Personal Auto Insurance (PAP)
Automobile Insurance
An automobile insurance policy is a type of package policy that may provide:
- Property coverage for 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
- Coverage for injury to the insured or members of the insured’s family
Personal Auto Policy
The main policy form used today to cover personal automobile exposures is the Personal Auto Policy (PAP). The definitions section of a PAP explains key terms used throughout the 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 (including a ward or foster child).
Occupying
- In or upon; or getting in, on, out of, or off of the covered 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
- Any vehicle shown in the declarations, a newly acquired auto, any trailer the named insured owns, and any auto or trailer the named insured does not own while used as a temporary substitute for a covered auto that is out of normal use because of its breakdown, repair, servicing, loss, or destruction.
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
A PAP is a package policy that combines property and liability protection. The four principal coverage parts that make up the PAP are: liability coverage; medical payments coverage; uninsured motorist coverage; and coverage for damage to the insured’s auto.
Part A Liability Coverage
Part A states that the insurer will pay damages for bodily injury or property damage to others for which an insured becomes legally responsible. Damages include prejudgment interest awarded against the insured. The insurer will also settle or defend any claim or lawsuit seeking these damages.
In addition to the policy’s limit of liability, the insurer pays the defense costs it incurs.
Split limits
Liability coverage is commonly written 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.
When liability coverage applies
An auto policy provides liability protection when a named insured or covered family member is legally responsible for bodily injury or property damage to others while operating an owned auto.
The PAP also covers the named insured and/or family members while operating a non-owned auto. For example, if an insured injures someone while driving a non-owned auto and the owner has no liability insurance, the insured may have protection under their own PAP.
Liability extension to towed vehicles. Part A insures the named insured and family members for the ownership, maintenance or use of any auto or trailer. So liability coverage extends to a trailer being towed by an auto, whether or not the insured owns the trailer, and a trailer the named insured owns is itself a covered auto.
Who is an insured
The policy language defines who qualifies as an insured. An insured is:
- The named insured or any resident family member using, owning, or maintaining the covered auto or trailer
- Any person using the auto with the permission of the insured
- Anyone vicariously liable for the acts of (1) or (2)
Supplementary payments
In addition to the policy’s limits of liability for bodily injury or property damage, the insurer will also pay certain additional expenses on behalf of the named insured. The policy lists these supplementary payments:
- 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
- This endorsement reimburses the actual costs of towing a disabled covered auto and/or the cost of labor for emergency repairs performed at the site of disablement. Coverage applies only to labor performed at the place where the vehicle became disabled. Labor performed after the vehicle has been towed to a garage or repair shop is not covered under this endorsement. The endorsement pays up to the limit shown for each disablement, and applies to a disabled non-owned auto as well as a covered auto.
Joint ownership coverage
- The PAP’s “you” means only the named insured and a resident spouse. When two or more people who are not spouses jointly own a private passenger auto, pickup or van, such as unmarried individuals living in the same household or relatives living in separate households, the joint ownership coverage endorsement treats each joint owner as “you” for the jointly owned vehicle, so each has the coverage of a named insured
Rental vehicle coverage
- A car the insured rents is a non-owned auto, so the PAP’s liability coverage applies to it, and its physical damage coverage applies if the policy carries collision or other than collision coverage. Part D gives a non-owned auto the broadest coverage applicable to any covered auto shown in the declarations, as excess over any coverage the owner provides. Part D’s transportation expenses also pay the rental company’s charge for loss of use, up to $20 a day. Endorsements are available that raise the transportation expense limits or cover damage to a rental vehicle
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
- No coverage for bodily injury to any employee of the insured arising out of and in the course of employment by the insured.
Exception: This exclusion does not apply to a domestic employee who is not entitled to (or required to be covered by) workers’ compensation benefits
- 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 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.
For Part B, an “insured” includes the named insured, family members, and anyone else (guest passengers) while occupying or getting out of the vehicle. A named insured who is hit by a vehicle while a pedestrian is also covered, as long as the vehicle is designed for use on a public road. The same is true of a family member struck as a pedestrian.
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 pays compensatory damages that an insured is legally entitled to collect for bodily injury caused by an uninsured driver. The coverage limits are written on a per person/per accident basis. The limit of liability shown in the declarations is the maximum amount 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);
- A hit-and-run vehicle is considered an uninsured motor vehicle if it causes bodily injury to an insured.
Under the standard ISO Personal Auto Policy, a hit-and-run vehicle counts only if it hits the insured, a family member, a vehicle they are occupying, or the covered auto, so physical contact is required. Courts in most states accept indirect contact, such as debris thrown by the fleeing vehicle, as a hit.
State law can change this rule. Many states require UM coverage to apply to a “phantom vehicle” or “miss-and-run” accident, in which an unidentified vehicle causes the accident without any contact, as long as the facts are corroborated by evidence other than the insured’s own testimony. Whether contact is required in a given state depends on that state’s law.
- 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 has insurance, but the limits of liability are not sufficient to cover the damages.
Often, an applicant for a PAP asks for “state minimum” or “the cheapest available policy” and later discovers the financial impact of being hit by an uninsured motorist. State law decides whether an applicant may reject uninsured motorist coverage. Where it may be rejected, or lower limits chosen, the insurer documents the applicant’s choice in writing. Some states do not allow rejection at all.
Part D Coverage for Damage to the Insured Auto
Part D provides property insurance protection for the covered auto. There are two primary forms of coverage under Part D: collision coverage and other than collision coverage (comprehensive). Both are subject to a deductible before the policy pays, up to its limit of liability.
Collision
Collision is defined as “the upset of the covered vehicle or damage resulting from impact with another auto or object.” Collision losses are paid regardless of fault.
- If an insured can’t collect from an at-fault third party, the insured’s policy pays for the loss, less any deductible.
- The insurer may then subrogate against the at-fault party to recover what it paid.
- If the insured is responsible for the collision damage, the policy still pays up to its limit, less any deductible.
Collision coverage also applies to damage to a non-owned auto being operated by the named insured. This coverage is excess over other coverage applicable to the non-owned auto.
Other than collision (comprehensive)
Other than Collision (comprehensive) coverage covers direct and accidental damage to the covered auto from causes “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
Transportation expenses
Part D will pay, in addition to its limits and without applying a deductible, up to $20 per day (maximum of $600) for transportation expenses if the vehicle is damaged by a collision or other than collision loss, provided the insured carries these coverages.
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
Two Additional Policy Parts
Part E
Part E describes the insured’s duties after a loss. 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.
Part F
Part F includes other general provisions such as:
Bankruptcy of insured
- Bankruptcy or insolvency of the insured does not relieve the insurer of its obligations
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 named insured may cancel at any time by returning the policy or giving advance written notice. The insurer must give at least 10 days’ notice to cancel for nonpayment of premium or during the first 60 days of a new policy, and at least 20 days’ notice in all other cases. After a policy has been in effect for 60 days, or on a renewal, the insurer may cancel only for nonpayment, for suspension or revocation of the driver’s license of the named insured or of a driver who lives with or regularly uses the covered auto, or if the policy was obtained through material misrepresentation
Non renewal
- The insurer may decide not to renew by mailing notice at least 20 days before the end of the policy period. State law often requires longer notice or a stated reason
Automatic termination
- If the insurer offers to renew and the insured does not accept, including by not paying the renewal premium when due, the policy ends automatically at the end of the policy period. Coverage on an auto also ends when the insured buys other similar insurance on it
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, towing and labor costs, joint ownership coverage and rental vehicle coverage. 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.