PF&M at a Glance

Personal auto policy

Insurance for personal automobiles, like other types of insurance, is constantly changing because the events that the policy must respond to also change. The Insurance Services Office has long offered insurers a standard auto insurance product: the Personal Auto Policy, or PAP. ISO’s 2005 edition of the Personal Auto Policy, which replaces the 1998 edition, continues the effort to address the demands of consumers, insurers, regulators and legislators. This is accomplished by regularly updating the basic policy and providing both revised and new endorsements.

Individual companies continue to meet auto insurance needs through various methods. A given company may choose to use the ISO program in its entirety, modify the program or use a completely independent program. Because all policies must provide protection against various vehicle exposures, however, it is likely that a company’s forms are based on the PAP or its predecessors.

The Personal Auto Policy provides liability and physical damage coverage for eligible persons and vehicles. The PAP sections are: Part A - Liability Coverage, Part B - Medical Payments Coverage, Part C - Uninsured Motorists Coverage, and Part D - Coverage for Damage to Your Auto. Each coverage part has its own insuring agreement, exclusions, limits of liability and other provisions. This format evolved to advance ISO’s goal of continually clarifying the coverage intent of its policy forms. In this case, a longer policy is a necessary evil because earlier policy formats in which key provisions applied to several coverage parts became increasingly vulnerable to misinterpretation. To enhance clarity, the 2005 edition of the PAP adds wording to several exclusions and definitions. In particular, the changes apply to the exclusions for coverage of sound reproducing equipment and the definition of newly acquired autos.

Part A - Liability Coverage pays for damages for bodily injury or property damage for which the insured becomes legally liable because of an accident. Besides payment for bodily injury and property damage, the policy considers damages to include prejudgment interest and defense costs. This section also provides supplemental protection including the cost of bail bonds, loss of earnings and other reasonable expenses. The maximum daily coverage for loss of earnings was substantially increased and is now a more realistic amount. Part A excludes coverage for intentional acts, damage to property owned or controlled by the insured, bodily injury occurring in the course of work and several other situations.

Part B - Medical Payments Coverage pays for reasonable expenses incurred for necessary medical treatment and/or funeral services required as the result of bodily injury. The bodily injury must involve an insured and be due to a covered accident. A different definition of insured applies to this part. Coverage is provided to an eligible insured as either a vehicle occupant or a pedestrian. Coverage under Part B also extends to passengers in a covered auto.

The exclusions are for losses involving vehicles with fewer than four wheels, vehicles used as a residence, a public or livery conveyance, and vehicles owned by or available for the regular use of any insured. Also excluded are losses occurring during employment, while operating a vehicle without permission, involving an insured’s business and several other situations. The Limit of Liability section explains that the limit shown in the policy declarations is not affected by the number of insured persons, claims made, vehicles or premiums shown in the declarations, or the number of vehicles involved in a given accident. It also states that duplicate payments will not be made under the same policy. The duplication wording is used in several areas of the Personal Auto Policy.

Part C - Uninsured Motorists Coverage. This section’s insuring agreement promises to pay for bodily injury suffered by an insured that arises out of the negligent party’s ownership, operation or maintenance of an uninsured motor vehicle. This coverage part defines four situations under which a vehicle is considered to be uninsured.

However, the policy does not consider a vehicle to be an “uninsured motor vehicle” if the vehicle is owned by or is regularly available to any insured, if it is operated by a self-insurer, if it is owned by any governmental unit or agency, or if it is operated on rails or crawler treads. The Personal Auto Policy also does not grant uninsured status to an off-road vehicle involved in an accident while off the road or a vehicle that is used as a residence.

The Part C exclusions deny coverage for bodily injury suffered by an insured while occupying or if struck by a vehicle he or she owns (or has regular access to). Coverage is also barred for bodily injury where any insured makes an unauthorized settlement. Coverage does not apply to operators using an insured vehicle without permission, nor does coverage exist in situations that are subject to either a workers compensation or a disability benefits law. Finally, there is no coverage for punitive or exemplary damages.

An arbitration section in Part C outlines the procedure to follow when there is a disagreement among the parties over whether any payment is due or the amount of the payment. The mechanics of the process are explained in detail. If arbitration does not resolve the dispute, the section explains what option is available.

Part D - Damage to Your Auto. The insuring agreement states that coverage under this part applies to “collision” and “other than collision” damage to covered autos that are described in the declarations. The policy defines “collision” as damage caused by a vehicle being upset (turned over, moved, etc.) or by impact with another vehicle or object. “Other than collision” is defined as damage from falling or flying objects, fire, theft, explosion, earthquake, windstorm, vandalism, riot, birds/animals, broken glass, hail, water or flood.

A coverage extension called Transportation Expenses is available under Part D. It is extended to a non-owned auto or trailer that takes the place of a covered auto that is inoperable because of theft, breakdown or destruction. The replacement vehicle is covered as a temporary substitute auto.

The policy pays for daily expenses up to $20, up to a total of $600, caused by loss of use of a covered auto due to collision, other than collision, or legal liability for loss of use expenses to the non-owned vehicle’s owner.

The expense coverage is available after 48 hours for a theft loss and after 24 hours for any other eligible cause of loss. In either case, coverage ends when the covered auto is again available or a settlement has been paid.

Exclusions. No coverage exists for autos used to carry persons for pay or goods for sale, for damage caused by wear and tear, freezing, breakdown or road damage to tires. Other excluded causes of loss include radiation/nuclear accidents, war, civil upheavals and loss to electronic entertainment equipment. Other situations barred from coverage include losses to owned camper bodies and trailers that are not listed on the declarations, non-owned autos used without permission, and awnings, radar/laser detectors and custom furnishings/equipment for pickups or vans.

Limit of liability. The maximum that will be paid for Damage to Your Auto is the smallest amount it takes to properly indemnify the insured. A sub-limit of $1,500 applies to non-owned trailers. The insurer has the option to either make a cash settlement or repair or replace a covered vehicle. The PAP also offers a sub-limit of $1,000 for equipment that is capable only of reproducing sound, but that is installed in a place other than the area of the vehicle designed by the vehicle manufacturer. Part D includes provisions concerning bailees, other sources of payment and appraisals.

Part E - Duties after an accident or loss. Briefly, an insured must provide the company details about any accident/loss and cooperate in the process, including any legal action. An insured must also be willing to undergo physical exams, take oaths, give permission to seek medical and other relevant records, give proof of loss, make police reports, protect and preserve property, and submit property to inspections and appraisals. To conform to various recent court decisions, the wording of this provision was slightly changed in the ’05 edition. The provision now states that an insured may endanger his or her PAP coverage if a failure to perform a post-loss duty harms the insurance company’s rights. In other words, it takes more than a mere technicality to trigger a penalty under this provision.

Part F - General Provisions. These provisions explain how the policy is affected by different events. The impact may be none (as with personal bankruptcy), a modification in terms, coverage or premiums (as with the changes section) or whether coverage applies (as with the territory, termination and nonrenewal sections).

Please note that this is only an overview of this coverage. A thorough discussion of the program may be found in the PF&M Analysis from The Rough Notes Company. Agency OnLine subscribers, please refer to PF&M Section 410.4-2, ISO ’05 Ed. Personal Auto Policy Coverage Form Analysis, for more details. *