Personal Auto Insurance · Introduction to Personal Auto Insurance The Personal Auto Policy is one...

Licensing Manual

Personal Auto Insurance

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Personal Auto Insurance - 1

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Copying any part of this text is strictly prohibited. Violators will be prosecuted.

Personal Auto Insurance __________________________________________________________________

Chapter Objectives

Learn the eligibility requirements

Learn the definitions in an auto policy

Know the different parts of the policy and their exclusions. There are usually questions

on the state exam on the definition of uninsured motorist and underinsured motorist

Learn the definition of supplementary payments

Understand the exclusions that apply per coverage part

Become familiar with the other clauses and conditions of the policy

Become familiar with the various endorsements used with the policy

Introduction to Personal Auto Insurance

The Personal Auto Policy is one of the older forms of coverage developed in our country. It is

alleged that the Travelers Insurance Company wrote the first automobile policy. The auto

policy is broken down into various coverage parts. It should be understood that each coverage

part should be treated as a separate insuring agreement. For example: The liability section has

its own insuring agreement, followed by its own exclusions. The physical damage section has its

own insuring agreement, followed by its own set of exclusions.

The Personal Auto Policy

Automobile insurance policies are primarily "third party" contracts that address bodily injury

and property damage claims arising out of the insured's negligent operation of an automobile.

This is what is referred to as auto liability coverage. For an additional premium, the insured's

vehicles can be covered for physical damage. Coverages for physical damage or Damage to

Your Auto include Collision and Other Than Collision (Comprehensive) coverage.

Eligibility Requirements

The Personal Auto Policy (PAP - formerly known as Family Auto Policy) provides coverage for

personal vehicles as opposed to business vehicles, which we will discuss later. The following

are eligibility requirements for PAP:

1. Four-wheel motor vehicles owned or leased (must be leased for at least six continuous

months) by an individual or married couple and resident relatives.

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2. Vehicles eligible to be listed in the Declarations include private passenger autos, which are

four-wheel motor vehicles and pickup trucks and vans that are not over 10,000 GVW

(gross vehicle weight) and not used for business purposes. However, some incidental

business use is permitted. (Farming and ranching are not considered businesses.)

Rating Factors

The following are rating factors that are used to determine the premium to be charged for

liability coverage:

1. Territory – County in which the vehicle is garaged

2. Use – Used for pleasure, driven to work, etc.

3. Age/sex and marital status 4. Driving record – Accidents or traffic violations of those listed as primary operator of

the vehicles to be covered

For physical damage (collision) coverage the year, make and model of the automobile are

also factors in determining the premium to be charged.

Policy Territory

The policy territory includes:

1. The United States of America, its territories or possessions;

2. Puerto Rico; and

3. Canada.

Parts of the Personal Auto Policy

Definitions

In the Definitions section, several terms used in the policy are subject to the precise definitions

stated here:

A. Throughout this policy, "you” and "your" refer to:

1. The "named insured" shown in the Declarations; and

2. The spouse if a resident of the same household.

Insureds also include other members of the insured’s household and anyone the insured gives

permission to drive an insured vehicle.

If the spouse ceases to be a resident of the same household during the policy period or prior to

the inception of this policy, the spouse will be considered "you" and "your" under this policy

but only until the earlier of:

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1. The end of 90 days following the spouse's change of residency;

2. The effective date of another policy listing the spouse as a named insured; or

3. The end of the policy period.

Analysis: This definition explains that throughout the policy “you” and “your” refer to the

named insured and spouse, if living in the same household. If the spouse, for whatever reason,

moves out of the named insured’s household, he or she can still be considered a named

insured. But there is a time limit to this status. This limitation on the named insured status of

the PAP simply reflects the fact that people get divorced or separated. The spouse who has

moved out of the named insured’s household is an individual and must take responsibility for his

or her own insurance needs.

B. “We", "us" and "our" refer to the insurance company providing the insurance.

C. For purposes of this policy, a private passenger type auto, pickup or van will be deemed to

be owned by a person if leased:

1. Under a written agreement to that person; and

2. For a continuous period of at least six months.

Analysis: The status of an owned auto is extended to leased autos under certain

circumstances; namely, the private passenger auto, pickup, or van must be leased under a

written agreement (no handshake or verbal agreements) for a continuous period of at least six

months.

D. "Bodily injury" means bodily harm, sickness or disease, including death that results.

E. "Business" includes trade, profession or occupation.

F. "Family member" means a person related to you by blood, marriage or adoption who is a

resident of your household. This includes a ward or foster child.

Analysis: The term is defined as a person related to the named insurer (or spouse) by blood,

marriage or adoption, and requires that person to be residing in the named insured’s

household. This definition gets its importance within the context of “insured,” as that term is

defined in the particular parts of the policy.

G. "Occupying" means in, upon, getting in, on, out or off. (Note – Under the car is not

included.)

H. “Property damage" means physical injury to, destruction of or loss of use of tangible

property.

Analysis: Property damage is defined as physical injury to, destruction of or loss of use of

tangible property. An example of loss of use of tangible property is if the insured were to crash

into a cab making it incapable of driving. The cab driver’s loss of earnings is covered as property damage under the insured’s Personal Auto policy.

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I. "Trailer" means a vehicle designed to be pulled by a:

1. Private passenger auto; or

2. Pickup or van.

It also means a farm wagon or farm implement while towed by a vehicle listed above.

J. “Your covered auto" means:

1. Any vehicle shown in the Declarations page of the policy

2. A "newly acquired auto"

3. Any "trailer" you own

4. Any auto or "trailer" you do not own while used as a temporary substitute for any other

vehicle described in this definition which is out of normal use because of its:

a. Breakdown;

b. Repair;

c. Servicing;

d. Loss; or

e. Destruction.

Analysis: This term is defined due to the fact that the PAP differentiates between the named

insured’s “covered auto” and other autos. For example, the named insured and family members

are insureds for the use of any auto; other people are insureds while using the named insured’s

“covered auto.” Also, the physical damage coverage under the PAP is for direct and accidental

loss to the named insured’s “covered auto.” So, the insured needs to recognize the difference

between a “covered auto” and just an “auto” in order to recognize when coverage applies.

K. "Newly acquired auto":

"Newly acquired auto" means any of the following types of vehicles you become the owner of

during the policy period:

a. A private passenger auto; or

b. A pickup or van, for which no other insurance policy provides coverage that:

(1) Has a GVW of less than 10,000 lbs.; and

(2) Is not used for the delivery or transportation of goods unless use is:

(a) Incidental to your "business" of installing, maintaining or repairing furnishings or

equipment; or

(b) For farming or ranching.

Analysis: First, the named insured has to become the owner during the policy period. If the

named insured owns the auto prior to the policy inception, he or she must have that auto

shown in the Declarations for it to be considered as a covered auto. Second, the types of vehicles that qualify as “newly acquired autos” are specifically described. A private passenger

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auto is listed; and, pickups and vans are listed, but with limitations. The pickups and vans have

to have no other insurance providing coverage for them; the gross vehicle weight rating has to

be 10,000 pounds or less; and they cannot be used for the delivery or transportation of goods

and materials. This last item is modified to enable certain insureds, such as electricians and

plumbers, to carry their tools and work materials in their vans and pickups and still have their

auto exposures covered under the Personal Auto Policy.

Coverage for a "newly acquired auto" is provided as described below. If you ask the insurance

company to insure a "newly acquired auto" after a specified time period described below has

elapsed, any coverage provided for a "newly acquired auto" will begin at the time you request

the coverage.

For any coverage provided in the policy except Collision Coverage, a "newly acquired

auto" will have the broadest coverage we now provide for any vehicle shown in the

Declarations. Coverage begins on the date you become the owner. However, for this

coverage to apply to a "newly acquired auto" which is in addition to any vehicle shown

in the Declarations, you must ask the insurance company to insure it within 14 days

after you become the owner. However, if a "newly acquired auto" replaces a vehicle

shown in the Declarations, coverage is provided for this vehicle without the insured

having to ask the insurer to insure it.

Collision Coverage or Other Than Collision (Comprehensive) Coverage for a

"newly acquired auto" begins on the date you become the owner. However, for this

coverage to apply, you must ask the insurance company to insure it within:

(1) 14 days after you become the owner if the Declarations indicate that Collision

Coverage applies to at least one auto. In this case, the "newly acquired auto" will

have the broadest coverage currently provided for any auto shown in the

Declarations.

(2) Four days after you become the owner if the Declarations do not indicate that

Collision Coverage applies to at least one auto. If you comply with the four-day

requirement and a loss occurred before you asked the insurance company to insure

the "newly acquired auto", a deductible of $500 will apply.

(Note – Coverage for Damage to Your Auto is often referred to as Collision Coverage or

Physical Damage Coverage. Other Than Collision Coverage is sometimes referred to as

Comprehensive Coverage.)

Part A – Liability Coverage

Part A - Liability Coverage – Pays the sums the insured is legally liable to pay others for

damages due to Bodily Injury and Property Damage caused by an auto accident. The insurer

also has an obligation to investigate, settle and defend claims against the insured seeking these

damages. The insurer reserves the right to settle claims as IT deems appropriate.

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Supplementary Payments

Additional coverages which, if used, are paid by the insurer in addition to the limits of

liability.

Defense and investigation costs;

Up to $250 for bail bonds required because of an accident;

Premiums on appeal bonds and bonds to release attachments in any suit defended;

Interest accruing after a judgment is entered;

Up to $200 a day for loss of earnings because of attendance at trials or hearings;

Other reasonable expenses incurred at the company's request.

Analysis: The liability insuring agreement indicates that defense costs and supplementary

payments are in addition to the liability limits. Insurance on the vehicle being driven is always

primary when the vehicle is being borrowed by a separately insured driver. If you borrow

someone's vehicle, their insurance would provide coverage for a claim first for liability, medical

payments, uninsured and underinsured motorists, and physical damage coverages. Your policy

would be considered excess if the vehicle’s policy limits are exhausted.

Note - Any time a driver is representing a person or an organization, this person or

organization is covered as an insured. For example: The insured is taking children to a youth

rally for their church. If an at-fault accident occurs and the insured and the church are brought

into a law suit, the PAP provides coverage for both parties.

Limits - The PAP can be written on a single limit basis (one amount representing the

aggregate limit for all claims arising from any one accident such as $100,000) or split limit basis

(such as $25/50/10). The split limit basis provides a maximum in any one accident for injury to

any one person, and provides a maximum for all persons injured in any one accident and

provides a maximum for all property damaged in any one accident. For example: The insured

carries the above split limit of coverage. He has an at-fault accident and two people are severely

injured. One sustains injuries of $50,000 and one has $25,000 in injuries. The policy can only

pay the per person limit of $25,000 for each or a total of $50,000. The remaining $25,000 in

injuries cannot be paid because of the $50,000 per accident limitation. The $10,000 limit is for

damage to property of others including loss of use.

Part A Liability Coverage Exclusions

1. No coverage for intentional losses; 2. No coverage for damage to property owned or being transported by that person. For

example: The insured is transporting two TVs, one the insured owns and another owned by

a neighbor. Neither is covered in case they are damaged in an accident under the PAP.

3. No coverage for damage to property:

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Rented to;

Used by; or

In the care of the insured except for damage to a non-owned residence or private

garage. For example: The insured rents a dwelling (non-owned) which has an attached

garage. The insured runs into the garage with the covered vehicle causing building

damage. This exception to the exclusion would provide coverage.

4. No coverage for bodily injury to an employee, except a domestic employee who does not

qualify for workers compensation;

5. No coverage while the vehicle is being used to carry persons or property for a fee. This

does not apply to car-pooling;

6. No coverage while employed or otherwise engaged in the business of selling, repairing,

servicing, storing, or parking vehicles. This includes road testing and delivery. (Unless the

business is the named insured's business and then there is coverage for "covered autos" for

named insured, family members, and any partners, agents or employees.) For example: The

insured leaves his car with a repair garage. The employee working on the vehicle tests

drives the vehicle and has an accident. Neither that employee nor the garage are considered

“insured’s” under the PAP.

7. No coverage if a person does not have a reasonable belief of being entitled to use a vehicle;

8. No coverage for nuclear energy losses if that person is, or should have been, covered under

a nuclear energy liability policy.

9. No coverage for any of the following:

Any motorized vehicle having fewer than four wheels. Exception to this exclusion:

While such vehicle is being used by “an insured” in a medical emergency;

Any owned or non-owned “trailer”;

Any non-owned golf cart.

Any vehicle, other than "your covered auto" which is owned by you or furnished or

available for your regular use;

Any vehicle, other than "your covered auto" which is owned by any “family member” or

furnished or available for the regular use of any “family member.” However, this

exclusion does not apply to your maintenance or use of any vehicle which is:

Owned by a "family member"; or

Furnished or available for the regular use of a family member. Note: The named

insured would be covered.

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Note - Out of State Coverage - If the insured is out of state and involved in an accident and

his liability coverage limit meets the financial responsibility requirements of his home state, the

policy will automatically provide whatever liability limits are required in the state where he is

driving.

Part B - Medical Payments

Medical payments coverage is like a stand-alone policy - it has its own insuring agreement and

its own exclusions. In most cases Medical Payments is optional coverage which means an

insured can elect to purchase this coverage for an additional premium.

Covers medical expenses incurred within three years of an accident and funeral expenses for

the insured or any “family member” while in any auto (including if hit while a pedestrian), and any other person while they are “occupying” a covered auto. The limits of liability apply per

person. “Occupying” refers to being in, upon, getting in, on, out, or off an auto. Medical

Payments coverage also applies to injuries sustained by an insured while occupying a non-

owned pickup or van used in the business of an insured. The following exclusions apply to

medical payments for bodily injury:

Sustained while occupying any motorized vehicle having fewer than four wheels;

Sustained while the vehicle is being used to carry persons or property for a fee;

Sustained while occupying any vehicle used as a residence or premises;

To employees if workers compensation benefits are required.

This policy will only pay its share of a loss if there is other applicable auto medical payments

insurance, and will be considered excess with respect to a non-owned vehicle.

Part C - Uninsured Motorist

This coverage pays the insured and occupants of the insured vehicle against bodily injury claims

which they are legally entitled to recover resulting from an auto accident with:

Other drivers who have no auto liability insurance;

Insureds carrying less than the financial responsibility amount of their home state; Hit and run drivers (Some states have adopted the “phantom driver” law which does

not require physical contact to be considered hit and run);

Another driver whose insurer denies coverage or becomes insolvent.

Note - The “insured” also includes any person, such as surviving spouse or parent of an

individual killed or injured in an accident, who may be entitled to recover damages.

An uninsured motor vehicle does not include any of the following vehicles:

Owned by, furnished to, or available for the regular use of you or any family member;

Owned or operated by a self-insured;

Owned by any governmental unit or agency;

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Designed mainly for use off public roads while not on public roads;

While located for use as a residence or premises.

The policy will exclude payment under Uninsured Motorist Coverage if the insured settles a

bodily injury loss without the insurer’s written agreement AND if the action harms or

prejudices the insurer’s rights.

Note - Some states allow the addition of uninsured motorist property damage for an additional

premium as an optional coverage. There is usually a deductible for this coverage. The

coverage and the deductible vary by state. Please refer to the law supplement for your state

for details.

Underinsured Motorist Coverage - This coverage is available by endorsement. Provides coverage for the insured when involved in an accident with a driver who has legal limits of auto

liability insurance, but the limit is not sufficient to pay the claim for which they are responsible.

This coverage allows the insured to go back against his own policy to collect sums the other

driver is legally liable to pay for bodily injury or, in some states, property damage.

Part D - Coverage for Damage to Your Auto

This coverage is often referred to as Physical Damage Coverage or Collision Coverage and

provides coverage for accidental direct damage to a covered auto and non-owned autos,

including their equipment, caused by:

“Collision” - Defined as the upset or rollover of a covered auto or its impact with

another vehicle or object.

“Other Than Collision” (Comprehensive) - Provides coverage for the vehicle from

losses other than collision which includes:

Theft or larceny;

Windstorm;

Hail, water or flood;

Breakage of glass;

Malicious mischief or vandalism;

Contact with bird or animal;

Explosion or earthquake;

Missiles or falling objects;

Fire;

Riot or civil commotion.

Note: Breakage of glass can be covered under comprehensive or collision. This is a choice

made by the insured.

A non-owned auto or temporary substitute auto is covered on an excess basis (that is, over any

collectible insurance provided on the non-owned auto’s policy).

Transportation Expenses - In addition to Collision and Other Than Collision coverage, Part

D provides up to $20 per day, maximum of $600 for transportation expenses incurred by the

insured because of physical damage losses to the insured’s covered auto; and loss of use

expenses for which the insured becomes legally responsible because of loss to a nonowned

auto.

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Transportation expenses will be paid for both collision and other than collision losses as long as

the insured has purchased these coverages.

For transportation expenses arising out of the theft of the auto, there is a 48-hour waiting

period before expenses will be paid. Coverage continues until the auto is returned to use or

the company pays for its loss.

For other types of losses there is a 24-hour waiting period. Coverage is limited to the period of

time reasonably required to repair or replace the auto.

Comprehensive and Collision Exclusions

No coverage due to wear and tear;

Freezing;

Mechanical or electrical breakdown or failure;

Road damage to tires;

Radioactive contamination;

Discharge of any nuclear weapon;

War;

No coverage for electronic equipment designed for the reproduction of sound,

including, but not limited to:

Radios and stereos;

Tape decks;

Compact disc players;

Navigation systems;

Personal computers;

Video entertainment

systems;

Telephones;

Televisions;

Two-way mobile radios;

Scanners; or

Citizens band radios.

Note: This exclusion does not apply to electronic equipment that is permanently

installed in “your covered auto” or any “non-owned auto.”

Loss to tapes, records, disks or other media used with equipment listed above;

Camper body or trailer you own which is not shown in the Declarations unless insured

within 14 days after you become the owner;

TV antennas;

Awnings or cabanas;

Equipment designed to create additional living facilities;

Equipment designed or used for the detection or location of radar or laser; or

Loss to any non-owned auto being maintained or used by any person while employed

or otherwise engaged in the business of selling, repairing, servicing, storing, or parking

vehicles designed for use on public highways;

A total loss to your covered auto or any non-owned auto due to destruction or

confiscation by governmental or civil authorities;

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Loss to a trailer, camper body, or motor home which is not shown in the Declarations,

unless acquired during the policy period and added to the policy within 14 days;

Loss to any non-owned auto when used by the insured or any family member without a

reasonable belief that they are entitled to operate the vehicle;

Loss to any custom furnishings or equipment in or upon any pickup or van (Note:

Coverage can be added by endorsement for an additional premium);

Loss to a covered auto or a non-owned auto, located inside a facility designed for

racing, for the purpose of competing in, practicing or preparing for any prearranged or

organized racing or speed contest; or

Loss to a rented vehicle by the insured or any family member if the rental company is

prevented from recovering such loss or loss of use in accordance with the provisions of

any applicable rental agreement or state law.

The Limit of Liability (under Coverage for Damage to Your Auto)

The company's limit of liability for a loss is the lesser of:

1. Actual cash value of the stolen or damaged property;

2. Amount necessary to repair or replace the property with other property of like kind

and quality. Note:

The Part D limit for physical damage coverage to non-owned trailers is $1,500.

The Part D limit for sound reproducing equipment applies to electronic equipment

that reproduces, receives or transmits audio, visual or data signals that is permanently

installed in the auto, but not in the location used by the auto manufacturer. The limit

is $1,000. However, the media and accessories used with this equipment are excluded

from this coverage.

The PAP requires the insured to notify the police in case of:

Theft of an auto;

Hit and run accident. If the insurer and the insured do not agree on the amount of a loss, either may demand an

appraisal of the loss.

Parts E and F Conditions

Parts E and F of the Personal Auto Policy list conditions that apply to the policy as a whole.

Part E – Duties After An Accident or Loss:

Part E details the duties of insured following a loss. They are similar to the duties required

under other property and liability policies.

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Under the Uninsured Motorist coverage, the insured is required to notify the police promptly

if a hit and run driver is involved. Under physical damage coverage, the insured must take

reasonable steps after a loss to protect a covered auto and its equipment from further damage.

Reasonable expense required to do so will be reimbursed. In addition, the police must be

notified if the car is stolen. Finally, the insurance company must be permitted to inspect or

appraise the property before its repair or disposal following a loss.

An insured who does not fully comply with the policy’s post-loss obligations (such as delivering

the title to a totaled vehicle) risks losing coverage for that given loss, but only if the

noncompliance harms or prejudices the insurer’s rights.

Part F – General Provisions:

Part F establishes conditions for the coverage and describes the duties and obligations of the

insured and insurer.

The policy applies only to accidents and losses that occur during the policy period shown in the

Declarations and within the policy territory. Covered autos are also insured while being

transported between territorial ports.

An insured cannot take legal action against the insurer until he/she has complied with all policy

terms. Under Part A, legal action may not be taken against the insurer until it agrees in writing

that an insured has an obligation to pay, or unless the amount of such an obligation has been established by judgment after a trial. No person or organization may take action against the

insurer for the purpose of determining whether or not an insured is liable for a loss.

Policy terms may not be changed or waived except by written endorsement. Any premium

adjustment due to a change will take effect as of the date of change. If the policy form is

revised to provide broader coverage without additional charge, all policyholders will

automatically and immediately benefit from broader coverage on the date the change is

implemented in their state of residence. This is called the Liberalization Clause.

The insurer has subrogation rights under all coverages except physical damage coverage against

a person using a covered auto with a reasonable belief of being entitled to do so.

The termination provision describes conditions for cancellation and nonrenewal. The insured

may cancel the policy at any time by returning the policy or providing advance written notice of

the desired cancellation date. The insurer must provide advance written notice of cancellation

or nonrenewal. At least 10 days’ notice must be given if the policy is being cancelled for

nonpayment of premium or if cancellation occurs during the first 60 days of an initial policy

term (a new policy that has not been renewed or continued.) At least 20 days’ notice must

be given in all other cases. This may vary by state. In most states, once a policy has been in

effect for 60 days, or after it has been renewed or continued, the insurer may only cancel for

these reasons:

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Nonpayment of premium;

Material misrepresentation in obtaining the policy;

A regular operator of the vehicle has had his/her driver’s license suspended or

revoked.

Nonrenewal requires at least 30 days’ advance notice. Again, this may vary by state.

Other Provisions

Physical damage losses are reimbursed for actual cash value or the amount needed to repair or

replace the property, whichever is less. If the insured and the insurance company do not agree

on the amount that should be paid, the loss may be appraised. If the insurer pays for a loss in

money, the payment will include the applicable sales tax for the damaged or stolen property. Both Collision and Other Than Collision coverage are usually written with a deductible that

applies separately to each occurrence.

In the physical damage part of the Personal Auto Policy, the other insurance condition is also

known as other sources of recovery. It is essentially the same as the other insurance

conditions in Part A and Part B, except that it states that the insurer will pay only its share of

the loss if any other source of recovery, not just insurance, applies to the loss.

The “no benefit to bailee” condition states that a bailee cannot benefit from the insurance

policy if a loss occurs to the car while it is in the bailee’s possession. Examples of bailees are

repair shop owners and employees of parking garages.

Assigned Risk Plans

Most states have set up a state sponsored risk plan to assist those needing auto insurance but

are unable to secure it in the normal market place. As a requirement to be licensed to sell

auto insurance in the state, an insurer agrees to participate in the plan. The state will “assign” a

carrier to write the auto insurance for the customer. The insurance carrier will decide on what

rates and premiums to charge and can ask the state for assistance in the matter if necessary.

The carrier is required to cover the insured for at least three years in most states. The only

reason coverage can be denied is for non payment of premium, fraud, or material

misrepresentation. Bad driving records claim histories and other underwriting issues are

reasons a person may look for coverage through the plan.

Endorsements

1. Towing and Labor - Pays up to $25, $50, $75, or $100 for towing and labor costs when a

private passenger vehicle is disabled. Provides coverage only at the place of disablement.

2. Miscellaneous Vehicles - Motor homes, motorcycles, mopeds, etc. These are vehicles

some companies will add to the PAP.

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3. Extended Non-Owned Liability - Provides a little broader coverage for driving a non-

owned automobile. Some of the exclusions or limitations are eliminated. It allows coverage

for a non-owned vehicle furnished or available for the insured’s regular use like a company

furnished automobile. It also provides excess auto liability coverage for a business use of a

commercial type vehicle that the named insured does not own, such as one owned by an

employee.

4. Named Non-Owner - This endorsement is used for persons who do not own an auto but

wish to have their own protection while driving non-owned vehicles. Single limit or split

limit liability, uninsured motorist’s coverage, and medical payments coverage are available.

The endorsement will cover a newly acquired vehicle for 14 days. After that, the vehicle

has to be listed on the policy and this endorsement is removed. Several of the Personal

Auto Policy provisions are modified to adapt the coverage to apply to a non-owner, among

them the elimination of reference to family members in the definition of insured. To cover

family members, it is necessary that each be individually named in the endorsement

schedule.

5. No Fault Insurance - This type of coverage has been mandated in various states with no

real standardization. Basically, the insured's company pays him for certain expenses up to a

specified limit. Thereafter he must seek legal action against the person at fault for the rest

of this recovery.

6. Joint Ownership Endorsement - When the joint ownership endorsement is attached,

the policy can be issued to two or more persons who live in the same household or two or

more individuals who are related in a way other than husband and wife.

7. Customizing Equipment Endorsement - Coverage is provided for those vehicles such

as pickup trucks or vans that have been customized or have had special equipment added.

8. Limited Mexico Coverage - Provides limited excess coverage over valid Mexican

insurance for covered autos that are used within 25 miles of the Mexican-U.S. border.

Coverage is in effect for a maximum of 10 days. Valid Mexican insurance must be

purchased through an authorized Mexican insurer in order for this excess coverage to

apply. A resident or citizen of Mexico is NOT covered under this endorsement while

driving the covered auto.

9. Auto Loan/Lease Coverage (Gap Insurance) - This endorsement is designed to cover

the “gap” between the actual cash value of a vehicle that is considered to be a total loss and

the possible outstanding balance on the loan or lease contract. The coverage will NOT pay

for any excessive use charges, warranty costs, late fees, overdue payments or any other

loan add-ons such as the balance on an old loan that was rolled into the loan on the current

vehicle often referred to as negative equity.

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Review Questions

1. The insured is hit in the rear while stopped at a traffic light. The insured's company pays for

his repairs then seeks reimbursement from the responsible party. This is described as:

A. Subrogation.

B. Reimbursement.

C. Arbitration.

D. Appeal.

2. Damage to a windshield by a bird would be covered under:

A. Collision

B. Comprehensive

C. Liability

D. All of the above.

3. The Personal Auto Policy provides coverage in all of the following locations, except:

A. Hawaii

B. Mexico

C. Canada

D. Alaska

4. Mr. Pfister carried 15/30/5 limits on an auto when he negligently ran into a parked car

containing three occupants resulting in the following claims:

Tom - B.I. - $18,000 and P.D. - $ 8,000

Dick - B.I. - $ 8,000 Harry- B.I. - $ 4,000

In addition to these settlement awards, there was $18,000 in legal fees. In response to this

accident, Pfister's PAP will pay:

A. $32,000

B. $38,000

C. $50,000

D. $68,000

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5. After a loss, the insured must:

A. Notify the company.

B. Permit the company to inspect a damaged auto before repairs are started.

C. Submit to a physical exam if needed.


6. All of the following are Physical Damage exclusions, except:

A. Loss to vehicle used as a livery.

B. Damage due to wear and tear. C. Loss to audio tapes.

D. Loss to permanently installed car telephone.

7. The insurer will pay transportation expenses under the PAP beginning ____ after a theft of

the insured’s automobile.

A. 24 hours.

B. 48 hours.

C. 72 hours.

D. 96 hours.

8. Under the PAP, the insurer will pay for transportation expenses up to which of the following

amounts?

A. $10 per day; $300 maximum.

B. $20 per day; $500 maximum.

C. $15 per day; $300 maximum.

D. $20 per day; $600 maximum.

9. A car, traveling at high speed, skids at a turn and rolls over. The damage incurred would be

covered under which of the following personal auto coverages?

A. Collision

B. Comprehensive

C. Uninsured motorist

D. P.D. liability

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10. A stolen car is covered under which of the following personal auto coverages?

A. Collision

B. Comprehensive

C. Uninsured motorist

D. P.D. liability

11. As a result of an auto accident, the insured sustains bodily injury worth $50,000. The

responsible party carries auto liability insurance in the amount of $15/30/5. The insured's

$100,000 underinsurance coverage would pay:

A. $15,000

B. $35,000

C. $50,000

D. $100,000

12. The purpose of "underinsured motors” coverage is to:

A. Provide coverage for a “hit-and-run” driver.

B. Pay for injuries sustained by insureds who have been injured when the at-fault driver carries auto limits less than the financial responsibility of the state in which the insured

was injured.

C. Provide coverage for the insured when the at-fault driver carries less coverage than

that needed to pay for the insured’s injuries.

D. Provide coverage when the at-fault driver’s insurance company denies the claim.

13. An uninsured motor vehicle includes:

A. An insured vehicle whose insurer denies coverage.

B. An insured vehicle whose insurer becomes insolvent.

C. A "hit and run" vehicle.


14. The PAP Medical Payments cover:

A. The insured as driver.

B. A passenger.

C. The insured as pedestrian.


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15. Under the PAP Medical Payments, the time limit for incurring medical expenses is:

A. 6 months.

B. 1 year.

C. 2 years.

D. 3 years.

16. The PAP liability coverage excludes all of the following, except:

A. Intentional injury.

B. Damage to insured property. C. Damage to property of others in the insured's care.

D. Damage to property of others due to the insured's motor vehicle negligence.

17. All of the following are considered insureds under the PAP, except:

A. Any person using the insured auto.

B. A family member using the insured auto.

C. Any organization the insured represents.

D. Any person using an auto not owned by the insured.

18. An auto liability policy with split limits of 15/30/5 would pay what maximum amount in the

event of a covered bodily injury loss to three people?

A. $5,000

B. $15,000

C. $30,000

D. $45,000

19. An auto liability policy with split limits of $10/20/5 would pay how much in the event of a

$10,000 loss to the other person's damaged vehicle?

A. $0

B. $5,000

C. $10,000

D. $20,000

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20. An auto liability policy with a single limit of $30,000 would pay which of the following

amounts in the event of a $10,000 loss to the insured vehicle and a $25,000 bodily injury

settlement to a third party?

A. $10,000

B. $25,000

C. $30,000

D. $35,000

21. Under the PAP, a covered auto includes all of the following, except:

A. Temporary substitute

B. Non-owned auto

C. Private passenger auto listed in the Declarations

D. An owned trailer

22. Leased vehicles can be covered under the PAP if they are leased for a minimum of:

A. 30 consecutive days.

B. 60 consecutive days.

C. 6 consecutive months.

D. 1 year.

23. A deer crashes into the side of the insured's car. Which of the following PAP coverages

would cover this damage?

A. Property damage liability.

B. Collision.

C. Uninsured motorist property damage.

D. Comprehensive.

24. Which of the following would be covered under a PAP?

A. A truck the insured rented that is over 10,000 gross vehicle weight.

B. A three wheeled vehicle used in a medical emergency.

C. A motor cycle.

D. A large rented motor home.

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25. An uninsured motorist vehicle under the Personal Auto Policy includes all of the following,

except:

A. Hit and run vehicle whose driver cannot be identified.

B. A vehicle newly acquired by the named insured.

C. A vehicle insured by the company that is insolvent.

D. A vehicle to which no liability bond or insurance policy provides coverage at the time

of the accident.

26. What is the limit for damage to a non-owned trailer under the Personal Auto Policy?

A. $500

B. $1,000

C. $1,500

D. $2,000

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Review Answers

1. A. Subrogation is used by the insurer to seek reimbursement from the third party

that caused the accident.

2. B. This is an example of an Other Than Collision loss.

3. B. Mexico is not within the covered territory covered by the PAP.

4. C. This is an example of a split limit claim. Payment is as follows: Tom $15,000; PD -

$5,000; Dick $8,000; Harry $4,000 which totals $32,000. The defense costs ($18,000)

are covered and paid by the insurer, which brings the total to $50,000.

5. D. All of the items are part loss conditions of a PAP.

6. D. A permanently installed telephone is covered.

7. B. The coverage applies after 48 hours when theft occurs. The insured must notify

the police in case of a theft loss.

8. D. The policy pays $20 per day subject to a maximum of $600 as a result of a

covered physical damage loss.

9. A. Upset or overturn is an example of a collision loss.

10. B. A stolen car is covered under the Other Than Collision coverage.

11. B. The purpose of underinsured motorist coverage is to pay the difference in the

amount payable by the negligent party and the actual damages sustained by the

insured.

12. C. The purpose of underinsured motorist coverage is to pay the difference between

the at-fault driver’s coverage and the actual damages sustained by the insured, up to

the limit of the underinsured motorist coverage limit.

13. D. All of the responses are correct as to UM coverage.

14. D. The medical payments coverage covers all of those listed.

15. D. Medical payments under the PAP are payable for up to three years from the date

of the accident.

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16. D. Damage to property of others, other than property being transported by the

insured, is covered under property damage liability.

17. D. The policy covers vehicles stated on the Declarations page of the PAP. The driver

of a vehicle not owned by the insured is not covered.

18. C. The limit of $30,000 is the maximum that can be paid for all injured persons and

no more than $15,000 per person.

19. B. This split limit provides a maximum of $5,000 for property damage to another

vehicle caused by the insured.

20. B. In this question we are not concerned about the damage to the “insured’s” vehicle

but rather the coverage that would apply under the liability portion of the PAP.

21. B. The PAP is excess coverage on a non-owned vehicle. If the insured drives a non-

owned vehicle and has an accident, the insurer of the owner of that vehicle would be

primary.

22. C. A leased vehicle is treated like an owned vehicle if leased for a period of at least

six consecutive months.

23. D. Animal damage is treated as an Other Than Collision claim.

24. B. The PAP makes an exception under the exclusions and provides coverage for a

vehicle that has less than four wheels to be covered in case of a medical emergency.

25. B. A “newly acquired vehicle” is not included in the definition of uninsured motorist

coverage.

26. C. The PAP policy provides a limit for non-trailers in the amount of $1,500.

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