Personal Auto Insurance: The Policy Part by Part

A personal auto policy is a contract in six parts, and almost every claim question can be answered by finding the right part and reading its insuring agreement, its definition of “insured,” its exclusions and its limit, in that order. The standard Personal Auto Policy form (ISO PP 00 01, 09 18 edition) is taken here part by part, with a claim worked through each. Insurers file their own wording, so a producer reads the policy actually issued. In Michigan the form is used together with the coverages the no-fault law requires, and the discussion says where that changes the result. All names and amounts in the examples are invented.

Who “You” Are and What Is Covered

The Agreement and Definitions come first because every later part depends on them. “You” and “your” mean the named insured shown in the Declarations and the spouse, if a resident of the same household. A “family member” is a person related to you by blood, marriage or adoption who lives in your household, including a ward or foster child. A roommate or an unmarried partner is not a family member under this wording.

“Your covered auto” has four pieces: a vehicle shown in the Declarations, a “newly acquired auto,” a trailer you own, and a vehicle you do not own that you use as a temporary substitute while a covered auto is out of normal use because of breakdown, repair, servicing, loss or destruction.

A newly acquired auto is a private passenger auto, or a pickup or van that no other policy covers, has a gross vehicle weight rating of 10,000 pounds or less and is not used to deliver goods, unless the use is incidental to installing or repairing furnishings or equipment or is for farming or ranching. The rule on timing matters in practice. For liability and other coverages besides physical damage, the new vehicle has the broadest coverage the policy gives any listed auto, but only if you ask the insurer to cover it within 14 days of becoming the owner. For collision, coverage begins the day you become the owner if you ask within 14 days when the Declarations show collision on at least one auto, or within 4 days if they show none. If you ask late, coverage starts the day you ask.

Suppose Priya Venkataraman buys a used sedan on March 1, and her policy shows collision on her existing car. If she wrecks the sedan on March 6 and calls the next day, collision applies, because she asked within 14 days. If she waits until March 20 to call and the wreck happened on March 18, there is no collision coverage for it.

Part A: Liability Coverage

The Insuring Agreement

The insurer pays damages for “bodily injury” or “property damage” for which any “insured” becomes legally responsible because of an auto accident. Damages include prejudgment interest. The insurer settles or defends as it considers appropriate, and defense costs are paid in addition to the limit. The duty to settle or defend ends when the limit is exhausted by payment of judgments or settlements.

Who Is an Insured

Four groups qualify:

• You or any family member, for the ownership, maintenance or use of any auto or trailer.
• Any person using your covered auto.
• For your covered auto, any person or organization, but only for legal responsibility for the acts of a person covered under this part. An employer sued because a family member crashed while on an errand for the employer is the standard case.
• For an auto or trailer other than your covered auto, any other person or organization, but only for legal responsibility for the acts of you or a family member. It applies only if that person or organization does not own or hire the auto.

You and your family members are covered when driving a borrowed car, so long as the exclusions about regular use do not apply. Others are covered only for their vicarious responsibility. The fourth group excludes anyone who owns or hires the auto, so a friend who lends you a car is not protected by your policy if the friend is sued for your driving, and looks to the friend’s own insurance. An employer that neither owns nor hires the car and is sued for a family member’s driving of it is protected.

Supplementary Payments

Several payments do not reduce the limit: up to $250 for bail bonds, premiums on appeal and attachment bonds, post-judgment interest in a suit the insurer defends, up to $250 a day for lost earnings when the insurer asks the insured to attend hearings or trials, and other reasonable expenses incurred at its request.

The Main Exclusions

The form excludes liability for an insured who intentionally causes injury or damage, and for damage to property the insured owns or is transporting, or property rented to, used by or in the care of the insured. That property exclusion does not apply to a residence or private garage. Bodily injury to an employee of the insured during employment is excluded, with a limited exception for domestic employees.

Several exclusions follow the use of the vehicle. Liability while a vehicle is used as a public or livery conveyance is excluded, and the 09 18 edition states that this includes any time the insured is logged into a transportation network platform as a driver, whether or not a passenger is in the vehicle. The exclusion does not apply to a share-the-expense car pool or to volunteer or charitable use. Liability while the insured is in the business of selling, repairing, servicing, storing or parking vehicles is excluded, unless the vehicle is your covered auto used by you, a family member or your partner, agent or employee. Liability while a vehicle is used in any other business is excluded, except for a private passenger auto, pickup or van, or a trailer used with one. Use of a vehicle without a reasonable belief of being entitled to is excluded, except for a family member using your covered auto that you own.

The vehicle exclusions come next. Coverage does not apply to a vehicle with fewer than four wheels or one designed mainly for use off public roads, with exceptions for medical emergencies, trailers and non-owned golf carts. It does not apply to a vehicle other than your covered auto that you own or that is furnished or available for your regular use, nor to one owned by a family member or furnished for a family member’s regular use, except to you while you maintain or occupy it. The regular-use rule is the one producers explain most often: a person who drives an employer’s van every day should not assume the personal policy follows.

Limits: Split and Single

The Declarations show a limit for each person and a limit for each accident for bodily injury, and one limit for each accident for property damage. A listing of 100/300/50 means $100,000 for each person, $300,000 for each accident and $50,000 for property damage. The per-person limit is the most the insurer pays for all damages, including care, loss of services or death, arising from bodily injury to any one person. Subject to it, the per-accident limit is the most for all bodily injury in the accident. The limits do not multiply by the number of insureds, claims or vehicles.

Here is a worked claim. Ramon Okafor runs a stop sign and hits a car. Four people in the other car are hurt, with damages of $140,000, $90,000, $130,000 and $110,000. The other car is worth $62,000 in property damage. His policy is 100/300/50.

Claimant	Damages	Per-person cap	Insurer’s share before the accident cap
A	$140,000	$100,000	$100,000
B	$90,000	$100,000	$90,000
C	$130,000	$100,000	$100,000
D	$110,000	$100,000	$100,000
Total	$470,000		$390,000

The per-accident limit is $300,000, so bodily injury is capped at $300,000. The form does not say how to divide it among the claimants. Ramon owes the other $470,000 - $300,000 = $170,000 of bodily injury damages. For property damage the insurer pays $50,000 and he owes $62,000 - $50,000 = $12,000. His own exposure is $182,000. If the policy instead had a single $300,000 limit for everything, the total claim is $470,000 + $62,000 = $532,000, the insurer pays $300,000, and he owes $232,000. A single limit can be spent on whichever damages are largest, while a split limit gives each part its own ceiling.

In Michigan the limits are set by the no-fault law. A policy cannot be issued with residual liability limits lower than $250,000 for one person and $500,000 for two or more persons in an accident, and $10,000 for property of others, unless the named insured completes the Director’s form to choose lower bodily injury limits, never below $50,000 and $100,000 (MCL 500.3009(1), (5)).

Two other provisions travel with Part A. Under out-of-state coverage, if the law of the state or province where an accident occurs requires higher limits, the policy provides them, and if its compulsory insurance law applies to a nonresident, the policy provides at least the required amounts and types. Under other insurance, the insurer pays its proportionate share of a loss that other liability insurance also covers, and its coverage for a vehicle you do not own is excess.

Part B: Medical Payments Coverage

Part B pays reasonable expenses for necessary medical and funeral services because of accidental bodily injury to an insured, for services rendered within three years of the accident. An insured is you or a family member while occupying, or as a pedestrian when struck by, a motor vehicle designed mainly for public roads or a trailer of any type, and any other person occupying your covered auto. “Occupying” means in, upon, getting in, on, out or off.

The limit is a per-person amount for each accident. The exclusions parallel the liability exclusions for livery use, vehicles with fewer than four wheels, regularly furnished vehicles and business use. Part B also bars duplicate payment for the same element of loss under Part A or Part C.

In Michigan this part is not what pays accident medical bills. Every auto policy offered in the state must include personal protection insurance and property protection insurance, with narrow exceptions the statute names (MCL 500.3101(2)), a different and broader coverage, and Part B is never a substitute for PIP.

Part C: Uninsured Motorists Coverage

Part C pays compensatory damages an insured is legally entitled to recover from the owner or operator of an “uninsured motor vehicle” because of bodily injury caused by an accident. Insureds are you, family members, anyone else occupying your covered auto, and anyone entitled to recover for the injury of one of them, such as a survivor.

An uninsured motor vehicle is a land motor vehicle or trailer to which no bodily injury liability bond or policy applies at the time of the accident, one whose liability limit is below the minimum bodily injury limit the financial responsibility law of the garaging state requires, or a hit-and-run vehicle whose operator or owner cannot be identified. The definition leaves out vehicles owned by you or a family member or furnished for your regular use, vehicles owned or operated by a self-insurer (unless it is insolvent) or owned by a government, vehicles on rails or crawler treads, vehicles designed mainly for off-road use while not on public roads, and vehicles located for use as a residence or premises. The form as printed does not insure underinsured motorists, whose insurance is above the minimum but too low for the injury. Underinsured motorists coverage, which the non-duplication clauses mention, is in standard practice added by endorsement.

Exclusions include a settlement that prejudices the insurer’s right to recover payment, injury while occupying an owned vehicle not insured for this coverage, and punitive damages. Disputes about entitlement or amount may be arbitrated if both sides agree, but coverage disputes may not. No payment is made for any element of loss for which workers’ compensation or disability benefits are available.

Suppose Dana Whitcomb is hit by a driver with no insurance, and the amount she is legally entitled to recover is $85,000, of which $12,000 is lost wages for which workers’ compensation has already paid. Part C excludes that element, leaving $85,000 - $12,000 = $73,000. With a $100,000 limit, Part C pays $73,000. With a $50,000 limit, it pays $50,000 and she is $23,000 short.

In Michigan the coverages an owner must maintain are personal protection, property protection and residual liability insurance (MCL 500.3101(1)). Uninsured motorist coverage is not among them, so its terms come from the policy that is sold. Because the coverage pays what the insured is legally entitled to recover, the limits Michigan places on recovering damages from the at-fault driver in MCL 500.3135 continue to shape the amount.

Part D: Coverage for Damage to Your Auto

Collision and Other Than Collision

Part D pays direct and accidental loss to your covered auto or a non-owned auto, including its equipment, less the deductible. Collision is paid only if the Declarations show collision for that auto. Other than collision is paid only if the Declarations show it. Collision means the upset of the auto or its impact with another vehicle or object. Other than collision covers ten listed causes: missiles or falling objects, fire, theft, explosion or earthquake, windstorm, hail or water or flood, malicious mischief or vandalism, riot or civil commotion, contact with a bird or animal, and breakage of glass. A driver who hits a deer has an other-than-collision loss, not a collision loss.

A non-owned auto is a private passenger auto, pickup, van or trailer not owned by or available for the regular use of you or a family member, while in the custody of or operated by you or a family member, and also an auto you do not own that serves as a temporary substitute for a covered auto. The coverage for it is the broadest applicable to any of your covered autos, and it is excess over any other collectible source of recovery, including the owner’s own coverage.

What the Insurer Pays

The limit is the lesser of the actual cash value of the stolen or damaged property or the cost to repair or replace it with property of like kind and quality. In a total loss, actual cash value reflects depreciation and physical condition. Betterment is not paid. A money payment includes the applicable sales tax.

A repair claim: Inez Brandvold’s car is damaged in a collision for which she is substantially at fault. The repair estimate is $5,300, which includes $420 for new tires that replace worn ones, and the car’s actual cash value is $14,000. Repair costs less, so repair is the measure, and the tire betterment is not paid. With a $500 deductible, the insurer pays $5,300 - $420 - $500 = $4,380.

A total loss: the car’s actual cash value is found by taking $16,900, the cost of a comparable vehicle, less $2,100 for depreciation and physical condition, which is $14,800. The car carries $3,200 of custom wheels and a bed cover. Custom equipment, meaning equipment, furnishings and parts beyond original manufacturer equipment, is excluded except for the first $1,500, which is also the most that is paid for it. Assume the applicable sales tax is $740. The payment is $14,800 + $1,500 + $740 - $500 = $16,540. Other exclusions include loss while used as a public or livery conveyance, damage due and confined to wear and tear, freezing, mechanical or electrical breakdown or road damage to tires (except total theft), electronic equipment that reproduces, receives or transmits sound, pictures or data unless permanently installed (a portable navigation system is the usual example), and radar detectors. Permanently installed electronic equipment is paid up to $1,000 when it sits in a place the manufacturer did not use for that equipment.

Transportation Expenses

For a loss to your covered auto, the insurer pays temporary transportation expenses of up to $30 a day, to a maximum of $900, without a deductible. If the auto is stolen, payment begins 48 hours after the theft. For other losses it begins when the auto is withdrawn from use for more than 24 hours. A rental car costing $38 a day while repairs take 21 days produces $30 x 21 = $630 of reimbursement, and Inez pays the other $168. After a total theft, payment starts 48 hours after the theft and the $900 maximum is used up after 30 days at $30 if the claim is still unresolved then.

Michigan’s Collision Choices

At the first application of a new applicant for private passenger auto insurance, Michigan requires the insurer to offer limited collision, which pays with no deductible when the operator is not substantially at fault, and broad form collision, which pays regardless of fault with a deductible that is waived when the operator is not substantially at fault (MCL 500.3037(1)). “Substantially at fault” means more than 50% of the cause (MCL 500.3037(8)(b)). So in a two-car crash where Tom Eastlake is not substantially at fault, his broad form collision pays his whole $9,400 repair bill with no deductible, while Inez, at 70% fault, pays her $500 deductible on a $5,300 repair. Tom’s own loss is not paid by Inez’s liability coverage. For an accident after July 1, 2020, a claim against a driver for vehicle damage is limited to $3,000 not covered by insurance, and that liability is not part of residual liability (MCL 500.3135(3)(e), (4)(b)).

Parts E and F: Duties and General Provisions

Part E sets the duties after an accident or loss, and the insurer has no duty to provide coverage if failure to comply is prejudicial to it. The insured must give prompt notice of how, when and where the accident happened, with names of injured persons and witnesses, cooperate, send suit papers promptly, submit to physical exams and an examination under oath, and authorize release of medical records. For Part D the insured must also protect the auto from further loss, notify the police of a theft and permit inspection before repair or disposal. “Prejudicial” protects an insured whose late report caused no harm.

Part F holds the general provisions. The insured’s bankruptcy does not relieve the insurer. Subrogation lets the insurer recover from a wrongdoer, so an insured who recovers from another must hold the recovery in trust and reimburse the insurer to the extent of its payment. The policy applies to accidents and losses during the policy period within the United States, its territories and possessions, Puerto Rico and Canada. The named insured may cancel on written notice. The insurer may cancel on stated notice, and after 60 days only for stated reasons. In Michigan, chapter 32 of the Insurance Code limits the reasons an insurer may cancel an auto liability policy once it has been in effect 55 days or is a renewal (MCL 500.3220), and the Essential Insurance Act’s termination rules apply as well (MCL 500.2123(5)). A producer therefore applies Michigan’s limits and does not rely on the form’s printed periods alone.

Lesson summary

• A personal auto policy is read part by part: insuring agreement, who is an insured, exclusions and limit.
• A newly acquired auto gets the broadest coverage if reported within 14 days, and collision begins on the date of ownership when reported on time.
• Split limits such as 100/300/50 cap each person, each accident and property damage separately, while a single limit is one pool. The claimant’s damages above the cap are the insured’s own.
• Part B pays necessary medical and funeral expenses within three years, but in Michigan it does not take the place of required personal protection insurance.
• Uninsured motorists coverage pays what the insured is legally entitled to recover, less elements already paid by workers’ compensation, and is contractual in Michigan.
• Part D pays the lesser of actual cash value or repair cost, less depreciation, betterment and the deductible, and caps custom equipment at $1,500 and transportation expense at $30 a day to $900.
• Michigan offers limited and broad form collision, and the vehicle-damage claim against another driver is limited to $3,000 and is not part of residual liability.
• After a loss the insured must give prompt notice and cooperate, and late notice defeats coverage only if it prejudices the insurer.