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The Rough Notes Company Inc.



January 29
13:04 2019

Dwayne’s dogs had a surprising trick that he had never witnessed. When he left them in his truck camper, they would jump out but then be back in the truck when he returned because they had been returned by others while he was gone. One day they escaped, but instead of being returned without incident, they attacked Robert as he was walking to his vehicle in a parking lot. Robert sued, and Dwayne requested that his personal auto policy respond because the dogs had escaped from his vehicle. State Farm refused to pay, so Robert sued it after receiving an assignment of Dwayne’s rights against State Farm. The trial court agreed with State Farm, and Robert appealed.

Read here to see whether the appellate court agreed with the trial court or with Robert.

Dwayne Vandagriff’s (Vandagriff) two dogs chased Robert Grisham (Grisham) as he was walking to his vehicle in a parking lot. One caught Grisham and bit him on his leg. When Grisham sued Vandagriff for the injury, coverage was requested from State Farm Mutual, Vandagriff’s automobile provider.

The dogs had been in Vandagriff’s pickup truck immediately prior to the incident. They had been left in the vehicle’s camper shell. Its slider window had been unlatched to provide air and water was placed inside for their comfort. Although Vandagriff was not aware of their abilities to escape, they had done so in the past and had exited prior to this incident only to be returned by a third party. They escaped the confines of the vehicle again in their chase and attack of Grisham that occurred approximately 25 yards from their truck.

Grisham sued State Farm for coverage because he argued that the It was obligated to pay for bodily injury damages that Vandagriff became legally liable to pay if the injury is “caused by accident resulting from the ownership, maintenance or use” of Vandagriff’s vehicle.

State Farm was granted summary judgment and Grisham appealed.

The question for the appellate court was whether the Grisham accident was due to the ownership, maintenance or use of the vehicle. The court decided that because the injury occurred more than 25 yards from the vehicle, that is was not due to the ownership or maintenance of the vehicle. An argument was made that the use of the vehicle was storing of the dogs. The court rules that such use might have triggered coverage had the bite occurred in or on the vehicle but because it occurred away from the vehicle it was deemed not applicable.

The appellate court upheld the trial court opinion in favor of State Farm Mutual.

State Farm Mut. Auto. Ins. Co. v. Grisham, 122 Cal. App. 4th 563, 18 Cal. Rptr. 3d 809 (2004)

Cause and effect

Dwayne’s policy provided liability coverage only if the insured was legally responsible for bodily injury or property damage due to an auto accident. The argument for coverage was that the dogs had been in the truck prior to the loss and the injury to Robert was an accident so it must have been an auto accident. A determination was needed as to whether an insured had caused an auto accident. Dogs are not insureds, but Dwayne was and he was responsible for the actions of the dogs.

Read the PF&M analysis of Part A – Liability Coverage of the ISO Personal Auto Policy

(September, 2018)


Insuring Agreement

  1. A. The PAP covers both “bodily injury” and “property damage” for which a covered person is legally obligated to pay because of an auto accident. The agreement also obligates an insurer to defend a claim or lawsuit. However, once the policy’s limit of liability has been exhausted, the insurer’s obligation to continue paying to legally defend an insured ends.
Example: Phil Drivewrong is being sued for hitting a car at an intersection after running a red light. Phil’s insurer defends his suit and dutifully pays lawyer fees and court costs. Phil’s policy has a combined single liability limit of $100,000. The claimant is suing for $300,000 in damages and her claim is bolstered by a very credible group of expensive, expert witnesses. After a careful evaluation of the case, Phil’s insurer determines that it would take an equal number of expensive experts to refute the amount of damages being claimed. The insurer also believes that fighting expert with expert could not guarantee a victory. The insurer decides that, rather than pay astronomical defense costs, it would be in their best interest to pay out the full policy limits. The claimant accepts their payment but continues the suit for the additional damages. The cost of continuing any defense is now Phil’s responsibility.

The PAP gives the insurer discretion on defending and/or settling a given claim. The PAP contains the potential of an unlimited defense obligation since it does not contain a specific monetary limit on the amount that may be paid to defend a covered person. However, the policy does allow a company to have some control over their financial duty to protect a covered person in a given claim. Of course, a natural control against an insurer’s unlimited obligation to defend an insured is that a company does not have to provide a defense under ALL situations. An insurer doesn’t have to defend any “bodily injury” or “property damage” loss that isn’t covered by the policy.

Example: Billie Roadmaster is quite an aggressive driver and he’s usually in a big hurry. One morning he lost his “patience.” He was late for work and was enraged at a driver who slowed him down by traveling the posted limit. When he got a chance, Billie sped by the “slow” driver, made a U-turn and then rammed his antagonist head-on. Billie’s mood wasn’t helped when, later, his insurer tells him that his PAP will not pay for any claim NOR defend him in court.

Note: When prejudgment interest is awarded against an insured, this amount is part of the insurer’s obligation to pay, subject to applicable policy limits.

  1. Under Part A – Liability Coverage, an insured includes:
  2. 1. The named insured, a resident spouse and  any “family member,”

Note: This is in regard to operating, owning, or maintaining either a car or trailer

  1. 2. Persons who use “your covered auto.”
Example: Yannick Petrie’s ‘12 Toyota pickup is insured under a PAP. One day, his neighbor, Jeri, asks to use his truck to pick up some building materials for a wood deck. On the way back from Goodluk Builder’s Paradise, Jeri rear ends a car at a stoplight and the building material spills out of the pickup bed. The spilled materials not only damage the car in back of Jeri, they also fall onto the road, causing a chain collision. Since Jeri is a permissive operator of Yannick’s pickup, Yannick’s policy would cover the losses (up to its limit).

The PAP also considers other persons and organizations to be covered persons in certain circumstances.

  1. Other persons or organizations are eligible for coverage against damage which they cause, but for which a named insured, a resident spouse or a “family member” is responsible because of their acts or omissions in providing the vehicle.
  2. Other persons or organizations also are covered for their acts or omissions in providing a vehicle to a named insured, a resident spouse or a “family member” who causes damages with that vehicle (including a trailer). The same protection is available with regard to non-owned auto or trailer. However, this coverage does not apply in instances where such entities either own or hire the vehicle or trailer.
Example: A member of your church asks you to drive some children to a church picnic using a van provided by another church member. On the way to the park (picnic site), the van hits an oil slick on the road, slams into a couple of parked cars, and one of the children suffers a broken leg. This policy provision allows the PAP to defend both you and the church as defendants in a claim involving the damages caused by a vehicle that is not owned or hired by either party.

Although this analysis does not attempt to discuss individual state differences, one important issue must be mentioned: no-fault insurance provisions. There are states with different methods of handling compensation of persons injured in automobile accidents. Instead of compensation based on tort liability (where payment of damages is based upon fault of the driver[s]), some states use various no-fault approaches.

Supplementary Payments

This section advises the insured of several, additional coverages that are available.

  1. One supplemental coverage will pay for the cost of bail bonds, but this coverage is limited to a total of $250. However, the bond has to be connected with an accident. A bond that is due solely to a traffic violation isn’t covered.
  2. 2. The policy pays for the costs of premiums on appeal bonds and attachment bonds, but only those involved in a suit that the insurance company is defending.
  3. The PAP also pays for any interest on judgments that have been entered. However, any payment obligation ends if the policy’s limit of insurance is reached.
  4. 4. The PAP pays for loss of earnings caused by hearings or trial attendance and other reasonable expenses caused by an insurance company’s request.
Example: June Unlukki is asked to appear at a preliminary hearing involving her colliding with a family in a van while trying to merge onto a crowded interstate. June gets permission to take an unpaid day off from work to attend and testify at the trial. The insurer says that they will pay for her loss of a day’s wages.

Concerning loss of pay, the latest edition PAP pays a maximum of $250 per day to reimburse a covered person for lost earnings. This supplemental coverage does not include loss of other sources of income. In the previous edition of the PAP, the maximum limit for loss of earnings was $200 per day. One thing remains the same: there is no other limitation regarding loss of earnings, so the limit could be paid for one or 100 daily occurrences of lost pay. (09 18 change)

  1. 5. Finally, under Supplementary Payments, the policy will pay any reasonable expenses that are due to activity requested of an insured by the insurer.
Example: Sammi Kollum’s insurer is defending a lawsuit filed against him for an intersection collision that occurred while Sammi was coming home from an out-of-state vacation. Sammi’s insurer has made arrangements for him to travel to a lawyer’s office in a neighboring state so that he can participate in a deposition. The insurance company assures Sammi that they will pay for all expenses including travel, meals, hotels, etc.

A very important point is that any supplemental payment does not reduce the PAP’s other, primary policy limits.


This coverage part’s exclusions fall under category A, having to do with “insureds,” and category B, which concerns vehicle ownership, maintenance and use.

  1. There are a number of situations that fail to qualify for coverage under the PAP, such as the following:
  2. The Personal Auto Policy doesn’t provide liability protection to insureds that deliberately injure other persons or property. Because this point sometimes causes confusion, it’s important to examine what is meant by intent.
Example: Jimmy is on the way home from a really horrible day at the office. As he merges into freeway traffic, another driver swerves from behind and beats him onto the road. Jimmy is so mad that, after he merges, he races up to the other car, meaning to ride his bumper. Unfortunately, Jimmy ends up hitting the other car. In this case, the intent lies with Jimmy’s frame of mind. Yes, he intentionally sped up and overtook the vehicle, but what he meant to do was to get on the other driver’s case, not to put the other driver’s car into a body shop. Certainly, one could argue that what happened was foreseeable, but in Jimmy’s mind, it was still an accident.

If you think the fact that something is foreseeable should determine intent, how about the following?

Example: Pearl thinks that she is a world class driver and she is very proud of her expert ability to make it through intersections under “yellow” traffic lights. One day, Pearl is headed towards a very busy intersection where the light facing her has just turned yellow. Pearl knows that the street is slick because the area she’s traveling in just had a brief downpour. Pearl ignores this fact as she picks up speed. She then decides that she just won’t be able to beat the red light. Pearl quickly hits her brakes and, as anyone should expect since the street is wet, the tires can’t grip anything. Pearl slides into the intersection and also into two other cars. The accident under these circumstances was quite foreseeable, but this is easily a covered loss under the PAP.

Related Court Case: Unlicensed Driver “Borrows” Grandparents’ Van.

  1. The PAP excludes coverage for property damage to property that any insured owns or transports.
Example: Pete is a drummer for the “Xploding Eardrums.” He jumps into his van and speeds toward a bowling alley on the other side of town. He’s late for a gig being held there. Not only does he have his drums, but he’s also carrying the other band members’ instruments. None of the instruments survive his abrupt meeting with a city bus. While the PAP will dutifully respond to paying damages to the bus and his car, he and the other “Eardrums” won’t be collecting payment for their implements of noise under the car policy.
  1. 3. Any property that an insured has rented, uses or is caring for is also without protection if damaged or destroyed. The good news is that an exception is made for damage involving an insured’s home or garage.
  2. This exclusion negates bodily injury coverage to any person who is hurt while working for an insured. However, an exception is made for domestic employees who aren’t covered by and are not required to be covered by workers compensation.
  3. 5. If an insured is using a covered auto to make money by transporting either people or property, that insured has just made the vehicle ineligible.
Example: Timmy was glad when he got his driver’s license. He was one of the first drivers at Gearhead H.S. Unfortunately; he wasn’t thrilled that, instead of a new ‘kickbutt’ car, he inherited his mom’s ‘07 minivan. But things are looking up. At first, he used it to take a friend or two back and forth to school. Now, Timmy’s van is known as the “Gearhead Taxi Service” and he makes nearly $100 a week by transporting kids to school/home, dances and sporting events. Let’s hope that Timmy doesn’t get into an accident because this use of the van won’t be covered by the PAP.

This exclusion has been revised to make coverage intent clearer. It now makes reference to the coverage ineligibility when any insured driver is actively using any vehicle in conjunction with a transportation network platform. Active use means providing such use as a driver. The exclusion applies both while seeking passenger contacts and during transporting passengers. (09 18 change)

Example: Mandi’s full-time job is a sous-chef for one of her town’s up and coming fusion Thai restaurants. Her job love doesn’t help as much with her bills, so she recently joined U-GO as a driver. So far, she’s making good money picking up on-demand driving jobs during the day. One day, she dropped off a passenger as she received another pick-up request. She strikes another car on the way to the pick-up site. When she turns in a claim, she’s told that the loss won’t be covered under her PAP. Her insurer points out that the use was excluded, even though, at the time, she was not carrying a passenger. The disqualifying event was that she was actively working under the U-Go application at the time of the accident.

Both the 01 05 and the 09 18 PAP editions maintain an important exception to this exclusion, with a difference.

  1. Coverage is still permitted for vehicles used in traditional car pools (where the insured gets gas and maintenance money from car pool riders).
  2. An additional exception is referenced, allowing coverage for a vehicle during its use in charity and volunteer situations. Protection extends to instances of both ownership and operation during such instances. (09 18 change)

The purpose of the next two exclusions  is to bar the PAP from responding to commercial auto exposures. These are best  written under a commercial auto policy.

Related Article: CA 00 01–Business Auto Coverage Form Analysis

  1. 6. No coverage is provided if the accident happens while an insured is in the business of selling, fixing, caring for, keeping or parking automobiles that are operated on public roads, including road testing or vehicle delivery. However, you don’t have to worry about this exclusion if the accident involves your covered car that’s being handled by “you” or any “family member,” partner, agent or employees of any of these insured parties.

Related Court Case: “Mechanic’s Driving of Customer’s Car Held Excluded”

  1. 7. This exclusion takes coverage away from any insured while involved in any “business” that is NOT described in exclusion 6, unless the business is ranching or farming. HOWEVER, the exclusion is voided if it involves a private-passenger auto, van or pickup that either is owned or is a temporary substitute for a covered auto that is inoperable because it is broken down, lost, destroyed, or being repaired or serviced. Further, any trailer used with an owned auto, van or pickup, or a temporary substitute, is covered.

Scenario 1: Chester owns a large farm outside of town. His pickup is in town having its brakes replaced. Chester needs to move a trailer loaded with bales of straw to the other end of his property, so his neighbor lets him use her pickup. While backing up onto a country road, the trailer gouges the side of a passing car. This loss is covered, since the “trailer” was attached to a temporary substitute for a covered vehicle. Further, the activity involved farming, which is permitted.

Scenario 2: Now suppose that, instead of farming, Chester repairs lawn equipment. His pickup is still unavailable because of the brakes. Chester borrows the same neighbor’s truck to deliver some mowers he fixed that are loaded on his trailer. Chester backs up the truck and the trailer hits the same passing car. Although the loss originated from use in Chester’s excluded business activity, this loss is covered, since the borrowed pickup is considered a temporary substitute for a covered auto.

Scenario 3: Okay, before Chester’s neighbor and the passing motorist get too upset, let’s say that Chester once again hits a passing car while using his neighbor’s pickup truck to deliver some mowers he fixed that are loaded on his trailer. However, the reason he borrowed the truck was because his own pickup was being used by his daughter to go to tennis practice. There is no coverage in this situation. The loss is excluded because Chester is involved in a business activity while using a non-owned car that the policy does not define as an eligible temporary substitute. If he had used his own pickup, it would have been covered, since the definition of “your covered auto” (refer to definition J) allows the incidental business use of an owned vehicle in the insured’s business.

  1. Don’t look for coverage under the PAP unless you’re operating a covered car in the belief that you have an insured’s permission.

Note: This standard is subjective. This means that evaluation of a loss must include consideration of the operator’s point of view, at least regarding his or her thoughts on whether the car was operated with an insured’s permission.

Example: A friend of an insured borrows a car a second time during a weekend that the insured is away from home. The insured gave permission for the first use, but not the second. However, since the friend can’t get in touch with the insured and as it was okay to use the car before, she assumes that a second use is okay. If the friend has an at-fault accident while using the borrowed car, her belief that she had permission should support coverage being extended to cover the loss.

However, a significant change in circumstances can render a different evaluation.

Example: Again, let’s use the situation of an insured’s friend who borrows a car twice during the time that the insured was away for a weekend. Again, the first time, the friend received permission for the first use, which was to go on a downtown shopping trip. All of this was with the insured’s knowledge and permission. The second use is without the insured’s knowledge or permission but, as it was in the original situation, the friend can’t get in touch with the insured and as it was okay to use the car before, she assumes that a second use is okay. However, in this scenario, rather than using the insured’s SUV for personal use, the friend uses it to make deliveries for persons who bought furniture from her Second Hand Shop.

If the friend has an at-fault accident while using the borrowed car, her belief that she had permission might be challenged by an insurer. While the friend’s assumption that a second personal use might be okay, the assumption might not hold when the second use is for business. It is possible that coverage for this situation could be denied.

Related Court Case: Was Unlicensed Driver A Permissive Operator?

This exclusion does maintain its grip on reality. It DOES NOT apply to the use of a covered auto that is owned by an insured and being operated by a “family member.”

Example: Junior storms out of the house and uses his set of keys to the pickup immediately after his mom just said that he could not use the truck for a date – this is a covered situation.
Example: An insured borrows his neighbor’s dual axle pickup to help his mother-in-law move out of state. After he returns home from the move, the insured goes out in his own car to celebrate the fact that his mother-in-law is gone. While he is away, his son and a friend decide to go cruising in the borrowed truck – this is NOT a covered situation.
Example: A newly licensed daughter takes mom’s brand-new car for a short drive even though she was threatened under “penalty of being grounded forever” never to touch it. A mile away from her home, the daughter causes an intersection collision – this is a covered situation.
  1. Next  under section A., no bodily injury or “property damage” is covered if separate coverage exists (or would exist except for exhausted limits) under a nuclear energy liability policy issued by three named sources (Nuclear Energy Liability Insurance Association, Mutual Atomic Energy Liability Underwriters and Nuclear Insurance Association of Canada) or their successors.
  2. Finally, under section A., no liability protection extends to an insured for  incidents of vehicle ownership, maintenance or use during the period that both of the following apply to the vehicle:
  3. There is a written contract under which the vehicle is part of a personal vehicle sharing program
  4. That vehicle is being used by a  person other than the named insured or a family member (as defined) of the named insured who is participating in a program referenced in 10.a above (09 18 addition)
Example: Krista and her family live in a cul-de-sac with four other households that have been neighbors for more than a decade. They are all so close that they have a mini-sharing economy situation where there’s a high level of trade and assistance among the neighbor group. They all share a group-owned utility shed where all of the neighbors have keys for 24/7 access. All the families that have extra vehicles have copies of keys kept on a peg board in the shed. They also store mowers, tools and equipment in the shed that are owned by individual neighbors, but all neighbors can take out and use as needed. One neighbor who does not own a car, Perry, caused a serious accident with a car he had just borrowed from Krista. He advises Krista on the same day as the accident and Krista take the information and files a claim.

Scenario 1 Her insurance company investigates the claim and advises that, while the claim process will take a while to determine payments, the loss is covered. The neighbors’ property sharing agreement was an informal, verbal arrangement.

Scenario 2: Her insurance company investigates the claim and advises that, unfortunately, the accident is not covered. The neighbors’ property sharing agreement was a written document with signed and notarized sets of sharing contracts kept by every neighbor. The exclusion applies due to the loss meeting the terms of exclusion 10. a. and b.

  1. These are other situations that are ineligible for coverage.
  2. If your vehicle doesn’t have at least four wheels and/or is principally designed for off-road use, it isn’t protected under the PAP. An exception exists when such a vehicle is used by an insured in a medical emergency. Trailers are still covered and so are incidents involving golf carts as long as the golf cart is NOT owned by an insured.
Example: Jeri and her teen-aged twins are on their way to a weekend camping trip. She is towing a small trailer that has an all-terrain cycle (ATC) loaded on it. The trailer and ATC were lent to her by her ex-husband. A mile away from the campground, Jeri’s car slips off the road and onto a soft shoulder. She loses controls and crashes. Her son is seriously hurt in the crash. Jeri tells her daughter to watch her brother while she goes for help. The car is inoperable, but Jeri is able to unload the ATC and drive it on the road into town. If Jeri is in another accident while using the ATC on the roadway, it would be covered.

Related Article: Glossary of Basic Automotive Terms

  1. 2. A definite coverage problem exists for any car that’s not a “covered auto,” which an insured either owns or has available for her regular use. Why? Because such a vehicle should either be listed or rated on an insured’s policy, or coverage should exist under another party’s policy. If the PAP didn’t contain these exclusions, the country could play “six degrees of insurance protection” with only about 100 people being policyholders and the other 250 million people being related for coverage purposes.

Related Court Case: “Insured’s Use Is Not A Regularly Furnished Vehicle”

  1. Similar to exclusion 2., the PAP disqualifies any car that’s not a “covered auto” that a “family member” either owns or has available for their regular use, unless such a vehicle is being either maintained or occupied by a named insured (and/or resident spouse).

Related Article: PP 03 06-Extended Non-Owned Coverage – Vehicles Furnished or Available for Regular Use

  1. 4. The intent of this exclusion  is to bar protection for otherwise covered vehicles for loss  related to organized vehicle competitions that take place   within a facility meant for racing. Traditionally this limitation applied to vehicles in such a facility while practicing, preparing or competing in races or speed contests. However, the latest edition of the PAP has been revised. Besides the activities just listed, exclusion 4. (a. and b.) also applies to driver skill training and driver skill events. In addition, the exclusion applies to those participating in any of the above instead of being limited to only those (09 18 change)
Example: Carl and Josie own a ‘16 Acura, which they’ve modified to perform at impressive speeds. One Saturday night, both are in their Acura that’s parked in the pit area of a local race track. They’re waiting to participate in a promotional “Amateur Couples Valentine’s Day” Race. While waiting, Carl’s foot slips off the brake and they ram into a pile of custom racing tires, damaging them and some other facility equipment. Such a loss, while not technically involving a race, is still excluded because Carl and Josie’s Acura was within a facility designed for racing AND they had the intent of participating in a race.

 This exclusion is new. It bars coverage for loss involving flying vehicles, whether flight is their sole capability or is among their features. (09 18 change)

Limit of Liability

  1. The monetary limit that appears on the policy declarations page is the maximum amount of coverage that applies to the damages from any single loss. This maximum is not affected by the number of vehicles, insureds, or claims involved, or the number of vehicles or premiums appearing on the declarations page. This arrangement is true of both bodily injury and property damage claims. The particulars of a given loss may well affect how payments may be distributed, but the maximum remains the maximum.


Example: Tony and Kim have a PAP with the following limits:
Bodily Injury $100,000/$300,000
Property Damage $100,000
Medical Payments $10,000
Collision $500 Deductible
Other Than Collision $500 Deductible
Uninsured Motorist $25,000/$50,000
Just before Kim could say “watch out,” Tony’s pickup slid out of control while trying to pass a car that slowed down to make a left turn at an intersection. Besides hitting the car waiting to turn, their truck also hit two other cars (both were car-pooling) and a local TV station’s van. Following are the resulting claims for damages:
BI Claims Amount
One $43,000 (Severe burns)
Two $12,000
Three $51,500 (paralyzed)
Four $24,000
Five $17,800
Six $8,500
Seven $26,500
Total $183,300
PD Claims Amount
One $23,000 These claims, all under a single accident, could be handled in a wide variety of ways. Under bodily injury, all of the individual claimants qualify under the per person insurance limits and the entire amount may also be paid under the per accident limit. Under property damage, all the cars individually qualify for coverage under the insurance limits, but the total amount exceeds the limits. Depending upon how the loss is settled, one or more of the claimants may only get partial settlement or could be squeezed out from any coverage at all, say if car four received total payment for its huge loss.
Two $14,700
Three $19,600
Four $83,000
Total $140,300


  1. This section explains that, regardless of whether coverage exists under more than one coverage part (specifically parts A, B and/or C), no duplicate payments will be made under the PAP. This limitation means that, even if portions of a single claim qualify for coverage under Part A – Liability as well as Part B – Medical Payments and/or Part C – Uninsured Motorists coverage, an insured will not be paid more than once for any portion of his loss. This clarifies the purpose of the PAP to indemnify rather than enrich a claimant for their accidental loss.

Out-Of-State Coverage

The Personal Auto Policy emphasizes being able to perform in compliance with the legal realities of the environment that surrounds an eligible loss. Consistent with this objective, this provision allows the PAP to respond to a loss according to a given state’s requirements. Paragraph A.1. of this provision states that the policy will provide a higher limit for bodily injury or property damage liability coverage to meet whatever is minimally required by the state in which a covered loss occurs. Paragraph A.2. explains that the PAP will comply with the minimum amounts and types of coverages that may be required by a state’s compulsory insurance law while the covered auto is being operated in that state.

Example: The policy may be written in state A, which requires combined single limits, and the policy has a limit of $300,000. As it happens, a loss occurs while the insured is traveling in state B, which mandates the limit of liability to be applied in split limits for bodily injury and property damage liability. The PAP would respond to the accident by applying the $300,000 maximum consistent with the split limit requirement, but it would not increase the maximum available.

Paragraph B of this provision states that no one is eligible for duplicate payments.

This provision prevents technicalities to bar or limit coverage because of the different ways that states structure their coverage requirements. The provision allows travelers to cross state lines without having to worry about making specific adjustments to their form.

Financial Responsibility

The PAP, when considered as valid proof of financial responsibility, is to be interpreted as complying with the governing financial responsibility law. This is helpful and flexible since financial obligations required of drivers vary significantly by state.

Related Article: Financial Responsibility Limits

Other Insurance

In the event that other sources of liability insurance exist, Part A-Liability Coverage of the Personal Auto Policy will pay on a basis that equals its share of the total amount of insurance available to cover an eligible loss involving an owned auto. If the loss involves a non-owned auto, the PAP responds on an excess basis, paying only after the primary policy has paid its limit.

Example: Let us examine an auto loss that totals $10,000 in damages. The loss is covered by a PAP and some other source of coverage. Both sources have coverage limits greater than the loss amount.
Scenario 1: The loss involves an auto owned by the insured and the PAP and the other coverage source offer the same coverage limits. In this case, payment would be: PAP – $5,000 Other Source – $5,000
Scenario 2: The loss involves an auto owned by the insured and the PAP and the other coverage source offer different coverage limits. Let us assume that the PAP’s limit represents 40% of the available coverage. In this case, payment would be: PAP – $4,000 Other Source – $6,000
Scenario 3: The loss involves an auto that is NOT owned by the insured and the PAP and the other coverage source offer the same coverage limits. In this case, payment would be: PAP – $0 Other Source – $10,000

Note: If a nonowned auto is involved, it would not matter if the PAP and the other source had different limits. The other source would have to pay out its complete limit before the PAP would contribute any payment.

Regarding other existing coverage, the policy reads that, even for autos that qualify as temporary substitutes for covered autos, this policy will respond as excess coverage over protection that may exist elsewhere. However, this policy’s application of limits is affected by one, different source of other insurance. When the other source of protection is intended to act as a higher layer of liability protection, then the PAP responds, per its applicable limits, ahead of that excess source. (09 18 Change)

Dogs as theft prevention

Dogs are companions and sources of comfort. They are often important members of the family. Dogs also can serve as protectors. Having a dog in a car or truck can be a way to prevent auto theft – provided the dogs are left with adequate water and protection from extreme heat. However, as we have seen in this case, leaving a dog in a car can produce unexpected results.

See a review an emarketing article that you can discuss with your clients; it presents more practical tips on preventing auto theft.

Auto Theft Loss Prevention – Part 1

Whether the economy is good or bad, nothing changes the fact that losing a car, truck, SUV, hybrid or electric vehicle due to auto theft is an expensive loss. Experts, including the FBI, estimate that annual U.S. vehicle thefts are from 750,000 to well over a million per year. Costs caused by these thefts are calculated anywhere from 4 to 8 billion dollars and thefts are, by and large, performed by professionals. With such high financial stakes, vehicle manufacturers continue to introduce increasingly effective anti-theft devices.

Alarms installed in many vehicles are commonly set off when sensors detect attempts to gain access to a vehicle’s doors, hood, trunk or windows. Loud horns accompanied by flashing vehicle lights are a great deterrent to many thieves. Silent alarms which notify vehicle owners of theft attempts via smart phones are also in use. They are less effective as deterrents but are more effective in assisting in capturing criminals.

Besides alarms, a variety of other devices, varying in complexity and expense, are available to protect a vehicle such as:

  • Electronic (coded) Keys
  • Electronic Tracking Devices
  • Floorboard/Crook Locks
  • Gearshift Locks
  • Hood Locks
  • Kill Switches (fuel or ignition)
  • Steering Column Armored Collars
  • Steering Wheel Lock
  • Theft-Deterrent Decals
  • Tire/Wheel Locks
  • Trunk Locks
  • VIN Etching

Another development is the tracking capability of on-line monitoring services that can assist in locating and, in some instances, disabling vehicles to aid recovery. Please see part 2 of this article on actions that vehicle owners can take to reduce the chance of vehicle theft.

Auto Theft Loss Prevention – Part 2

Another trend regarding auto thefts is that, while auto theft continues to be a major problem, the theft of newer model cars has decreased due to modern anti-theft devices, especially when more than one type of device is used. However, the most effective tool continues to be simple loss prevention and common sense.

Part one of this discussion mentioned that most of thefts are due to professional thieves. However, a significant number are also performed by amateurs, specifically joy riders. Therefore, it’s important for vehicle owners to embrace practices that deter both types of thieves.

Thieves look for two things when going about their work: One: attractive reasons to steal and two: easy targets. Vehicles that are often stolen are those with one of the following attributes:

  • An owner has left valuable property in the open that is easily seen by potential thieves
  • The car is in a location with higher than average theft losses
  • The car is a model that is sought for its desirability (exotic or luxury models)
  • The vehicle is a target as it is a popular source for parts
  • A car has been left running and/or unattended

While shamefully obvious, the general, vehicle-owning public still needs education on basic loss prevention.

Chances for auto theft can be substantially reduced by some incredibly simple behavior:

  • Lock your car
  • Hide valuables (such as placing them in a car’s trunk)
  • Never leave a vehicle running and unattended
  • Be wary of staged accidents – if suspicious, stay in vehicle and summon police
  • Avoid known high crime areas while driving
  • Install an anti-theft system in your vehicle if it doesn’t have one and make it obvious that the vehicle includes a system
  • Park vehicles, whenever possible, it in a well-lit area
  • Have your car’s vehicle identification number (VIN) etched on each of the windows

Whether you own a new car or old, a luxury car or a generic model, there are people with plenty of incentive who want to steal it…..practice basic loss prevention and minimize your chances of being an auto theft victim.

Coverage for loss to custom equipment

When a vehicle theft occurs there is often a claim for damage to custom equipment. The 09 18 edition of the ISO Personal Lines Auto Policy changed the coverage for custom equipment. A definition of custom equipment is added in item D. of the Part D – Coverage for Damage to Your Auto section. Then, in the exclusions section, all described equipment is excluded from coverage except for the first $1,500 of the loss.

Read the PF&M Analysis of Part D – Coverage for Damage to Your Auto of the ISO Personal Auto Policy.


This section is a serious departure from the earlier sections, since instead of liability to other injured parties, it deals with actual damage to the insured’s covered vehicle (including expenses because of loss of use of the same).

Insuring Agreement

  1. A. Under paragraph A of the insuring agreement, the Personal Auto Policy agrees to protect “your covered auto” or a “non-owned auto” against accidental loss. Any payment includes compensation for loss to auto equipment but does not include the applicable deductible. If you’re unlucky enough to have more than one covered vehicle involved in the same collision loss, only a single, highest deductible will count against any loss payment.
Example: Barney and Kloorene Runarown have two Toyota mini-vans that are covered by a PAP. The vans aren’t their vehicles of choice, but they also have four lovely offspring who keep them incredibly busy with their sports and other activities. It’s fall and the Runarowns often have to split up in order to handle four kids on four different sports teams. It’s not unusual to have one parent zoom into their driveway to pick up some little Runarowns, while the other is zooming out with the others. One day, instead of zooming in and out of their driveway, they zoomed into each other. While there was $3,200 in damages to his van and $1,900 to hers, they were glad that only a single $500 deductible applied to the whole loss.

This section clearly applies only to collision and other than collision losses, but only if the policy’s declarations page shows a deductible choice to indicate that these coverages apply. Should a loss involve a non-owned auto, the broadest coverage written for “your covered auto” applies.

Example: Your declarations page lists a ’06 Chevy Cavalier with BI, PD and UM/UIM coverage only and a ’12 Explorer with liability, collision and other than collision deductibles. The Explorer is at your car dealer to repair some body damage from a not-at-fault collision, and you are using a rented car. While turning into your company’s parking lot, you hit a wrought iron fence, causing serious damage to the fence and the rented vehicle. Instead of just handling the damage you caused to company property, the PAP responds by acting as if the rented car has the same coverage as the Explorer. The policy would act in the same manner even if the rented car replaced the Cavalier. The reasoning is that ‘non-owned” situations are temporary, and the low level of exposure justifies that the PAP extends reasonable coverage for these situations without providing broader coverage.
  1. “Collision” refers to your covered auto or your non-owned auto which has either hit or been hit by another vehicle or some other item. It’s implied that the event has to result in damage to your car. It also covers the damage to the covered or non-owned auto when it flips or is otherwise upset.
Example: While parking your car at a supermarket, you slam headfirst into a fully inflated helium balloon that’s being used to promote their fresh cucumber sale. Besides creating a lot of laughter, no harm is done to your car or the store’s balloon. Collision? Yes. A loss under Part D? No, because nothing was damaged or destroyed.

410_C076 Insured Unable to Prove Her Injury Was Result of Rear-End Collision

“Other than collision” simply refers to those events that aren’t collision. The PAP lists 10 events that qualify as other than collision losses. If your covered car is damaged by items falling from the sky, fire, theft, explosion or earthquake, windstorm, hail or flood, vandalism, rioting, contact with birds and animals, or if glass has broken, you’ve experienced an other than collision loss. The PAP is flexible about losses involving glass. If any vehicle glass is broken during a collision, an insured may choose to have it covered under the collision portion of the policy.

  1. Now let’s move on to “non-owned” autos. These are private-passenger vehicles (including trailers), vans and pickup trucks that, while being operated or used by an insured, aren’t owned by or regularly available to any insured (which includes any “family member”).
A PAP is written for a husband and wife. The wife is late coming home from work, so the husband borrows his neighbor’s car to take his daughter to a sleep-over. This is an eligible non-owned situation.
Your son’s Little League coach has to stay at the park to prepare the baseball diamond for the next day’s game, but he promised his team a pizza dinner. You agree to take the kids over to the restaurant in his mini-van while he uses your Chevy in order to join you in an hour. This is an eligible non-owned situation.
You borrow your neighbor’s car to go to the mall. The car belongs to the neighbor’s daughter, who’s away at college. They gave you an extra set of keys so that you can use it as needed, as long as you keep gas in it. This is NOT an eligible non-owned situation.
Mom has to pick up some groceries for a dinner party. Dad has the car, so she jumps into her son’s car. It’s an old “beater” that’s not registered or licensed…the son is going to take care of that after it’s completely fixed up and painted. This is NOT an eligible non-owned situation.

Related Article: Auto Dealer Customers Covered Under Their Personal Auto Policies

Note: This definition, while including pickups or vans, does not include a reference to their gross vehicle weight such as is made in the definition of “newly acquired auto.”

Another class of vehicle that’s considered a non-owned auto is a temporary substitute. This refers to an auto or trailer that takes the place of a covered auto (or trailer) because the covered vehicle is unavailable while being repaired, replaced or maintained. The rationale for covering non-owned autos is that these are temporary situations that don’t typically increase the exposure contemplated by your premium, so the PAP should be available to provide protection.

Example: You’ve taken your car down to Mac’s Garage for a re-alignment after you hit a city record 14 potholes in one day. Mac gives you his trusty ’93 Fiero to use until your chariot is repaired. On the way home, you studiously avoid potholes….until you swerve out of your lane and sideswipe another car. This is a covered temporary substitute situation.

Related Court Cases:

Rental Car Fails to Qualify As A Temporary Substitute.

Temporary Borrowed Car Or Replacement For Inoperable Car?

  1. Exclusion 10. that is found later in this policy excludes coverage for custom equipment. This part of the policy is all about explaining what custom equipment is. Under the latest edition of the PAP, custom furnishings and equipment include such items as carpeting, insulation, furniture or bars, ovens, beds/couches, roof extensions, murals, paintings, etc.

Custom equipment does not include  property in the vehicle that is original manufacturer equipment or parts and similar property that replaced original manufacturer equipment or parts. Further, electronic property that is designed to handle audio signals, video or data does is not custom equipment. (09 18 addition)

Related Article: Personal Auto Policy Endorsements

Transportation Expenses

  1. A. An insured can accumulate significant expenses related to the loss of a covered vehicle. The PAP is sensitive to this likelihood, and it includes some additional coverages. It will pay up to a maximum of $900 to help cover the cost of getting replacement transportation. (09 18 change)
  2. The PAP will pay up to $30 a day.This coverage is only provided if the covered car is unavailable due to a collision or other than collision loss. Of course, the declarations page must show that the applicable coverage has been selected.

In the midst of this section that provides physical damage coverage lies liability protection. The PAP also compensates an insured for legal liability for the loss-of-use expenses for damage to a non-owned car. This coverage is limited to $30 per day with no mention of a maximum. Of course, this is a small loss exposure, so no other limit may be necessary. (09 18 change)

Example: Jennifer’s car is having its brakes replaced. She rents a car from “We-R Not Selling Insurance Auto Rental Co.” for a day. Unfortunately, upon returning the car the next day, she rams into one of their carport support beams, smashing the body against the front tires. The PAP would pay for “We’-R-Not’s” loss of rental income (subject to $30 daily maximum) for the day it takes them to get the car back into service.
Example: Jim and his family have only one car and it broke down while his daughter was trying to return home from her high school’s football game. Jim borrows his neighbor’s ‘12 Sonata to pick her up. Unfortunately, just as he turns onto their street with his daughter (and a dead battery from his own car), Jim has a collision. Since Jim’s neighbor’s car has to be at his car dealer’s body shop for a few days, Jim’s PAP will take care of the cost to rent a car.
  1. The PAP also will cover additional transportation expenses if an owned or non-owned auto is stolen. However, coverage won’t begin until 48 hours after the theft. In all other cases, coverage begins after 24 hours (that a covered vehicle is unavailable for use). Coverage ends when the covered car is back for the insured’s use or a settlement has been made. All coverage is subject to any limits and provisions shown in paragraph A of the coverage. Further, all payments end when the auto is available for use or the loss has been settled. Payments under this provision are also subject to the time it should reasonably be expected to repair or replace the applicable auto.


Part D – Coverage for Damage to Your Auto will not pay for:

  1. Loss to an owned or non-owned auto that occurs while it is used for hire to transport persons or goods. This exclusion has been revised to make coverage intent clearer. It now makes reference to the coverage ineligibility when any insured driver is actively using any vehicle in conjunction with a transportation network platform. Active use means providing such use as a driver. The exclusion applies both while seeking passenger contacts and during transporting passengers. (09 18 change)

Both the 01 05 and the 09 18 PAP editions maintain an important exception to this exclusion, with a difference.

  1. Coverage is still permitted for vehicles used in traditional car pools (where the insured gets gas and maintenance money from car pool riders).
  2. An additional exception is referenced, allowing coverage for a vehicle during its use in charity and volunteer situations. Protection extends to instances of both ownership and operation during such instances. (09 18 change)
  3. 2. Damage resulting from your car’s aging, extremely cold weather, mechanical or electrical breakdown, or road damage.
Example: It took Pete two hours to start his car during a typical winter’s morning in North Dakota. After it starts, he jumps in the car and the engine dies. He has it towed to Fargo’s best garage and the mechanic tells him that the car is toast. Pete used a cheap engine oil that broke down due to EXTREME cold, and the engine wasn’t lubricated. As much as we might feel for Pete, this is not a covered loss under the PAP.

An exception is made for such damage that is related to the total theft of a covered auto (owned or non-owned).

Example: Pete gets a new car and is leaving a restaurant to get his car from his parking space when he notices that a stranger is breaking into his car. The thief sees Pete, quickly hot-wires the car, and drives out of the lot. The thief is in such a hurry that she doesn’t bother to avoid a loose sewer cover while escaping. The police discover the car the next day with the interior stripped of electronics. The front end, including the tires, is severely damaged. Normally, the destroyed tires would be excluded, but since it happened during a theft, Pete’s settlement would include reimbursement for the tire damage.
  1. There’s no coverage for any loss caused by radioactive contamination, nuclear weapons, war, insurrection, rebellion or revolution.
Example: Alan Newtron is coming home from work and he rear-ends a panel truck from a hospital that just started operating in his area. He is puzzled when, as he gets out to trade insurance information, the doors of the truck are flung open. Screaming, the truck’s driver and two passengers jump out and run from the truck. Alan also wonders why they were wearing protective suits. Alan’s curiosity is satisfied when he peers into the truck and notices that a new X-ray machine is laying in the back…cracked into two pieces. Any damage caused by the ongoing irradiation is excluded from coverage.
  1. Part D of the PAP does not cover loss to electronic equipment designed for reproducing, receiving or transmitting signals (both audio and visual). For instance, the PAP begins by excluding coverage for equipment such as radios, tape decks, stereos or compact disc players. Other items that are becoming common auto components are also barred from coverage such as navigation devices, phones, computers, TVs, scanners and similar equipment. However, there are some exceptions. There IS coverage for equipment IF the equipment is permanently installed in your covered auto or any non-owned auto.

Note: Another issue that may need to be addressed, although the items that are listed in the PAP is just illustrative, the fact that it includes obsolete devices and fails to mention newer devices could still create claim disputes.

  1. This exclusion is for any media that is used with such equipment as well as any accessories used with equipment that reproduces sound, receives or transmits (audio and/or visual) signals.
A rearview camera, permanently mounted, is a newer type of accessory that qualifies for coverage under the PAP.
  1. 6. No coverage is available for vehicles listed on the policy or those that qualify as a non-owned auto when they are destroyed or taken by military or civil authorities.
Example: Marnie’s car is confiscated by the local police when illegal drugs are found to have been hidden in the vehicle. This loss is ineligible for coverage under Marnie’s PAP.

Of course, an exception is made for the financial interests of loss payees. It isn’t in the public interest to deny protection to lenders because of the illegal acts of their borrowers.

  1. There’s no coverage for a camper body, motor home or trailer owned by an insured, but not listed on the declarations page. Neither is there any coverage for awnings, cabanas (lightweight structures with living facilities) and equipment designed to create additional living facilities including cooking, refrigerating or plumbing equipment. Coverage for such property should be endorsed to the policy using PP 03 07–Trailer/Camper Body Coverage (Maximum Limit of Liability). Of course, in many instances it would make more sense to purchase a special motor home or RV policy to properly protect rolling homes.

Related Article: Personal Auto Policy Endorsements

Are there any exceptions? Yes. This exclusion doesn’t affect coverage for trailers (including their facilities or equipment) that are NOT owned by an insured.

Example: Sarah Grizzled was a poor, but avid, backpacker. While she usually just liked to camp with a tent, a friend convinced her to borrow his camper trailer for an excursion out West. Sarah was initially skeptical but, after a week’s use, came to truly enjoy the trailer. Sarah was as upset as her friend when, while cresting a narrow, twisting mountain road, a quick maneuver caused the trailer to swing into the mountainside, obliterating it. This loss would be eligible for coverage under the PAP.

The PAP also provides coverage for trailers (including their facilities or equipment) that are newly acquired by the insured and which are reported to the insurer within 14 days. The intent of the policy is to make sure that all exposures are reported and rated.

Example: A retired couple buys a travel trailer without reporting it to their insurance company. Two weeks later, they take off on an extended vacation, a cross-country trip. Just as they’re entering the third week of travel, the trailer detaches from the hitch while heading toward Pike’s Peak. The trailer is destroyed. Unfortunately, the trailer is also uninsured, since it wasn’t reported in time.

Of course, coverage would also apply to such equipment that the insured already owns on the date that the property is reported and coverage requested by the insured. However, most companies have their own additional restrictions in order to protect themselves against insureds who try to save money by requesting coverage while a trailer is being used (such as the summer) and then removing coverage while the property is in storage.

  1. Any insured, including a family member, who has a loss involving a non-owned auto will find him without coverage if he doesn’t believe he has permission to use that auto.

Related Court Case: Insurer Must Cover Non-Owned Auto Loss

  1. 9. Any equipment used to detect or locate radar or lasers aren’t protected if it is lost or damaged.
  2. 10. All custom equipment (referenced in Part D in Coverage to Your Auto insuring agreement, Part D)is excluded from coverage. (09 18 addition).

Note: The change is that examples of custom equipment are removed from reference in the exclusion and now appears separately under this Coverage Part’s Insuring Agreement.

There has also been a change to the exception to this exclusion. In the previous edition, the exclusion did not extend to a covered pickup truck’s cap, cover or bed liner. The revised exception is more generic and pays for the first $1,500 of a custom equipment loss. The equipment is covered while in either  owned or non-owned autos. (09 18 Change).

  1. This eliminates coverage for any non-owned auto that is being held or used by any insured while working at selling, repairing, servicing, storing or parking cars. The exclusion specifically mentions that it applies even during  road testing and delivery. HOWEVER, this exclusion just applies to vehicles that are made for use on public highways.

It looks like exclusion 11 bars coverage for any auto-related business.

  1. 12. There is no coverage for any loss to an auto that is related to organized vehicle competitions that take place   within a facility meant for racing. Traditionally this limitation applied to vehicles in such a facility while practicing, preparing or competing in races or speed contests. However, the latest edition of the PAP has been revised. Besides the activities just listed (racing and speed contests), this exclusion also applies to driver skill training and driver skill events. In addition, the exclusion applies to those participating in any of the above instead of being limited to only those competing. (09 18 change)

Of course, your car should be safe if it’s in the parking lot of a NASCAR track…at least we hope so. Actually, the change to the PAP is logical to fulfill the policy’s intent to avoid coverage for race-related exposures; including such times that a vehicle is at a location as a precursor to a participating in a race.

Example: An insured has a mint condition Yugo that’s been modified for racing. (Hey, we didn’t say it was a smart insured.) Anyway, the turbo Yugo is sitting in a racetrack garage just prior to a race when a nervous track visitor knocks over some fuel that splashes onto some hot equipment, starting a fire. Tragically, the Yugo is consumed. More tragic, this loss wouldn’t be covered.

The PAP definitely  distances itself from covering cars that have anything to do with organized competition. Persons who have these exposures have to look for special coverage, since ISO does not fill the coverage gap with any endorsement.

  1. This item excludes any loss to a non-owned auto (including loss of use) rented by the named insured, resident spouse or family member when any applicable state law or rental agreement prohibits a rental car company from collecting for any loss or loss of use. In other words, the PAP won’t provide protection when either state law or a rental contract provides that coverage must be part of the rental transaction. Such a legal requirement makes coverage under a PAP unnecessary.
Example: Karen Sufistakatid and her fiancée are on vacation and Karen has suggested spending a week traveling in the bordering western state. Although Karen’s late model car is covered by a PAP, she prefers to rent a car since she doesn’t want to affect the mileage use of her leasing agreement. Before renting the car, she asks her insurance agent if she should get coverage for the rental. The agent says, “I guess so, but I think your policy covers rentals.” Karen then calls a local car rental company. A rental clerk says that she can use her auto policy as coverage but must sign a special agreement to allow her credit card to be automatically billed for any losses to a rental including a daily charge for lost car rental income. Karen is relieved when she finds that the state she is vacationing in requires all rental companies to provide full coverage for ANY loss to a rental car for only a few dollars a day.
  1. No loss to a covered vehicle applies during the period that both of the following apply to the vehicle:
  2. There is a written contract under which the vehicle is part of a personal vehicle sharing program
  3. That vehicle is being used by a person other than the named insured or a family member (as defined) of the named insured who is participating in a program referenced in 12.a above. (09 18 addition)
  4. No coverage extends to claims involving a non-owned vehicle that involves damage, destruction, or loss of use of that vehicle when such claims are related to the use of the vehicle under a personal vehicle sharing program. This exclusion applies when both of the following apply:
  • A non-owned vehicle is used by the named insured or a family member (as defined) of the named insured
  • No recovery can be demanded from the named insured or family member due to the parameters of the sharing program’s written agreement or due to state law. (09 18 addition)
  1. This exclusion is also new. It bars coverage for loss involving flying vehicles, whether flight is their sole capability or is among their features. (09 18 addition)

Limit of Liability

  1. The PAP does have restrictions on the total amount of coverage available for a loss to a covered vehicle.
  2. 1. Paragraph A. of Part D – Coverage for Damage to Your Auto – states that the policy is obligated to pay the actual cash value of the lost (stolen or damaged [including total losses]) property, or
  3. 2. To pay what’s needed to repair or replace the property,

whichever is the LEAST EXPENSIVE option. This provision includes the option of settling a loss by using property of like kind and quality.

This section also explains that the maximum available for the loss of:

  • A non-owned trailer is $1,500;
  • Equipment that merely reproduces sound (such as a CD player) which is installed in a place other than where intended by the vehicle manufacturer  is $1,000. Loss to accessories of that equipment is subject to the same $1,000.
  • Property installed on either an owned auto (that qualifies as a covered auto) or a non-owned auto which meets the definition of  custom equipment is $1,500 (09 18 addition)
  1. Any settlement includes an adjustment for a vehicle’s decreasing market value (depreciation) and physical condition when determining its actual cash value after a total loss. Finally, under paragraph C, if the repair or replacement of a covered vehicle results in an insured being better off than before the loss, the PAP won’t pay the value of the improvement.
  2. While not defined, the words “of like kind and quality” can have a significant impact on settlements. As the cost of vehicles and vehicle parts continues to increase, insurers face more pressures to find options that indemnify their insureds while not “breaking the bank.” As it is with homeowners insurance, the need to repair damaged property often puts auto insurers in the position of having to actually improve an insured’s position after a loss. Use of the terms “like kind and quality,” allows carriers options other than the problematic use of new parts to make repairs and then attempt to adjust the value of the settlement.

Payment of Loss

This provision discusses a company’s options in making a settlement on a loss to a covered vehicle. The settlement may be in the form of a cash payment, a repaired vehicle or a replacement vehicle. The insurer has the option to return any stolen property to the named insured or to the latest address shown on the declarations page. If any property is returned, the insurer must pay for doing so, and only after any damages have been repaired. Further, should the company exercise the right to keep the property; it has to be at a price that’s acceptable to both parties. Finally, if the settlement is made in cash, the total has to include any sales tax.

No Benefit to Bailee

A carrier for hire or a bailee for hire is not permitted to benefit from the PAP.

The Personal Auto Policy has a tradition of trying to identify precisely the parties to the insurance contract. One of its intentions is to perform its contractual obligations to the named insured and other parties defined in the definitions, insuring agreements and other policy provisions. To do otherwise would be to open the policy up to parties who haven’t been rated or underwritten for coverage and for more exposures than contemplated. Other parties may benefit unintentionally from the policy without this provision. Such persons or organizations can’t piggyback their obligations to the PAP.

Related Court Case: “Car Wash Assumes Liability When Customer Relinquishes Vehicle For Service”

Other Sources of Recovery

This provision is to make sure that any payment under Part D of the Personal Auto Policy takes other sources of loss payment into account. If other insurance policies, provisions or sources of recovery apply to a physical damage loss, the policy will only pay its proportion of the total available coverage. But the proportional payment is only for owned autos. If other sources of payment exist for a loss involving a non-owned auto, Part D of the PAP responds on an excess basis. It is excess over everyother available source of payment, including the policy of the owner of the car.

The provision to pay its proportionate share on owned auto losses effectively assures that the policy won’t pay more than the limits of liability listed on the declarations page. Of course, it has no other way to control the amount paid by other sources.

Related Court Case: Parties Dispute Applying “Other Insurance”


This system works quite similarly to an arbitration clause, except that the only point of dispute is the amount of payment, rather than the amount of payment and/or whether payment is due. This provision may be invoked when the company and the insured don’t agree on the amount of the loss. Each party must select its own qualified (competent and impartial) appraiser. The two appraisers then select an umpire. The appraisers then submit their opinion of the actual cash value and the amount of the loss. If they don’t reach agreement, they submit this information to the umpire. An agreement by any two persons is binding on both parties.

The company and the insured have to pay for the expenses of their own appraiser, as well as equally share the expenses of the umpire.

Note: No other insurer rights are affected by their agreeing to an appraisal. For instance, if another party has some responsibility for the loss, the insurer, after paying the appraised amount of loss, may still subrogate the claim.

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