakdown, road damage to tires
War/nuclear perils
Sound reproduction equipment, except when permanently installed.
TVs, antennas, awnings, cabanas
CB radio, scanner, telephones, except when permanently installed
Custom furnishing
Radar detection equipment
No benefit to bailee

Part E

Describes and identifies the duties of the insured in the event that a loss occurs. These duties include:

Notify the insurer as soon as reasonably possible after a loss occurs
Cooperate with the insurer in the investigation of a claim
File police report if required
Submit to physical exams if requested
Authorize the insurer to obtain medical reports or other pertinent records
Submit a written proof of loss when requested.

Sidenote

Know this...

Written proof of loss must be sent to the insurer before any claim payment will be made. A notice of loss to an insurer does not constitute proof of loss.

Part F

Includes other general provisions such as:

Bankruptcy of insured

The company is obligated even if it is bankrupt

Policy changes

It must be in the form of a written endorsement

Fraud

There is no coverage in the case of fraud on the insured’s part

Legal action

Only after the insured has fulfilled his/her contractual obligations can the insured take action against the insurer

Termination

The insured may give written notice of intent to cancel at any time; the insurer must provide at least 10 days’ notice if the reason is for nonpayment of premium and at least 30 days’ notice in all other cases.

Non renewal

The insurer has the right not to renew a policy for any reason

Automatic termination

At the end of the policy period, the insurer does not send a premium request

Policy period and territory

The US, its possessions and territories, Puerto Rico, and Canada. Cover only accidents occurring during the policy period and within the territory

Other state coverage

When the insured is in another state besides the state of residency, the insurance minimum limits become those of the state traveling through

Insurer’s right to recover

The company has subrogation rights

Transfer of interest

Insured cannot give rights to another person without the insurer’s written consent

Lesson Summary

An automobile insurance policy provides property coverage, legal liability protection, and personal injury coverage for the insured and their family. The main policy form used is the Personal Auto Policy (PAP), with key definitions including bodily injury, family member, occupying, trailer, covered auto, coverage territory, and owned auto.

The Personal Auto Policy includes four main coverage parts: liability coverage, medical payments coverage, uninsured motorist coverage, and coverage for damage to the insured’s auto.

Part A: Liability Coverage - Pays for bodily injury or property damage to others due to the insured’s auto on a split limits basis. Additional expenses for defense are also covered.
Part B: Medical Payments Coverage - Covers medical and funeral expenses resulting from bodily injury in the insured’s auto.
Part C: Uninsured Motorist Coverage - Pays compensatory damages for bodily injury caused by an uninsured driver.
Part D: Coverage for Damage to the Insured Auto - Provides collision and other-than-collision coverage, subject to a deductible.

Endorsements that can be added to the PAP include extended non-owned coverage and towing and labor costs. Exclusions in Parts A and B include intentional injury or property damage, liability from vehicle use for hire, and other specific scenarios.

Requirements under Part E include notifying the insurer of a loss, cooperating in investigations, and submitting proof of loss. Part F outlines general provisions such as policy changes, fraud, legal actions, and termination conditions.

Chapter Vocabulary

Definitions

Auto Liability: Coverage that protects against financial loss because of legal liability for motor vehicle-related injuries (bodily injury and medical payments) or damage to the property of others caused by accidents arising out of ownership, maintenance, or use of a motor vehicle (including recreational vehicles such as motor homes). Commercial is defined as all motor vehicle policies that include vehicles that are used primarily in connection with business, commercial establishments, activity, employment, or activities carried on for gain or profit. No Fault is defined by the state concerned.
Auto Physical Damage: Motor vehicle insurance coverage (including collision, vandalism, fire, and theft) that insures against material damage to the insured’s vehicle. Commercial is defined as all motor vehicle policies that include vehicles that are used in connection with business, commercial establishments, activity, employment, or activities carried on for gain or profit.
Automobile Liability Insurance: Coverage for bodily injury and property damage incurred through ownership or operation of a vehicle.

Bailee - A person who received temporary custody of goods or property belonging to others.

Collision Coverage: A type of auto insurance that covers physical damage occurring when the insured auto strikes another auto or stationary object. It may also include upset or overturn of the insured auto.
Common Carrier: A company or concern engaged in the transportation of goods or persons for a fee.
Creditor-Placed Auto: Single interest or dual interest credit insurance that is purchased unilaterally by the creditor, who is the named insured, subsequent to the date of the credit transaction, providing coverage against loss to property that would either impair a creditor’s interest or adversely affect the value of collateral on automobiles, boats, or other vehicles.
Dual Limits: Separate limits are provided for various perils, which are several forms of liability insurance.
Gap Insurance: An automobile insurance option, available in some states, that covers the difference between a car’s actual cash value when it is stolen or wrecked and the amount the insured owes the finance company. Typically used for leased cars.
Other States Coverage: With auto insurance, when an insured is in another state besides the state of residency, the insurance coverage becomes at least equal to the state minimum limits of the state traveling through.
Other than Collision Coverage: See Comprehensive Coverage
Personal Auto Policy: Coverage designed to insure private passenger automobiles and certain types of trucks owned by an individual or husband and wife.
Personal GAP Insurance: Credit insurance that insures the excess of the outstanding indebtedness over the primary property insurance benefits in the event of a total loss to a collateral asset.
Private Passenger Auto (PPA): Filings that include singularly or in any combination coverage such as the following: Auto Liability, Personal Injury Protection (PIP), Medical Payments (MP), Uninsured/Underinsured (UM/UIM); Specified Causes of Loss, Comprehensive, and Collision.
Supplementary Payments: Provides coverage for the cost of bail bonds up to $250, premiums to appeal and release of attachment bonds, interest on judgments, loss of earnings, and other reasonable claim settlement expenses that occurred at the insurance company’s request.
Total Loss: The condition of an automobile or other property when damage is so extensive that repair costs would exceed the value of the vehicle or property.
Transit: Transporting from one location to another. Transportation policies are also referred to as transit insurance.
Underinsured Motorist Coverage: Policy option for bodily injury or property losses caused by a motorist with coverage insufficient to cover the total dollar amount of losses. Compensation for the injured party is equal to the difference between the losses incurred and the liability covered by the motorist at fault.