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.
• 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.
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.
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.
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.
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.
Part F of the PAP 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.
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