THOSE KIDS AND THEIR CARS

Terry L. Tadlock, CIC, CPCU, CRISIndependent Agents and Brokers of South CarolinaColumbia, South Carolina

LEARNING OBJECTIVES

1. To review Personal Automobile policy as it applies to insurance for our kids.

 2. To learn the construction of the Personal

Automobile Policy so students can research any coverage question that may arise.

 Note: All questions will be answered based on the

2005 edition of the ISO Personal Auto Policy.

KIDS AND THEIR CARSBill Bailey, one of your more affluent clients, in an attempt to get his “affairs” in order has met with his attorney. As a result of this meeting Bill has called to inform you that he has titled the vehicle for his 18 year old son in his name and wants a separate policy written with liability limits of 25/50/25 and as soon as his 16 year old daughter turns 18, he will be doing the same for her. Bill’s Personal Auto limits are 250/500/250, Medical Payments 5,000, Uninsured Motorist 250/500/250 (non-stacked), Other Than Collision less a 250 deductible and Collision less a 500 deductible. In addition, last year you talked Bill into buying a 2 million dollar Personal Umbrella policy.

KIDS AND THEIR CARS

Problem: Who Is An Insured?

Family member requires residency and relationship. We have relationship and residency. It seems as though the son is an insured on both policies.

"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.

KIDS AND THEIR CARS

Problem: Can a parent be legally liable for the actions of the 18 year old son?

The answer is a resounding…”it depends.” This is a legal question, not a coverage question. If you feel comfortable informing your clients of what the court may or may not do, feel free, I would not suggest such a course of action.

KIDS AND THEIR CARS

Problem: Can a parent be legally liable for the actions of the 18 year old son?

This would be a great question to ask the attorney who gave Bill the advice. You may want to get a written response. Certainly the age of majority will have some bearing, but still too risky to speculate on in my opinion.

KIDS AND THEIR CARS

Problem: Are there any policy exclusions that may affect coverage?

KIDS AND THEIR CARSB. We do not provide Liability Coverage for the

ownership, maintenance or use of: 3. Any vehicle, other than "your covered auto,"

which is:a. Owned by any "family member," orb. Furnished or available for the regular

use of any "family member."However, this exclusion (B.3.) does not apply to

you while you are maintaining or "occupying" any vehicle which is:a. Owned by a "family member;" orb. Furnished or available for the regular

use of a "family member."

KIDS AND THEIR CARS

  

When Bill drives his son’s vehicle will his policy will his son’s policy respond? If so, what happens when the claim exceeds the son’s limits of 25/50/25? Will Bill’s policy respond on an excess basis?

Would your answers above change if Bill’s 16 year old daughter was driving her brother’s vehicle and had an accident that exceeded the brother’s limits?

KIDS AND THEIR CARS

Problem:

How will Bill’s 2 million dollar Personal Umbrella policy respond?

KIDS AND THEIR CARS

First, the worst case scenario. Most personal umbrella companies will require Bill’s 18 year old son to have his own personal umbrella policy. This will require the underlying limits to be increased as well as pay an additional umbrella premium. I think we just defeated the whole purpose for putting the vehicle in the son’s name. Bill’s personal umbrella policy would exclude coverage for the 18 year old son’s use of the vehicle in his name.

KIDS AND THEIR CARS

Second, the umbrella company may not have an exclusion for the 18 year old son using his vehicle, but in order to respond, Bill has to pay the difference between the son’s 25/50/25 limits and the required underlying limit. I personally have not seen this type of umbrella language, but have read about claims where they did exist. Bill is still not happy.

KIDS AND THEIR CARS

Problem:

A little different twist. Bill’s son is now 20 and living in his own apartment. What would happen in the above situations if Bill co-signed for his son to buy the car?

KIDS AND THEIR CARS

If the son’s family used his car with permission, there would be coverage under the son’s policy.

INSURING AGREEMENT

"Insured" as used in this Part means:1. You or any "family member" for the

ownership, maintenance or use of any auto or "trailer."

2. Any person using "your covered auto."

KIDS AND THEIR CARS

B. We do not provide Liability Coverage for the ownership, maintenance or use of:

2. Any vehicle, other than "your covered auto, which is:

a. Owned by you; or

b. Furnished or available for your regular use.

KIDS AND THEIR CARS

Does this language prevent Bill from coming back to his policy on an excess basis in the event of a claim that exceeds the son’s underlying limits? Also, how would Bill’s personal umbrella policy respond if the underlying policy failed to respond?

KIDS AND THEIR CARS

I have not seen this happen, but this exclusion could apply if the courts viewed the cosigning of the vehicle as ownership? This originally came up over the issue of insurable interest. If insurable interest exists, the courts could see that as ownership.

KIDS AWAY AT SCHOOL

John, one of your agency’s largest personal lines accounts has scheduled an appointment to discuss his insurance. John’s daughter has gone away to college and he wants to make sure all of his insurance needs are adequately met. John’s Personal Auto limits are 250/500/250, Medical Payments 5,000, Uninsured Motorist 250/500/250 (non-stacked), Other Than Collision less a 250 deductible and Collision less a 500 deductible. He also has a Homeowners policy with 200,000 on Coverage A Dwelling and 300,000 on Coverage E Personal Liability. In addition, last year you talked John into buying a 2 million dollar Personal Umbrella policy. John’s daughter will be rooming with her best friend in an apartment that will be rented by John. Both girls will have their own car. Discuss the coverage issues this situation creates.

KIDS AWAY AT SCHOOL

Who Is An Insured

Family member requires residency and relationship. We have relationship, do we have residency? Most courts say…Yes!

DEFINITIONS: (PAP)

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.

KIDS AWAY AT SCHOOLDEFINITIONS: (Homeowners)

5. "Insured" means:

a. You and residents of your household who are:

(1) Your relatives; or

(2) Other persons under the age of 21 and in the care of any person named above;

b. A student enrolled in school full time, as defined by the school, who was a resident of your household before moving out to attend school, provided the student is under the age of:

(1) 24 and your relative; or

(2) 21 and in your care or the care of a person described in a.(1) above

KIDS AWAY AT SCHOOL

Resident relatives are those related by some degree of blood or marriage AND reside in the insured residence. By adding b. we now treat students different. They must be a FULL-TIME student and under 24 (21 if in your care and not related). What happens if a student is 20 and drops a course and is no longer a full-time student? Do they lose insured status?

KIDS AWAY AT SCHOOL

Problem: Personal Property Limitation

2. Limit For Property At Other Residences

Our limit of liability for personal property usually located at an "insured's" residence, other than the "residence premises", is 10% of the limit of liability for Coverage C, or $1,000, whichever is greater. However, this limitation does not apply to personal property:

KIDS AWAY AT SCHOOL

Problem: Personal Property Limitation

9. Theft

b. This peril does not include loss caused by theft:

(4) That occurs off the "residence premises" of:

(c) Property while at any other residence owned by, rented to, or occupied by an "insured", except while an "insured" is temporarily living there. Property of an "insured" who is a student is covered while at the residence the student occupies to attend school as long as the student has been there at any time during the 90 days immediately before the loss.

KIDS AWAY AT SCHOOL

Students today are taking much more and valuable property away to school. Is 10% of the Coverage C limit enough?

 The peril of theft is eliminated if the student has not occupied the residence within 90 days of the date of loss (this was increased from 60 days). Caution: If the student returns home during the summer break, and the lease on the residence is continued, theft coverage may be in jeopardy.

KIDS AWAY AT SCHOOL

Problem: Driving Roommates Car

B. We do not provide Liability Coverage for the ownership, maintenance or use of :

3. Any vehicle, other than "your covered auto," which is:

a. Owned by any "family member," or

b. Furnished or available for the regular use of any "family member."

However, this exclusion (B.3.) does not apply to you while you are maintaining or "occupying" any vehicle …

KID AWAY AT COLLEGE Daughter Roommate

250/500/100 10/20/10

2.3 million

EXTENDED NON-OWNED

Persons Living Together Without The Benefits Of Marriage

Tom and Sally live together and are not married. Sally owns the home and has a good job. Tom is between jobs and spends most of his day sitting on the couch drinking beer and watching sports. Sally has a Personal Automobile policy with 100/300/100 liability limits. Tom does not believe in insurance, but due to something called an SR-22 he is forced to buy Automobile insurance with limits of 10/20/10. Since this situation exists in virtually all of our agencies, discuss any potential exposures.

Persons Living Together Without The Benefits Of Marriage

B. We do not provide Liability Coverage for the ownership, maintenance or use of:

2. Any vehicle, other than "your covered auto, which is:

a. Owned by you; or

b. Furnished or available for your regular use.

Persons Living Together Without The Benefits Of Marriage

Unfortunately, coverage or the lack there of, works the same as the college student above.

This is a huge exposure. My concern is that we may not be asking the right questions to know if it exists.

Solution: Extended Non-Owned Coverage

THOSE KIDS AND THEIR CARS

Terry L. Tadlock, CIC, CPCU, CRISIndependent Agents and Brokers of South CarolinaColumbia, South Carolina