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14.4: Types of Automobile Policies and the Personal Automobile Policy

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    Learning Objectives

    In this section we elaborate on the following:

    • The basic types of automobile policies
    • The structure of the personal automobile policy (PAP) in detail
    • The types of coverage provided through the PAP

    Types of Automobile Policies

    There are two general types of auto insurance policies: commercial use (discussed in "15: Multirisk Management Contracts - Business") and personal use, which is discussed in this chapter. The Insurance Services Office (ISO) has developed standard forms for each category.

    Some insurers issue the standard policies; others issue policies that are similar but not identical. Variations result from competition that motivates insurers to try to differentiate their products. The personal automobile policy (PAP, discussed below) is the newest of the policies for personal use automobiles and has nearly displaced other personal use forms. You will probably buy a PAP or a policy similar to it, so we will discuss it in detail.

    Bear in mind, however, that your policy may differ in some significant ways from the PAP. The major differences are in the perils covered, persons insured, exclusions and definitions, and the presence of personal injury protection (PIP) coverage or no-fault provisions that are required in some states. To understand your own coverage, therefore, be sure to read the specifics of your policy.

    The Personal Automobile Policy (PAP)

    The personal automobile policy (PAP) is the automobile insurance contract purchased by most individuals, whether to meet financial responsibility laws or just to protect against the costs associated with auto accidents. A copy of the Insurance Services Office’s sample PAP is provided in "Appendix B" at the end of the text. It begins with a declarations page, general insuring agreement, and list of important definitions. These are followed by the policy’s six major parts:

    • Part A—Liability coverage
    • Part B—Medical payments coverage
    • Part C—Uninsured motorists coverage
    • Part D—Coverage for damage to your auto
    • Part E—Duties after an accident or loss
    • Part F—General provisions

    Each of the first four parts has its own insuring agreement, exclusions, and other insurance provisions, but most conditions are in parts E and F. In a sense, each of the first four parts is (almost) a separate policy, and the PAP is a package that brings them all together. Each part is made effective by indicating in the declarations that the premium has been paid for that specific part and the coverage applies. When you receive your policy, check the declarations to be sure they show a premium for all the coverages you requested, and see that the information relating to your policy is correct.

    Parts E and F apply to the entire policy. As we discuss each part, you will find reference to the specimen policy in "Appendix B" helpful.


    The declarations identify you by name and address and show the term of the policy, the premiums charged, the coverages provided, and the limits of liability of the coverages. You—and your spouse, if you are married—are the named insured(s). A description of the automobile(s) covered—by year, name, model, identification or serial number, and date of purchase—is included. The loss payee for physical damage to the automobile is listed to protect the lender who has financed the automobile’s purchase, and the garaging address is shown. The latter is an important underwriting factor. Loss frequency and severity vary from one area (called territory by rate makers) to another. For example, losses are generally greater in urban than in rural areas. Although many people drive all over the country, most driving is done within a rather short distance of the place the car is typically garaged. Thus, the place where it is garaged affects the premium.

    Where is your car garaged if your home is in a rural area but you are attending a university in a large city or different state? It would be wise to talk to your agent about this question. He or she will—or should—know what the insurer’s interpretation is about identifying the proper garaging location. You, of course, want to avoid misrepresenting a material fact, an action that could void the policy.


    Definitions are crucial elements of insurance policies because the meaning of a term may determine in a particular instance whether or not you have coverage. Any term found in quotations in the policy is defined. Some are defined in the definitions section, others within the separate coverage sections.

    Those found in the definitions section include the following. “You” and “your” refer to the “named insured” shown in the declarations, and the spouse if a resident of the same household. “We,” “us,” and “our” refer to the insurance company. A private passenger auto is deemed to be owned by a person if it is leased under a written agreement to that person for a continuous period of at least six months. If you refer to the PAP in "Appendix B", you will see that the most recent ISO PAP is as of 2003. This PAP defines “you” and “your” with a limitation on spouses that leave the residence; these spouses are not covered.

    “If the spouse ceased to be 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: (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.”

    “Bodily injury” (page 1, section D) occurs when there is bodily harm, sickness, or disease, including a resulting death. “Property damage” (in section H) involves physical damage to, destruction of, or loss of use of tangible property. A “business” includes trade, profession, or occupation. “Family member” (in section F) means a resident of your household related to you by blood, marriage, or adoption. This includes a ward or foster child. “Occupying” (in section G) means in; upon; and getting in, on, out, or off. It may seem ridiculous to define a common word such as “occupying,” but a reading of the exclusions for medical payments coverage shows how crucial the definition may be. A recent example provides a helpful illustration. A woman walked to her car, and, while unlocking the door, was struck by another vehicle. The insurer included this scenario under the category of “occupying.”

    “Trailer” means a vehicle designed to be pulled by a private passenger auto or pickup, panel truck, or van. It also means a farm wagon or farm implement being towed by one of the vehicles listed.

    “Your covered auto” (in section J) includes the following:

    • Any vehicle shown in the declarations
    • A “newly acquired auto.”
    • Any “trailer” you own
    • Any auto or trailer you do not own while used as a temporary substitute for any other vehicle described in this definition that is out of normal use because of its breakdown, repair, servicing, loss, or destruction

    Section K defines “newly acquired auto” and the various provisions regarding such an auto.

    Liability Coverage—Part A

    In the PAP, the liability insuring agreement can be paraphrased as follows:

    We will pay damages for “bodily injury” or “property damage” for which any “insured” becomes legally responsible because of an auto accident. Damages include prejudgment interest awarded against the “insured.” We will settle or defend, as we consider appropriate, any claim or suit asking for these damages. In addition to our limit of liability, we will pay all defense costs we incur…

    In the liability part of the PAP, the policy defines “insured” as the following:

    1. You or any family member, for the ownership, maintenance, or use of any auto or trailer.
    2. Any person using your covered auto.
    3. For your covered auto, any person or organization, but only with respect to legal responsibility for acts or omissions of a person for whom coverage is afforded under this part.
    4. For any auto or trailer other than your covered auto, any person or organization, but only with respect to legal responsibility for acts or omissions of you or any family member for whom coverage is afforded under this part. This provision applies only if the person or organization does not own or hire the auto or trailer.

    In a situation where the owner of the car lends you the covered auto to take children to the church picnic, you become a covered person, according to definition 2. The policy will cover your liability in connection with an accident on the way to the picnic. It will also, according to definition 3, cover any liability the church may have in connection with the accident if the kids get hurt. If, on the other hand, I borrow the other person’s car to take the children to the church picnic, I am a covered person according to definition 1, and the church’s liability for any accident I might have is covered by definition 4. In both situations, coverage for the organization stems from the fact that the driver is a covered person. It is important to understand that it does not matter who is driving the covered car; as long as the driver has permission to drive the car, he or she is covered under the policy. The coverage for the car is the first insurance company that pays for the accident. If the liability is larger, the other driver’s policy picks up the rest of the liability.


    Section A of Part A of the liability coverage quoted above indicates that legal defense is not part of the limits of liability. Defense costs often run into the thousands of dollars, making this a significant benefit of liability insurance. If you are found liable, the insurer pays on your behalf to the plaintiff(s), up to the limit(s) of liability under the policy. The insurer’s responsibility to defend ends when that limit is reached (is paid in award or settlement to third-party claimants).

    The insurer retains the right to settle claims without the insured’s approval if it finds this expedient. Such action keeps many cases out of court and reduces insurance claims expenses. It can cause dissatisfaction, however, if the insured did not expect to have to settle.


    The wording of the insuring agreement of Part A provides for open perils liability coverage. All events resulting in automobile liability, therefore, are covered unless specifically excluded. Some exclusions apply to unprotected persons and others apply to noncovered vehicles. The exclusions, listed in Table 14.6, can be discussed in terms of the purposes of exclusions presented in "9: Fundamental Doctrines Affecting Insurance Contracts".

    As in the homeowner’s policy, intentionally caused (nonfortuitous) harm is always excluded. As before, several exclusions exist to prevent duplicate coverage, which would result in overindemnification. Property damage to owned or used property, for instance, ought to be covered under other property insurance contracts, such as a homeowner’s policy, and is therefore excluded in the PAP. As noted in the homeowners coverage, bodily injury to an employee of the covered person who is eligible for workers’ compensation benefits is excluded. Anyone using a motor vehicle as a taxi, for example, represents greater risk than one who does not. Thus, persons using a vehicle as a public livery or conveyance are excluded from coverage. Because persons employed in the automobile business represent a significant risk while in their employment status, they too are excluded. You can understand that the insurer prefers not to provide coverage to the mechanic while he or she is test-driving your car. The automobile business is expected to have its own automobile policy, with rates that reflect its unique hazards.

    Certain other occupations require the use of vehicles that are hazardous regardless of who operates them. Large garbage trucks, for example, are difficult to control. Insurers do not provide liability protection while you operate such a vehicle. Insurers, however, do not exclude all business uses of motor vehicles. Specifically excepted from the exclusion are private passenger autos (e.g., those of traveling salespeople), owned pickups or vans, trailers used with any of these vehicles, and any vehicle used in a farming or ranching business.

    Table 14.6 Personal Auto Policy, Part A Exclusions (PAP 2003)*
    1. We do not provide Liability Coverage for any “insured”:
      1. Who intentionally causes “bodily injury” or “property damage.”
      2. For “property damage” to property owned or being transported by that “insured.”
      3. For “property damage” to property:
        1. Rented to;
        2. Used by; or
        3. In the care of;

        that “insured.”

        This Exclusion (A.3.) does not apply to “property damage” to a residence or private garage.

      4. For “bodily injury” to an employee of that “insured” during the course of employment. This Exclusion (A.4.) does not apply to “bodily injury” to a domestic employee unless worker’s compensation benefits are required or available for that domestic employee.
      5. For that “insured’s” liability arising out of the ownership or operation of a vehicle while it is being used as a public or livery conveyance. This Exclusion (A.5.) does not apply to a share-the-expense car pool.
      6. While employed or otherwise engaged in the “business” of:
        1. Selling;
        2. Repairing;
        3. Servicing;
        4. Storing; or
        5. Parking;

        vehicles designed for use mainly on public highways. This includes road testing and delivery. This Exclusion (A.6.) does not apply to the ownership, maintenance, or use of “your covered auto” by:

        1. You;
        2. Any “family member”; or
        3. Any partner, agent, or employee of you or any “family member.”
    * See "Appendix B".

    Insurers also standardize the risk through exclusion of coverage while “using a vehicle without a reasonable belief that that person is entitled to do so.” The insurance company rates the policy according to the insured’s characteristics, which include who the insured allows to use the covered auto. A thief, or someone without permission to use the covered auto, does not reflect these characteristics. Questions sometimes arise when an insured’s child allows a friend to use the covered car, despite parents’ admonitions to the contrary. Court rulings are mixed on the application of the exclusion in such a situation. Generally, such persons represent greater risks. The use of a motor vehicle with less than four wheels also represents a greater risk than one with at least four wheels. It too is excluded.

    To prevent catastrophic exposure, the PAP excludes persons covered under nuclear energy liability policies. This exclusion is a standard provision in all liability policies.

    The final two exclusions are confusing. Their purpose is to prevent insureds from obtaining more coverage than was purchased. Thus, no coverage applies for accidents arising out of ownership, maintenance, or use of a motor vehicle you own or have available for regular use if it is not a declared auto in the declarations section of the policy. If such protection were available, you would need to purchase coverage on only one vehicle instead of on all your owned vehicles. The second exclusion is the same, except that it applies to motor vehicles owned by or available for the regular use of family members. This last exclusion does not apply to you. Remember that “you” is the named insured and the named insured’s spouse. Thus, if the named insured uses a noncovered vehicle owned by a family member (perhaps a son or daughter living at home), liability coverage exists. On the other hand, the family member who owns the noncovered vehicle is not protected while driving the undeclared auto.

    Supplementary Payments

    In addition to the limit for liability, the insurer will pay up to $250 for the cost of bail bonds required because of an accident if the accident results in bodily injury or property damage covered by the policy. Note that this would not cover the cost of a bond for a traffic ticket you receive when there is no accident. Premiums on appeal bonds and bonds to release attachments are paid in any suit the insurer defends. Interest accruing after a judgment is entered, and reasonable expenses incurred at the insurer’s request are paid. Up to $200 a day for loss of earnings because of attendance at hearings or trials is also available.

    Single or Split Limits

    Although liability coverage under the PAP usually is subject to a single, aggregate limit (called a combined single limit [CSL]), it can be divided by use of an endorsement into two major subparts: bodily injury liability and property damage liability. Bodily injury liability applies when the use of your car results in the injury or death of pedestrians, passengers of other vehicles, or passengers of your automobile. Property damage liability coverage applies when your car damages property belonging to others. Although the first thing you probably think about under this coverage is the other person’s car (and you are right), this coverage could also cover street signs, fences, bicycles, telephone poles, houses, and other types of property. Remember, however, that it does not apply to your house or to other property you own because you cannot be legally liable to yourself.

    If you choose a single limit of liability to cover all liability, including both property damage and bodily injury, then the insurer will pay on your behalf for all losses up to this limit for any single accident, whether they are property-related or bodily injury-related. The only limit you are concerned with in this case is the single, or aggregate, limit. Once all losses equal this limit, you will have to bear the burden of any further liability.

    If you choose a split limit of liability, a set of two limits will be specifically applied to bodily injury, and a single, aggregate limit will be applied to property damage. For the bodily injury limits, one limit applies per person, per accident, and a second limit is the total the insurer will pay for your liability to all persons injured in an accident. The limit for property damage is shown separately. For example, your limits are shown as follows:

    Bodily injury $150,000 each person, $300,000 each accident
    Property damage $50,000 each accident

    In insurance jargon, these limits would be described as 150/300/50. An example will help illustrate how the split limits work. If you caused an accident in which only one person was injured, the coverage is limited to $150,000 for that person. If the accident involved six people, each person is covered up to $150,000, but the total for all six injured people combined cannot exceed $300,000. So if all are badly injured, the limit for the accident may not be sufficient. In this case (and as discussed in "13: Multirisk Management Contracts - Homeowners"), an umbrella policy with high limits—such as $1 million—may be very valuable.

    Alternatively, a single limit, say, $300,000, can be purchased to cover all liabilities from any one accident. Whether you have single or split limits, the need for adequate limits is imperative, as noted above. Also note the clarifying language in “limit of liability,” which states that the amount shown is the maximum payable, regardless of the number of covered persons, claims made, vehicles or premiums shown in the declarations, or vehicles involved in the auto accident. If two vehicles shown in the declarations are involved in the same accident, twice the limit of liability will not be available. At least, this is the intent of the insurer. Various state courts have interpreted the policy differently, permitting what is called stacking. Stacking may occur when a single auto policy covers two vehicles, and the court interprets this situation to yield a limit of liability equal to double the amount shown in the policy declarations.

    Out-of-State Coverage

    Part A also has provisions for out-of-state coverage and other insurance. The out-of-state provision takes care of a situation in which your liability limits comply with the financial responsibility or compulsory insurance law in your state but are inadequate in another state. It provides that, under such circumstances, your policy will provide at least the minimum amounts and types of coverage required by the state in which you are driving. Suppose you have limits of 15/25/15 ($15,000/$25,000/$15,000), the minimum required in the state where your car is garaged. If you are driving in a state that requires 25/50/20 ($25,000/$50,000/$20,000) and are involved in an accident, your insurer will interpret your policy as if it had the higher limits. Thus, even though you have to meet only the requirements where you live, your policy will provide the limits you need in any state or province in which you may be driving.

    Financial Responsibility

    This one sentence states, “When this policy is certified as future proof of financial responsibility, this policy shall comply with the law to the extent required.” The requirements in each state are shown in Table 14.4.

    Other Insurance

    The liability coverage of the PAP is excess with regard to a nonowned vehicle. In the event of a loss while you are driving a friend’s car, your insurer will pay only the amount by which a claim (or judgment) exceeds the limits of your friend’s auto insurance. In such a situation, your friend’s insurance is primary coverage, or the first payee in a situation where two or more coverages apply, and your insurance is excess coverage. This means that coverage on the vehicle is always primary. If two excess policies apply, then the “other insurance” provision calls for a pro rata distribution of liability. For example, if you were driving a friend’s car whose insurance had expired and you were an insured under two policies (as, perhaps, a resident relative of two insureds who bought separate policies on their vehicles), these two policies would share in any liability attributable to you on a pro rata basis. This example, however, is quite unusual.

    Medical Payments Coverage—Part B

    Medical payments coverage, which is optional in some states and from some insurers, overlaps family health insurance coverage. You may consider it unnecessary if you have excellent health insurance. Your own family health insurance does not cover nonfamily members riding in your vehicle, so it is narrower than is medical payments coverage. If you are liable, however, Part A will provide coverage. If not, your passengers may have their own health insurance.

    Insuring Agreement

    Under Part B, the insurer agrees to pay reasonable expenses incurred within three years from the date of an accident for necessary medical and funeral services because of bodily injury caused by an accident and sustained by a covered person. A covered person means you or any family member, while occupying, or as a pedestrian when struck by, a motor vehicle designed for use mainly on public roads or a trailer of any type. It also includes any other person occupying your covered auto.

    Note that you or a family member would be covered by your PAP medical payments protection while occupying a nonowned car, but other passengers in the vehicle are not. No benefits are paid if you are struck by a machine not designed for use on the highway, such as a farm tractor.


    Medical payments coverage is similar to liability coverage because it is provided on an open perils basis within the category of automobile use. Seven of the exclusions to Part A (liability) are nearly identical to exclusions found in Part B (medical payments). These exclusions are as follows:

    • While occupying a motor vehicle with less than four wheels
    • While occupying your covered auto when it is being used as a public livery or conveyance
    • While occupying any vehicle located for use as a residence or premises
    • During the course of employment if workers’ compensation is available
    • While occupying or when struck by any vehicle (other than your covered auto) that is (a) owned by you or (b) furnished or available for your regular use
    • While occupying or when struck by any vehicle (other than your covered auto) that is (a) owned by any family member or (b) furnished or available for the regular use of any family member
    • While occupying a vehicle without a reasonable belief that the insured is entitled to do so
    • While occupying a vehicle when it is being used in the business or occupation of a covered person, unless the vehicle is a private passenger auto, pickup, or van owned by the insured or trailer used with one of these means of transportation
    • Caused by the consequence of nuclear weapons, war, civil war, insurrection, or rebellion or revolution
    • Consequence of nuclear reaction to radiation or radioactive contamination
    • While occupying any vehicle located inside a facility designed for racing, for the purpose of (a) competing in or (b) practicing or preparing for any prearranged or organized racing or speed contest

    Limit of Liability

    The limit of liability for medical payments is on a per person basis, such as $5,000 per person. This is the maximum limit of liability for each person injured in any one accident. If you have two autos insured, with a medical payments limit for each shown on the declarations page, you cannot add all (stack) the limits together. It may appear that you have $10,000 in medical payments coverage because you have $5,000 on each vehicle, but such is not intended by the insurer.

    When there is other applicable auto medical payments insurance, your policy will pay on a pro rata basis. With respect to nonowned automobiles, however, the PAP is excess; that is, it pays only after the limits of all other applicable insurance have been exhausted.

    Other Insurance

    Any amounts payable by this coverage are reduced by any amounts payable for the same expenses under Part A (liability) or Part C (uninsured motorists). Thus, a passenger in your car who is injured cannot recover under both liability and medical payments coverages for the same losses. Nor can you recover expenses under both medical payments and the uninsured motorists coverages. Injured parties are entitled to indemnity but not double payment.

    Uninsured Motorists Coverage—Part C

    Uninsured motorists coverage pays for bodily injuries (and property damage in some states) caused by an accident with another vehicle whose driver is negligent and (1) has no liability insurance or less than that required by law, (2) was a hit-and-run driver, or (3) is a driver whose insurance company is insolvent. Covered persons include you or any family member, any other person occupying your covered auto, and any other person entitled to recovery because of bodily injury to a person in the first two categories. An example of “any other person entitled to recovery” is one who has suffered loss of companionship as a result of a spouse (who was in one of the first two categories) being injured in an accident.

    Minimum coverage is the amount required to comply with your state’s financial responsibility or compulsory insurance law. You can, however, purchase additional coverage up to the limit you purchased under Part A. In addition, if you purchase increased amounts of uninsured motorists coverage, you are eligible to buy underinsured motorists coverage, which is discussed later in this chapter.

    Uninsured Motor Vehicle

    Because you can recover expenses under Part C of the PAP only if you are involved in an accident with a negligent driver of an uninsured motor vehicle, the definition of such a vehicle is crucial. The policy defines it as a land motor vehicle or trailer of any type, with the following specifications:

    • One to which no bodily injury liability bond or policy applies at the time of the accident
    • One to which there is a bodily injury liability bond or policy in force, but the limit of liability is less than that specified by the financial responsibility law in the state where your covered auto is garaged
    • A hit-and-run vehicle whose operator/owner cannot be identified and that hits you or any family member, a vehicle you or any family member are occupying, or your covered auto
    • One to which a bodily injury liability bond or policy applies at the time of the accident, but the company denies coverage or is insolvent

    However, an uninsured motor vehicle does not include any of the following vehicles or types of equipment:

    • Owned by, furnished, or available for the regular use of you or any family member
    • Owned or operated by a self-insurer under any applicable motor vehicle law, except a self-insurer who is or becomes insolvent
    • Owned by any governmental unit or agency
    • Operated on rails or crawler treads
    • Designed mainly for use off public roads and used while not on public roads
    • While located for use as a residence or premises


    Perhaps because the definition of an uninsured motor vehicle is so limited, only four exclusions apply to Part C. Like the prior two parts, uninsured motorists coverage excludes losses:

    1. Involving an undeclared motor vehicle owned by you or any family member
    2. While using a vehicle without reasonable belief of permission
    3. When there is other coverage, such as workers’ compensation or disability benefits
    4. Not applicable to punitive damages

    In addition, exclusion B1 denies payment to a covered person “if that person or the legal representative settles the bodily injury claim without our consent.” Just because a negligent driver is an uninsured motorist, he or she is not free from liability. The insurer, therefore, does not want its subrogation rights to be adversely affected by agreements between the insured and negligent driver, which could include collusive and fraudulent situations.

    On the other hand, the auto insurer does not want to make uninsured motorists payments available through subrogation to a workers’ compensation or disability benefits insurer. If the accident occurred during the course of employment and resulted in workers’ compensation benefits, the compensation insurer might seek such subrogation. Exclusion C prevents this type of activity.

    Last, the coverage is not intended to pay for punitive damages, which are excluded. Additionally, the insuring agreement is specific in promising to pay compensatory damages only. Punitive damages are not compensatory.

    Other Provisions

    The limit of liability provision for uninsured motorists coverage is nearly the same as for medical payments (although the actual limit is usually quite different). The other insurance provision is the same as that for parts A and B, namely, pro rata for your covered auto and excess for a nonowned auto. In the event of a dispute concerning the right to recover damages or their amount, either party—you or the insurer—can demand binding arbitration. Local rules about procedure and evidence apply.

    There are provisions for other insurance and for arbitration. The arbitration section specifies that if the insured and the insurer do not agree about the amounts of entitled recovery of damages, both parties can arbitrate. But both must agree to arbitration and may not be forced to arbitrate.

    Underinsured motorists coverage fills in the coverage gap that arises when the negligent party meets the financial responsibility law of the state, but the auto accident victim has losses in excess of the negligent driver’s liability limit. In such circumstances, when the negligent driver meets the legal insurance requirements but is legally responsible for additional amounts, the driver is not an uninsured motorist. The negligent driver may not have available other noninsurance resources to pay for the loss, leaving the injured party to bear the financial strain. Underinsured motorists coverage permits the insured to purchase coverage for this situation.

    You may purchase underinsured motorists coverage in amounts up to the amount of liability (Part A) protection you purchased. The same amount of uninsured motorists coverage must also be purchased. The underinsured motorists coverage will pay the difference between the at-fault driver’s liability and the at-fault driver’s limit of liability insurance, up to the amount of underinsured motorists coverage purchased. For example, assume that you were hit by another motorist and that you incurred damages of $60,000. Further assume that the other driver is found liable for the full amount of your loss, but that driver carries insurance of only $30,000, which meets the financial responsibility law requirement. An underinsured motorists coverage equal to your limit of liability coverage, say, $100,000, would cover the remaining $30,000 of loss above the at-fault driver’s insurance. Your total payment, however, could not exceed the underinsured motorists coverage limit of liability. If your loss were $115,000; therefore, you would receive $30,000 from the at-fault driver’s insurer and $70,000 from your own insurer. The remaining $15,000 loss is still the responsibility of the at-fault driver, but you may have difficulty collecting it.

    Coverage for Damage to Your Auto—Part D

    Part D of the PAP is first-party property insurance. The insurer agrees to pay for direct and accidental loss to your covered auto and to any other nonowned auto used by you or a family member, subject to policy limitations and exclusions. Automobile equipment, generally meaning those items normally used in the auto and attached to or contained in it, is also covered. All of this is subject to a deductible.

    You have the option of buying coverage for your automobile on an open perils basis by purchasing both collision and comprehensive (also called other-than-collision) coverage. You may instead opt to buy just collision (although it may be difficult to find a company to provide just collision coverage) or just other-than-collision, or neither. A premium for the coverage must be stated in the declarations for coverage to apply. The distinction between the two coverages may be important because collision protection generally carries a higher deductible than other-than-collision coverage.

    Collision means the upset (turning over) of the covered auto or nonowned auto, or striking another object. Every type of nonexcluded loss-causing event other than collision is considered comprehensive (other-than-collision). To help you identify certain ambiguous perils as either collision or other-than-collision, a list is provided in the policy. You might mistakenly take this list as one of exclusions. Rather, the perils shown in Table 14.7 are other-than-collision perils and are therefore covered along with other nonexcluded perils if other-than-collision coverage applies. For example, loss caused by an exploded bomb is neither collision nor among the events listed as examples of other-than-collision. Because breakage of glass may occur in a collision or by other means, the insurer will allow you to consider the glass breakage as part of the collision loss, negating dual deductibles.

    Table 14.7 Other-Than-Collision Losses
    1. Missiles and falling objects
    2. Fire
    3. Theft or larceny
    4. Explosion
    5. Windstorm
    6. Hail, water, or flood
    7. Malicious mischief, or vandalism
    8. Riot or civil commotion
    9. Contact with bird or animal
    10. Breakage of glass

    In addition to the items listed in Table 14.7, the insurer will pay up to $20 per day (to a maximum of $600) for transportation expenses in the event your covered auto is stolen. Transportation expenses would include car rental or the added cost of public transportation, taxis, and the like. You are entitled to expenses beginning forty-eight hours after the theft and ending when your covered auto is returned to you or its loss is paid. You must notify the police promptly if your covered auto is stolen.

    Some insurers offer towing and labor coverage for an additional premium. If your car breaks down, this coverage pays the cost of repairing it at the place where it became disabled or towing it to a garage. The limit of liability is $25 and a typical premium is $4 or $5. Considering the fact that you may be able to get towing service and many other services for about the same cost from automobile associations, adding towing and labor to your policy may not be a bargain. Furthermore, if your car is disabled by collision or other-than-collision loss, the cost of towing it to the garage will be paid under those coverages.


    Two of the exclusions found in Part D (the first and third) have already been discussed. The remaining exclusions are dominated by limitations on the coverage for automobile equipment. Part D exclusions are listed in Table 14.8. One important exclusion reflects the high frequency of theft losses to certain equipment. Exclusion 4 omits coverage for electronic equipment, including radios and stereos, tape decks, compact disk systems, navigation systems, Internet access systems, personal computers, video entertainment systems, telephones, televisions, and more. These exclusions do not apply to electronic equipment that is permanently installed in the car.

    Overall, custom furnishings in pickups and vans and loss to awnings or cabanas and equipment designed to create additional living facilities are excluded. Such equipment represents nonstandard exposures for which insurance can be bought through endorsement.

    Table 14.8 Personal Auto Policy, Part D Exclusions—ISO PAP 2003

    We will not pay for:

    1. Loss to “your covered auto” or any “nonowned auto,” which occurs while it is being used as a public or livery conveyance. This Exclusion (1.) does not apply to a share-the-expense car pool.
    2. Damage due and confined to:
      1. Wear and tear;
      2. Freezing;
      3. Mechanical or electrical breakdown or failure; or
      4. Road damage to tires.

      This Exclusion (2.) does not apply if the damage results from the total theft of “your covered auto” or any “nonowned auto.”

    1. Loss due to or as a consequence of:
      1. Radioactive contamination;
      2. Discharge of any nuclear weapon (even if accidental);
      3. War (declared or undeclared);
      4. Civil war;
      5. Insurrection; or
      6. Rebellion or revolution.
    2. Loss to any electronic equipment that reproduces, receives, or transmits audio, visual, or data signals. This includes but is not limited to:
      1. Radios and stereos;
      2. Tape decks;
      3. Compact disk systems;
      4. Navigation systems;
      5. Internet access systems;
      6. Personal computers;
      7. Video entertainment systems;
      8. Telephones;
      9. Televisions;
      10. Two-way mobile radios;
      11. Scanners; or
      12. Citizens band radios.

      This Exclusion (4.) does not apply to electronic equipment that is permanently installed in “your covered auto” or any “nonowned auto.”

    3. Loss to tapes, records, disks or other media used with equipment described in Exclusion 4.
    4. A total loss to “your covered auto” or any “nonowned auto” due to destruction or confiscation by governmental or civil authorities.

      This Exclusion (6.) does not apply to the interests of Loss Payees in “your covered auto.”

    5. Loss to:
      1. A “trailer,” camper body, or motor home, which is not shown in the Declarations; or
      2. Facilities or equipment used with such “trailer,” camper body or motor home. Facilities or equipment include but are not limited to:
        1. Cooking, dining, plumbing or refrigeration facilities;
        2. Awnings or cabanas; or
        3. Any other facilities or equipment used with a “trailer,” camper body, or motor home.

      This Exclusion (7.) does not apply to a:

      1. “Trailer,” and its facilities or equipment, which you do not own; or
      2. “Trailer,” camper body, or the facilities or equipment in or attached to the “trailer” or camper body, which you:
        1. Acquire during the policy period; and
        2. Ask us to insure within 14 days after you become the owner.
    6. Loss to any “nonowned auto” when used by you or any “family member” without a reasonable belief that you or that “family member” are entitled to do so.
    7. Loss to equipment designed or used for the detection or location of radar or laser.
    8. Loss to any custom furnishings or equipment in or upon any pickup or van. Custom furnishings or equipment include but are not limited to:
      1. Special carpeting or insulation;
      2. Furniture or bars;
      3. Height-extending roofs; or
      4. Custom murals, paintings or other decals or graphics.

      This Exclusion (10.) does not apply to a cap, cover, or bedliner in or upon any of “your covered auto” which is a pickup.

    1. Loss to any “nonowned auto” being maintained or used by any person while employed or otherwise engaged in the “business” of:
      1. Selling;
      2. Repairing;
      3. Servicing;
      4. Storing; or
      5. Parking;

      vehicles designed for use on public highways. This includes road testing and delivery.

    2. Loss to “your covered auto” or any “nonowned auto” located inside a facility designed for racing, for the purpose of:
      1. Competing in; or
      2. Practicing or preparing for;

      any prearranged or organized racing or speed contest.

    3. Loss to, or loss of use of, a “nonowned auto” rented by:
      1. You; or
      2. Any “family member”;

      if a rental vehicle company is precluded from recovering such loss or loss of use, from you or that “family member,” pursuant to the provisions of any applicable rental agreement or state law.

    Recall that trailers you own, whether declared or not, are defined as covered autos. To obtain property insurance on those trailers, they must be declared (permitting the insurer to charge a premium). Nonfortuitous losses are also excluded. Certain losses are expected or preventable, such as damage due to wear and tear, freezing, mechanical or electrical breakdown, and road damage to tires. Exclusion 7 denies coverage for loss or destruction because the government seized the vehicle. This exclusion follows the development of new laws associated with illegal drug trafficking and the handling of hazardous waste.

    Prior to revisions in 1986, the PAP covered damage to nonowned autos (including temporary substitutes) for liability only. If you were driving a friend’s car or a rental vehicle, the old policy would cover damage to that vehicle only if you were legally liable. The 1986 form provided property damage coverage for nonowned autos in Part D, negating the requirement that you be liable. The 1989 form went one step further by including temporary substitutes (cars used because the declared vehicle is out of commission) in Part D rather than Part A.

    The amount of coverage available for nonowned autos, however, is limited to the maximum available (actual cash value) on any declared auto. In addition, a deductible likely applies, and three exclusions relevant to nonowned autos have been added. First, a nonowned auto used without reasonable belief or permission to do so is not covered. Second, a nonowned vehicle damaged while being driven by someone performing operations associated with the automobile business (servicing, repairing, etc.) is not covered. Last, if the nonowned auto is driven by anyone in any business operation (other than a private passenger auto or trailer driven by you or any family member), the auto is not covered.

    Other Provisions

    The limit of liability is the lesser of the actual cash value of the stolen or damaged property or the amount necessary to repair or replace it. The insurer reserves the right to pay for the loss in money or repair or replace the damaged property. There are limits, however, as described in the policy: $500 for a nonowned auto and $1,000 for equipment designed solely for the reproduction of sounds. For payment of loss, the insurer will repair or replace the damaged property. If the stolen property is returned damaged, the insurer will repair it.

    The no benefit to bailee provision says, “This insurance shall not directly or indirectly benefit any carrier or other bailee for hire.” If your car is damaged or stolen while in the custody of a parking lot or transportation company, your insurer will pay you and then have the right of subrogation against a negligent bailee. If other insurance covers a loss, your insurer will pay its share on a pro rata basis. If there is a dispute concerning the amount of loss, either you or the insurer may demand an appraisal, which is binding on both parties. As a practical matter, appraisal is seldom used by an insured because the cost is shared with the insurer.

    The other insurance provision is pro rata except for nonowned autos, which is excess. In prior coverages, nonowned autos were included in the liability part, not Part D. As in other parts of the policy, there is an appraisal section for evaluating the value of the loss.

    Duties After an Accident or Loss—Part E

    When an accident or loss occurs, you must notify the company promptly, indicating how, when, and where it happened. Notice should include the names and addresses of any injured persons and any witnesses. You can notify your agent or call the company. You must also comply with the following conditions:

    • Cooperate with the insurer in the investigation, settlement, or defense of any claim or suit
    • Promptly send the company copies of any notices or legal papers received in connection with the accident or loss
    • Submit, as often as reasonably required and at the insurer’s expense, to physical exams by physicians it selects, as well as examinations under oath
    • Authorize the company to obtain medical reports and other pertinent records
    • Submit a proof of loss when required by the insurer

    A person seeking uninsured motorists coverage must also notify the police promptly if a hit-and-run driver is involved and send copies of the legal papers if a suit is brought. The requirement that you notify the police concerning a hit-and-run driver is to discourage you from making such an allegation when, in fact, something else caused your accident. If, for example, you do not have coverage for damage to your auto but you do have uninsured motorists coverage, you may be tempted to use the latter after you fail to negotiate a sharp curve in the road. Having to report a hit-and-run driver to the police may deter you from making such an assertion.

    If an accident causes damage to your car, or if it is stolen, you must also fulfill the following duties:

    • Take reasonable steps after loss to protect the auto and its equipment from further loss (the company will pay for reasonable cost involved in complying with this requirement)
    • Notify the police promptly if your car is stolen
    • Permit the company to inspect and appraise the damaged property before its repair or disposal

    The first duty listed means that you cannot just walk off and abandon your automobile after an accident. If you do, it may very well be stripped as an abandoned car. The second duty, prompt notification of the police in the event of theft, increases the probability that stolen property will be recovered. This requirement also reduces the moral hazard involved; people have been known to sell a car and then report it stolen. The third duty, permitting company appraisal, allows the insurer to inspect and appraise the loss before repairs are made in order to keep costs down. If you could simply take your damaged car to a repair shop, have the work done, and then send the bill to the insurance company, costs would increase immensely. The most common question you hear upon entering many (if not most) repair shops is, “Do you have insurance?”

    General Provisions—Part F

    Several general provisions apply to the whole contract. Following is a brief summary of each.

    • Bankruptcy or insolvency of a covered person shall not relieve the insurer of any obligations under the policy. The fact that you are bankrupt does not relieve the insurance company of its obligation to pay a third-party claimant or you.
    • Changes in the policy can be made only in writing and may affect the premium charged. If the form is revised to provide more coverage without a premium increase, the policy you have will automatically provide it.
    • The insurer does not provide any coverage for any insured who made fraudulent statements or engaged in fraudulent conduct in connection with any accident or loss for which coverage is sought under the policy.
    • An insured cannot start legal proceedings against the insurer until there has been full compliance with all the terms of the policy.
    • If a person who receives payment from the insurer has the right to recover damages from another, the insurer has the right to subrogation. Such a person must help the insurer to exercise its rights and do nothing after a loss to prejudice them. This would apply, for example, to a passenger in your car who is injured, receives payment under the medical payments coverage, and has the right to recover damages from a liable third party or a first-party health insurer. The company’s subrogation right, however, does not apply under the damage to your auto coverage against any person using your covered auto with a reasonable belief that he or she has the right to do so. If it were not for this provision, a person who borrowed your car with your permission and had a wreck would wind up paying for the damage if he or she was at fault.
    • The policy’s territorial limits are the United States, its territories and possessions, Puerto Rico, and Canada. Note that this does not include Mexico. If you are going to drive your car in Mexico, it is imperative that you buy Mexican insurance. You will have ample opportunity to do so almost anywhere once you cross the border. Also, the coverage is limited to the policy period only.
    • You can cancel the policy by returning it to the insurer or providing advance written notice of the date that cancellation is to take effect.
    • The insurer can cancel the policy at any time for nonpayment of premium. During the first sixty days the policy is in effect, the insurer can cancel upon ten days’ notice for any reason, unless the policy is a renewal or continuation policy. After the first sixty days or if the policy is a renewal or continuation policy, the insurer can cancel only for nonpayment of premium or if your driver’s license, or the license of any driver who lives with you or customarily uses your covered auto, is suspended or revoked. In such instances, twenty days’ notice must be given. If your state requires a longer notice period or special requirements concerning notice, or modifies any of the stated reasons for termination, the insurer will comply.
    • Transfer of the interest in the policy may not be assigned without the insurer’s written consent, except when the insured dies. The surviving spouse or the legal representative of the insured will have coverage until the end of the policy period.
    • If you have another policy issued by the company and both apply to the same accident, the maximum limit under all the policies will not exceed the highest applicable limit of liability under any one policy. In other words, you cannot stack them. If a policy has a single limit for liability of $300,000 and another policy you have with the same company has a single limit of $200,000, your total coverage—if both apply to the same accident—is $300,000.

    Insuring Other Vehicles

    A miscellaneous type vehicle endorsement can be added to the PAP to insure motorcycles, mopeds, motor scooters, golf carts, motor homes, and other vehicles. The endorsement does not cover snowmobiles; they require a separate endorsement. The miscellaneous type vehicle endorsement can be used to provide all the coverages of the PAP, including liability, medical payments, uninsured motorists, and physical damage coverage. With a few exceptions, the PAP provisions and conditions applicable to these coverages are the same for the endorsement.

    No-Fault Coverages

    The liability coverage in the PAP protects you against loss if you are responsible to someone else for bodily injury or property damage because of an accident that was your fault. All the other coverages pay benefits without regard to fault. Thus, they could be referred to as no-fault coverages. This term, however, generally refers to legally required coverage added to the auto policy to compensate you and members of your family who are injured in an auto accident. This coverage, as discussed earlier, is called personal injury protection (PIP).

    In some states, the PIP provides only medical payments, whereas in other states it will also replace part of your income if you are disabled in an auto accident. It may also include payments to replace uncompensated personal services, such as those of the parent who maintains the home. If you operate your vehicle in a no-fault state, your coverage will conform to the state law. Usually, there is an aggregate limit per person per accident for all benefits provided by the PIP.

    Key Takeaways

    In this section you studied the components of the personal automobile policy (PAP), the auto insurance contract purchased by most people:

    • The PAP is structured as follows: declarations page, general insuring agreement, definitions, and parts A–F.
      • Declarations—identify the insured by name and address; specify term of policy, premiums charged, coverages provided, and limits of liability
      • Definitions—describe any term of policy in quotations
      • Part A—liability coverage: pays for bodily injury and property damage for which insured is responsible at single or split limits (subject to exclusions), provides legal defense, and makes supplementary payments
      • Part B—medical payments coverage: pays for necessary medical or funeral expenses because of bodily injury to a covered person, subject to exclusions, limits of liability, and other insurance
      • Part C—uninsured motorists coverage: pays for bodily injury caused by another vehicle whose driver has no or inadequate insurance or was a hit-and-run, subject to exclusions and other provisions
      • Part D—coverage for damage to your auto: pays for direct and accidental loss to the covered auto(s) on open perils basis through collision and comprehensive options, subject to exclusions and other provisions
      • Part E—duties after an accident or loss: must notify insurer immediately and meet other conditions
      • Part F—general provisions: general conditions applying to entire contract
    • Insurance on miscellaneous vehicles available by endorsement.
    • All coverages other than liability pay benefits without regard to fault.

    Discussion Questions

    1. Who is insured under the liability coverage of the PAP? Who gets paid in case of a loss?
    2. Explain the difference between a single limit for liability and split limits.
    3. Morton Jones currently has a PAP with only bodily injury and property damage liability coverages. While hurrying home one evening, Mr. Jones smashed through his garage door. There was damage to his car and extensive damage to the garage and its contents. Will Mr. Jones be able to collect for these damages under his PAP? Explain.
    4. The deductible for other-than-collision is usually smaller than for collision coverage. Does this make sense to you? How do you account for it?
    5. The insuring agreement for Part D of the PAP shown in "Appendix B" lists perils that are covered under other-than-collision coverage. Explain the meaning of this list and what protection is afforded under the policy for loss caused by one of the perils. Explain further the coverage for loss caused by a peril neither listed in the insuring agreement nor considered collision (such as lightning damage).
    6. Evelyn’s car skidded on a wet road and hit another car. She was able to get out of her car and assist the passenger in the other car until an ambulance and the police arrived. She felt okay, so she signed a form refusing medical treatment. Then she called a tow truck to take her car to a repair shop and took a taxi home. Now that the accident is over, what does Evelyn need to do to meet the conditions of her PAP?
    7. Joyce owns a Ford Explorer; her friend Sharon owns a Jeep. Joyce has coverage from State Farm and Sharon from ERIE. Both of them have exactly the same coverages and use the PAP. They have a single liability limit of $250,000 and the same limit for uninsured motorists. They have a $250 deductible for collision and a $100 deductible for other-than-collision. They have towing and labor and car rental reimbursement.

      Please respond to the following questions:

      1. Joyce borrowed Sharon’s Jeep when her Explorer was in the shop to replace recalled tires. While driving the Jeep, she was seriously injured by an uninsured drunk driver. The Jeep is a total loss. How much will be paid by each policy if it is determined that Joyce has $370,000 of bodily injury loss? Explain the process of the payment. Whose insurance company pays first and whose insurance company pays second? What amount is covered by each insurer for all the damage in this case? Find the justification for the coverages (if possible) in the PAP.
      2. In this case, the drunk driver destroyed his car. Would he get any reimbursement? Explain.
      3. Now that Sharon has no car and Joyce is in the hospital, Sharon is driving the Explorer. With her three children in the car, Sharon slid off an icy road and hit a tree. She was not injured, but the kids were taken to the emergency room for a few hours. The Explorer was damaged. What coverages will take care of these losses? Explain and find the justification in the PAP.

    This page titled 14.4: Types of Automobile Policies and the Personal Automobile Policy is shared under a CC BY-NC-SA license and was authored, remixed, and/or curated by Anonymous.