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title:HowtoInsureYourCar:AStepByStepGuidetoBuyingtheCoverageYouNeedAtPricesYouCanAfford
author:publisher: SilverLakePublishing
isbn10|asin: 1563431173printisbn13: 9781563431173ebookisbn13: 9780585048376
language: English
subjectInsurance,Automobile--UnitedStates,Insurance,Automobile--Policies--UnitedStates.
publicationdate: 1996
lcc: HG9970.3.H681996ebddc: 368.092
subject:Insurance,Automobile--UnitedStates,Insurance,Automobile--Policies--UnitedStates.
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HowtoInsureYourCarAStepbyStepGuidetoBuyingtheCoverage
YouNeedatPricesYouCanAfford
TheMerrittEditors
MERRITTPUBLISHINGADIVISONOFTHEMERRITTCOMPANY
SANTAMONICA,CALIFORNIA
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HowtoInsureYourCar
Firstedition,1996Copyright©1996byMerrittPublishing
MerrittPublishing1661NinthStreetSantaMonica,California90406
Foralistofotherpublicationsorformoreinformation,pleasecall(800)638-7597.OutsidetheUnitedStatesandinAlaskaandHawaii,pleasecall(310)450-7234.
Allrightsreserved.Nopartofthisbookmaybereproduced,storedinaretrievalsystemortranscribedinformorbyanymeans(electronic,mechanical,photocopy,recordingorotherwise)withoutthepriorwrittenpermissionofMerrittPublishing.
LibraryofCongressCatalogueNumber:96-079504
TheMerrittEditorsHowtoInsureYourCarIncludesindex.Pages:265
ISBN:1-56343-117-4PrintedintheUnitedStatesofAmerica.
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AcknowledgmentsTheMerrittEditorswhocontributedtothisbookincludeDeboraChan,CynthiaDavidson,JohnHartnett,JanKingandJamesWalsh.ThankstoMimiTennantandWendyHeichmanforhelpingpolishthefinalproduct.Thanksalsoto:KimberlyBaerDesignAssociates,KathieBaumoel,CynthiaChaillie,GingerMcKelveyandMeganThorpe.
SomeformsthatappearinthisbookarebasedonstandardformsusedwiththepermissionoftheInsuranceServicesOffice.
HowtoInsureYourCaristhefirstbookinMerrittPublishing'sHowtoInsure...series.UpcomingtitleswillincludeHowtoInsureYourLifeandHowtoInsureYourHome.Becausethesebooksaredesignedtomaketheconceptsandtheoriesofinsuranceunderstandabletoordinaryconsumers,theMerrittEditorswelcomeanyfeedback.Pleasefaxat(310)396-4563orcall(800)638-7597duringordinarybusinesshours,Pacifictime.MoreinformationfromMerrittPublishingisavailableontheInsWebInternetsiteathttp://www.insweb.com.
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TableofContentsChapter1WhyYouNeedCarInsurance 1
Chapter2HowtoFigureOutHowMuchCarInsuranceYouNeed 21
Chapter3HowCarInsuranceWorks 47
Chapter4ImportantDefinitions 69
Chapter5WhyLiabilityIsanImportantIssue 89
Chapter6WhyUninsuredMotoristsCoverageIsImportant 103
Chapter7HowNo-FaultInsuranceWorks 117
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Chapter8HowEndorsementsandOtherChangesWork 131
Chapter9TipsforShoppingforCarInsurance 145
Chapter10HowInsuranceCompaniesPriceCoverage 171
Chapter11HowtoMakeanInsuranceClaim 193
Chapter12CommonProblemsAndHowToAvoidThem
215
Chapter13Fraud 239
Index 255
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Chapter1WhyYouNeedCarInsuranceDanCharronfoundanold-fashionedwaytohandlethehighpriceofcarinsurance.TheOntario,Canada,driverwhodidn'thaveanyaccidentsonhisdrivingrecordwassofrustratedwiththecostofautoinsurancethathegotridofhiscarandstartedridingahorsetowork.
"It'smoreaprotesttotheinsurancebusiness,"Charrontoldalocalnewspaperinearly1995."Itishumorous,butI'mspeakingforalotofpeople."
Hefiguredhe'dsaveabout$17,000overfiveyearsbynotpayingcarinsurancepremiums.
Ridingahorseisn'tanoptionformostpeople.Inmoststatesyouhavetobuyautoinsuranceifyoudriveacar.
Insuranceisanecessityifyoudriveacaroruseacommerciallendertofinanceyourautomobilepurchase.Andannualpremiumscanamounttoaconsiderableamountofmoney.Sodoingtheresearchisworthwhile.
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NecessaryCoverages
Bodilyinjuryliability.Ifyouinjuresomeoneinacaraccident,thiscoveragepaystheirmedicalandrehabilitationexpensesandanydamagesforwhichtheymaysueyou.Inmoststates,youmustbuycoverageofatleast$15,000/$30,000(the$15,000paysforinjuriestooneperson;the$30,000isthetotalavailableperaccident).
Propertydamageliability.Ifyoudamagesomeone'spropertyinanaccidentforwhichyouareatfault,thiscoveragepaystofixit.Inmoststates,youmustbuy$5,000worthofcoverage.Manystandardpoliciesincludeahigherlimitoften$25,000.
Medicalbenefits.Thiscoveragepaysmedicalbillsforyouandotherscoveredonyourpolicy,nomatterwhowasatfaultfortheaccident.Inmoststates,youmustbuyatleast$5,000worthofcoverage.Thetypicaldriverbuys$10,000worth.Thiscoverageusuallydoesnothaveadeductible.
AlmostNecessaryCoverages
Collision.Thiscoveragepaystorepairdamagetoyourcarinanaccident.Likemedicalbenefits,it'sno-faultcoverage.Ifyou'refinancingacarpurchase,mostlendersrequireyoutobuycollisioncoverage.Insurancecompanieswillusuallygiveyoua$500deductibleunlessyourequestanotheramount.Thehigheryourdeductible,theloweryourpremium.
Comprehensive.Thiscoveragepaysfortheftordamagetoyourcarfromhazardsincludingfire,flood,vandalismorstrikingananimal.Again,mostlenders
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requireyoutobuythiscoverageifyou'refinancingyourcar.Andyoucanalsosetyourdeductibleforthiscoverage.
Uninsured/underinsuredmotorist.Thiscoveragepaysforlossesanddamages,includingyourmedicalbills,lostwagesandpainandsuffering,ifyouarehitbyapersonwhodoesn'thaveanyinsuranceorenoughtocoverthedamage.Itusuallymakessensetopurchasethesamelevelofthiscoveragethatyouhaveforbodilyinjuryliability.
OptionalCoverages
Extraordinarymedicalbenefits.Thiscoveragepayswhenyourmedicalandrehabilitationexpensesexceedthelimitsinyourpolicy.Itprovides$1millionofcoverage.
Incomeloss.Thiscoveragepaystheamountofyourtake-homepaywheninjuriesfromanaccidentkeepyoufromworking.Paymentsaremadewithoutregardtowhetheryouhaveotherdisabilityinsurancecoverage.
Funeralbenefit.Thiscoveragepaysupto$2,500ifyouorafamilymemberdiesinanautoaccident.Thecostisnominal.Nationwide,forinstance,charges40centsperyearfor$1,500worthofcoverage.
Rentalcarreplacement.Thiscoveragepaysasetamountperdayforarentalcarifyourcarisbeingrepairedbecauseofanaccident.
Towingandlaborcosts.Thiscoveragepaysforroadservice,suchasjump-startingyourcarorchanginga
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flattire,andtowing,whichcanbeusedanytimeyourcarbreaksdown,notjustwhenit'sinvolvedinanaccident.Thecoverageshouldn'tcostverymuchusuallylessthan$5ayear.
ChangesToTheSystem
Thewayinsuranceisstructuredandsoldisgoingthroughsomesignificantchanges.Beforethe1980s,thequestionmostpeopleaskedthemselveswas:CanIaffordthecarIreallywant?Sincethe1980s,thequestionhasbecome:Okay,Icanjustbarelyaffordthecar...butcanIaffordtocarryinsuranceonit?
Insurancecompaniesdecidetowhomthey'llsellapolicyaswellasthepricethey'llchargevirtuallydifferentforeverypersonbasedonatwo-pageapplicationform.Knowinghowtofilloutthatapplicationbecomesacriticalprocess.
Knowinghowinsurancecompanieswillusetheinformationyougivethemputsyouonevenfooting.Knowingwhatkindofinsuranceyouneedandwhatyoudon'tcangiveyouanedge.
It'sAboutMoneyAndRisk
AccordingtotheWashington,D.C.-basedgroupConsumersUnion,theaveragehouseholdspends$9,000overa10-yearperiodonautoinsurance,butfilesjustoneclaimtypicallyforabout$600.Thatsoundslike
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abaddeal.But,ifyouknowwhatyou'redoing,youcanmakeitbetter.
Autoinsuranceremainscontroversialbecauseit'sinfluencedbybehavioralanddemographicrealitiesthatsomepeoplewouldratheravoid.Butavoidingrealityissilly.Anditcanbeexpensive.
ConsidertheseCaliforniaHighwayPatrolfiguresfor1989:
The20-to-24agegroupaccountedfor10.6percentofalldrivers.Theywereinvolvedin17.6percentofthefatalaccidentsand16.6percentoftheinjuryaccidents.
The60-to-64agegroupaccountedfor4.9percentofalldrivers.Theywereinvolvedin2.9percentofthefatalaccidentsand2.6.percentoftheinjuryaccidents.
Theover-65agegrouprepresented11.2percentofthestate'slicenseddrivers.Theywereinvolvedin7.3percentofthefatalaccidentsand5.6percentoftheinjuryaccidents.
ANationalHighwayTrafficSafetyAdministrationreportfoundthenationwidecrashinvolvementrateforthe16-to-19agegroupis28.6accidentspermillionvehiclemilestraveled.Theratesdropmarkedlyforthemiddle-agebrackets;thentheyriseagainintheseniorrange,reaching6.4forthe70-to-74agegroupand7.7forthe75-to-79.Amongtheoldestdrivers,thecrashratesreachtheirhighestlevels15.1forthe80-to-84groupand38.8atages85andolder.
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Ofcourse,autoinsurancecan'tpreventautomobileaccidentsfromhappening.Itspurposeistooffsetsomeofthefinanciallossthatresultsfromanaccident.Thiskindoffinancialprotectionisgenerallyreferredtoascoverage.
Thekeytobuyingtherightkindofautoinsuranceandusingitcost-effectivelyonceyou'veboughtitisunderstandinghowthecoverageworks.
Asyou'llseeinthisbook,variouscoveragesaredesignedtoprotectyourautoinvestment,topaymedicalexpenseswheninjuryoccurs,andtocoveryourlegalliabilitytootherswhomaysufferinjuryordamages.
Thisdoesn'tmeanthatallpossibleexpensesorlosseswillbecovered.Limitsofinsuranceapplytoinsurancecoverages,andeachinsurancepolicyhasexclusionsandexceptions.
Still,autoinsuranceisdesignedtoreducemanyofthefinanciallossesthatcouldotherwiseresultfromowningoroperatingacar.Withoutinsurance,youwouldhavetobeartheentirecostwhenaccidentalinjuriesordamagesoccur.
TheRulesOfTheInsuranceGame
Thechangesthatareworkingthroughtheinsuranceindustryaffectyouasanautoinsurancepolicyholderinacoupleofbasicways.
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First,thewayinsuranceissoldischanging.Itusedtobesoldexclusivelythroughmiddlementheinsuranceagentswhoeitherrepresentedonecompanyoragroupofcompanies.Inthe1990s,agrowingnumberofautoinsurancecompanieshaveswitchedtosellinginsurancedirectlytopolicyholders.Theydothisthroughdirectmail,telephonemarketingandevencomputeron-lineservices.
Ifyouuseaninsuranceagent,thatpersonmakesa15percentcommissionwhenyoubuyyourautoinsurancepolicyandanadditional12to15percenteachtimeyourenewit.Thiscommissioncanbeagoodinvestmentifyoursituationisunusualorifyouexpectdifficultiesmakingclaims.But,formanypeople,thatmoneywouldbebetterspentbuyingadditionalcoverage.
Second,thewayinwhichstatesregulatethesaleanduseofinsuranceischanging.Moststateshavespecificrequirementsforautocoverage,andmanyinsurancecompaniesofferbasiccoveragethatfulfillsthoserequirements.
Stateinsuranceregulatorswatchautocoverageclosely.Theyfocusontwoareas:ratesettingandclaimspaying.Autoinsurancecompanieshaveareputationinsomecases,well-deservedforbeingveryslowtopayevenlegitimateclaims.
AccordingtoonesurveyconductedinWashingtonstate,morethan40percentofthosewhofiledautoinsuranceclaimsarenotcompletelysatisfiedwiththeresults.Otherstatesfindevenmorepeopleunhappy.
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Claimshandlingrepresentsthenumberoneautoinsurancecomplaintthatmoststateinsurancecommissionersreport.Widespreadpoorexperiencescontributetotheconsumer'sdistrustofinsurancecompaniesandthewaytheydobusiness.
Third,theroleofinsuranceinsocietyischanging.Asmorepeoplegrowmorewealthyevenifit'sjustrelativelywealthytheyhavemoretoprotect.Thismakesinsurancelessofanoptionalsafetymeasureandmoreofanecessityoflife.
Allofthesechangesmakeitmoreimportantthatyouunderstandthefundamentalsofhowthecoverageworks.
WhatYou'llFindInThisBook
Thepurposeofthisbookistohelpyouunderstand:
howinsuranceworks,
whycertainkindsofinsuranceareimportant,
howtocalculateyourneeds,
howtobuyinsurancewisely,
howtoreadthepolicyyoubuy,
howinsuranceispriced,
howtomakeaclaimwhenyouneedto,
howtoavoidcommonclaimsproblems,and
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howtoavoidgettingrippedoff.
You'llfindthesepointshandledineachchapter,offeringbackgroundexplanations,examples,casestudyillustrations,checklistsandsampleforms.
BuyingInsuranceBecauseYouHaveTo
Themainreasonyouneedcarinsuranceisthatthelawsaysyouhavetohaveit.Thismandatedinsuranceusuallyrelatestoliabilityexposures.Youhavetobeabletopayfordamagetootherpeopleortheirpropertythatyoucause.
Moststatescalltheselawsfinancialresponsibilityrequirements.Technically,youcanusesomethingotherthaninsurancetomeettherequirements.Manystateswillallowyoutopostacashbondinsteadofbuyinginsurance.Ifyoucauseanaccident,anyoneyouhurtcanmakeaclaimagainstthebond.
But,formostpeople,insuranceisthemostcost-effectivewaytomeettheresponsibilityrequirements.
Eachstatehasitsownspecificlawsregardingfinancialresponsibility,insurancecoverage,orno-faultcoverage.
Thevariationsthatexistfromstatetostatecancausesomeconfusion.Thestandardcarinsurancepolicy1issuedbytheInsuranceServicesOffice(ISO)aclearinghouseforinsuranceindustryinformationincludesthefollowinglanguage:
1Whileeachstatemakesspecificchangesforitsinsurancerequirements,theISOstandardpolicyremainsacommonreferencepointthatallstatesuse.Throughoutthisbook,wewillrefertotheISOstandardautopolicyformwhendiscussingpolicylanguage.
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Whenthispolicyiscertifiedasfutureproofoffinancialresponsibility,thispolicyshallcomplywiththelawtotheextentrequired.
Astatemayrequireevidenceoffinancialresponsibilityfromadriverinordertoreinstateadriver'slicensewhichhasbeensuspendedorrevokedduetoabaddrivingrecordoranunsatisfiedjudgmentfromapreviousautoaccident.Onemeansofshowingproofisfortheinsurancecarriertofileadocumentwiththestateagencycertifyingcoverageinforce,policylimits,coveragedates,etc.
OtherKindsOfMandatedCoverage
Ifyou'veborrowedmoneytobuyacar,thelendinginstitutionwillusuallyinsistthatyouhavecollisioncoverage.Ifyoudon'tortheinsuranceyouhavelapseswhileyoustillowemoneyonthecarthefinancecompanymaybuyinsuranceforyouandaddthecosttothemoneyyouowe.Thisreplacementinsuranceisusuallyextremelyexpensiveandextremelylimitedinwhatitcovers.
Thewholeissueofforcedreplacementinsuranceiscontroversial.
InJanuary1995,a$38.5millionjurydecisionagainstMississippibankingcompanyTrustmarkCorp.broughtthepracticeofreplacementinsuranceintoquestion.
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AMississippijuryawardedthesurprisinglylargeamounttoamanandhisfather-in-law,concludingthatthebankhadwronglybilledthem$9,000forwhatitcalledcollateralprotectioninsurance.Thepremiums,whichTrustmarkaddedtotheamountowedonthecar,weremorethanthe1988NissanSentraitself.
Thecarwaseventuallyrepossessedbecausetheownercouldn'tmakepaymentsonthe$9,000premiums.Theformerownerthensued.
LawrenceAbernathy,thelawyerwhorepresentedtheowneroftheNissanandhisfather-in-law,saidhehadsome20otherlawsuitspendingagainstTrustmarkconcerningitsautoinsurancefinancingpractices.Hehasalsorequestedclass-actionstatusforthecases,inresponsetotheprospectofanincreasedcaseload.
Coveragefordamagetoyourauto
Eventhoughyouhavetohaveinsurancewhenyoudriveacar,mostpeoplewanttobuyinsurancetoprotecttheirautomotiveinvestment.
ThestandardPersonalAutoPolicyprovidescoveragefordamagestocoveredautos.Althoughitiscalled''CoverageforDamagetoYourAuto"inthepolicy,ithastraditionallybeenknownasphysicaldamagecoverage.
Thispartofthepolicysaysthattheinsurancecompanywill"payfordirectandaccidentallosstoyourcoveredauto,oranynon-ownedauto,includingitsequipment,minusanyapplicabledeductible."Itthereforecoversanytypeofdamagewhichisnotexcluded.
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Ifthecollisiondamagesmorethanone"coveredauto,"thehighestapplicabledeductiblewillapply.
CoverageforDamagetoYourAutoactuallyconsistsoftwoseparatecoverages"collision"and"otherthancollision."Youcanbuyeitherorbothofthesecoveragesforeachcaryouinsure.EachcoverageappliesonlywhentheDeclarationsindicatethatthecoverageisprovidedbyshowingapremiumforthevehicle.
Inthestandardautopolicy,"collision"isdefinedas"theupsetofyourcoveredautooranon-ownedautoortheirimpactwithanothervehicleorobject."Notethatcollisionwithanobjectiscovered,evenifitisnotanothervehicle.
Thestandardpolicyclearlyspellsoutthelossesthatarenotcollisionlosses("OtherthanCollisionCoverage"):missiles,fallingobjects,fire,theft,explosion,earthquake,windstorm,hail,water,flood,maliciousmischief,vandalism,riot,civilcommotion,contactwithabirdoranimal,andbreakageofglass.
Autopoliciesarealmostalwayswrittenwithhigherdeductiblesforcollisionthanfornon-collisionlosses.
Deductiblesareanamountofmoneyyouhavetopaybeforeyourinsurancetakesover.Inautoinsurance,deductiblesusuallyfallintherangebetween$250and$1,000perloss.Ifyouhavea$500deductibleandgetinanaccidentthatdoes$2,000indamagetothefrontendofyourcar,youhavetopaythefirst$500andtheinsurance
companywillpaythe$1,500balance.
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Bytreatingcontactwithananimalasanon-collisionloss,youhavetheadvantageofhavingalowerdeductible2apply.Thisdifferenceindeductiblesisanimplicitrecognitionofthefactthatdriversusuallyhavegreateropportunitiestoavoidcontactwithothercarsorobjectsthanfree-movingcreaturesthatreactunpredictablytolights,motion,andsound.
Ifyoucauseanaccidentthatresultsindamagetoacaryou'redrivingbutdon'town,theISOstandardpolicywillprovidethebroadestcoverageapplicabletoanycoveredauto.
Thestandardpolicydefines"non-ownedauto"asanyprivatepassengerauto,pickup,van,ortrailerwhichisoperatedbyorinthecustodyof,butisnotownedbyorfurnishedfortheregularuseof,thenamedinsuredorafamilymember.Alsoincludediscoveragefor"temporarysubstituteautomobiles."
Travel
Driversoftentaketheircarsintoastateotherthantheoneinwhichtheylive.Becauseinsurancelawsvaryfromstatetostate,settlingaclaimcanbecomecomplicatedifanaccidentoccurswhenyouareawayfromyourhomestate.
Theout-of-statecoverageprovisionsinastandardautopolicyrefernotonlytotherequiredminimumamountsofcoverage,buttorequiredtypesofcoverage
2Formoreondeductibles,howtheyworkandhowtheyimpactthecostof
insurance,seeChapter9.
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aswell.Thismeansthatifyoudriveintoastatewhereno-faultbenefitsorothertypesofcoveragearerequired,thepolicywillautomaticallyprovidetheminimumamountsandtypesofcoverage.
MostpersonalautopoliciesrestrictthepolicyterritorytotheUnitedStates,itsterritoriesandpossessions,PuertoRico,andCanada.
Ifyouaretravelingoutsideyourhomestate,thepolicywilladjusttotheselawsbyautomaticallyincreasingtheliabilitylimitstoconformtothatstate'slaws,andprovidingcoveragesasrequiredbythestatetoconformtoitslawswithrespecttoanonresidentdrivinginthestate.
IfyoudriveyourcarintoMexicoyoumusthavevalidliabilityinsurancefromaMexicaninsurer.IfyoudonotandareinvolvedinanaccidentinMexico,youmaybedetainedinjail,haveyourcarimpounded,andbesubjecttootherpenalties.
Carrentals
Oneofthemostfrequently-askedquestionsaboutcarinsuranceis:DoIneedtobuyinsurancewhenIrentacar?
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Whenyourentacar,youwillusuallybeofferedacollisiondamagewaiverorCDW.(SomerentalcompaniesusethetermlossdamagewaiverorLDWthecoverageiseffectivelythesame.)
Thiswaiverreleasesyoufromresponsibilityfordamagetotherentalcar,providedyoucomplywiththerentalcontractterms.Ifyoudeclinethecoverageandhaveanaccident,youmaybeheldresponsiblefortheentirevalueofthecar.
Onecommonproblemisthatmanyofthesepoliciescontainlimitationsandloopholesthatrenterscanunwittinglyviolate,voidingthecoverage.Forexample,CDWcanbevoidedifyoudriveonanunpavedroad...orifyouengagein"negligent"drivingandthecar-rentalcompanydefinesnegligent.
CDWisusuallyoverpriced,addingabout$11adaytothecostofrentingacarin1995.InIllinoisandNewYorktwostateswhererentalcompanieshavetobundlecollisioncoverageintotheadvertisedrentalrateaverageratesareonlyabout$2.50adayhigherthanintherestofthecountry.
CDWoftenduplicatescoverageyoualreadyhave.Manyregularautoinsurancepoliciescoverdamagetorentedcars,althoughthefineprintmayrestrictthetypesofrentalsitcovers.
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Beforeyouturndowntherentalcoverage,though,it'simportanttoknowwhatkindofcoverageyoualreadyhave.
Ifyoucarrycollisioninsuranceonyourowncarandyourpolicyalsocoversrentedtechnicallycallednon-ownedvehicles,itissafetodeclinethecollisiondamagewaiver.
Asforliabilityinsurance,yourownautopolicyshouldprotectyouandyourpassengersinarentedcaraswellasinyourowncar.
Forexample,ifarentalcarisstolenfromyou,thelossofthevehicleitselfmightbecoveredasatheftlossunderyourpolicy.Buttheinsuringagreementforphysicaldamagelossesonlyappliestodirectloss.Ifittakessometimefortheinsurancecompanytosettletheclaim,therentalcarcompanymightincuradditionallossesbecausethecarisnotavailabletoearnrentalincomebyrentingittosomeoneelse.Thiswouldbealossofuseexpensefortherentalcarcompany.Whethertheinsuredislegallyliableforthislossmightdependuponthecircumstancesofthetheftandthecontentoftherentalcaragreementyou'vesigned.
Coveragemayalsodependonwhetheryouusethecarforbusinessorpleasureorwhetheryourvehicleathomeisstillbeingusedinyourabsence.Somepolicieslimitthenumberofrentaldayscoveredeachyear.Othersapplydeductiblesandlowerliabilitylimitstocollisioncoverageandthereforerentalcarcoverage.
CDWisn'ttheonlyadditionalinsurancerentalcompaniesmaytrytosellyou.Otherkindsinclude:
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Supplementalliabilityinsurance.UnliketheCDW/LDW,thisoptionprotectstherenteragainstproperty-damageorpersonal-injuryclaimsoverandabovebasicliabilitylimitsprovidedintherentalagreementusuallytheminimumrequiredbystatelaw.
Personal-effectscoverage.Thisprovideslimitedreimbursementtotherenterforlossofbaggageandotherpersonalpropertyduringtherentalperiod.
Personalaccidentinsurance.Thisprovideslimitedaccidental-deathbenefitsfortherenterandoftenpassengers.
Ofthese,supplementalliabilityisonecoverageyoushouldconsiderdependingonwhereyou'rerentingthecar.Insomestates,majorcarrentalcompaniesarebeginningtoshiftprimaryliabilityresponsibilitytorenterswhohavepersonalinsurance.Thatmeanswithoutsupplementarycoverageyoucouldbefacedwithfinancialdisasterifyouaresued.
Yourownautoinsurancewillcovercollisiondamagetothecaryourent.Italsoprobablycoversyouforliabilityincaseyouhurtsomeoneordamagesomeoneelse'sproperty.Yourhomeowner'soroccupant'shouseholdpolicymaywellcoveryourpersonaleffects,evenwhenyou'reonatrip.
Ifyouneedextraaccidentinsurance,youneeditfulltime,notjustinarentedcar.
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Lostwages
Anotherreasonthatsomepeoplebuycarinsuranceistoprovidecoverageforlostwagesthatmightoccurafteranaccident.Thiskindofcoverageisoftencalledanincomecontinuationbenefit.Policiesthatofferthisbenefitcoversomeportionofsalaryandotherwagesyoudon'treceivewhilerecuperatingfrominjuriessufferedinacaraccident.Buttheselossesaresometimesdifficulttoestablish.
Themostcommonissue:Peopletrytomakeclaimsforlossoffutureearningswhentheyareseriouslydisabledinacaraccident.Theseclaimsseekmoneyforincomethatmighthavebeenearnedinthefutureandtheyhappenmoreoftenthanyoumightthink.Peoplehurtwhileridinginsomeoneelse'scar,peopledrivingtheirowncarsandeventhefamiliesofpeoplekilledincaraccidentshavetriedtomakefutureearningsclaims.
Inmostcases,courtshaveruledthatlostwagesarecoveredonlyduringaperiodofrecuperationfrominjuriessufferedinanaccident.So,it'snotanindefinitebenefit.
Lawsrestrictinglostwagescoveragearenowcommonthroughoutthecountry.Althoughthestatutorylanguagevariessomewhatfromstatetostate,theprevailingruleisthatwagecontinuationbenefits,whencharacterizedinthestatuteasbeinginthenatureofdisabilitybenefits,arenotrequiredtobepaidforperiodsaftertheinsuredperson'sdeath.
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Conclusion
Thischapterhasexploredsomeofthemostbasicreasonsthatyouneedtohaveautoinsurance.Inthenextchapter,we'lllookatsomeofthetoolsyoucanusetocalculateexactlyhowmuchandwhatkindofcarinsuranceyoushouldbuy.
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Chapter2HowtofigureouthowmuchcarinsuranceyouneedOnceyou'vedeterminedwhetherornotyouneedcarinsuranceatall,yournextstepistodeterminewhatkindofcoverageandhowmuchyouneedtobuy.
Asanautoinsurancepolicyholder,yourchoiceofwhichcoveragetopurchasewillbeinfluencedbythefollowingquestions:
Whatcoveragemustbepurchasedbecauseofstatelaw?
Whichcoveragedoyouneedorwant?
Howmuchwilloptionalcoveragescost(themorecoveragesbeingpurchased,thehigherthepremium)?
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Whoyouare
Thisisthemostimportantfactorindeterminingyourinsuranceneeds.It'snotaphilosophicalquestionbutasimplermatterofcalculatingwhatkindofriskprofileyouposetoaninsurancecompany.Someelementsofthisprofilearebasedondemographicfactorsbeyondyourcontrol.Otherelementsarebasedonlifestyleneedsthatyoucanidentifyandevenchange,ifyouchooseto.
Certainage,sexandmaritalstatusclassificationsarewhatinsurancecompaniesrefertoasprimaryfactorsfiguredintopremiumformulas.
Theageclassificationsusuallyapplytoyouthfuloperators.Amongyouthfuloperators,greaterdistinctionshavebeenmadeintheriskfactorsattributabletoage,sex,maritalstatus,drivertrainingcredit,andwhetheranoperatorisagoodstudent.
Ifyou'reayoungdriverinsuringyourself,you'llpaymorethananyotheragegroup.Dependingonwhereyoulive,youmayhaveveryfewchoicesaboutwhatkindofinsuranceyoucanbuy.Ifyou'reaparentorguardianwhohasayoungdriverinyourfamily,heorshewilllikelybethesinglebiggestcostdriverinyourinsurancepremium.Iftheyoungdriverqualifies,inquireaboutgoodstudentdiscounts.
Withintheagebrackets,genderandmaritalstatustakeeffect.Forexample,allmalesunderage25qualifyas
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youthfuloperatorswithmostinsurancecompaniesbutonlyunmarriedfemalesautomaticallydo.Generally,singlemenyoungerthan25willpaythehighestpremiums.
Asdatedaconceptasitmayseem,maritalstatusdoesmeanagreatdealtoinsurancecompanies.Mostinsurancecompaniessaythatmarriedpeoplearelesslikelytobeinvolvedincaraccidents.So,whenyou'recalculatingyourneeds,beingmarriedprobablyaddsanotherdrivertoyourpolicybutitmovesyouintoabetterriskprofile.
Foradultoperators,thereareonlythreeclassificationsbasedonageandsexallotherclassificationsrelatetouseofthevehicle.However,ontheotherendofthelifespanfromtheyouthfuloperator,seniorcitizensarethemainadultclassification.Olderdriverspaymoreforlessinsurance.
Seniorcitizenscanusuallygetdiscountsiftheysuccessfullytakedriversafetycourses.Also,theirdiscountsforkeepingvariouslinesofinsuranceforinstance,homeownersandpersonalliabilitywiththesamecompanyaresometimesbigger.
Periodically,demographicpremiumratingsarechallengedincourt.Theoften-cited1983FloridaappealscourtdecisionStateDepartmentofInsurancev.InsuranceServicesOfficedefendedthepracticeofusingdemographicfactorsindetermininghowmuchinsuranceapersoncanbuyatwhatprice.
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Thedecisionoverturnedaruleprohibitinginsurersfrom,''withrespecttopremiumschargedforautomobileinsurance,unfairlydiscriminatingsolelyonthebasisofage,sex,maritalstatus,orscholasticachievement."
TheFloridacourtheldthattherulewasaninvalidexerciseofdelegatedauthority.Itreasoned:
Inenactingthisstatutethelegislatureobviouslyintendedtopermitdiscriminationbasedonsex,maritalstatus,andscholasticachievementsolongasthisdiscriminationisnotunfairorbasedsolelyonthesefactors.
Yourdrivingrecord
Whilewhoyouareistheprimaryfactorthatinfluenceshowinsurancecompanieslookatyouasanautorisk,therearesecondaryratingfactorsbasedonsomespecificvariablesuniquetoeachindividual.Thesesecondaryfactorsalsodetermineyourcoverageneeds.
Yourdrivingrecord(whatinsurancecompaniescallsub-class)isthemostimportantofthesesecondaryfactors.Insurancecompanystatisticssaythat,themoreaccidentsyouhave,themorelikelyyouwillbeinvolvedinanotheraccident.
Ifsomeoneinyourfamilyhasabaddrivingrecord,youneedtoconsidertwothings.First,youmaybelimitedinwhatkindofinsuranceyoucanbuy.Second,youmayhavedifferentneedsthanyouthoughtyoudid.Whileahigh-riskdriverincreasesyourinsurancecosts,heorshealsoincreasesyourneedfor
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liability,medicalpayments,collisionandotherthancollisioncoverages.THEVEHICLESINYOURHOUSEHOLDThedriversinyourhouseholdandtheirdrivingrecords
makemodel year VINVehicle1Vehicle2Vehicle3Vehicle4
name agemovingviolations
last5yrs.at-faultaccidents
last5yrs.primaryvehicle
Driver1(namedinsured)Driver2Driver3Driver4Driver5Ageimpactsyourinsurancecostsonthelowandhighendsunder24yearsandover65yearswillmakecoveragemoreexpensive.Youmayhavetoadjustliabilitylimitsaccordingly.Listmovingviolationsbycharge(speeding,recklessdriving,drivingwhileintoxicated).Ifadriverhashadseveralviolations,checkhisorherlicensestatus.Listdamagesrelatedtoat-faultaccidents,ifthatinformationisavailable.Theprimaryvehiclecolumnreferstoanyhouseholdvehiclesthispersondrivesmorethananyoneelsedoes.Avehicledrivenprimarilybyahigh-riskdriveri.e.,ateenagerwillcostmoretoinsurethanavehicledrivenoccasionallybythatdriver.
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Atsomepoint,youmayneedtotakethekeysawayfromariskydriver.Intheinsurancecontext,youcandothisbymakingthatpersonanamedexclusionfromcoverageunderyourpolicy.Becarefulofdoingthisit'sadiresituation.Theinsurancecompanywillwritethiskindofexclusion,butitmayleaveyoueffectivelyself-insuringthathigh-riskdriver.Ifyouexcludehimorherbynamefromyourcoverage,makesurethatpersondoesn'tdrive.
Inpracticalterms,excludingfamilymembersfromaninsurancepolicydoesn'tworkveryoften.Itdoesn'tsolveyourproblemonlytheinsurancecompany's.Whenthisdoeswork,itusuallyinvolvesolderfamilymemberswhosedrivingskillshavebeenerodedbyage.Excludeateenageronlyifyou'recertainyoucankeephimorherfromdriving.
Whereyoulivewithinthestate
Anotherfactoriswhatkindofneighborhoodyoulivein.Ifyouliveinalargemetropolitanarea,youwillprobablypaymoreforautoinsurance.Ifyouliveincertainzipcodesorareaswithinabigcity,yourinsurancemaybeevenmoreexpensivestill.
Whilesomeinsurancereformplansdoawaywithit,moststatesstillallowinsurancecompaniestoadjustinsuranceratesaccordingtoneighborhood.Thispracticeinextremecases,calledred-liningpenalizes
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peoplewholiveinhigh-crimeandhigh-accidentareas.Criticsarguethatthisquicklybecomesamechanismforunfairlydiscriminatingagainstcertaingroupsofpeople.
Candidinsurancecompaniesadmitthisisaprocessofdiscriminatingbadrisksfromgoodones.Theyarguethatclaimshistoriessupporttheirpremiumstructures.
Foryourinsuranceneeds,higherlocalratesmeanmorepeoplemaybedrivingwithoutinsurance.Theyalsomeanagreaterriskofhit-and-runaccidents.Thatmeansuninsuredandunderinsuredmotoristscoveragebecomesmoreimportant.Ifyouliveinabigcityanddriveanewcar,youshouldmakesureyouhaveUMthatcoversthecar'svalueandyourown.
Inmoststates,UMappliesonlytobodilyinjury.Inafewstates,italsoappliestopropertydamage,orpropertydamageUMcoveragemaybeavailableasanoptionalcoverage.RatesforUMcoverageoftenapplyto$50,000singlelimitcoverageor$25,000/50,000splitlimitsofcoverage.Ifhigherlimitsaredesired,anadditionalflat-dollarpremiumchargeisaddedtothebaserate.
Also,livinginahigh-riskneighborhoodputsmoreimportanceonkeepingyourcarinagarage.Garagedcarsarelesslikelytobesideswipedbyerrantdriversorstolen.Ifyoukeepyourcarinside,you'llgetabreakonyourinsurancepremium.Inahigh-riskarea,thatbreakwillbebigger.
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Howmanyassetsdoyouhavetoprotect?
Youprobablycan'tchangethedemographicsofyourlife.Butthat'sonlypartofcalculatingyourneeds.Alotofwhatdetermineshowmuchinsuranceyoushouldbuyisbasedonthingsyouhavemorecontrolover.
First,yournetworthdefineshowmuchliabilitycoverageyoushouldbuy.Ifyou'renotworthmuch,thestateminimumswillprobablycoveranyliabilityyoumightface.But,ifyouhavesomeequityworthprotecting,you'llwanttomakesureyou'recoveredontheliabilityend.
Theyusuallydon'trealizeit,butdrivingisthemostpotentiallydangerousthingmostpeopledointhenormalcourseoftheirlives.Intermsoffinancialliability,atwo-caraccidentinvolvingfourpeoplecaneasilygenerateseveralmilliondollarsinlosses.
Youdon'thavetoberichtobeconcernedaboutprotectingyourassets.Instateswithaliabilityminimumof$50,000,eventheequityinamodestsuburbanhouseisworthprotectingwithahigherliabilitylimit.That'swhymostcompaniesofferstandardinsurancepackagesthatinclude$100,000,$300,000andeven$1millioninliabilitycoverage.
Onesimplewaytocalculatehowmuchliabilitycoverageyouneedistoadduptheequityvalueyouhave
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inyourhouse,anyotherpropertyyouown,majorpersonalpossessionslikecars,jewelryorcollectiblesandanysavingsorliquidinvestmentsyouhave.(Inthecasesoftherealestateandpossessions,youdon'tevenhavetoownthemoutright.Calculatethecurrentmarketvalueminuswhateverdebtsyouhaveagainstthatvalue.)
PERSONALASSETSINVENTORYmarketvalue
relateddebtandrestrictions
netvalue
1.home2.otherrealestate3.capitalinvestments4.cashsavings5.accessiblepensionaccounts6.cars,othervehicles7.art,othercollectibles8.jewelry,etc.9.recreationalequipment10.otheritemstotal
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Listmostrecentcomparablevalueorinsuredvaluefromothercoveragesformarketvalue.
Debtsandrestrictionsincludemortgages,liensandotherencumbrancesonrealestateproperty.Theywouldalsoincludemarginloansoncapitalinvestmentsandliquidationcostsorpenaltiesonaccessiblepensionaccounts.
Themarketvalueapplicabletocarsandothervehiclesshouldbeconsistentwiththeinsuredvalueslistedelsewhereinyourautopolicy.
Art,jewelryandothercollectiblesmaybecoveredseparatelyunderahomeownersinsurancepolicy.Ifso,youmaychoosetokeepthemoutofthiscalculation.However,somehomeownerspolicieslimitcoverageforauto-relatedliabilities.Ifyouhaveasubstantialamountofmoneytiedupinthesekindsofpossessions,youshouldconsiderumbreallaliabilitycoverage.
Thetotalvalueofallthesethingsevenifyoucouldn'traiseitbysellingeverythingtomorrowiswhatyouneedtoprotect.Youshouldhaveliabilitycoverageofatleastthisamount.
Thebiggestmistakemostpeoplemakeontheirautoinsuranceisthattheyareunderinsuredonliabilitycoverageandoverinsuredoncollisionandcomprehensivecoverage.
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Someexpertsadviseyoutoaddinanypensionorretirementbenefitsyouhaveorinvestmentsyou'vemade.Althoughtheseusuallycan'tbeseizedorliquidatedinalegaljudgment,theirbenefitscanbeattachedovertime.Tobeconservative,youmightwantliabilitycoverageequaltoyourretirementbenefit.
Ifyouhaveassetsworthmorethan$300,000,youshouldconsiderbuyinga$1millionliabilityumbrellapolicyinadditiontoyourautoinsurance.Anumbrellapolicycoverseverythingandpaysoffifdamagesexceedthelimitsofeitheryourautoorhomeownerspolicies.A$1millionumbrellapolicygenerallycosts$100to$200ayear.
Liabilitycoverageisn'ttheonlypartoftheautoinsurancepackagethatyoucanadjust.Themedicalpaymentssectioncanalsoincludegreaterorlesserlevelsofcoverage.Medicalpaymentscoverageisalwayswrittenwithasinglebasiclimitthatappliesperpersonineachaccidentbutthatlimitcanbeadjusted.
Youcanincreasetheamountofmedicalpaymentscoverageabovebasiclimits.Inmostcases,thisisaneasierprocessthanincreasingliabilitylimits.Yousimplyaddaflatdollaramounttothepublishedrateforeachadditionalunit(usually$5,000)ofcoverage.
Generally,ifyouhaveahealthinsuranceplanforyouandyourfamilywithwhichyou'rehappy,youcankeepthemedicalpaymentscoveragetothestateminimum.
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Insomecases,yourinsurancecompanyoragentifyouuseonemightsaythathigherliabilitylimitsandlowermedicalpaymentslimitsaretoughtocombine.Don'ttakethisasanabsolute.Whilesomeinsurancecompaniesprefertokeepliabilitylimitsconsistentinhigh,middleandlowpackages,theycanmixcoveragelevels.
Howyouuseyourcar
Yourinsuranceneedsandtheinsurancecompany'sriskanalysiscoincideinthequestionofhowyouuseyourcarorcars.Theinsurancecompany'sprimaryratingfactorsincludeautomobileuseclassifications.Theseinclude"pleasureuse,""businessuse,""farmuse,"and"drivingtowork.''
Ifyouonlyusethecarforpleasure(thisissometimescalledoccasionaluse),yourpremiumwillbelowerthanifyoudriveiteverydaytowork.Carsthatyouclaimforbusinessusetendtobeevenmoreexpensivetoinsure.
Generally,theuseissuecomesintoplaywhenyou'reinsuringmorethanonecar.Ifyourhouseholdhastwoorthreecars,youprobablyshouldn'tinsurethemallaswork-orbusiness-related.Trytoinsureatleastoneofthecarsyoudon'tdriveeverydayaspleasureoroccasionaluse.
Letyourinsurancecompanyknowwhenyouwon'tbeusingyourcarforalongperiodoftimemorethanthirtydays.Youmightbeabletocancelyourcollisioncostswhileyou'regone.
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Obviously,thenumberofcarsyouhavealsoimpactsthekindofinsuranceyoubuy.APersonalAutoPolicywilleitherberatedasasinglecarriskoramulti-carrisk.Inmostcases,themulti-carriskwillbemorecost-effectivethaninsuringcarsseparately.Butthisissueisworthexploringwithyourinsurancecompanyoragentespeciallyifyouhaveahigh-riskdriverinyourhousehold.
Themake,modelandageofyourcar
Thefinaland,tosomepeople,themostimportantriskfactorthatimpactswhatkindofinsuranceyouneediswhatkindofcarorcarsyou'reinsuring.Morespecifically,thisfactorconsidersthemake,modelandageofyourcar.
CRITICALINFORMATIONRELATINGTOVEHICLESINYOURHOUSEHOLD
makemodelyearmodelVIN
licensenumber
datepurchased
insuredvalue
Vehicle1Vehicle2Vehicle3Vehicle4Almostallofthisinformationshouldbeavailablefromyourstatevehicleregistration,titleorfinancingcontractifyouhaveone.Youhavesomediscretioninsettingtheinsuredvalue,butinmostcasesitwillbethe"bluebook"industrystandardvalueforusedcars.
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Inmostcases,theolderacar,thelessinsuranceyouneed.Thisisbecausethereplacementvaluediminisheswithage.
Inthecaseofcollectibleorantiquecars,youcanopttoinsureapre-determinedreplacementvalue.Insurancecompaniesusuallyofferthisintheformofapremiumper$100ofdeclaredvalue.
Forexample,a1956Chevyinmintconditionwouldbeworthfarmorethananother1956Chevyfoundontheusedcarmarketorinajunkyard.Itmightcostmanythousandsofdollarstoobtainareplacementvehicleandrestoreittothesameconditionpriortoaloss.So,you'dwanttoinsureitforanamountyoucoulddetermine.
Butthiscoverageisexpensive.Thecherry1956Chevythatyoudeclareworth$50,000maycostmoretoinsurethananewMercedesthatcoststhesameamount.Andtheinsurancecompanyhastoagreetoyourdeterminedamount.
Sportsandluxurycarsaremoredifficulttoinsure.Manypeoplefindout,oncethey'veboughttheirfirsthigh-performancesportscar,thattheinsurancecancostasmuchasmonthlypaymentsonthecar.Evenwhenthecostisn'tthatdrastic,itwillbesignificant.
Ifyouwanttoindulgeatasteforexoticorhigh-performancecars,factorinbetween50and100percent
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oftheannualcostofbuyingandkeepingthecarsforinsurance.Amongotherthings,ifthevalueofyourcarishigherthanthestate-requiredliabilityminimum,you'llhavetobuysupplementaloradditionalunderinsuredmotoristscoverage.
Evenifyou'renotdrivingaFerarriorLambourghini,asportscarcancostalottoinsure.Mostinsurancecompaniesclassifycarmodelsinoneoffourgroupsstandard,highperformance,sportsandhighperformancesports.Thelastthreeclassificationsallincludehigherpremiums.
Whetheryourcarisasedanorasportscoupe,installingsafetyfeatureswillhelpcontrolinsurancecosts.Mostinsurancecompaniesofferdiscountsforcarsthathaveairbags,anti-lockbrakes,automaticseatbeltsandanti-theftalarmsystems.
Singleversusmultiplecarpolicies
Insurancepoliciesareoftendividedintotwocategoriesoneforsinglecarrisks,andoneformulti-carrisks.Multi-carfactorsarelowerthansinglecarfactors,becausetheyincludeadiscountforinsuringtwoormorecars.Thismeansinsuringasecondcarwillbemuchlessexpensivethaninsuringtwocarsseparately.
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Multi-carrisksoftenincludemultipledriversaswell.Especiallywhenyoungdriversareinthegroup,thisiswhatdrivesupcosts.
Thereareseveralreasonsyoungdriversareexpensive.Autoaccidentswerethemostfrequentcauseofdeathamongpeople6to33yearsoldin1992.In1993,morethan5,400teenagersdiedonAmericanroads,andhalfofthedeathswerealcohol-related.
Thepolicy'sdeclarationspage
TheplacewhereyoucanexpressallofyourindividualinsuranceneedsistheDeclarationsPageofyourautoinsurancepolicy.We'llbrieflyconsiderthevariouspartsofthestandardDeclarationsPageissuedbytheInsuranceServicesOffice.
YoumayheartheDeclarationsPagereferredtoasaDeclarationsSheet,DecSheet,orDecPage.
Page37DECLARATIONS(PolicyNumber)______________________(COMPANYNAME)______________________________________(PreviousPolicyNumber)_______________PolicyPeriod12:01a.m.StandardTimeFrom:To:(Years)Namedinsuredandmailingaddress(Number,Street,Apartment,TownorCity,County,State,ZipCode)DescriptionofAuto(s)orTrialer(s)AutoYearTradeName-ModelVINSymAge123TheAuto(s)orTrailer(s)describedinthispolicyisprincipallygaragedattheaboveaddressunlessotherwisestated.(Number,Street,Apartment,TownorCity,County,State,ZipCode
Page38Coverageisprovidedwhereapremiumandalimitofliabilityisshownforthecoverage
Coverages LimitofLiability PremiumA.Liability $eachaccident Auto1 Auto2 Auto
3B.MedicalPayments $eachperson $ $ $C.UninsuredMotorists $eachaccident $ $ $D.DamagetoAuto1.CollisionLoss ACVminus$Deductible $ $ $2.OtherThanCollisionLoss
ACVminus$Deductible $ $ $
(TowingandLaborCosts) ($eachdisablement) $ $ $(ACVmeansActualCashValue)
($ $ $)
EndorsementsmadepartofthisPolicyattimeofissue: EndorsementPremiumTotalPremium $
LossPayee:(Nameandaddress)(Thispolicyshallnotbevalidunlesscountersignedbyourauthorizedagent)(CountersignatureDate) (Agencyat:)
(Agent)(CompanyOfficer)
()Title
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AllcompletedDeclarationsPageswillcontainthepolicynumber,andthisitemofinformationisextremelyimportantsincevirtuallyallinsurancecompaniesfiletheirpoliciesbypolicynumberratherthanbytheinsured'sname.Thespacefor"PreviousPolicyNumber"maybeleftblankiftheinsured'slastpolicywasnotwrittenwiththisparticularinsurancecompany.Somecompanieswilltype"New"inthespaceratherthanleavingitblank.
Section1oftheDeclarationsPagealsocontainsthenameoftheinsurancecompany,andyoumayseemorethanonecompanynameprintedhereifanumberofinsurancecompaniesarepartofthesameorganizationorgroup.
Sections3and5oftheDeclarationsPagearerelated,sowewilldiscussthemtogetherbeforewediscussSection4.Section3identifiesthenamedinsuredbynameandmailingaddress.ManyotherpeoplecanbecoveredbyaninsurancepolicybesidestheonewhosenameappearsintheDeclarations.Althoughotherpeoplemaybecoveredundersomecircumstances,thepolicyisstillanagreementbetweenthenamedinsuredandtheinsurancecompany.Insomecases,amarriedcouplemaychoosetoincludebothspousesasnamedinsuredsotherwisethenamedinsuredisusuallyjustoneperson.
Section5indicatestheaddressatwhichtheinsuredvehiclesareprincipallygaraged(thatis,mostoftenkept),ifitisdifferentfromthenamedinsured'smailingaddress.Suchadifferencemightoccurifthenamedinsuredusesapostofficeboxasamailingaddress,orlivesinonecitybutkeepsacaratavacationhomelocatedinadifferentcityorstate.The
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insurancecompanywillusethegaragingaddresswhendeterminingwhatpremiumyou'llpay.
Whiletheremayappeartobenorelationshipbetweenthepolicyperiodandthenamedinsured'saddress,thereisaveryimportantconnection.Theeffectiveandexpirationdatesofthepolicyareasof12:01a.m.StandardTimeinthecountyinwhichthevehicleisprincipallygaraged.Theonlytimethisbecomesimportantiswhenanaccidentoccursclosetomidnightonthedaythepolicybecomeseffectiveorexpires.
Section4oftheDeclarationsPagedescribesthecoveredautosortrailersbeinginsuredbythepolicy.Modelyearinthislinemeansthemanufacturer'smodelyear.Asyoumayknow,automanufacturersusuallystartsellingtheirnewmodelsinthefallofthepreviousyearforexample,1994modelswouldbeintroducedinthefallof1993.ItisthemodelyearandnottheyearofpurchasethatappearsintheDeclarations.
Relatedtomodelyearistheageofavehicle,whichisderivedfromthemodelyearandisshowninthelastpartofSection4.Accordingtotheagegrouprule,themodelyearchangeseachOctober1,regardlessofwhenmanufacturersactuallyintroducenewmodels.Forexample,afterOctober1,1994,all1995modelswouldbeclassifiedasagegroupone,1994autoswouldbeagegrouptwo,and1993vehicleswouldbeagegroupthree.Themaximumageissix,soallvehiclesmorethanfiveyearsoldareclassifiedasagegroupsix.
Tradenameandmodelarealsomanufacturerinformation,asisVIN(theVehicleIdentificationNumberassignedtoanindividualcarbythemanufacturer).Symbolisanumberassignedbytheinsurancecompany
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torepresentthecostofthecarwhennew.Boththesymbolandmodelyear(orage)ofcoveredautoswillbeusedbytheinsurancecompanyindeterminingthepolicypremium.
ThefirstpartofSection6listscoverageswhichareavailableunderaPersonalAutoPolicy.
Forbothcollisionlossandotherthancollisionloss,Section6intheDeclarations,thelimitsofliabilityarespecifiedas"ACVminus$Deductible"areused.
Section7oftheDeclarationsiswheretheinsurancecompanyliststheformnumbersofendorsementstotheparticularpolicywhenitisissued.
AChangeEndorsementisissuedwhenendorsementsareattachedaftertheeffectivedate,andwhateverendorsementsaretobeattachedtothepolicywillbelistedontheChangeEndorsementratherthanintheDeclarations.
Whenendorsementsaddcoveragetoapolicy,thereisalmostalwaysanadditionalpremiumcharged.Section6oftheDeclarationsincludesalinefortowingandlaborcostcoverage,eventhoughanendorsementmustbeattached.PremiumschargedforendorsementsareaddedtogetherandshowninSection7.
ThefinallineinSection7oftheDeclarationsincludesspaceforenteringthetotalpolicypremium.Thisisthetotalamounttheinsuredwillpayforallcoveragesforwhichlimitsandpremiumsareshownandforanyadditionalendorsementswhichareattached.
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ThelastpartoftheDeclarationsPage,Section9,includesspacesforadateandsignatures.Noticethestatement:''Thispolicyshallnotbevalidunlesscountersignedbyourauthorizedagent."Thesignatureofaninsurancecompanyofficerisfrequentlypreprintedontheblankforms.ButanagentmustsignthecompletedDeclarationstomakethepolicyvalid,andthedateofcountersignatureandthecityandstateinwhichtheagent'sofficeislocatedmustbeenteredaswell.SomeagentswillalsotypeorrubberstamptheagencynameandaddressontheDeclarations,butthisisnotnecessary.
Afinalcaveat:Toextendyourliability,medicalpayments,uninsuredmotorists,collisionandotherthancollisioncoveragetomotorhomes,motorcycles,golfcarts,etc.,youmustendorseyourautopolicywithaMiscellaneousTypeVehicleEndorsement1.
Choosingcoverageandpremiums
We'llconsiderthebestwaystoshopforcost-effectiveinsuranceinChapter9.But,tosomedegree,figuringoutwhatkindofinsuranceyouneedrequiresyoutomakethekindofchoicesthatcontrolhowmuchyou'llspendonautocoverage.
Ifyouaredrivinganoldercarwithalowreplacementvalue,youmightwanttodropyourcollisioncoverageinordertoreduceyourpremium.However,ifyoucauseanaccidentcausingdamagetoyourcar,youwouldnotbereimbursedatallforthevehicle,soyoushouldonlydothisifyouarewillingtopaytheentirecostofrepairingorreplacingthatvehicle.An
1Formoreontheseandotherkindsofendorsements,seeChapter8.
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otherfactorthataffectsthefinalpremiumchargedisthesizeofthedeductiblesyouselecttoapplytocollisionandcomprehensivedamages.
Manydifferentelementsmakeupthepremium.Youcanpickandchoosecoveragesandinsomecasesmanipulatethemenutogetmoreprotectionforlessmoney.
Resistthetemptationtominimizeliabilitycoverage.Theriskofinjuringorkillinganotherpersonisthelargestriskyoufacewhendriving.Youshouldconsidercarryinglimitsthatarehigherthanthoserequiredbylaw,especiallyifyouhaveahomeorotherassetstoprotect.
Ifyoucauseanaccidentandarefoundtobeliable,aftertheinsurancecompanyhaspaidthelimitsofthepolicy,youwillhavetopayanyremainingdamagesoutofyourownpocket.Themoreyouown,themoreliabilityinsuranceyouneed.
Insomesituations,youshouldalsoconsidercarryingincreasedlimitsforuninsured/underinsuredmotoristscoverage.Intheeventyouareinanaccidentwithanuninsureddriveroradriverwhosecoverageisinsufficienttopaythedamagestheyareresponsiblefor,your
insurancecompanywillstepinandpayyouradditionalcosts.
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Medicalpaymentscoverageisoptionalinsomestates,andifyoudomostofyourdrivingaloneandhavegoodhealthinsurancecoverageyoumightdecidenottobuyitandavoidpayingtwiceforsimilarcoverage.However,ifyouoftenhavepeopleotherthanfamilymembersinyourcar,youshouldkeepyourmedicalpaymentscoveragebecauseintheeventofanaccident,injuriestoallpassengerswouldbecovered.
Passengerswhoarefamilymemberscouldcollectunderyourhealthinsurancepolicy,butnonfamilymemberswouldhavetosueyoufornegligencetocollectunderyourautomobileliabilityinsurance.
Somestatesallowbenefitstackingasanoptionalcoverage.Thiscoveragemeansthatyoucanaddtheuninsuredmotoristslimitsfrominsuranceonseveraldifferentcarstoapplytoasingleclaim.Butbecarefulaboutstackingyouobviouslyshouldn'tbuyitifyouonlyhaveonecar.(Somestateshavebeenaccusedofallowingstackingchargestobeappliedtoallinsurancepolicies.)
Thestandardpolicyformexcludesliabilitycoverageforanyautowhichyoueitherownorregularlyavailableforyourusebutisnotoneofyour"coveredautos."
Thepurposeofthisexclusionissimplytomakesurethatall"coveredautos"aredeclaredonthepolicy,andthatapremiumischargedforthem.Althoughthe
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policywillcoveryouroccasionaluseofnon-ownedautos,itwillnotprovidefreeinsuranceforautoswhichyouownoruseregularlyiftheyarenotshownonthepolicy.
Forexample,acarfurnishedbyyouremployerforbusinessandincidentalpersonaluseisnotcovered.
Anotherexclusionremovescoverageforanycarsownedbyorfurnishedfortheregularuseofanyfamilymemberiftheyarenot"coveredautos."Butthisexclusiondoesnotapplytoyouasthenamedinsured(whichmeansthatthepolicydoesprovidecoverageforyouwhenyou'reusinganon-coveredautowhichbelongstoafamilymember).
Anexample:Yourspouseusesanautofurnishedbyyourspouse'semployer.Therewouldbenomedicalpaymentsforaccidentsoccurringwhileyouoryourspouseusetheautofurnishedbytheemployer,sincethepresumptionisthatcoveragewouldbefurnishedbytheemployer'scommercialautopolicy.
Conclusion
Thischapterhasgivenyouaframeworkforcalculatingyourautoinsuranceneeds.Butbeforeyoumake
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anydecisionabouttheinsuranceyoubuy,youshouldhaveaworkingknowledgeofthemechanicsofcarinsurance.Thenextsectionofthisbook,whichincludeschapters3through8,dealswiththesemechanicsindetail.
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Chapter3HowcarinsuranceworksTomakeinformeddecisionsaboutwhatkindofautoinsuranceyouneed,howmuchtobuyandhowtomakeaclaim,youneedtounderstandthebasicmechanicsofhowthecoverageworks.
Inthischapter,wewillconsidersomeofthebasictermscontrollinghowcarinsuranceworks.Inthechaptersthatfollow,we'llconsidersomeofthespecificmechanicsingreaterdetail.
Contractualterms
Aninsurancepolicyisawrittenagreementbetweentwoparties.Onepartyistheinsuredperson,andtheotherpartyistheinsurancecompany.
Aninsurancepolicyisalsoalegallybindingcontract.Asistruewithallcontracts,aninsurancepolicydescribestherightsandobligationsofeachparty.Inaddition,thepolicyidentifieshowmuchthepolicyholdermustpaytoreceivethoserightsthisamountiscalledthe"premium."Thepolicyalsoidentifieshowmuchtheinsurancecompanyisobligatedtopayifcertain
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eventsoccurtheseamountsarelimitsofinsuranceorlimitsofliability.
Aswe'veseenalready,alotofthespecificinformationrelatingtoaninsurancepolicyappearsontheDeclarationsPage.Thispageincludesallthethingswhichareparticulartoagivenpolicyholderthenamesofthepeoplecoveredbythepolicy,thedatesit'sineffectandthecarscovered.
WhenyoupurchaseaPersonalAutoPolicy,onlythoseaccidentsthatoccurduringthepolicyperiodshownontheDeclarationsPagearecovered.Thepolicyperiodisthereforeveryimportantindeterminingwhethercoverageapplies.
Thebeginningdateofaninsurancepolicyiscalledtheeffectivedate,sinceitisthedateonwhichcoveragebeginstobeeffective.Whencoverageunderapolicystops,wesaythatthepolicyhasexpired,andthusthedateonwhichcoveragestopsorendsiscalledtheexpirationdate.
Thereisalsoareferencetoatimeofdaywithrespecttotheeffectivedateandexpirationdate.Itisimportanttopinpointthetimeaswellasthedateonwhichcoveragebeginsandends.
TheDeclarationsPagewilleithermentionorrefertoanyspecifickindsofcoverageaddedordroppedfromthestandardpolicy.
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Eligibility
Particularpeople,vehicles,andsituationsareeligibleforcoverageunderaPersonalAutoPolicy.Theconditionsofeligibilityaresprinkledthroughoutthepolicyandthemanualrulesthatgovernhowandwhenapolicymaybewritten.Wewillconsolidatemostofthemhere.
Tobeeligible,avehiclemustbeownedbyoneofthefollowing:
anindividual;
ahusbandandwifewhoareresidentsofthesamehousehold;
twoormorerelativesotherthanhusbandandwife,ortwoormoreunrelatedpeopleinthesamehousehold,butonlyifaJointOwnershipCoverageEndorsementisattachedtothepolicy;
afarmfamilyco-partnershiporfarmfamilycorporation.
OnlyprivatepassengervehiclesareeligibleforcoverageunderthePersonalAutoPolicy.Tobeconsideredaprivatepassengerauto,thevehiclemust,firstofall,beafour-wheelmotorvehicle.
Sedansandstationwagonsqualifyas"privatepassengerautos"forcoverageunderaPersonalAutoPolicy.Butpickuptrucks,paneltrucks,andvansmayalsobeconsidered"privatepassengerautos"andbeeligibleforcoverageiftheysatisfythefollowingrequirements:
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beownedbyinsuredpersons,
haveaGrossVehicleWeightoflessthan10,000pounds,
notbeusedinafreightordeliverybusiness.
Butsedansandstationwagonsdonotqualifyasprivatepassengerautosiftheyarebeingusedinataxiorlimousineservice.
Inotherwords,sedansandstationwagonsmaybeusedinafreightordeliverybusinessiftheyareonlytransportingcargo(products,materialsorpackages)forafee.
AleasedautoisusuallytreatedasifitwereownedandmaybecoveredunderaPersonalAutoPolicy.Animportantdistinctionhere:Rentingisnotthesameasleasing.(WeconsideredhowinsuranceappliestorentedcarsinChapter1.)
Mostpoliciesdealwithindividualsorhusbandandwifeasnamedinsureds.However,youshouldbeawarethatunderadifferentownershipsituation,suchaswhenunrelatedpeoplejointlyownanautoorwhencoverageisaddedforanemployeeofanamedinsured,insurancecompaniesusethemoreexpensiveratesforallothersoradditionalpersonsinsteadoftheindividualorhusbandandwiferate.
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Medicalpayments
Oneimportantaspectofautoinsuranceismedicalpaymentscoverage.Thiscoveragepaysreasonablemedicalexpensesincurredbyyou,membersofyourfamily,andpassengersforbodilyinjuriessustainedwhileridinginyourcar.
Coveragealsoappliestoyouandyourfamilymemberswhileridinginanotherautomobileorifinjuredaspedestriansbyanautomobile.Themedicalpaymentscoverageallowsimmediatepaymenttoyouorothercoveredpersonsregardlessoffault.
Medicalpaymentscoverageissometimescalleda"no-fault"coverage,becauseitispaidwithoutregardtofaultornegligence.Itisnotnecessarytodeterminewhowasatfaultinorderforcoveragetoapply.
Immediacyisn'ttheonlyconsiderationinmedicalclaims.Injuriesresultingfromanaccidentcansometimesrequiretreatmentoveralongperiodoftime.Sometimesonetreatmentisrenderedimmediately(likethesettingofabrokenbone)andanothertreatmentisrequiredlater(likesurgerytoputapininthebonethatwasbroken).Theremaybealongdelaybetweenthefirsttreatmentandthefinaltreatmentforaninjury.
Forthisreason,theInsuringAgreementsectioninmanystandardautopoliciesincludeatimelimitation
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onexpensescoveredbythemedicalpaymentsinsurance.
Medicalpaymentsapplyperperson.Paymentsmadeunderthemedicalpaymentsprovisionareoffsetagainstanypaymentsmadetoaninjuredpersonunderliability(PartA)oruninsuredmotorists(PartC)coverage.
Assumethataninjuredpersonhas$3,000inmedicalexpensesandislaterawarded$10,000undertheuninsuredmotoristscoveragebecausetheotherpartydidnotcarryliabilitycoverage.Theinjuredpersonwouldreceivethedifferencebetween$10,000andthe$3,000previouslypaid,oranetof$7,000.
EitherLiability1orMedicalPaymentscoverageorbothmightapplytoinjuriestoapassengerinyourcar.Liabilitycoveragewoulddepend,ofcourse,onwhetheryouwerelegallyresponsibleforthepassenger'sinjuries.MedicalPaymentscoveragewouldapplyregardlessoflegalliability,subjecttocertainconditions.
Stackingclaims
Abigissueinautoinsurancemedicalclaimsisapracticeknownasstacking.Thismeanscombiningmedicalliabilitylimitsfromseveralinsuredvehiclesorevenseveraldifferentpoliciestocoveronebigclaim.
Stackinginsuranceagainstasingleclaimallowsdriverswhoinsuremorethanonevehiclewiththesameinsurancecompanytocombinespecifickindsofcoveragefromallinsuredvehicles.
1FormoreonLiabilitycoverage,seeChapter5.
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Forexample,ifyouhave$50,000ofuninsured/underinsuredmotoristscoverageoneachoftwocars,youcouldstackthemandapply$100,000ofcoveragetowardoneaccident.
InDecember1994,theNewJerseysupremecourtruledthatananti-stackingprovisioninthestate'sno-faultautoinsurancesystemdidn'tpreventamanwhosufferedcatastrophicinjuriesinamotorcycleaccidentfromrecoveringpersonalinjuryprotection(PIP)benefitsfromtwoinsurancecompanies.
The7-0rulingresolvedthecaseofBrianLihou,whowasseriouslyhurtin1987whenthemotorcyclehewasridingcollidedwithacar.Becausehewasridingamotorcycle,hismedicalbillswerenotcoveredunderthebasicPIPbenefitscoverageofhisautoinsurancepolicywiththestate-runJointUnderwritingAssociation.
Thepolicy,however,containedanextendedmedicalexpensebenefitsprovision,whichfurnishedupto$10,000coverageforinjuriesinmotorcycleaccidents.SotheJUApaidLihouthe$10,000.
Lihou,whowaslivingwithhismotheratthetime,alsosoughtcoverageunderherautoinsurancewithAetnaCasualty,onwhichhewaslistedasadriver.Aetnarefusedtopay,arguingtheanti-stackingprovisionprohibitedLihoufrombeingpaidbytwoinsurancecompanies.Lihousued.
AtrialcourtagreedwithAetna,asdidtheappealscourt.ButthestatesupremecourtorderedAetnato
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pay.Inanine-page,unsignedopinion,thejusticesconcluded:
Supportingourdeterminationaresoundpublic-policyconsiderations,perhapsbestillustratedbythecircumstancesofthiscase.[Lihou]'smedicalexpensesexceed$35,000.
RequiringAetnatopayits$10,000limitthemaximumthatthecarriercanprovideunderthe[insurance]commissioner'sregulationwillresultinnowindfallto[Lihou],nodoublerecoveryofanymedicalexpense,andindeed[Lihou]willbeleftwithabalanceofover$15,000inuncompensatedexpenses.
Tostackinsurancecoveragesafteranautoaccident,youneedmorethanoneinsuredvehicle.Butinsurancecompanieswillsometimeschargepolicyholderswithasinglecarforstackingprivileges.
Ifyouownonecar,there'snothingtostackandnoreasontopayfortherighttodoso.
Inthefallof1995,agroupofPennsylvaniapolicyholdersfiledaseriesofclass-actionsuitschargingthestateandallautoinsurancecompaniesdoingbusinesstherewithsystematicallychargingdriverswithonecarfornon-existentstackingrights.
''You'repaying[stackingpremiums],eventhoughitcanbeofnobenefittoyou,"saidattorneyJosephRoda,
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whohelpeddraftthesuits."It'sawindfallfortheinsurancecompanies,becausenobodycaneverfileaclaimforit."
Rodasaidsingle-vehicledrivershadbeenchargedforstackingsince1990,whenaPennsylvaniaautoinsurancereformlawknownasAct6tookeffect.Thelawallowedalldriverstorejectstackingrightsandreducetheiroverallinsurancebill.But,unlesssingle-vehicledriverssignedawaiver,theycouldbechargedanextrapremiumonewhichwasn'titemizedonmostbills.
Damagetoyourcar
Youmighthearpeoplereferto"physicaldamagecoverage"whentheytalkaboutcarinsurance.ThattermwasuseduntilDamagetoYourAutowasintroducedwiththestandardISOPersonalAutoPolicy.Thetwotermshavethesamemeaning.Coveragefordamagetoyourautoisdividedintotwocategories.
Collisioncoveragereferstodirectoraccidentalphysicaldamagetoyourcarastheresultofupset(turningover)orimpactwithanothervehicleorobject(otherthanabirdoranimal).
Thesecondlosscategoryfordamagetoyourcariscalled,notsurprisingly,otherthancollisionloss.Historically,thishasbeenknownascomprehensivecoverage.Thisisabroadcategorythatincludesmanytypesofloss.
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Collisionpaysfortrafficaccidentdamages,andcomprehensivepaysforothertypesofdamagesuchashailoratreefallingonyourcar.Collisioncoveragetypicallyaccountsforabout30percentoftheannualcostofanautoinsurancepolicyandcomprehensiveaccountsforabout15percent.
Basedonthenamesofthecoverages,itmightappearthatwhenyoupurchaseboth"collision"and"otherthancollision"coveragethatanypossiblelosssituationwouldbecovered.Thisisnotquitetrue,sincethereareafewexclusionsinthepolicyasyouwillseelater.Butpurchasingbothcoveragesdoesgiveyouextremelybroadcoveragefordirectandaccidentallosstoinsuredvehicles.
Assignedrisk
Inmoststates,ifnoinsurancecompanywillsellyoucarinsuranceyoucanbuycoveragefromastate-runcompanyoranassignedriskplan.Insurancepolicieswrittenbythesealternativemarketstendtobeexpensiveandoffermorelimitedcoveragethanstandardpolicies.
Astate-runinsurancecompanyissimplythat.Anassignedriskplanisaco-operativeenterprisethatallinsurancecompaniesdoingbusinessinthestatemustjoin.Theplanconstructsapolicy(again,usuallyexpensiveandlimited)thatitwillselltopeoplewhosedrivingrecordsorlocationdisqualifythemfromstandardcoverage.Itthenforcestheparticipatinginsur-
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ancecompaniestotakeanumberofassigned-riskpolicies.
Insurancecompaniesusuallyhavetotakeanumberofassigned-riskdriversproportionaltotheirmarket-shareinthestate.Bigcompanieshavetotakemore,smallcompaniesfewer.
State-runcompaniesandassignedriskplansbothservethesamepurpose,havesimilarstructuresandsharecommonproblems.Bothalsosharefairlyfrequentfinancialproblems.Inmostcases,youdobesttoavoidthemifyoucan.
InNewYork,driversinthemainstreammarket(sometimescalledthevoluntaryorcommercialmarket)subsidizetheassignedriskpool.Insurancecompaniesfearthatthepremiumstheycollectfromdriversintheassignedriskpoolwon'toffsettheclaimsthey'llhavetopayoffbecauseofrisingcoverageminimums.
MichigandriversareforcedtosubsidizeinsurancesoldthroughtheMichiganAutomobileInsurancePlacementFacility(MAIPF)todriversunabletoobtaininsuranceintheprivatemarketbecausethey'rehighrisks.MAIPFwritesthisinsuranceataloss(averagingabout1or2percentoftotalpremiums),whichisthenpassedontoprivateinsurancecompanieswhichthenchargeittocustomersasacostofdoingbusiness.
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Amoretroubledexample:Inearly1995,R.TerryHaskins,chiefoperatingofficerofNewJersey'sMarketTransitionFacility(MTF),andMarshallSelikoff,trusteeofthestate'sJointUnderwritingAssociation(JUA),resigned.
TheMTFwasastate-runinsurancecompany.TheJUAwasanassignedriskplan.Moststatesdon'thavebothformsbutNewJerseyhadhadsomanyproblemsforsolongthatitneededallthealternativesmarketsitcouldfind.
AfewweeksbeforeHaskinsandSelikoffresigned,formerDeputyInsuranceCommissionerJasperJacksonhadchargedthatthedeficit-riddeninsurancepoolswerepoorlyrunandsaidformerInsuranceCommissionerSamuelFortunatorecommendedin1993thatbothmenbefired.
CompaniesadministeringclaimsfortheMTFwerepayingaccidentsettlementswithoutattemptingtonegotiatelowerawardswithplaintiffs'insurancecompanies.
TheJUAhadbeenfoundedin1984tocovermotoristswhowereunabletoobtainautoinsuranceintheprivatemarket.Atthetime,insurancecompaniessaidtheycouldnotmakemoneyindenselypopulatedNewJerseyandrefusedtowritepoliciesformanyresidents.TheJUAgrewtoinsure2millionpolicyholdersandranupadebtof$3.6billion.
In1990,GovernorJimFlorioabolishedtheJUAandmandatedthatautoinsurancecompanieswritepoliciesforallmotoristswitheightorfewermotorvehiclepoints.Toeasethetransitionofdriversintothepri-
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vatemarket,FloriocreatedtheMTFtoserveasatemporarypooltoinsuredrivers.LiketheJUA,theMTFdevelopedadebt,whichofficialssaidreached$1.3billionin1994.
ThelastJUApolicyhadexpiredin1990,andthelastMTFpolicyhadexpiredin1993.Butthepoolswerestillpayingclaimsfiledbyaccidentvictims.In1994,stateofficialshadtostoppayingclaimsforMTFaccidentvictimsbecausethereservesinthepoolhaddroppedbelow$50million.
Ingeneral,it'sbesttostayawayfromassignedriskinsurance.Ifyouhavenochoice,callthestateagencythatrunstheprogramoralocalinsuranceagentandfindoutwhyyouhavetousetheplan.Askthestateagencywhatyoucandotoimproveyourapplication.Getoutoftheassignedriskplanassoonasyoucan.
Howtheinsurancecompanypays
Theinsurancecompanywillusuallyonlypaytheactualcashvalueorthecosttorepairorreplacethedamagedorstolenproperty,whicheverisless.However,coverageforanon-ownedtrailerislimitedto$500.Inallsettlements,depreciationandtheconditionofthevehicleareconsideredindeterminingtheACVatthetimeofloss.
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ThefollowingsectionofISO'sstandardautopolicydescribesthevariousoptionsthatareopentotheinsurancecompanyinsettlingalosswhichiscoveredbythepolicy:
Wemaypayforlossinmoneyorrepairorreplacethedamagedorstolenproperty.Wemay,atourexpense,returnanystolenpropertyto:
1.You;or
2.Theaddressshowninthispolicy.
Ifwereturnstolenpropertywewillpayforanydamageresultingfromthetheft.Wemaykeepallorpartofthepropertyatanagreedorappraisedvalue.
Ifwepayforlossinmoney,ourpaymentwillincludetheapplicablesalestaxforthedamagedorstolenproperty.
Indemnificationforthelossmaybepaymentinmoneyorreplacementoftheproperty.Stolenpropertymaybereturnedtoyouandpaymentmadeforanydamage,orthecompanymaykeepthepropertyandpayyouanagreedorappraisedamountinmoney.
Ifyouthinkyou'reowedmorethanyourinsurancecompanyhasofferedyouincashorforrepairs,youcanchallengetheoffer.Thestandardpolicyalsooutlinesthisprocess:
Ifweandyoudonotagreeontheamountofloss,eithermaydemandanappraisaloftheloss.Inthisevent,eachpartywillselectacompetentappraiser.Thetwoappraiserswillse-
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lectanumpire.Theappraiserswillstateseparatelytheactualcashvalueandtheamountofloss.Iftheyfailtoagree,theywillsubmittheirdifferencestotheumpire.Adecisionagreedtobyanytwowillbebinding.Eachpartywill:
1.Payitschosenappraiser;and
2.Beartheexpensesoftheappraisalandumpireequally.
Wedonotwaiveanyofourrightsunderthispolicybyagreeingtoanappraisal.
Thisprovisionissimilartothearbitrationprovisionthatsomestatesrequireininsurancedisputes.Thearbitrationconditionusuallyappliesincaseswheretheinsuredandinsurancecompanycannotagreeeitheronwhetheralossiscoveredorontheamountofdamages.
Thephysicaldamageappraisalconditionappliesonlywhentheinsuredandinsurancecompanycannotagreeontheamountofacoveredloss.
GeneralProvisions
Thestandardautoinsurancepolicyisalsodefinedbyanumberofgeneralprovisionswhichlimitandqualifycoverage.Amongthemostimportantofthese:
whathappensifyoudeclarebankruptcy,
howyouorthecompanycanchangethepolicy,
howthepolicyperiodandterritorylimitcoverage,and
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howdifferentpoliciesthatapplytothesameaccidentrelatetoeachother.
We'llconsidereachoftheseissuesinturn.
Bankruptcy
Bankruptcyorinsolvencyofthe"insured"shallnotrelieveusofanyobligationsunderthispolicy.
Thewordingofsomeindemnificationcontractswouldrelievetheinsurancecompanyofitspaymentresponsibilityifyoubecomebankruptorinsolvent.Thisclausemakesitdefiniteastotheresponsibilityoftheinsurancecompanytopayunderthesecircumstances.
Changes
Thispolicycontainsalltheagreementsbetweenyouandus.Itstermsmaynotbechangedorwaivedexceptbyendorsementissuedbyus.
Ifthereisachangetotheinformationusedtodevelopthepolicypremium,wemayadjustyourpremium....
Ifwemakeachangewhichbroadenscoverageunderthiseditionofyourpolicywithoutadditionalpremiumcharge,thatchangewillautomaticallyapplytoyourpolicyasofthedateweimplementthechangeinyourstate....
Bothyouandyourinsurancecompanymaywanttomakeachangetoapartofthepolicy,andthissectiondescribestheconditionsformakinganysuchchange.
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Thepolicyistheentireagreementbetweenyouandthecompany,anditsprovisionscanonlybechangedorwaivedbyanendorsementissuedbythecompany.Anypremiumadjustmentsaremadeasofthedateofthechange.
Ifduringthepolicytermthecoverageshouldbebroadened,thebroadertermswillautomaticallyapplytothepolicyaslongasthereisnoadditionalpremiumrequiredforthebroadenedcoverage.However,ifachangeinvolvesbothbroaderandmorerestrictiveprovisions,thechangedprovisionsshallnotapplytothepolicyuntilitisrenewed.
Policyperiodandterritory
Thispolicyappliesonlytoaccidentsandlosseswhichoccur:
1.DuringthepolicyperiodasshownintheDeclarations;and
2.Withinthepolicyterritory.
Thepolicyterritoryis:
1.TheUnitedStatesofAmerica,itsterritoriesorpossessions;
2.PuertoRico;or
3.Canada.
Thispolicyalsoappliestolossto,oraccidentsinvolving,"yourcovered
auto"whilebeingtransportedbetweentheirports.
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Thisprovisionstatesthatcoverageappliesonlytoaccidentsorlossesthatoccurduringthepolicyperiodandwithinthepolicyterritory.Italsodefinesthepolicyterritory.
Thepolicyonlyappliestolosseswhichoccurduringthepolicyperiodinthedescribedterritory.ItisinterestingtonotethatanautobeingtransportedfromNewYorktoHawaiiviathePanamaCanalwouldbecoveredunderthepolicy.
Twoormoreautopolicies
Ifthispolicyandanyotherautoinsurancepolicyissuedtoyoubyusapplytothesameaccident,themaximumlimitofourliabilityunderallthepoliciesshallnotexceedthehighestapplicablelimitofliabilityunderanyonepolicy.
Thisprovisionspecifiesthemaximumamountthattheinsurancecompanywillpayifyouhavecoverageundertwoormorepoliciesissuedbythesamecompanyandhaveanaccidentforwhichbothapply.(Thisdiffersfromthe''OtherInsurance"clausesthatappearinastandardpolicythoseprovisionsrelatetootherpoliciesissuedbyotherinsurancecompanies.)
Whenanaccidentoccurs,aninjuredpersonmaybeentitledtorecoverundermorethanonecoverage.Whenanaccidentiscoveredbymorethanoneinsurancepolicy,oftenonepolicyisconsideredprimarycoverage,meaningthatthatpolicywouldpayfirstuptoitspolicylimit.Then,iftheclaimwasgreaterthantheprimarypolicy'slimit,thesecondpolicyinvolved
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wouldpaytheexcessamountoftheclaim,uptoitslimitofliability.Thesecondpolicyisthensaidtobeexcesscoverage.
Iftwoormorepoliciesissuedbythesamecompanyapplytoanaccident,thehighestlimitofliabilityononepolicyapplies,notthetotallimitsofallpolicies.Thisisintendedtopreventstacking.
Subrogation
Thestandardautopolicyalsoincludesaprovisionknownasasubrogationclause.Thisprovisionsaysthatiftheinsurancecompanyhasmadeapaymentunderthepolicytoorforanyperson,andifthatpersonhasalegalrighttorecoverforthatlossfromanotherperson,thentheinsurancecompanyissubrogatedtothatright,andmayseekrecoveryfromtheresponsiblethirdparty.
Specifically,thisprovisionsays:
Ifwemakeapaymentunderthispolicyandthepersontoorforwhompaymentwasmadehasarighttorecoverdamagesfromanotherweshallbesubrogatedtothatright.Thatpersonshalldo:
1.Whateverisnecessarytoenableustoexerciseourrights;and
2.Nothingafterlosstoprejudicethem.
However,ourrightsinthisparagraphdonotapply...againstanypersonusing"yourcoveredauto"withareasonablebeliefthatthatpersonisentitledtodoso.
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Ifwemakeapaymentunderthispolicyandthepersontoorforwhompaymentismaderecoversdamagesfromanother,thatpersonshall:
1.Holdintrustforustheproceedsoftherecovery;and
2.Reimburseustotheextentofourpayment.
Ifthecompanymakesapaymenttoyouforinjuryordamagecausedbyanotherperson,thecompanytakesoveryourrightstorecoverthepaymentsfromthepartycausingtheinjuryordamage.Youmustcooperatewiththecompanytoassistinrecovery(suchasappearingincourtasawitness)andmaydonothingtoimpairtherightsofthecompany(suchassigningasettlementagreementwiththeotherparty).
Thisprovisionalsodescribestheinsurancecompany'srighttobereimbursedifanypersontoorforwhompaymenthasbeenmadeundertheinsurancepolicydoes,infact,laterrecoveranydamagesfromthepersonwhoisresponsible.
Forphysicaldamagecoverage,theinsurancecompanydoesnothavesubrogationrightsagainstanyoneusinga"coveredauto"withpermission,becausethatwouldunderminetheintentofthecoverage.Itmayonlyseekrecoveryfromotherpartieswhomaybeliable(andwhoshouldhavetheirowninsurancepolicy).
Ifthepartytoorforwhomthecompanyhasmadepaymentfordamagesorinjuryshouldreceiveanyreimbursementfromtheotherparty,thatpersonisrequiredtoholdthemoneyintrustandreimbursethe
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companyforanyamountsthatithaspaid.
Conclusion
Inthischapter,we'vetakenabrieflookatsometechnicalaspectsofcarinsurance.Inthenextfourchapters,we'llfocusonparticularmechanicalaspectsofhowthisinsuranceworks.
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Chapter4ImportantDefinitionsEveryspecializedfieldhasitsownlanguageandautoinsuranceisnoexception.Becauseinsurancepoliciesarelegalcontracts,thelanguageinthemhasabigeffectonhowtheywork.
Thelanguageofaninsurancepolicyisasimportanttounderstandasthemechanicsofthepolicy.
Inthischapter,we'llfocusonthepracticalissuesthatpolicylanguageanddefinitionsraise.
Togetstarted,here'saquicklistofsomeimportantdefinitions:
Lossasusedinaninsurancepolicydoesnotgenerallymeanmisplacementlossmeansadirectfinanciallossofvalueasaresultofsituationswhicharecoveredbythepolicy.
ThephraseyourcoveredautoisusedthroughoutthepolicytorefertothespecificcarorcarslistedintheDeclarationsPage.Acarhastobelistedusuallyby
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vehicleidentificationnumberinordertobeconsideredacoveredauto.ItmeansanyautoslistedintheDeclarationssection,othervehiclesacquiredduringthepolicyperiodandtemporarysubstituteautosortrailers.
Thephrasenon-ownedautosisarelativelyrecentadditiontostandardpolicyformswrittenbysomeinsurancecompanies.Itrelatestocoverageforcarsyou'veborrowedorrented.
Ifduringthepolicytermthecoverageshouldbebroadened,thebroadertermswillautomaticallyapplytothepolicyaslongasthereisnoadditionalpremiumrequiredforthebroadenedcoverage.However,ifachangeinvolvesbothbroaderandmorerestrictiveprovisions,thechangedprovisionsshallnotapplytothepolicyuntilitisrenewed.Foracontracttobebindingeachpartytothecontractmustgivewhatisknownasconsideration.Yourconsiderationispayingthepremiumandabidingbythepolicyconditions,whilethecompany'sconsiderationistheprotectionofyouandpaymentofclaimsasprovidedbythepolicy.
Acollisiondoesnothavetoinvolvesmashingintosomethingdamagecausedbytheupsetoroverturnofacoveredautoiscollisiondamage.Nordoesithavetoinvolvesmashingintoanothervehiclehittinganobject(suchasatree,bridgeormailbox)isacollision.
Acaveat:Collidingwithanimalsorbirdsisnotconsideredcollisionaccordingtostandardpolicies,andthedamagewouldbecoveredonlyifotherthancollision(OTC)coveragehasbeenpurchased.
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Thesequickdefinitionsinvolvebasic,focusedconceptsthatarerelativelyeasytounderstand.Otherconceptsaremoredifficult.Thosearethecasesinwhichdefinitionsbecomecrucialissues.
Interpretation
Themostdifficultcauseofcoveragedisputesisvagueorsubjectivelanguageintheinsurancepolicy.
Forexample,inthesectionofthestandardpolicythatdealswiththedutiesyouhaveafteranaccident,you'retoldthatyouhavetoinformtheinsurancecompanypromptly.
Theuseofsubjectivewordslikepromptlyleadtoproblemsofinterpretationinsomecases.Inthedutiessection,itsuseisintendedtoprovidetheflexibilitynecessaryforapolicyholderinreportingsomecases.
Youmightbehospitalizedandbeinseriousconditionforseveraldaysorweeksafteranaccident.Familymembersmightbeunawareoftheinsurancepolicyrequirements.Suchinabilitytoreportimmediatelyafteranaccidentwouldbetakenintoconsiderationbytheinsurancecompanyinreviewingyour
claim.It'snotlikelythatcoveragewouldbedeniedbecauseofthiskindofdelay.
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Insurancecompaniestendtoshyawayfromsubjectiveorinterpretivelanguage,though.Aswe'veseenelsewhere,ambiguouslanguagecreatesapresumptionofcoverage.Asonecourtruled:
Tofindcoveragedoesnotrewritethecontract;itmerelybroadlyinterpretsambiguoustermsagainsttheinsurersoastoeffectuatethepolicybehindthelawtoprovidecomprehensiveinsurancecoveragetoinnocentpartiesinjuredbyuninsuredvehicles.
Carsandothermotorvehiclesshouldbetitledinthenameofonlyonepersonthenamedinsuredontheautopolicy.
Anexample:UnderFloridalaw,boththeoperatorandtheownerofavehicleinvolvedinanaccidentmaybesued.Ifthevehicleisownedbythedriver,assetsownedbythedriver'sspouseorownedbythembothastenantsbytheentiretiesarestillprotected.
Toavoidliabilitydisputes,mostattorneysandsmartinsuranceagentsrecommendthatoncechildrenturn18theyshouldbethelegalownersofthecarstheydrive.Themovedoesn'thelpwithyoungerchildrenbecauseparentsstillmightbefoundliableinanaccidentforfailingtosupervisetheactionsofaminor.
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Thedefinitionssection
Inanefforttocombatvagueorsubjectivelanguage,thestandardautoinsurancepolicygivesspecialattentiontodefinitions.AftertheDeclarationsPage,thenextplacewherebasicinformationisdeterminedisthedefinitionssection.
Thedefinitionssectiongenerallydescribes:
1)whoiscovered,
2)whenandwherecoverageapplies,and
3)whatvehiclesarecovered.
Thebiggestpartofthedefinitionssectionfocusesonthewhoandwhatissuesthatimpactcoverage.Toillustrate,we'llconsidersomeofthedefinitionsthatappearinthestandardautopolicy.
A.Throughoutthispolicy,"you"and"your"referto:
1.The"namedinsured"shownintheDeclarations;and
2.Thespouseifaresidentofthesamehousehold.
Insurancepoliciesusedtobemuchmoreformalandincludednumerousreferencestothenamedinsuredandthecompany(meaningtheinsurerissuingthecontract).Inrecentyearspolicieswererewrittentomakethemeasiertoread.Forthisreason,you'llfindreferencestoyouandweinsteadofmoreformalreferencestotheinsuredandinsurer.
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Thepersonorpersonsnamedonthepolicyarecallednamedinsureds;however,ifonlyonenameisshown,thespouseofthatpersonisalsoconsideredtobeanamedinsuredifaresidentofthesamehousehold.
Otherpersonswhoresideinthesamehouseholdandarerelatedtoanamedinsuredbyblood,marriage,oradoption,orarewardsorfosterchildren,arecalledfamilymembers,andarealsocoveredwhenthepolicyreferstoinsuredpersonsoryou.
Althoughthepolicydefinitiondoesnotsayso,afamilymemberincludesastudenttemporarilylivingawayatschool(privateschool,collegeoruniversity).
Definitionsofhouseholdarealwaysdifficultininsurancecoveragedisputes.Buttheygetparticularlyconvolutedinautocoveragecases.
B."We,""us"and''our"refertotheCompanyprovidingthisinsurance.
C.Forpurposesofthispolicy,aprivatepassengertypeautoshallbedeemedtobeownedbyapersonifleased:
1.Underawrittenagreementtothatperson;and
2.Foracontinuousperiodofatleast6months.
Otherwordsandphrasesaredefined.Theyareinquotationmarkswhenused.
D."Bodilyinjury"meansbodilyharm,sicknessordisease,includingdeaththatresults.
E."Business"includestrade,professionoroccupation.
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F."Familymember"meansapersonrelatedtoyoubyblood,marriageoradoptionwhoisaresidentofyourhousehold.Thisincludesawardorfosterchild.
G."Occupying"meansin,upon,gettingin,on,outoroff.
H."Propertydamage"meansphysicalinjuryto,destructionoforlossofuseoftangibleproperty.
Topreventanymisinterpretationofthecoverageprovidedbythispolicy,thetermsbodilyinjury,businessandpropertydamagearespecificallydefined.
Thetermoccupyingisdefinedsobroadlythatitincludesmostsituationsinvolvinganyinjuryasaresultoftheuseormaintenanceofanautomobile.Itmeans,inadditiontoridinginanautomobile,enteringoralightingfrom,orgettingonoroffavehicle.Thisincludessuchthingsasjumpingfromthebedofapickuptruckandinjuringanankleorslippingoffacurbwhilegettingintoanautomobile.
Thetermoccupyingisusedthroughoutthepolicyinreferencetoaperson'slocationinrelationshiptoavehicle.Apersonwhoisoccupyingacoveredautoisnotnecessarilyinsidethevehicle.
Specificprovisionsapplytopickupsorvansonly.Theymusthaveagrossweightofunder10,000pounds,notbeusedinafreightordeliverybusiness(deliveryofgoods,parcelsormaterialsforafee),andmustnotbeinsuredunderanyotherinsurancepolicy.Theincidentaldeliveryofgoodsifyourbusinessisfarming,ranching,installations,serviceorrepairispermitted.
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Locationandcontents
Thereissometimeslackofclarityanddisagreementbetweeninsurancecompaniesandpolicyholdersastoexactlywhereavehicleislocated.
Onefactorthatmightenterintothedeterminationcouldbewhetherthepolicyholderhasapermanentresidence,suchasahouseorapartmentifnot,thepersonmightbelivingoutofthevehicle.Thestandardpolicydoesn'tcovervehiclesbeingusedasresidences.
Thepercentageoftimespent"livingoutof"theautocouldalsobeafactoratwo-weekvacationinacamperwouldprobablynotbeconsidered"useofavehicleasaresidence."
Also,iftheautoisparkedatonesiteandnevermoved,itwouldmorelikelybeconsideredtobeusedasapremises.
However,inanyofthesecases,coveragewouldalwaysapplywhiletheautoisbeingusedfortransportationpurposes.
ContentsofavehicleorpersonaleffectsarenotcoveredunderastandardPersonalAutoPolicy.Thismayseemunfair,becausealldriverscarrybelongingsaroundintheircars.But,inordertomaketheriskprojectionsforautoinsurancefeasible,insurancecompaniescan'tcalculatesuchachangingfactor.
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Whenyoubuyinsuranceonacar,thepremiumsthattheinsurancecompanychargesforphysicaldamagecoverage("collision"and"otherthancollision")arebasedonthemaximumamountthattheinsurancecompanymighthavetopayifthevehiclewereatotalloss.
Forexample,theinsurancecompanymightcharge$200foroneyear'scoverageonan$8,000car.Themostthecompanycouldexpecttopaytorepairorreplacethecarwouldbe$8,000.Butithasnocontroloverthevalueofanyitemsyoumightcarryinthevehicleonanygivenday.Ifyouweretransportinga$100,000paintinginan$8,000carandthecarandpaintingweredestroyedinacollision,theinsurancecompanywouldbeunfairlypenalizedifithadtopayout$108,000whenithadcollectedpremiumforonly$8,000ofvalue.
Personalpropertyitems(suchasclothing,cameras,sportingequipment,toolsandallthethingsyoucarryaroundinyourcar)shouldbeinsuredunderadifferenttypeofpolicy.Mostpeoplehavethiscoverageunderahomeownersinsurancepolicy,butcoverageisalsoavailableunderPersonalPropertyFloatersandotherspecializedpropertyinsurancepolicyforms.
Who'scovered
Asyoumightguess,thebiggestdisputenexttohowaninsurancepolicyworksiswho'scovered.Thisis
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anotherissuecontrolledbythedefinitionsestablishedinthepolicyitself.So,let'sconsiderwhatthestandardpolicyformsays.
"Insured"asusedinthisPartmeans:
1.Youorany"familymember"fortheownership,maintenanceoruseofanyautoor"trailer."
2.Anypersonusing"yourcoveredauto."
3.For"yourcoveredauto,"anypersonororganizationbutonlywithrespecttolegalresponsibilityforactsoromissionsofapersonforwhomcoverageisaffordedunderthisPart.
4.Foranyautoor"trailer,"otherthan"yourcoveredauto,"anyotherpersonororganizationbutonlywithrespecttolegalresponsibilityforactsoromissionsofyouorany"familymember"forwhomcoverageisaffordedunderthisPart.Thisprovisionappliesonlyifthepersonororganizationdoesnotownorhiretheautoor"trailer.''
Thenamedinsuredandfamilymembersareinsuredwithrespecttoanyauto.
Anexample:Youarecoveredunderyourpolicywhenyouborrowafriend'scar.Anyotherpersonusing"yourcoveredauto"isalsocoveredunderyourpolicyyourfriendwouldbecoveredwhileusingyourcar.
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Incertainsituations,otherpersonsororganizationsmaybeinsuredwithrespecttotheirlegalliabilityfortheactsofaninsuredperson.
Ifyouuseyourcoveredautowhiledoingvolunteerworkforachurch,youthgroup,orcharitableorganizationandareinvolvedinanaccident,theorganizationwouldbeprotectedbyyourpolicyifitwereheldliableforyouracts.
Forautosyoudonotown,anotherpersonororganizationwouldbeprotectedunderyourpolicyonlyiftheydidnotownthevehicle.
Ifyouborrowyourneighbor'sstationwagontotransportRedCrossworkerstoameetinghallwheretheywillsolicitblooddonors,theRedCrosswouldbeprotected;butifyouweredrivingastationwagonownedbytheRedCross,itwouldnotbean"insured"underyourpolicy.Youwouldstillbeinsuredasthedriver,buttheRedCrossshouldcarryprimaryliabilitycoverageforitsownexposure.
Ifapersonisusinganinsuredautoandisnotanamedinsuredora
familymember,thatpersonmusthaveareasonablebeliefofbeingentitledtodoso.Usuallythiswouldinvolvepermissionbytheowner.
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Reasonableexpectationisanimportantissueincoveragedisputes.Ifapersonisoperatingtheautocontrarytospecificinstructionsnottodoso,therewillbenocoverage.
Anexample:Yougiveyourneighbor'ssonpermissiontorunanerrandwithyourcar,tellinghimthatthekeysareunderthefloormat.Threeweekslater,heusesthecarwithoutyourpermissionwhileyouareawayfromhomeandcausesanaccident.Hewouldnothavecoverage.
Disputesovertransferringcoverageunderanautopolicyfromonepersontoanotherareacommonsourceofinsurancelawsuits.Asaresult,insurancecompanieshavedrafteddetaileddefinitionsofhowandwhenyoucantransfercoveragetosomeoneelse.Inshort,thisisn'tveryeasytodo.
Yourrightsanddutiesunderthispolicymaynotbeassignedwithoutourwrittenconsent.However,ifanamedinsuredshownintheDeclarationsdies,coveragewillbeprovidedfor:
1.Thesurvivingspouseifresidentinthesamehouseholdatthetimeofdeath.CoverageappliestothespouseasifanamedinsuredshownintheDeclarations;and
2.ThelegalrepresentativeofthedeceasedpersonasifanamedinsuredshownintheDeclarations.Thisappliesonlywithrespect
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totherepresentative'slegalresponsibilitytomaintainoruse"yourcoveredauto."
Sincethepremiumchargedforsomeautocoveragesisaffectedbyfactsaboutyou(suchasyourdrivingrecord,age,useofthecarforbusinessorpleasure),theinsurancecompanyrestrictsthetransferofcoveragesunderthepolicyfromthenamedinsuredtoanotherperson(aboutwhomtheydonotknow)withoutthecompany'spriorwrittenconsent.
Coverageforalegalrepresentativeofadeceasedpersononlyapplieswhileactinginthecapacityofalegalrepresentativewithrespecttouseofacoveredauto.
Norightsordutiesoftheinsuredmaybetransferredwithoutconsentofthecompany;however,ifthenamedinsureddies,thespouseandlegalrepresentativeofthedeceasedinsuredbecomenamedinsuredsunderthepolicyuntilexpirationofthepolicy.
Employeesaren'tcoveredbystandardpersonalautopolicies.Butthereisanexceptionforonekindofemployeeadomesticemployeeforwhomworkerscompensationbenefitsareneitherrequirednoravailable.Formostpeople,thisusuallymeansamaid,housekeeperornanny.
Aninjurytoadomesticemployeemaybecoveredbypersonalautoliabilitycoverageifnoworkerscompensationbenefitsapply.
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Insomestates,peoplewhohiredomesticemployees(includinggardeners,chauffeurs,etc.)arerequiredbylawtopurchaseworkers'compensationcoveragetopayforinjuriestotheiremployeeswhileonthejob.Inotherstates,thecoverageisnotrequired,butemployersmayvoluntarilypurchasethecoverage(inwhichcasetheautoinsurancebenefitsaren'tavailable).
Thissectionofthepolicyalsoaddressessubrogation(althoughindirectlyothersectionsdealwiththemattermoredirectly).
Subrogationinvolvesthesubstitutionofaninsurancecompanytotherightsofapolicyholderbecauseofthecompany'spre-existingdutytopaythepolicyholderforacoveredloss.
Anexample:You'reinjuredinanautoaccidentthat'sanotherdriver'sfault.Yourinsurancecompanyhasadutytopayyourmedicalbillsastheyaccumulateandthenseekreimbursementfromwhateversettlementyoueventuallygetfromtheat-faultdriver.
Subrogationdisputesoftenoccurbetweeninsurancecompanies.Onecompanywillbattleanotheroverwhoshouldpayclaims.Butthesedisputesshouldnotdirectlyaffectyou,asapolicyholdermakingaclaim.
Alastnoteonwho'scoveredornotcovered.ThestandardautopolicyincludesaNoBenefittoBaileeparagraphwhichreads:
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Thisinsuranceshallnotdirectlyorindirectlybenefitanycarrierorotherbaileeforhire.
Abaileeissomeonewhohasbeenentrustedwithsomeoneelse'sproperty,usuallyforthepurposeofservice,repairorstorage.Drycleaners,televisionrepairshops,garagesandpublicparkinglotsareexamplesofbailees.Thesetypesofbusinessescanusuallybeheldlegallyliablefordamagetocustomers'propertywhileitisintheircareandpossession,andtheyshouldpurchaseliabilityinsurancedesignedfortheirexposureasbailees.
Anexampleofthebaileeclause:Youhaveyourcarinaservicegarageforanewtransmission.Theworkisalmostcompletedwhenafireoccursanddestroysthecar.Thecompanywillpayyouforthevalueoftheauto,butwillnotpaythegarage(bailee)forthevalueofthenewtransmissionnorforthelaborexpendedinstallingit.
Whencoverageapplies
Otherthanthewho,whatandwheninformationofferedbytheDeclarationsPageanddefinitionssectionofthestandardform,themostimportantcontractualtermsofaninsurancepolicyhavetodowithwhencoverageapplies.
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Thephraseyourcoveredautoalsoappliestoseveralotherparticularcircumstances.Themostimportantofthese:Whenyoubuyorleaseanewcarthateitherreplacesacaryouusedtohaveorcomesinadditiontoyourexistingcarorcars.
Usually,physicaldamagecoveragewillapplytonewlyacquiredvehicles(whetheradditionalorreplacementvehicles)onlyifyourequestthecoveragewithin30daysoftheacquisition.However,liabilitycoverageforareplacementvehicleisautomaticallyprovideduntiltheendofthepolicyperiod.
Theliberalizationclausestatesthatiftheinsurancecompanymakesachangetoitspolicyformwhichprovidesbroadercoveragewithoutapremiumcharge(forexample,ifitdropsapolicyexclusion),thatchangewillautomaticallyapplytoyourpolicyonthedatethechangegoesintoeffectintheinsured'sstate.Thissimplyeliminatestheneedoftheinsurancecompanytoendorseallexistingpolicieswhencoverageisexpandedwithoutachangeinpremium.
Cancellationisanimportantissue.Inmoststates,thereasonsforwhichaninsurancecompanyispermittedtocancelapolicyarelimitedifthepolicyhasbeenineffectforatleast60daysorisarenewalpolicy.
Thegeneralagreementisaverybriefstatement.Itmeanssimplythatalloftheremainingprovisionsofthecontract(thepolicyterms)apply.Thereasonthatthegeneralagreementissobriefisthateachcoveragesectioncontainsamuchmoredetailedinsuringagreement.
Althoughanumberofcausesoflossarelistedand
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specificallyidentifiedasbeingotherthancollision(OTC)losses,nothinginthestandardpolicysaysthatthesearetheonlycoveredcausesofloss.
ThisOTCcoverageisactuallybroaderthanso-callednamedperilcoveragebecauseitalsoappliestoalldirectlosseswhicharenototherwiseexcludedbythepolicy.Andanumberofexclusionsdoapply.
Exclusions
Exclusionsinvolvesomeofthemostheatedandmostoftenlitigateddisputesoverinsurancelanguage.
Someexclusionsexistsimplytoremovecoverageforabove-averageriskfactorswhicharenotanticipatedinaverageratesandpremiums,andthatthecoverageisoftenavailableforanadditionalcharge.
Thisisthecasewithrespecttoaudio,visualanddataequipmentandthetapes,records,andothermediausedwithsuchequipment.Thebasicpolicyformexcludescoveragebecausetheseareitemsofvaluewhichhaveanabove-averageexposuretotheftlosses(theyareeasilyremovedandareoftentargetsforthieves).
Ontheotherhand,somepeoplewantspecificdriversexcludedfromcoverage.Thesespecialexclusionshavebecomeincreasinglycommoninrecentyears.The1994MichigancaseLynnMcMillanv.AutoClubInsuranceAssociationconsideredtheissueofanameddriverexclusiontoanautopolicy.
McMillanowneda1989DodgeRamvanandwasinsuredunderano-faultautomobileinsurancepolicy
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issuedbytheAutoClub.Atthetimeinquestion,McMillanlivedwithMervinCarlTimmerman,whohadapoordrivingrecordandhadpreviouslybeeninvolvedinanaccidentwithoneofMcMillan'scars.
Inexchangeforalowerpremium,McMillanobtainedapolicyfromtheAutoClubwithanamed-driverexclusionthatexcludedTimmermanasadriveroftheinsuredvehicle.Thenamed-driverexclusionprovidedthatvariouscoverages,includingcomprehensiveandcollision,wouldbevoidandofnoeffectifthevehiclewereoperatedbyTimmerman.
TheinsurancepolicyissuedtoMcMillancontainedthefollowingprovision:
Whenanamedexcludedpersonoperatesavehicleallliabilitycoverageisvoidnooneisinsured.Ownersofthevehicleandotherslegallyresponsiblefortheactsofthenamedexcludedpersonremainfullypersonallyliable.
Soonafterthepolicywaswritten,TimmermandroveMcMillian'svanwithoutpermission.HecausedanaccidentwhichtheAutoClubrefusedtocover.
ThetrialcourtsidedwithMcMillan,rulingthatcoveragewasavailablebecausethevehiclehadbeenstolen.TheAutoClubappealed.
Thecourtruledthatreasonableexpectationwouldhavealottodowithwhichinterpretationitwouldchoose.ItwouldfavorMcMillan'sversionthattheexclusiononlyappliedifpermissionweregivenpar-
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ticularlyinlightofthefactthatexclusionaryclausesareconstruedstrictlyagainsttheinsurer.
Mostnameddriverexclusionspertaintomembersofyourhouseholdwhosedrivingrecordsaresobadthattheywouldmakeinsuranceprohibitivelyexpensive.
Whethertheyincludenameddriverexclusionsornot,issuesofhouseholdmembershipareanotherkeycauseofcoveragedisputes.
Thesomewhatsubjectivetermsocialunitmaydefinewho'samemberofyourhouseholdandwhoisn't.
"Inreadingtheprovisionsofthepolicy,webelievethatareasonableinsuredwouldexpectthatifthenamedexcludeddriverwereallowedtooperatethevehiclethenthevariouscoverageswouldbevoid,"thecourtwrote."However,wealsobelievethatareasonableinsuredwouldalsoexpectthatifthevehiclewerestolen,evenifstolenbyanamedexcludeddriver,thentherewouldbecoverageunderthepolicy."
Inotherwords,thepolicyputMcMillanonnoticethathewasn'ttoallowTimmermantodrivethevan.Butitdidn'tsayhewaswithoutcoverageifTimmermantookthevanwithoutpermission.
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Thecourtruledthat''assumingthatinsurersmayexcludefromcoverageclaimsarisingfromtheftbynamedexcludeddrivers,theexcluded-driverprovisionmustincorporatespecificallylanguagethatnotifiestheinsuredthattheexclusionappliesevenintheeventoftheftbythenamedexcludeddriver."
Theexcluded-driverprovisioninMcMillan'spolicydidnotexcludespecificallycoveragewheretherewasatheftbythenamedexcludeddriver.McMillanwasentitledtocoverageifthevehiclewerestolenbythenamedexcludeddriver.
Mostpoliciesincludeanexclusionforracinginjuries.Thereisnocoverageforaninsuredpersonwhileoccupyingavehiclelocatedinsidearacingfacilityforthepurposeofcompetingin,orpreparingorpracticingfor,aprearrangedororganizedraceorspeedcontest.
Conclusion
We'llconsidermoredefinitionsthroughoutthecourseofthisbook.Theobjectofthischapterhasbeentoconsiderafewofthemostbasicdefinitionsandshowhowtheyimpactthemechanicsofautoinsurancecoverage.
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Chapter5WhyLiabilityisanImportantIssueLiabilityisprobablythemostimportantkindofautomobileinsurance.Itcoversmoneysowedwhenoneautomobiledrivercausesbodilyinjurytoanotherpersonordamagetoanotherperson'sproperty.
Injuryordamagesufferedbyadriverwhocausesanaccidentisnotamatteroflegalliability.Beingliablemeansbeinglegallyresponsiblefordamagessufferedbyathirdparty(someoneotherthanthedriverorownerofthevehicle).
Ifadriverwhocausesinjuryordamagesufferedbyanotherpersoncanbeshowntobeatfault,thatdrivermaybeheldliablefortheaccident.
Inotherwords,ifyoucauseanaccident,youcan'tholdyourselfliableforinjuriesyousuffer.Anyoneelsewhosuffersinjuriescanholdyouliable.
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Technically,liabilitycoverageappliesonlywhenyouhavebeenfoundlegallyliableforinjuryordamage.Thefactthatinjuryordamagehasoccurreddoesnotnecessarilymeanthatyouarelegallyliablenomatterwhatanangrydriverorhisangrylawyersays.
Inliabilityissues,you'lloftenseeorhearreferencestofirstpartyandthirdparty.Inmostcases,thefirstpartymeanstheinsurancepolicyholderatfaultinanaccidentforthesakeofillustration,assumethismeansyouandthethirdpartyistheotherdriverinvolvedintheaccident.1
Firstpartyliabilitiesthatis,damageyoudotoyourselfandyourownpropertyarerelativelyeasyforinsurancecompaniestocalculateandcontrol.Thirdpartyliabilitiesarefarmoredifficulttopredict.
Ifonedriverisliableforanaccident,thentheotherpartymaybeentitledtocompensationforinjuriesordamageorboth.Compensationmaybeintheformofmoneypaidtotheinjuredpartyfortangibledamages(suchasamedicalbillorthecosttorepairadamagedvehicle)and/ormoneypaidforintangibledamages(suchaspainandsuffering).
Theintangiblesareabigreasonforthetremendoussumsoftenawardedinbodilyinjuryliabilitycases.Whenyoudamageanothercar,yourliabilitymightbelimitedtothevalueofthevehicle.Butifyouinjureapersoninthatcar,causingapermanentdisabilityandpainandsufferingwhichpreventsthepersonfrom
1Forthecurious,thesecondpartyreferstoyourinsurancecompany.
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earningaliving,courtscanawardmillionsofdollarsindamages.
Someinsuranceindustryanalystsattributeasmuchasthree-quartersoftheincreaseinthecostofautoinsuranceduringthe1980sand1990stointangibledamagesliabilities.Theyareabigreasonforthepushfortortreformthatdominatedthepoliticalandpublicpolicyagendaduringtheearly1990s.
Thetermtortreferstothelegalconceptofliabilityforcivildamages.It'sunrelatedtocriminalchargeswhichmightresultfromthesameincident.Atortfeasoristhepersonwhocausesdamagestoanother'sbodyorproperty.Thetortfeasoristhepersonwhoneedsliabilityinsurance.
Howliabilitycoverageworks
Basiclimitsarethesmallestamountsofcoveragethatarewritteninyourstate.Inmanycases,youwillwanthigherlimitsofprotection.
It'simportanttoknowthebasiclimitsofapolicywhencomparingpremiumsquotedbydifferentinsurancecompanies.
Automobileliabilitycoverageconsistsofbodilyinjuryliabilityandpropertydamageliability.ThePersonal
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AutoPolicyisusuallywrittenwithasinglelimitofliabilityperaccident,whichissometimesreferredtoasacombinedsinglelimit.Itisthemaximumamountthattheinsurancecompanyisobligatedtopayforalldamagesarisingoutofasingleaccident.
Forexample,ifapolicyiswrittenwithasinglelimitofliabilityof$300,000peraccident,theinsurancecompanywillpayupto$300,000forallbodilyinjuriesandpropertydamagearisingoutofoneaccident,regardlessofthenumberofpersonsinjured,andregardlessofwhatportionofthelossisbodilyinjuryandwhatportionispropertydamage.
Someinsurancecompaniesissueautomobilepolicieswithsplitlimitsofliabilitycoverage,andmanyofthecompaniesthatusuallywritesinglelimitswillprovidesplitlimitsonrequest.
Whenlimitsaresplit,twodifferentlimitsapplytobodilyinjurycoverage,andaseparatelimitappliestopropertydamage.
Astatemightrequirethatautomobileownersmaintainliabilityinsuranceinthefollowingamounts:
$15,000perpersonand$30,000peraccidentforclaimsstemmingfrombodilyinjury,and
$10,000peraccidentforclaimsstemmingfrompropertydamage.
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Splitlimitsarefrequentlyexpressedasthreenumbersseparatedbyslashmarks.Thefirsttwonumbersrepresentthebodilyinjurylimitsinthousandsofdollars,andthethirdnumberrepresentsthepropertydamagelimitinthousandsofdollars.Forexample,25/50/5means$25,000ofbodilyinjurycoverageforeachpersonand$50,000maximumcoverageforallpersonsinjuredinoneaccident,and$5,000ofpropertydamagecoverageperaccident.
Oneexample:WashingtonState'sminimumliabilitycoverageis25/50/10,meaningacarownermusthaveatleast$25,000ofcoverageforinjurytooneperson,atleast$50,000forinjurytotwoormorepeopleperaccidentandaminimumof$10,000forpropertydamageperaccident.
Mostexpertsrecommendbuyingbodilyinjurycoverageofatleast$100,000perpersonand$300,000peraccidentandpropertydamagecoverageofatleast$25,000.Ifyouhavesubstantialassetstoprotectahouseorinvestmentsyou'llprobablywantcoverageofatleast$100,000and$300,000.
Formostpeopleinmostsituations,splitlimitsarethemosteconomicalwaytocarrysufficientliabilitycoverage.
TheDeclarationsforastandardPersonalAutoPolicyaresetuptoreflectasinglelimitofliability.Thismeansthatthepolicyhasseparatelimitsofliabilityforbodilyinjuryandforpropertydamage.
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Thebodilyinjurylimitisusuallyfurthersplitintoalimitperpersonandahigherlimitperaccident.
Ifthepolicyhasasinglelimitofliability,andtheaccidentoccursinastatewherethevehiclelawsrequireseparatelimitsofliability,thecompanywillseparatethelimitstocomplywiththelaw,butdoingsoshallnotincreasethepolicylimits.
Inacaseinwhichtheinsuredhadthesplitlimitsshownabove,andinwhichtheinsuredwasliableforbothbodilyinjuryandpropertydamageinanaccident,themosttheinsurancecompanywouldpaywouldbe$35,000.
Otherformsofliabilitycoverage
Theaveragepersonusuallycarries$25,000perpersonperaccidentinliability.Ifyouliveinahigh-costmarketincludingalmosteverybigcityandyouneedmorethanminimumamountsofliabilityinsurance,youmaybeabletoslashyourautoinsurancebillbyhundredsofdollarswithapersonalliabilityumbrellapolicycalledplupinindustrylexicon.
Plupsarestand-aloneinsurancepoliciesthatsupplementmostotherliabilityinsuranceyoumayhavepurchased.Typically,oneumbrellapolicywouldboosttheliabilityprotectiononyourhomeowners,autoandifyouhavethemboatorvacationhomepolicies.
Theaverageumbrellapolicyadds$1millioninliabilityinsuranceontopofotherinsurancecoverages
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youhave.Inotherwords,ifyourautopolicyoffers$100,000inliabilityprotectionandyourhomeownersliabilitylimitis$300,000,oneumbrellapolicywouldboostyourautoto$1.1millionandyourhomeownersto$1.3million.
Theumbrellapolicydoesn'thelpyouifthehouseorcarisdestroyedinafireorflood.Itonlykicksinwhenyou'resued.That'swhyit'sfairlycheap,rangingincostfromabout$100to$300ayear.
Somestatesallowyoutoagreetogiveupcertainrightstosueinanaccident.Inreturnforselectingthislimitedtortoption,youreceiveastate-mandatedpremiumdiscount(usuallyatleast15percent).
Beforeyouchooselimitedtortcoverage,youshouldunderstandwhatthatdecisioncouldmean.Undertheoption,youagreetorelinquishyourrighttosueforpainandsufferinginthecaseofaminorinjury.
Youkeeptherighttosue,however,ifyouareinjuredseriously.Andyou'reallowedtosuefordamagesregardlessofthetypeofinjuryifyouarehitbyadrunkendriver,uninsuredorout-of-statemotorist.Inallinstances,youretainyourrighttosueforunpaidmedicalbills,lostwagesandout-of-pocketexpenses.
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Liabilityfromtheinsurancecompany'sperspective
Ifyouhaveanautoaccidentandarelegallyresponsibleforbodilyinjuryorpropertydamage,theinsurancecompanywillpayformanycostsrelatedtothatliability.Theinsuringagreementisthepartofthestandardpolicythatoutlineswhenandhowthecompanywillpay.
Wewillpaydamagesfor"bodilyinjury"or"propertydamage"forwhichany"insured"becomeslegallyresponsiblebecauseofanautoaccident.Damagesincludeprejudgmentinterestawardedagainstthe"insured."Wewillsettleordefend,asweconsiderappropriate,anyclaimorsuitaskingforthesedamages.Inadditiontoourlimitofliability,wewillpayalldefensecostsweincur.Ourdutytosettleordefendendswhenourlimitofliabilityforthiscoveragehasbeenexhausted.Wehavenodutytodefendanysuitorsettleanyclaimfor''bodilyinjury"or"propertydamage"notcoveredunderthispolicy.
Thelimitofliabilityshownonthepolicyisthemostthecompanywillpayasaresultofoneaccident.Thismaximumamountisnotincreasedbecausethereismorethanoneinsuredorvehicleonthepolicy,norisitincreasedbecauseofthenumberofclaimsmadeorthenumberofvehiclesinvolvedintheaccident.
Thelimitofliabilityonthepolicyisthemaximumthatwillbepaidbythecompanyastheresultofoneaccidentandisnotincreasedbythenumberofcovered
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persons,thenumberofclaimsmade,thenumberofvehiclesshownonthepolicy,orthenumberofvehiclesinvolvedintheaccident.
Amountsotherwisepayablewillusuallybereducedbyamountspaidorpayableforthesameinjuryonbehalfofanypersonlegallyresponsiblefortheinjury(includinganydirectpayments,anypaymentsunderotherliabilitypolicies,andanyamountspayableundertheliabilitysectionorothersections,plusanyamountspayableunderworkers'compensationordisabilitybenefitslaws).
Anexample:Asalespersonisinvolvedinanaccidentwithanuninsuredmotoristand,intheabsenceofotherpaymentsorbenefits,wouldhavebeenentitledto$25,000incompensatorydamagesunderheruninsuredmotoristscoverage.Iftheotherdrivervoluntarilypays$4,000outofpersonalsavingstowardherinjuries,andheremployerprovidesatotalof$11,000inworkerscompensationmedicalanddisabilitybenefits,herowninsurancecompanywouldonlybeobligatedtopay$10,000underitsuninsuredmotoristscoverage.
Liabilitylimitsandset-offs
Oneissuethatcomesupoften,inthewakeofanaccident:Howwilltheinsurancecompanydivideacertainliabilitylimitbetweentwopeoplemakingclaimsagainstasingleat-faultdriverfromasingleaccident?
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Tobemorespecific:Ifyourliabilitylimitis$100,000peraccidentandtherearetwoothercarsinvolvedinanaccidentyoucaused,howwilleachofthosedrivers'claimsbesettled?
Theinsurancecompanywillgiveeachclaimantashareofthelimitofliabilityproportionatetohisorherclaiminrelationtothetotalofallclaimssubmitted.
Toanswerthespecificquestion:Ifonedriverclaims$60,000inliabilitydamagesandtheotherclaims$90,000,theinsurancecompanywillgiveeachaproportionalpartofthe$100,000limit$40,000and$60,000,respectively.They'llhavetosueyoudirectlyfortherestoftheirclaims.
Amorecommonconflictaffectingcoveragelimits:set-offprovisionsthatlimitonekindofcoveragewhenanotherhasbeenclaimed.
The1990NevadasupremecourtdecisionKarenEllisonv.CaliforniaStateAutomobileAssociationconsideredtheinsurancecompany'smedicalpaymentsset-offwhichissupposedtopreventadoublepaymentofmedicalexpenseswhenclaimsaremadeunderanautopolicy.
KarenEllisonwasinsuredunderanautomobileinsurancepolicyfrom
respondentCaliforniaState
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AutomobileAssociation(CSAA).Thepolicyprovidedbothmedicalpaymentscoverageanduninsuredmotoristscoveragewhichincludedamedicalpaymentsprovisionwithinit.Separatepremiumswereassessedforeachofthetwocoverages.
Theuninsuredmotoristscoverageprovidedasetoffprovisioncoordinatingthetwocoverageswhichstated:
Ifaninsuredpersonhasvalidandcollectibleautomobilemedicalpaymentsinsuranceavailabletohim,thedamageswhichheshallbeentitledtorecoverfromtheowneroroperatorofanuninsuredmotorvehicleshallbereducedforpurposesofuninsuredmotoristscoveragebytheamountspaidorduetobepaidundersuchautomobilemedicalpaymentsinsurance.
Asimilarclausewasincludedinthemedicalpaymentsprovisionofthepolicy.Itprovided:
AnyamountpaidorpayableformedicalexpensesundertheLiabilityorUninsuredMotoristscoveragesofthispolicyshallbedeductedfromtheamountpayableunderthispart.
Ellisonwasinjuredinanaccidentwithanuninsuredmotoristandincurredmedicalexpenses.CSAApaidthemedicalexpensesunderthemedicalpaymentsportionofthepolicy.TheuninsuredmotoristclaimsubsequentlywenttoarbitrationandthearbitratorawardedEllison$10,617.96.Thisawardincluded$7,000forpainandsufferingand$3,617.96formedicalexpenses.CSAApaidthepainandsufferingaward
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but,assertingthemedicalpaymentssetoffprovisioninthepolicy,refusedtopaytheamountawardedforthemedicalexpenses.ItclaimedthatunderthesetoffprovisionEllisonwasentitledtoonlyonepaymentofmedicalexpenseswhichCSAAhadalreadypaid.
EllisonsuedtheCSAAtorecovertheremainderofthearbitrator'saward.TheDistrictCourtinClarkCountygrantedCSAA'smotionforsummaryjudgment.Ellisonappealed.
Theissueintheappealwaswhetheramedicalpaymentssetofforcreditingprovisioncontainedinanautomobileinsurancepolicywasenforceable.Ifso,itwouldpreventaninsuredfromrecoveringtwiceformedicalpaymentsunderseparateprovisionsofthepolicywhichindependentlyprovidedmedicalpaymentsrecoveryforpersonalinjuries.
Thestatehighcourtconcluded:
Recoveryby[Ellison]inexcessof100percentofdamagesisawindfallwhichwillnotbecountenancedbythecourtabsentclearagreementprovidingsuchcoverage....Theparties'contractunambiguouslyprovidesforonlyonepaymentofmedicalexpensesifthereisoverlappingcoverageandsuchexpensesresultfromanaccidentwithanuninsuredmotorist.
Eightyearsearlier,thesamecourthaddefineditspositiononliabilitysetoffs.Inthe1982NevadasupremecourtdecisionSullivanv.DairylandInsuranceCo.,aninsured'spassengersustainedphysicalinjuriesthatwerefarinexcessofthedriver'sliabilitycoverage.The
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passengersoughttocollectboththeliabilityandthemedicalpaymentscoveragefromtheinsurer.
Dairylandreliedonasetoffclausethatallowedittodeductmedicalexpensesfromtheuninsuredmotoristinsurancepayment.Thestatesupremecourtdeterminedthatthepassengercouldrecoverunderbothcoveragesdespitethesetoffclausebecause"...theset-offclauseonlyoperatestopreventdoublerecoveryforthesameelementsofdamage...."
Thecourtconcludedthatalthoughthesetofflimitationwasinkeepingwiththereasonableexpectationsofthepolicyholder,itwasinapplicablewhenthedamagesexceededthecoveragelimits.
Conclusion
Liabilityisthemostimportantreasonmostpeoplebuyautoinsurance.Ifyoucauseanaccident,thedamageyoucandotoanotherperson'scarisusuallylimited.Thedamageyoucandotothatperson,however,isessentiallyunlimited.
But,whenyou'rereviewingorcomparingautoinsurancepolicies,rememberthatthewordliabilityhasdifferentmeaningsfordifferentparties.Foryou,it'sapotentiallyunlimiteddownsideyouwanttolimit.Fortheinsurancecompany,it'stheobligationtakenonwhenissuinganinsurancepolicy.
So,thetermlimitofliabilitywhichoccursthroughoutthestandardautopolicyrelatestotheinsurancecompany'sobligationstoyounotyourprotectionagainstcivillawsuits.
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Thelimitofliabilityisthepointatwhichtheinsurancecompanystopspaying.Ifyoufacepotentiallosseslargerthanthislimitorifyouhaveassetsworthmoreyoumaywanttobuyhigherlimitsoradditionalpoliciesthatofferumbrellaliabilityprotection.
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Chapter6WhyUninsuredMotoristCoverageisImportantUninsuredmotoristscoverage(oftencalledUM)isdesignedtoprotectyouforbodilyinjurieswhenthoseinjuriesarecausedbyanotherdriverwhoeitherhasnoliabilityinsuranceorhascoveragewhichislessthantheminimumrequirementsofstatelaw.UMcoveragealsoprotectsyouforbodilyinjurywhencausedbyahit-and-rundriverwhocannotbeidentified.
Uninsuredmotoristsareabiggerriskthanmanypeoplethink.AccordingtotheCaliforniaDepartmentofInsurance,incertainpartsofLosAngelesCountynineoutof10driversdon'thaveautoinsurance.Thesamestudyfoundthatalmost28percentofallCaliforniadriversareuninsuredthatnumberseemstostayprettyconstantinstateswiththebiggestpopulations.
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Eveninstateswhichstrictlyenforceautoinsurancerules,uninsuredmotoristsgotogreatlengthstostayontheroad.Somepurchasetemporaryinsurancetoobtainlicenseandinspectionseals,thendiscontinuetheirpayments;othersusecounterfeitinsurancecards.
Howuninsuredmotoristscoverageworks
UMcoveragewasconceivedasapartialsolutiontotheproblemcreatedbydriverswhowouldnotorcouldnotobtainliabilityinsurance.ItbenefitsthosewhoarecoveredbyaPersonalAutoPolicyunderwhichtheinsuredhaspurchasedUMcoverage.Itdoesnotbenefittheuninsuredmotoristwhoisresponsibleforanaccident.
Inits1990decisionCynthiaKudav.AmericanFamilyMutualInsuranceCo.,theMissouriSupremeCourtconsideredthelimitsofliabilitythataninsurancecompanymustmeetinuninsuredmotoristscoverage.
AdolphKudaboughtautomobileinsuranceforhimselfandhisfamily,includinghisdaughterCynthia,fromAmericanFamily.Thepolicycontainedprovisionsforinjuriesincurredasaresultofnegligenceofanuninsuredmotorist.ThepolicyalsoincludedmedicalexpensecoverageforCynthiauptotheamountof$2,000.
Cynthiawasinjuredinacollisionwithanuninsuredmotorist.Asaresultoftheaccident,Cynthiaincurredmedicalexpensesofmorethan$1,700.CynthiaandAmericanFamilysettledforapaymentintheamountof$5,500undertheuninsuredmotoristscoverage.Byhandwrittenprovision,Cynthiaagreedthat:
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Thisreleasespecificallyexcludesanyclaimforpaymentsunderthemedicalpayprovisionoftheabovepolicy.
CynthiaandherattorneyacceptedandendorsedacheckfromAmericanFamilyandreturnedtherelease.
Ashorttimelater,CynthiasuedAmericanFamily,seekingrecoveryofher$1,700medicalexpensesunderthemedicalpaymentscoverageofthepolicy.AmericanFamilyaskedthetrialcourttodismissCynthia'scharges,basedonalimitationofliabilityprovisioninthemedicalpaymentscoverage.ThecompanydeniedhavingagreedtoCynthia'smedicalpaymentsexclusion.
ThetrialcourtgrantedAmericanFamily'srequestanddismissedthelawsuit.Kudaappealed.
TheMissouriSupremeCourtacknowledgedthattheliabilitylimitbecameanissueonlywhenapolicyholderwasinvolvedinanaccidentwithanuninsuredmotorist.IfCynthiahadbeeninvolvedinasinglecaraccident,themedicalexpensecoveragewouldbeavailable.Hadshebeeninvolvedinanaccidentwithaninsuredmotorist,AmericanFamilywouldpaythemedicalexpenses.
Thehighcourtacknowledgedthat"ThelimitationclauseuponwhichAmericanFamilyreliestodenymedicalpaycoverageisambiguous."
Itsconclusion:Inordertoestablishalevelofprotectionequivalenttotheliabilitycoverageapolicyholderwouldhavereceivedifinvolvedinanaccidentwith
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aninsuredmotorist,theinsurancecompanyhadtopaymedicalexpenseupfront.
Itreversedthelowercourt'srulingandorderedajudgmentinfavorofCynthiaKudaonherclaimformedicalexpenses.
TheUMcoveragesectionofthestandardautoinsurancepolicyconsistsoffivesections:InsuringAgreement,Exclusions,LimitofLiability,OtherInsuranceandArbitration.We'llconsiderthemostimportantofthesebriefly.
Insuringagreement
A.Wewillpaycompensatorydamageswhichan''insured"islegallyentitledtorecoverfromtheowneroroperatorofan"uninsuredmotorvehicle"becauseof"bodilyinjury":
1.Sustainedbyan"insured";and
2.Causedbyanaccident.
Theowner'soroperator'sliabilityforthesedamagesmustariseoutoftheownership,maintenanceoruseofthe"uninsuredmotorvehicle."
Anyjudgmentfordamagesarisingoutofasuitbroughtwithoutourwrittenconsentisnotbindingonus.
SectionAoftheInsuringAgreementdescribeswhentheinsurancecompanywillpayUMbenefitsforaccidents.
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Ifyousustaininjuriesasaresultofanaccidentinvolvinganuninsuredmotorvehicle,thecompanywillpaytheamountyou'relegallyentitledtorecoverfromtheowneroroperatoroftheuninsuredvehiclesubjecttothelimitofinsurance.Notethatthepolicypayscompensatorydamagesonly.Thismeansitwillnotpayotherdamages,suchaspunitivedamages.
Inmoststates,UMcoverageappliesonlytobodilyinjury.Onlyahandfulofstatesallowthiscoveragetoapplytopropertydamage.
Uninsuredmotoristscoveragepaysforinjurytoyouoryourpassengerscausedbyanuninsuredorahit-and-rundriver.Italsoincludesunderinsuredmotoristscoverage,whichmakesupthedifferencebetweenhowmuchyoucancollectfromsomeoneelse'sinsuranceandyouractuallosses.
Inorderforaninjuredpersontobringsuitfordamagesagainsttheuninsuredowneroroperator,thewrittenconsentoftheinsurancecompanymustbeobtained;otherwise,theinsurancecompanyisnotboundbyajudgmentresultingfromthesuit.
B."Insured"asusedinthisPartmeans:
1.Youorany"familymember."
2.Anyotherperson"occupying""yourcoveredauto."
3.Anypersonfordamagesthatpersonisentitledtorecoverbecauseof"bodilyinjury"towhichthiscoverageappliessustainedbyapersondescribedin1.or2.above.
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ThissectionoftheInsuringAgreementdefineswhoisaninsuredpersonwithrespecttouninsuredmotoristscoverage.
Aninsuredincludesthenamedinsuredoranyfamilymemberasoccupantsofanyautooraspedestrians.Italsomeansacoveredauto.Coveragewouldalsoextendtoapersonentitledtorecoverdamagesbecauseofinjuriestoanotherperson.Examplesofthiswouldbealossofconsortium(companionship)ofaspouse,ormedicalexpensesincurredbytheparentofaninjuredchild.
C."Uninsuredmotorvehicle"meansalandmotorvehicleortrailerofanytype:
1.Towhichnobodilyinjuryliabilitybondorpolicyappliesatthetimeoftheaccident.
2.Towhichabodilyinjuryliabilitybondorpolicyappliesatthetimeoftheaccident.Inthiscaseitslimitforbodilyinjuryliabilitymustbelessthantheminimumlimitforbodilyinjuryliabilityspecifiedbythefinancialresponsibilitylawofthestateinwhich"yourcoveredauto"isprincipallygaraged.
3.Whichisahit-and-runvehiclewhoseoperatororownercannotbeidentified....
4.Towhichabodilyinjuryliabilitybondorpolicyappliesatthetimeoftheaccidentbutthebondingorinsuringcompany:
a.deniescoverage;or
b.isorbecomesinsolvent.
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Thissectiondefinestheterm"uninsuredmotorvehicle."However,notethatthedefinitionof"uninsuredmotorvehicle"mayvaryfromstatetostatebytheuseofanamendatoryendorsement.
Severalcaveats:Vehiclesownedorfurnishedfortheregularuseofafamilymember,ownedoroperatedbyaself-insurer,orownedbyagovernmentalunitarenottobeconsidereduninsuredmotorvehicles(butavehicleownedoroperatedbyaself-insurerwhichbecomesinsolventisconsideredtobeanuninsuredvehicle).Also,vehiclesoperatedonrailsortreads,thosedesignedforuseoffpublicroads(butnotwhilebeingoperatedonpublicroads),orvehiclessituatedforuseasresidencepremises(e.g.,motorhomes)arenotuninsuredmotorvehicles.
Exclusions
A.WedonotprovideUninsuredMotoristsCoveragefor"bodilyinjury"sustained:
1.Byan"insured"while"occupying,"orwhenstruckby,anymotorvehicleownedbythat"insured''whichisnotinsuredforthiscoverageunderthispolicy.Thisincludesatrailerofanytypeusedwiththatvehicle.
2.Byany"familymember"while"occupying,"orwhenstruckby,anymotorvehicleyouownwhichisinsuredforthiscoverageonaprimarybasisunderanyotherpolicy.
B.WedonotprovideUninsuredMotoristsCoveragefor"bodilyinjury"sustainedbyany"insured":
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1.Ifthatpersonorthelegalrepresentativesettlesthe"bodilyinjury"claimwithoutourconsent.
2.While"occupying""yourcoveredauto"whenitisbeingusedasapublicorliveryconveyance.Thisexclusion(B.2)doesnotapplytoashare-the-expensecarpool.
3.Usingavehiclewithoutareasonablebeliefthatthat"insured"isentitledtodoso....
Therearefewerexclusionsintheuninsuredmotoristssectionofthepolicythaninothercoveragesections.Fivesituationsaredescribedunderwhichthereisnocoverageforaninsuredperson'sbodilyinjury.
UninsuredMotoristsCoverageisnotprovidedfor:
Anypersonoccupyingorstruckbyavehiclewhichisownedbyyouorafamilymemberforwhichuninsuredmotoristscoverageisnotprovidedunderthepolicy.Also,thereisnocoverageforatrailerbeingusedwithsuchavehicle.
Anyfamilymemberoccupyingorstruckbyavehicleyouownbutwhichiscoveredunderanotherinsurancepolicy.
Anyinjuredpersonwhosettlesabodilyinjuryclaimwithouttheconsentofthecompany.
Anypersonoccupyingacoveredautowhileitisbeingusedtotransportpersonsorpropertyforafee,exceptforacar
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poolforthepurposeofsharingexpenses.
Anypersonusingavehiclewhodoesnothaveareasonablebeliefofbeingentitledtodoso.
Totheextentthatanypaymentunderthiscoveragewouldreduceamountsotherwisepayableunderanyworkerscompensationordisabilitylaw,theuninsuredmotoristscoveragewillnotapply.
ThissectionreinforcestheInsuringAgreement,whichsaysthatthecoverageonlyappliesto"compensatory"damages.Thisexclusionmakesitclearthatuninsuredmotoristscoveragedoesnotapplyto"punitiveorexemplary"damages.
ThelimitsofliabilityforUMcoverageusuallyhaveasingle-limit,whichisoftenlowerthanlimitsforbodilyinjuryordamagethatyoudotootherdrivers.SinceUMcoversfirstpartylosses,youcanprojecthowmuchcoverageyouwouldneedtoreplacedamageyoumightsustain.
TheotherinsuranceclauseforUMcoveragediffersfromtheprovisionsthatapplytoothercoverages.ThefirstprovisionstatesthatanyrecoveryunderallpoliciesorUMcoveragesmaynotexceedthehighestapplicablelimitforanyonevehicle.Thismakesitclearthatstackingoflimitsisnotintendedorpermitted.
Thesecondprovisionrelatestonon-ownedvehicles.AnyUMinsuranceprovidedwithrespecttoanon-ownedvehiclewillbeprovidedonanexcessbasisiftheotherinsuranceisprovidedonaprimarybasis.
ThefinalprovisionoftheUMotherinsurancesectionstatesthatinsurancewillbesharedproportion-
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ally,basedonlimits,whentwoormorepoliciesprovidecoverage.
Arbitration
Bothpartiesmustagreetoarbitration.Ifsoagreed,eachpartywillselectanarbitrator.Thetwoarbitratorswillselectathird.Iftheycannotagreewithin30days,eithermayrequestthatselectionbemadebyajudgeofacourthavingjurisdiction.
...Unlessbothpartiesagreeotherwise,arbitrationwilltakeplaceinthecountyinwhichthe"insured"lives.Localrulesoflawastoprocedureandevidencewillapply.Adecisionagreedtobytwoofthearbitratorswillbebindingasto:
1.Whetherthe"insured"islegallyentitledtorecoverdamages;and
2.Theamountofdamages.Thisappliesonlyiftheamountdoesnotexceedtheminimumlimitforbodilyinjuryliabilityspecifiedbythefinancialresponsibilitylawofthestateinwhich"yourcoveredauto"isprincipallygaraged.Iftheamountexceedsthatlimit,eitherpartymaydemandtherighttoatrial.Thisdemandmustbemadewithin60daysofthearbitrators'decision.Ifthisdemandisnotmade,theamountofdamagesagreedtobythearbitratorswillbebinding.
ThefinalsectionintheUMcoverageportionofthepolicyistitled"Arbitration."Arbitrationmeansnegotiationbyimpartialpersonswhenyouandyour
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insurancecompanycannotagreeonsettlinganuninsuredmotoristsclaim.Disagreementmightconcernwhetheryouarelegallyentitledtorecoverdamagesormightconcerntheamountofrecovery.
Ifyouandtheinsurancecompanydonotagreethatyouhaveavalidclaim,ordisagreeastotheamountoftheclaim,bothsidesmustagreetoarbitration.Eachpartyselectsanarbitrator,andtheyselectathirdarbitrator.Eachpartypaysthecostofitsownarbitratorandsplitsthecostofthethirdarbitrator.
Arbitrationusuallytakesplaceinthecountyinwhichyouliveandthedecisionisbindingastotheentitlementofdamagesandtheamount,unlesstheamountexceedsthatrequiredbyfinancialresponsibilitylaws,inwhichcaseeitherpartymaydemandtherighttoatrial.
Underinsuredmotoristscoverage
Underinsuredmotoristscoverageapplieswhenanotherdriverwhocausesanaccidenthasliabilityinsurance,buttheinsurancethatdriverhasisinadequatetocoverresultinginjuries.
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Forexample:Youcarry$50,000ofunderinsuredmotoristscoverage.Anotherdriverswervesontothewrongsideofthestreetandhitsyourcarhead-on.Youneed$45,000tocoveryourinjuries.Theotherdriveronlyhas$30,000ofbodilyinjuryliabilitycoverageandcannotpersonallypaytheadditionaldamages.Theotherdriver'sinsurancecompanywouldpayyou$30,000andthe"underinsured"motoristscomponentofyourcoveragewouldpaytheadditional$15,000.
UnderinsuredmotoristscoverageisoftenlinkeddirectlywithUMcoverageinastandardpolicy.Howeverthesecoveragesappear,it'susuallyagoodideatomakesuretheyoffercoveragelimitsinlinewiththeotherpropertycoverageinthepolicy.
Aseriesofstatecourtrulingsintheearly1990seliminatedmanyoftheliabilitylimitsforuninsuredandunderinsuredmotoristscoverageespeciallyinfatalaccidents.Asaresult,manyinsurancecompaniesincreasedtheircashreservesagainstUMclaims.
In1994,theOhioInsuranceInstituteestimatedthatthechangesinUMclaimswouldresultinratesonuninsuredandunderinsuredmotoristscoveragedoubling.Manypeopleintheinsuranceindustryworriedthatsuchaspikewouldconvincesomedriverstodropthe
coverage.
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Withsomethinglikeoneinfourdriversnotcarryingautoinsurance,droppingUMcoverageisnotagoodidea.
Conclusion
Becauseadisturbingnumberofdriversespeciallythoseinurbanareasdon'thaveinsurance,uninsuredmotoristscoverageisanimportantcomponentofanyautoinsurancepackage.
Whilemoststatesdon'trequireUMcoverage,autofinanceandleasingcompanieswillalmostalwaysinsistonthecoverageasaprerequisite.Andgoingwithoutdoesn'tmakemuchsense.Inmostsituations,UMcoverageisn'texpensiveanditscostisn'taffectedbyyourdrivingrecordorothervariablefactors.
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Chapter7HowNo-FaultInsuranceWorksAfavoriteautoinsurancetopicamongconsumeradvocatesandsomeregulatorsistheno-faultsystem.Somestateshaveenactedvariousversionsofno-faultautoinsurance.In1995,thirteenstatesusedsomeformofno-fault.Whatthismeansandhowitaffectstheinsuranceyoubuyrequiressomeexplanation.
Thereareno-faultelementstoallautoinsurancepolicies.Themedicalpaymentsandpropertydamagesectionsofthecollisioncoveragewillpay,nomatterwhowasresponsibleforanaccident.No-faultsystemstakethiselementtoahigherlevel.
Supporterssaythatno-faultpromisesquickerpaymentofinsuranceclaims,becausethere'snowaitforinsurancecompaniesorcourtstodecidewho'stoblameforanaccident.Agrowingnumberofinsurance
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companiesagree,sayingthatno-faultsystemsreducetheircostsandtheresultinghigherautoinsurancepremiumsbylimitingthenumberoflawsuitsoverautoinsurancepolicies.
That'sabigplusforaninsurancesectorinwhichlegalfeesaccountfor12percentofpremiumcosts,whilemedicalexpensesaccountfor15percent.
Thebasicfactorsthatshapeno-faultprogramsinclude:
Thresholds:Designersofano-faultsystemmustdecidewheninjuriesaresoseverethatapersonshouldbeallowedtosuethedriverresponsible.Makethethresholdtoolow,andpeoplewillflocktocourt;toohigh,andsomemightnotbefairlycompensated.Mostno-faultproponentsfavoraverbalthresholdthatspellsoutwhichspecificinjuriespermitatriptocourt.Thealternativeisamonetarythreshold,whichallowslawsuitsfordamagesaboveaspecifiedamount.Butdetractorsareconcernedthisencouragesthepaddingofmedicalbillstoexceedthethreshold.
Benefit(orliability)limits:Whatarethemaximumbenefitsaninjuredmotoristcanreceiveunderano-faultpolicy?Whilesomesuggestalimitashighas
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$250,000,theindustryproposalputsthecaponbenefitsat$50,000,whichinsuranceofficialssaycovers97percentofallautoclaims.
Lostcoverageallowances:No-faultcanmeanthatdriverspaymoretomaintaintheircurrentlevelofcoverage.Forinstance,sinceno-faultonlycoversinsuredmotoristsandtheirpassengers,adrivermighthavetobuyaseparateliabilitypolicytocoversuchthingsashittingaparkedcar.
Costcontainment:Low-costpoliciesalsocouldrequiremedicaltreatmentfromamanaged-careprovider.
"Pure"no-fault
Onereasonproponentsdefendno-faultsostaunchlyisthatwhentheysayno-fault,theygenerallymeanpureno-fault.
Underapureno-faultsystem,virtuallyalllawsuitsrelatedtoautoaccidentsareeliminated.Therighttosueandachanceforadamageawardarereplacedwiththerighttoguaranteedbenefits.Lawsuitsareretainedonlytopunishconvicteddrunkendriversandothersguiltyofcriminalconduct.Policyholderspaypremiumstoprotectthemselves.Ifthey(ortheirpassengers)areinjured,theyarecompensatedbytheirowninsurersnomatterwhocausedanypartofanaccident.
That'sunlikealiabilitysystem,whichrequirestheresponsibleparty'sinsurertopayformedicalbillsandcarrepairs.
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Thereisnopureno-faultsystemintheUnitedStates.
In1995,theHawaiianstatelegislatureadoptedwhatwouldhavebeenthefirstpureno-faultprogram.ConsumeradvocateRalphNadervisitedHawaiitosupporttheplan.
NaderchallengedlawmakerstorepealHawaii's21-year-oldpartialno-faultautoinsuranceplan,whichprohibitslawsuitsuntilmedicalbillsexceed$10,000.Hesaidthatalimitedreformplan,whichwouldallowlawsuitsafterdamagesexceed$20,000andofferconsumersachoiceofpolicies,wastoocomplex.''Andcomplexityalwaysworkstothebenefitoftheautoinsurancecompanyagainsttheconsumer,"hesaid.
Naderandothersupporterssaidthat,underpureno-fault,consumerswouldnolongerhavetohopethatthepersonwhohitthemwasrichorwell-insured.Theywouldn'thavetosplitthesettlementswithlawyers.Mostimportantly,theywouldn'thavetosubsidizeuninsuredmotoristswithUMcoverage.
Savingswouldhavecomelargelyfromeliminatinglawsuitsexceptwhenanaccidentistheresultofacriminalactsuchasdrunkendriving,andfromshiftingthemedicalcoststothevictim'sregularhealthinsurance,whichstatelawrequiresallemployerstosupply.
ButHawaiianGovernorBenCayetanosaiditwouldcostvictimstheirchancetosueforcompensationfor
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painandsuffering.Cayetanothenunveiledhisownplan,whichwouldprovideeverycarownerwith$25,000worthofliabilityinsuranceandlethealthinsurancepayfortraffic-relatedinjuries.
Cayetano'splanwouldbefinancedbya25-cent-per-gallongasolinesurchargeanda$17increaseinmotorvehicleregistration.Motoristscouldbuyadditionalcoverageandcouldsueonlyforseriousinjuriesordeath.
TheCalifornia-basedRANDInstituteestimatedthattheHawaiianpureno-faultinitiativewouldhaveprovideddriverswith$1millioninmedicalandwagelosscoverageforanaverageof48percentlessthantheypaidforlessinjurycoverageundertheliabilitysystem.
AboutthesametimethattheHawaiianno-faultplanfellintoapoliticalbog,agroupofhigh-techentrepreneursinCaliforniaproposedapackageofballotinitiativeswhichincludedanearlypureno-faultautoinsuranceplan.ThegroupcalleditselftheAlliancetoRevitalizeCalifornia(ARC)andpositioneditsideasasgoodforbothconsumersandbusinesses.
TheARCno-faultproposalwouldrequirethatpeoplehaveminimuminsurancepoliciestoregistertheircars.Italsowouldrequirethatinsurancecompaniespayclaimswithinamonth,orpay2percentpermonthinterest.
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Inmostcases,policyholderswouldlosetherighttosueoveraccidents.However,theycouldsueifaninsurancecompanyrefusedtopaybenefits,iftheotherdriverinanaccidentwasundertheinfluenceofdrugsoralcohol,orifthecrashwascausedbydefectsinthecarorroadhazards.
UndertheARCproposal,thestandardpolicywouldcoverupto$1millioninmedicalandotherdamages.Driverscouldsignwaiverstobuysmallerpolicies,andinsurancecompanieswouldhavetoofferpoliciesprovidingcoverageofupto$5million.
Partialno-fault
TheARCprogramcameprettyclosetopureno-fault.Butmostoftheno-faultprogramscurrentlyinplacecanbestbecalledpartialno-fault.Theyallowyoutomakeaclaimuptoacertaindollarlimitwithouthavingtodeterminewhocausedanaccident.
AboutthesametimethatARCwaspushingforapureno-faultsysteminCalifornia,thestate'sInsuranceCommissionerandagroupofconsumeradvocacygroupsproposedapartialno-faultalternative.
TheplanthatCommissionerChuckQuackenbushsupportedwouldhaverequiredalldriverstopurchaseabasicpolicywith$15,000inmedicalandlostwagebenefitsforanannualpremiumof$220formostdrivers.Peopleinjuredinanautomobileaccident
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wouldbeentitledtocompensationformedicalbillsandlostwagesuptothe$15,000limitregardlessofwhocausedanaccident.Painandsufferingclaimswouldbelimitedtothosewhoseinjurieswereseriousorpermanent.
TheminimumpolicywouldbemandatoryforallCalifornians,withproofofinsurancerequiredforvehicleregistration.
ModeledafterNewYork'sno-faultlaw,itusedaverbalthreshold"seriousorpermanentinjury"ratherthanafinancialtargettodetermineinwhichcaseslitigationmaybepursued.
InNewYork,allautoinsurancepoliciesmustcontain$50,000inno-faultcoverageformedicalexpensesandlostwages.Policiesstillhaveliabilitycoverage,butthatonlybeginsafterthe$50,000no-faultlimithasbeenusedup.
Acommonproblem
Despitetheirpoliticalpopularity,partialno-faulthavesometechnicalproblems.Acommonone:lowliabilitylimitslikethe$50,000inNewYork.Whilemostpeoplewouldconsiderlowliabilitylimitsagoodthing,theycancreateconflicts.
Forexample,apersonwho'sbeeninanaccidentcollectsmoneyfromtheat-faultdriverandthenmakesaclaimagainsthisorherownno-faultpolicy.Thisis
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calleddouble-dipping(it'ssimilartocasesinwhichapersoninjuredonthejobcollectsmoneyfromapersonalhealthinsuranceandanemployer'sworkers'compinsurance).
Regulatorytrends
Regulatorsandpoliticianscan'tseemtomakeuptheirmindsaboutno-faultautocoverage.Since1970,16statesandPuertoRicohaveadoptedsomeformofmodifiedno-faultautoinsurance,butfourstateshaverepealedtheirno-faultlawssincethen.(Pennsylvaniaadoptedno-faultin1976,repealeditin1984andre-enactedadifferentversionin1990.)
MichiganandNewYorkoftenarecitedashavinggoodexperienceswithno-fault.GeorgiaandConnecticut,whichrepealedno-faultinthe1990s,oftenarecitedashavingbadexperienceswiththesystem.
Someconsumeradvocateswhosupportno-faultarguethattriallawyergroupsspendalotofmoneytoopposeanyformofno-fault.And,eveninstateswhichhavestuckwithno-faultplans,regulatorshavetendedtolowerliabilitylimitswhichlawyerslike.
UnderNewJersey'sno-faultautoinsurancelaw,alldriversmustbuypersonalinjuryprotection(PIP)coverage.Ifanaccidentoccurs,itpaysforallmedicalbillsandlostwagesfortheinsuredupto$250,000.DrivershavetobuyPIPaspartofeveryautomobile
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insurancepolicy.Thiscoverageisasubstitutefortheindemnificationtypicallyhandledthroughcivillawsuits.
Aftermeetingwithinsurance-relatedinterestgroupsandmembersofthepublicinlate1994,NewJerseyInsuranceCommissionerDrewKarpinskiannouncedthathewouldseektoprovidedriverswithmoreoptionsforscalingbackPIPcoverageandotherautoinsurancecoveragesinordertolowercosts.
InMichigan,legislatorsconsidermodificationstothestate'sexpensiveno-faultsystemonwhatseemslikeanon-goingbasis.Thatstate'sPIPcoveragealsohasnoliabilitylimitalthoughthefinancialmodelonwhichit'sbasedassumesanaveragelimitof$250,000.
Nootherno-faultstaterequiresunlimitedPIPcoverage.NewJerseyrequires$250,000andColorado$200,000.Allotherstatesrequirealimitof$50,000orless.
ThetroublingtrendforMichiganautoinsurancecostsisthatthetotalvalueofso-called"PIPcatastrophic"claims,thoseexceeding$250,000,explodedinthelate1980sandearly1990s.Thecostofpaidclaimsrosebymorethan1,500percentbetween1984and1994,whilethenumberofclaimsreportedrosebyabout200percent.
Ininsuranceindustryjargon,thiskindofincreaseiscalledadeteriorationinclaimsexperience.Asaresult
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ofMichigan'sdeterioration,theannualcostofPIPcoveragerosefrom$3in1978to$23.60in1988to$96.95in1995.Thisisasurchargeaddedtothepremiumofeverydriverinthestate.
InsurersblameMichigan'sunlimitedbenefitsfordrivingupthecostofpremiumsbymorethan50percentbetween1990and1995."Ifyou'regoingtohaveaMichigan-stylesystem,youmightaswellnothaveno-faultatall,"saidaspokesmanforoneofthebiggestautoinsurancecompaniesinthecountry.
In1993,Connecticutabandoneditsno-faultsystemtoreturntoatraditionalliabilitysystem.Repealingtheno-faultsystemwasn'teasybut,"consideringthealternatives,itwastheleastDraconian,theleastintrusive,theleasttraumaticimpactontheconsumers,"saidGarrettMoore,presidentoftheConnecticutTrialLawyersAssociation.
Savingsfromreformcame,inpart,byeliminatingstacking(thepracticeofcombiningbenefitsfromcoverageonmorethanonecar)andotherfactorsthatincreasedclaims.Butthesavingscameprimarilyfromnolongerrequiringthepartialno-faultcoverage,whichpaidupto$5,000formedicalbillsandlostwages.
ConnecticutInsuranceCommissionerRobertGooginsnotedthatratesonpoliciesdropped7.7percentonaweightedstateaveragebuttheeffecton
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individualconsumersvariedwidely.Atsomecompanies,risingcostsofliabilityclaimsoffsetcostreductionsfromreform.
Reformingno-fault
Someconsumergroupsdefendthetraditionalliabilitysystembecauseitallowspeopletowinlargeawardswhenthey'reinjured.Thisargumentholdsthatno-faultsystemssubsidizethewealthyrelativelybylimitingallclaims.
Butdefendersofno-faultalsochampionthepoor.RichardWoll,senioractuaryattheCalifornia-basedAllstateResearch&PlanningCenter,believesthetraditionalliabilitysystemis"unfairtopoorpeople,whomustpurchaseinsurancetoprotecttheassetsofthewealthy."
Notonlydomanyless-wealthymotoristsfindautoinsuranceunaffordable,buttheyalsoaretheoneswhomostneedtheguaranteedpromptpaymentstocoverthecostsoftheiraccidents.
Theexperienceofthe13no-faultstatessuggeststhattheyhaven'tbeensuccessfulinrestrainingauto-insurancerates.Theoriginalconceptofwaivingtherighttosueinreturnforprompt,guaranteedmedicalpaymentsfellvictimtothelobbyingeffortsoftriallawyers,whoinsistedonpreservingtherighttosue,themedicalprofession,whichpushedforenrichedmedical
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benefits,andconsumergroups,whichwantedboth.
JeffreyO'Connell,alawprofessorattheUniversityofVirginia,wasoneofthefoundingfathersofno-faultinsurance.But,duringthe1990s,O'Connellbecameacriticofthesystemasitcurrentlyexists.Hearguedthathisfirstno-faultmodel,developedinthemid-1960s,was"bastardized"bystatelegislatorsbeholdentopowerfulspecialinterestgroups.
O'Connelldidn'tgiveup,though.Amodelhedevelopedin1994wouldgiveconsumersthechoiceofpurchasingno-faultcoverageor,forasignificantlyhigherpremium,fullliabilitycoverage.Thosewhoelectno-faultwouldwaivetherighttosuefornoneconomicdamagessuchaspainandsuffering.APIPpolicywouldcovertheireconomicdamagesregardlessoffault.Inreturn,theywouldbeinsulatedfromliabilityclaimsbyothermotorists.
Motoristswhoretaintheirrighttosuefornoneconomicdamageswouldremaininthetortliabilitysystem.However,suchdriversalsowouldhavetopurchasetortmaintenanceinsurancesimilartouninsuredmotoristscoverage.
O'Connellestimatesthatno-faultchooserswouldsavefrom25to40percentontheirautoinsurancebill,dependingonthelimitschosenandtheirstateofresidence.
TheRANDInstitute,whichcalculatedexpectedpremiumreductionsunderO'Connell'soptionalno-faultplan,projectedsavingsofmorethan$14billionforprivatepassengervehiclesalone.Thepremiumrate
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reductionswouldbelargestforlow-incomedrivers,manyofwhomareuninsuredduetohighautocoveragecosts.
Inadditiontoloweringthecostsofautoinsurance,O'Connellclaimstheproposaloffersseveralotheradvantagestodriversandinsurers.Forexample,hesays,healthcarefraudandabusewoulddecreasebycuttingthelinkbetweenmedicalcostsandnoneconomiccashawards,whichgenerallyarecalculatedasmultiplesofmedicalcosts.
UnderO'Connell'snewplan,therewouldbenoincentiveforaccidentvictimstorunupunnecessarymedicalbillstoqualifyforpainandsufferingcompensation.
ThebiggestcriticismofO'Connell'snewplan:Pennsylvaniahasanoptionalno-faultsystemliketheoneheproposesandfewpeoplechoosetheno-faultoption.
O'Connellattributesearlyproblemstothe"incrediblycrudeandunsound"waythePennsylvaniaprogramwasstructured.Hesaysthelegislaturedictatedtheratingmethodologytobeused,whichresultedina22percentratedecreaseforno-faultdriversandan11percentdecreaseforthoseelectingtoretaintheirtortrights.Withnomechanismfortransferringsavingstothosewhochooseno-fault,hesays,suchmotoristsdonotreceivethebenefitstheydeserveforgivinguptherighttosue.
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Also,Pennsylvanianswhofailtomakeaselectionareplacedintheliabilitysystem.
O'ConnellsaysNewJersey'sthree-year-oldchoiceno-faultisclosertohismodelbutstillhasamajorstructuraldeficiencysincethepeoplewhochoosetheliabilitysystemcansueno-faultdrivers.Still,O'Connellnotes,''overhalfthedriversinNewJerseychooseno-fault,andourplanoffersamuchhigherlevelofsavings."
Conclusion
Intheory,no-faultinsuranceisanappealingalternativetotheviciouscircleofthird-partyliabilityclaims,lawsuitsandrisingpremiumsthatplaguestraditionalinsuranceprograms.
Unfortunately,theno-faultplansthathavebeentestedsofarhavehadmixedresultsinpractice.No-faultsupportersarguethatthisisbecausetheprogramsthathavebeentriedareonlypartialefforts.Theyarguethat,inordertoworkeffectively,ano-faultprogramwouldhavetoprohibitmostliabilitylawsuits.
Thisissuegetsbacktoasubjectwe'veconsideredbeforeandwillseeagain:Liability.Theexplosionofliabilitylawsuitsthathascloggedupthelegalsystemformorethanagenerationisalsoresponsibleformanyproblemsintheinsuranceindustry.
Aslongaspeoplelookatinsuranceasameansofgainingfinancialwindfallslargerthandamagestheysufferinautoaccidents,no-faultwillhavetroublebeingimplemented.
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Chapter8HowEndorsementsandOtherChangesWorkSinceaninsurancepolicyisalegalcontract,youoryourinsurancecompanycannotsimplytakeapenandmakechangestothepolicy.Tochangeanyportionofthepolicy(whethertheinformationontheDeclarationsPageoranyofthepolicytermsandconditions),theinsurancecompanymustissueaformthatidentifieswhatchangeisbeingmade.Theformisthenattachedtothepolicy,andthechangebecomesbindingonbothparties.
Formslikethisandthechangesthattheymakearecalledendorsements.
Additionalformsarealsoattachedtoapolicytoaddoptionalcoveragesthatarenotincludedinthestandardpolicyform.Theseformsmaybeattachedwhenapolicyisfirstissued,oratalaterdate.
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Avarietyofendorsementsmaybeusedinconnectionwithanautopolicy.Endorsementsmaydosomethingassimpleascorrectingamisspellingofyournameorsomethingmorecomplexsuchaschangingtheinsuredvehiclesoraddingacoveragethatisnotmentionedintheoriginalpolicy.
EndorsementsmaybeusedtochangeinformationintheDeclarations,ortoadd,delete,ormodifycoverages,exclusionsorpolicyprovisions.Althoughallendorsementschangethepolicy,notallendorsementsrequireapremiumadjustment.
You'llfindthelanguageinmostendorsementsisverysimilartolanguageyouseeelsewhereinthestandardpolicy.Wewillnotexamineeverylineoreveryprovisionintheseendorsements,becausetherearesomanyofthem.Instead,we'llfocusontheprimarypurposeofeachform.
Youdon'tneedtoknoweveryprovisionandeverydefinitionthatmayappearintheseforms.Itismoreimportantforyoutobeawarethattheseendorsementsexist,andtoknowingeneralwhateachonedoes,andwhentheyaretobeused.
Notalloftheseendorsementsareusedbyautomobileinsurers.Andsomepoliciesmayhaveotherconditionsrequiredbystatelaw.
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ChangeEndorsement
Wheneverendorsementsareattachedtothepolicyatthetimethepolicyisissued,theirendorsementnumberswillbetypedonthepolicyDeclarationsPage.Butwhenitisnecessarytoaddanendorsementafterapolicyisineffect,inmostcasestheChangeEndorsementmustalsobeissued.ThereasonforthisisthatonlytheChangeEndorsementhasplacesforenteringthepolicynumberandeffectivedateofthechange.
Basically,theChangeEndorsementactssomethinglikeacoverletter,byprovidingimportantinformationaboutanaccompanyingendorsement.
Agrowingnumberofinsurancecompaniesprinttheirownendorsementformswhichincludepreprintedblanksatthetopforindicatingpolicynumber,effectivedate,andsoforth.ThismakestheChangeEndorsementunnecessaryandtheinsurancecompanycanissueonepieceofpapereachtimeanendorsementisrequired.
Suspensionofinsurance
Thisendorsementishelpfulifyou'renotgoingtouseoneormorecoveredautosforalengthyperiodoftime.TheSuspensionofInsuranceendorsementisnormallyissuedafterapolicyiswritten.Ittemporarilystopscoverageforthecarthatyou'renotusing.
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TheSuspensionofInsuranceendorsementstatesthatpremiumwillberefundedifcoverageissuspendedforatleastthirtyconsecutivedays.Butitdoesnothaveaplacetoindicatehowlongtheinsuranceistobesuspended.
Forthisreason,youhavetonotifytheinsurancecompanywhenyouwantcoveragetoberestored.Inmostcases,theinsurancecompanywillthencalculateanyrefunddueandrestorecoveragebyissuingaReinstatementendorsement.
Splitliabilitylimits
ThestandardPersonalAutoPolicyisdesignedtoprovideliabilitycoveragewithasinglelimitofinsuranceperaccident.Optionalsplitlimitsareavailablewiththisendorsement.
Somepeopleprefersplitlimitsbecausetheyaremorecost-effectivethanotherpackages.But,inmostcases,splitlimitsareneededtosatisfytheminimumrequirementsofafinancialresponsibilitylawortosatisfyrequirementsforunderlyinginsurancewhenaPersonalUmbrellaliabilitypolicyisbeingwritten.
Forwhateverreasonsplitlimitsarerequestedorrequired,anendorsementwouldbeattachedtothepolicytoprovidethem.Thisformmodifiesthelimitofliabilityprovisionbyspecifyingthatseparatelimitsapplytoeachpersonandtoeachaccidentforbodily
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injurylossesandaseparatelimitofliabilityappliestopropertydamagelossesonaperaccidentbasis.
Increasedlimitstransportationexpenses
ThestandardPersonalAutoPolicycontainsasectionentitledTransportationExpenses.Thatsectiondescribestheconditionsunderwhichapolicyholdercanreceivepaymentfortheexpensesofrentingasubstituteautowhenacoveredautohasbeendamagedorstolen.Policycoveragefortransportationexpensesbeginsafterawaitingperiod48hoursintheeventoftotaltheftofanauto,and24hoursafteranautoiswithdrawnfromuseduetoanyothercoveredloss.
However,thestandardpolicycoverageislimitedto$15adayanda$450maximumbenefit.Inmanycities,thoselimitswouldbeinadequatetocovercurrentrentalcarcosts.
TheIncreasedLimitsTransportationExpensesCoverageendorsementmaybeattachedtoraisethecoverageamountto$30adayanda$900maximumpayment.Thesehigherlimitsofcoverageapplyonlytocoveredautoswhicharedescribedinthescheduleandforwhichanadditionalpremiumforincreasedlimitsisshown.
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Coveragefortapes,records,orotherdevices
InthestandardPersonalAutoPolicy,variousexclusionsremovecoveragefortapes,records,andothermediaandaccessoriesusedwithaudio,visualanddataequipment.Ifyoukeepanumberoftapesorcompactdiscsinyourcar,youmightchoosetopurchasecoveragefortheseitems.
Coverageforthissortofpersonalpropertyisusuallysoldwithlowliabilitylimitsfortheinsurancecompanyusuallylessthan$500,oftenlessthan$250.It'snotagreatdealofcoverage.
ThisendorsementwillbeattachedtothepolicyoraChangeEndorsementwhenissuedafterthepolicyiswritten,andanadditionalpremiumwillbecharged.
Coverageforvisualandothermedia
Theendorsementfortapesandrecordsprovideslimitedcoverageformediausedwithsoundequipmentandotherequipmentbutitdoesnotcovertheequipment.Forexample,itwouldnotcoverthelossofatwo-wayradio,carphoneorotherdevice.
MorecompletecoveragecanbeobtainedbypurchasingtheCoverageforAudio,VisualandDataElectronicEquipmentandTapes,Records,Discsand
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OtherMediaendorsement.Thisendorsementcoversequipment(suchastwo-wayradios,FAXmachines,carphones)aswellasmediausedwithsuchdevices.
Inordertobecovered,theequipmentmusteitherbepermanentlyinstalledintheautoorberemovablefromahousingwhichispermanentlyinstalled.Itmustbedesignedtobeoperatedsolelybytheauto'selectricalpowersystem.Theequipmentmustreceive,transmitorrecordaudio,visualordatasignals.
Thereisnocoverageunderthisendorsementfordevicesusedsolelytoreproducesoundorthatmonitorthecar'soperatingsystem(suchdevicesarecoveredunderthestandardcoverageaslongastheyarepermanentlyinstalled).
Underthisendorsement,coverageforaudio,visualanddataelectronicequipmentiswrittenforaspecifieddollaramount,whilecoveragefortapes,discsandothermediaisstillsubjecttoalowerlimit.Lossesarepaidatthelowestofthreevalues:thelimitofinsurance,theactualcashvalueortheamountnecessarytorepairorreplacetheproperty.
Coveredpropertycoverage
Thestandardautopolicyexcludescoverageforthelossofawnings,cabanas,orequipmentdesignedtocreateadditionallivingfacilities.Suchequipmentisoftenapartofcampersandvans.
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Ifyouneedcoverageforthesekindsofproperty,thisendorsementcanbeaddedtothestandardpolicyforanadditionalpremium.
Customizingequipmentcoverage
Anotherexclusionunderthestandardpolicyremovescoveragefordamagetocustomfurnishingsandequipment,suchascamperkitchenequipment,carpeting,sleepingfacilities,andsoforth.Thisisaparticularissueforpeoplewhodriverecreationalvehiclesandso-calledcustomvanconversions.
Ifyouneedcoverageforthesesortsoffurnishingsand/orequipment,youcanpurchasetheCustomizingEquipmentCoverageendorsementforanadditionalpremium.
Losspayableclause
Aswe'venotedbefore,autopurchasesarefrequentlyfinancedthroughbanksorcreditcompanies.Whenyouborrowmoneytobuyacar,bothyouandthelenderhaveaninsurableinterestinthecaruntiltheloanispaidoff.Toprotectitsinterest,thelenderwillusuallyrequirethatyoupurchaseinsurancetocovertheautoagainsttheft,damageorotherloss.Thelenderinthesecasesbecomesthelosspayee.
Whenyouindicatethatanotherpartyhasaninsurableinterestinacoveredauto,theinsurancecompanywillusuallyattachtheLossPayableClauseendorsementtothepolicy.Copiesofthepolicyaswellasallendorsementsaresenttothelosspayeeaswellastoyou.
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Thereisnoadditionalpremiumchargedforthisendorsement,becauseitdoesnotchangetheinsuranceexposureitonlyaffectstowhomlosssettlementswillbepaid.
Additionalinsuredlessor
Leasingcompanies(lessors)areinasimilarpositiontolendingcompanies,inthattheyhaveaninsurableinterestinautostheyhaveleasedtotheircustomers.
Sincetheleasingcompanyremainsthelegalowneroftheleasedvehicle,itispossibleforthatcompanytobecomelegallyliableforinjuryordamageinvolvingtheleasedvehicle.Forthesereasons,leasingcompaniesusuallyrequirethattheybeincludedasadditionalinsuredsonthepoliciesofpeopleleasingvehicles.
Here,asinthecaseofLossPayableClause,thereshouldbenoadditionalpremiumchargedforthisendorsement.
Coveragefordamagetoyourauto(maximumlimit)
Thisendorsementisusedwhenyouneedphysicaldamagecoverageforanautomobilewithanunusualvalue.Underthestandardpolicy,lossesareusuallysettledonthebasisofactualcashvalue.Butthiscanbeaproblemifyouownaunique,custom-madeorantiquecar.
Thevalueofacollectiblecarmaybedifficulttodetermineandisnotaffectedbydepreciationintheusualmanner.Theactualcashvalueofacollector'sitemvehiclemayactuallyincreasewithtime.
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Apolicyholderwon'tusuallybesatisfiedwithanACVsettlementbasedonthemakeandmodelyearofacarthathasspecialvalue.Butthiskindofspecialvalueisdifficulttocalculate.Sincetheamountofvalueisdifficulttopredictaccurately,theinsurancecompanydoesnotknowwhatitsexposureisnorwhattoproperlychargeforthecoverage.
Onesolutiontotheproblemistowritetheinsuranceforthesevehiclesonastatedamountbasis.Thisestablishesamaximumvaluewhichtheinsuredandinsureragreeupon.
Animportantnote:Losseswillstillbesettledonthebasisofthelowestofthestatedamount,actualcashvalue,orrepairorreplacementcost.
Forexample,ifthecosttorepairapartiallossisreasonable,thatamountwouldlikelybepaid.If,ontheotherhand,thevehicleisatotallossandcannotberepairedorreplaced,andtheACVisdifficulttodetermine,theinsurancecompanywouldprobablypaythestatedamount.
Miscellaneoustypevehicleendorsement
ThePersonalAutoPolicydefinitionofyourcoveredautocanbemodifiedbyuseoftheMiscellaneousTypeVehicleEndorsement.
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Thisendorsementformisoftenusedtoinsuretypesofvehiclesthatarenotnormallyeligibleforpersonalautocoverageunderastandardpolicylikecarsnotdesignedforroadtravelandrecreationalvehicles.
Theendorsementchangesthepolicydefinitionofyourcoveredautotoincludemiscellaneoustypevehicles.ItstatesthatacoveredautoincludesanymiscellaneoustypevehicleshowninthescheduleorDeclarations.Italsoallowscoverageforanymiscellaneoustypevehiclesacquiredduringthepolicyperiod.
Therestofthisdefinitionisthesameasthedefinitionfoundinthestandardpolicy(includingtherequirementtonotifytheinsurancecompanywithin30dayswithrespecttocoverageforadditionalvehicles,orphysicaldamagecoverageforreplacementvehicles).
Theendorsementcontainsspaceforindicatingwhetherthepassengerhazardisexcludedforeachinsuredvehicle.WhentheYesboxischecked,thereisnoliabilitycoverageunderthepolicywithrespecttoinjuriestoapersonoccupyingthatmiscellaneoustypevehicle.
Jointownershipcoverageendorsement
TheJointOwnershipCoverageendorsementmaybeattachedtoastandardPersonalAutoPolicytoinsurevehicleswhichnormallywouldnotbeeligibleunderthestandardownershiprules.
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Underthestandardownershiprules,aneligiblevehiclemustbeownedorleasedbyanindividualormarriedcouplewhoareresidentsofthesamehousehold.TheJointOwnershipCoverageendorsementmakescoverageavailableforvehicleswhichareownedbyindividualsotherthanhusbandandwifewhoresideinthesamehousehold,andforrelatedindividualswholiveindifferenthouseholds.
Anote:TheJointOwnershipCoverageendorsementandtheMiscellaneousTypeVehicleEndorsementmaybeusedtochangetheownershiprulesforeligibilityandthetypesofvehicleseligibleforcoverageunderastandardpolicy.
Conclusion
Makingchangestoanexistingautoinsurancepolicycanbedifficultmakingchangestoanycontractusuallyis.Fortunately,manyofthemostcommonchangespeopleneedtomakehavebeenincorporatedintoaseriesoffairlystandardpolicyendorsements.
Someendorsementsrequireadditionalpremiumsorfeesbutmanydon't.
Theseendorsementsaddordeletecars,peopleorcoveragesfrominsurancepolicies.Theycanalsoraiseorlowerthecoveragelimitsinapolicy.Theymakethesechangesinlanguagethattheinsuranceindustryanditslegaltoolscanunderstand.
Endorsementsalsoallowyoutoadjustastandardinsurancepolicytoyourspecificneeds,withouthavingtogetintotheexpensiveandtime-consumingprocessofnegotiatingacustomizedpolicy.
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Ifyouneedtomakeachangetoapolicythatexistingendorsementsdon'taddress,youcannegotiateacustomendorsement.
Howeveryouproceed,thepurposeofendorsementsistokeepasmuchoftheinsurancepolicyaspossibleinstandardizedlanguage.Thiskeepsclaims-makingandsettlementconfusiontoaminimumwhichisgoodforeveryoneinvolved.
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Chapter9TipsforShoppingforCarInsuranceOnceyou'vegotaworkingknowledgeoftheelementsofanautoinsurancepolicy,youcanbegintheprocessofshoppingforanewpolicyoronetoreplacethepolicyyoucurrentlyhave.
TheInsuranceInformationInstituteinNewYorkwarnsagainstshoppingonpricealone.Thegroupsuggeststalkingtoanumberofinsurersfirsttogetafeelingforthequalityoftheirservice.
Independentinsuranceagentscanhelpsortthroughdifferentpoliciesofferedbydifferentinsurancecompanies.Butyoudon'thavetouseaninsuranceagentorbroker.Agrowingnumberofautoinsurancecompaniesareorganizedtosellcoveragedirectlyprimarilyoverthetelephone.Ifyouknowwhatkindofcoverageyouneedandarewillingtospendsometimeonthephone,youcanshopforinsuranceyourself.
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Ofcourse,consumerrights'groupsalmostalwayslecturepeopleaboutcomparisonshoppingforpriceandservice.Buttheyoftenleaveoutthespecificsofhowtomakethecomparisons.
Inthischapter,we'llconsiderthemostimportantfactorsthatdeterminehowmuchanautoinsurancepolicycosts.Theseshouldalsobethemainpointsforcomparingpoliciesandquotesofferedbydifferentcompanies.
Consideringinsurancecompanies
Thekindofinsurancecompanyyouchoosecanmakeabigdifference,especiallywhenyouhavetomakeaclaim.Differentcompaniesstressdifferentspecialtiessome,lowprices...others,excellentservice.
Insurersthatusedirectmarketingastheirmainmethodofsellingcoveragemightbeabletooffercheaperpremiumsbutthesepricebreaksoftencomeatthecostofthelevelofserviceothercarriersoffer.
Directmarketersdon'tuseagentsorbrokerstoselltheirinsurance;theysellthroughdirectmailandtelemarketing.Theyusuallyhandleclaimsinasimilarmanner.Thishasbecomeoneofthefastest-growingpartsoftheautoinsurancemarket.It'scheapbutnotalwaysstrongoncustomerservice.
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Otherbusinessprioritiesaffecttheinsuranceacompanyoffers.Ifacompanyonlywritespoliciesforsqueaky-cleandrivers,itsratesaregoingtobelowerthanonethattakesabroaderrangeofdrivers,hopingtomakemoneyonhighervolume.Somecompanieschargemoresotheycanprovidequickerservice.
Ifaninsurancecompanyhasmoreclaimsadjustersinyourarea,itwillprobablysettlecasesfaster.Butitwillalsoprobablychargemoreinpremiums.
Someinsurancecompaniesofferdiscountstoautoownerswhoagreetohaveaccidentrepairsdoneatpre-approvedbodyshops.Insurerssaytheycansavemillionsonthecostsofprocessingaccidentclaimsbyvirtuallyeliminatingtheinsuranceappraiser.Theycomparethecost-containmentplanstomanaged-caresystemsinthehealthinsurancemarket.
In1995,onlyahandfulofaccidentclaimsfellundercost-containmentoptions.Butindustryofficialspredictedthat25percentofclaimswouldusethesystemsbytheyear2000.
Undercost-containmentplans(alsocalledpreferredprovideroptionplans),repairshopsappraisecarsandsendtheestimatestotheinsurancecompanyviacomputer.Thatcutsfrom14daystoseventhetypicaltime
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ittakestogetadamagedvehiclerepaired.Becausetheshopgetsasteadystreamofwreckedcars,theinsurancecompanygetsreducedlaborratesandpartsdiscountsusually5percentto10percent.
Preferredprovideroptionisanoutgrowthofanotherplancalleddirectrepairprogramsthatinsurancecompaniesbeganofferinginthelate1980s.Directrepairprogramsallowownerstochooseabodyshoprecommendedbytheinsurancefirm,buttheowneralsocangotoashopnotonthelist.
InPennsylvania,stateapprovedautoinsuranceratesdroppedbetween1993and1995largelyduetoacostcontainmentprovisionina1990reformlaw.
Aswithallinsurancepolicies,don'tassumeallinsurancecompanieswillchargethesamepremiumforsimilarcoverage.Dependingonwhereyouliveandwhatyourdrivingrecordis,aservice-orientedcarriermaychargeaboutthesamepremiumasano-frillsdirectmarketer.
Ironically,driverswithbadbutnothorribledrivingrecordssometimesfindlessdifferenceinthepremiumsthey'requotedthangooddrivers.Ofcourse,allthequoteswilltendtobehigh.
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Asaruleofthumb,it'sagoodideatoaskforpremiumquotesfromatleastthreeinsurancecompaniesplusyourstate'sassignedriskprogram(orwhateverversionofastate-sponsoredprogramituses).
Thestateprogramwillgiveyouabaselineforcostandcoverageagainstwhichtocomparetheotherpolicies.Thiswillgiveyouagoodchanceofeliminatinganyparticularlybaddeals.
Forexample:In1994,NationalInsuranceConsumerOrganizationPresidentRobertHuntersaidolderdriverswouldprobablypaylessintheirstate'sassignedriskinsuranceplanthantheywouldpayingAARP'sheavily-promotedautoinsurance.''Guaranteedrenewabilityatunaffordablepricesisnoguaranteeatall,"saidHunterreferringtothebiggestreasonolderpeoplebuyAARPinsurance.
Chartingoptions
Animportantpointtorememberwhenyou'rebuyingautoinsurance:Likeallcoverage,thisprotectionimposescertainconditions.Somepeopledrivenbytemperamentorextremecircumstancestrytocontrolhowtheircarsarerepairedafteranaccident.
It'sbettertotakeamoredetachedview.Buycarinsurancethatprotectsyourassetsandyourwell-being.Findacompanythatmakesyoucomfortableyou'llbetreatedinamanneryouprefer.Then,ifaclaimhastobemade,focusongettingwhat'sdamagedfixed.
Don'ttrytomanageyourinsurancecompanythroughtheclaimsprocess.
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Beforeyoucontactanyagentsorinsurancecompanies,makeachartlistingthedifferentcoveragesliability,propertydamage,collision,comprehensive,medicalpayments,uninsuredmotorists,etc.withtheamountsofcoverageandthedeductiblesnoted.Thiswillhelpyousortoutandcomparethequotesandcoveragesfromeachcompany.
Mostfinancialadvisersgenerallyrecommendthatyoucarrybodily-injurycoverageofatleast$100,000perpersonand$300,000peraccident,aswellasproperty-damagecoverageofatleast$100,000.Ifyouhavesubstantialnetworththatyouwanttoprotectagainstpotentiallawsuits,you'llwanttoincreaseyourbodily-injurycoverage.
AUTOINSURANCEPOLICYCOMPARISONSHEETInsurancecompany________________
___________________________________________________
liabilitysingleunitsplitlimitsbodilyinjurylimitspropertydamagelimitspremiummedicalpaymentscoveragelimitspremiumuninsuredmotoristcoveragelimitspremium
AUTOINSURANCEPOLICYCOMPARISONSHEETInsurancecompany_________________
__________________________________________________
underinsuredmotoristcoveragelimitspremium
collisioncoveragelimitsdeductiblepremium
otherthancollisioncoveragelimitsdeductiblepremium
towingandlaborcoveragelimitspremium
AUTOINSURANCEPOLICYCOMPARISONSHEETInsurancecompany_________________
__________________________________________________
rentalreimbursementcoveragelimitspremium
othercoveragescoveragelimitspremium
totalpremiumDoesthecompanyusespecifclaborcenters?
AUTOINSURANCEPOLICYCOMPARISONSHEETInsurancecompany_________________
__________________________________________________
Whatothercost-containmenttoolsdoesituse?Doesthecompanyeverpaydividendsorotherrebates?Whereistheclosestadjusteroraccidentcenter?Howdoesthestateinsurancedepartmentratethiscompany?(Orhasitreceivedmanycomplaints?)
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Armedwithyourchart,you'rereadytostartshopping.
Onceyou'vegotalistofpricesandcompanyratecomparisons,youcanstartlookingatwaystoreducestandardpremiums.Theseinclude:
Droptherental-reimbursementcoverage.Rentalcoveragepaysforrentingacarwhenyourownautoisintherepairshop.Ifyouhavetwocars,youmightbeabletogetalongwithoutarental.
Droptowingandlaborcostscoverage.Ifyoualreadyhavecoveragethroughanautomobileclub,forexampleyou'rejustduplicatingyourcosts.
Droplossofincomebenefits.Youmaywanttoskipthiscoverageifyouhaveagooddisabilityplanatwork.
Cancelcoverageifyourcarwon'tbeusedforalongperiod.Ifyou'reflyingoutofthecountryonvacationforamonthorlonger,seeifyoucancancelyourcoverageforcollisionwhileyou'regone.
Don'tforgettoaskaboutspecialdiscounts.Manycompaniesofferpricebreakstopeoplewhodrivefewermilesthantheannualaverage.Mostalsoofferlowerratestomotoristswhohaven'thadanaccidentormovingviolationforthreeyears.Andthetraditionalgoodstudentdiscountcansaveasmuchas25percentofpremiumsifyouhaveteenageoryoung-adultdriversinyourhousehold(moreonthislater).
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Askaboutsafety-featurediscounts:Theremaybeabreakifyouhaveairbags,anti-lockbrakes,alarmoranti-theftsystems.
Ifyouhavetwocars,youmaybeabletocutyourcostsbyinsuringthembothwiththesamecompanyratherthanlookingfordifferentinsurersforeach.Discountsformultiple-carhouseholdscanrangeupto15percent.
Considerjoiningacarpoolortakepublictransittowork.Insurersbaseyourpremiumsinpartonhowmuchtimeyou'redriving.
Checkoutinsurancecostswhenconsideringamove.Insurancecompaniesbasetheirratespartlyonwhereyoulive.Peoplelivinginbigcitiesprobablywillpaymorethanthoseinsmalltowns,allotherthingsbeingequal.RatescanevenvaryfromoneblockorZIPcodetoanotherbecauseofloweraccidentortheftrates.
Buycarswithbetterinsurancerecords.Generally,expensivecarscostmoretoinsurethanbudgetboxes;sportscarscarryheftierpremiumsthanfamilysedans.Carsthataremorepopulartargetsofthievesalsocancostmoretoinsure.
Insureyourhousewiththesamecompany.So-calledmulti-policydiscountsshaveafewpercentagepointsoffyourhomeowners'andautoinsurancepolicies.
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Familyrisksandrates
Theinsuranceconsumerswiththebestincentiveforshoppingpremiumsandcoveragearepeoplewhohavefamilieswithseveraldrivers.(Thisgetsbacktotherecurringissueofhouseholdsandinsurance.)Multipledriverpoliciesgetveryexpensiveforonemainreason:teenagers.Theycausemoreaccidentspercapitathananyotherdemographicgroup.
Tworelateddemographicnotes.First,genderdoesn'tmakeasbigadifferenceintheaccidentratesofteenagedriversasyoumightthink.Girlsarealmostasdangerousasboysonthiscount.Second,whileyoungdriversarethemostdangerousgrouppercapita,driversover65arethemostdangerousdriverspermiledriven.Thedifferenceisthatpeopleover65drivefewermilesthanteenagers.
Herearesomeeffectivewaystosavemoneyonfamilyautoinsurance:
It'susuallybesttostaywiththecompanyyou'vedonebusinesswithforseveralyearsthelongeryou'reagoodcustomer,thebetterratestheyusuallyoffer.
Mostmajorinsurancecarriersreducepremiumsfordriversuptoage21by10to15percentiftheytakeacertifieddrivereducationcourse.Makesureyourkidstakedriver'sed.Iftheirschoolhasno
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program,acourseatacertifiedprivatelyrundrivingschoolwillalsoqualifyyouforthediscount.
MostinsurancecompaniesprovideadiscountforstudentswithaBaverageorbetterora3.0gradepointaverageincollege.Thetypicaldiscountis10percent.Someinsurancecompaniesaskforcopiesofreportcardsortranscriptseachtimeyourenewyourpolicy.
Ifastudentleaveshometogotoschoolmorethan100milesaway,theparentscangetapolicydiscountbecausetheteendriverisnotaroundasmuchtodrive.
Intermediatesizecars,sedansandother"lowprofile"vehicleswillcarrylowerpremiumsthanhigh-performancecars,sportutilityvehiclesandsportscars.Ifateenagerwantstodriveasportscar,youhavetogotoacompanyspecializinginhigh-riskpolicies.Thepremiumcanbedoublethenormalrates.
Itisusuallycheapertoputateenagedriverontheparents'policythanitistobuyhimseparateinsurance.Eveniftheteenagerhashisowncar,includinghiscoverageonthefamilypolicymighthelpgetthemulti-cardiscountmostcompaniesoffer10to30percent.
However,ifateenagerhashisowncaranddoesn'tqualifyforagoodstudentordrivereducationdiscount,itmaybebetterforhimtohavehisownpolicyespeciallyifhehasabaddrivingrecord.
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Youcancutthecostofpolicypremiumsbyraisingthedeductibleamountsordroppingcollision,fireandtheftcoverageforthecarstheteenagerdrives.Manyagentssuggestadeductibleof$500forcollision,$250fortheftandotherdamageanddroppingtowingandlaborcoverage.Thisapproachisespeciallyapplicableifyougiveakidanoldercar.
Ifateenagedriverisinanaccidentwhichisnotjudgedanotherdriver'sfaultorgetsatrafficticket,thecostofyourpolicywillrise,oftendramatically.
Deductibles
Anotherpointtoconsiderwhenyou'recomparingpolicies:Whatkindofdeductiblestoincludeinyourinsurancepackage.Toplayitsafe,assumethatifyouchooseadeductibleyou'llhavetopayitonceayear.Thisassumptionbudgetsinthedeductibleasacostofcoverage.
Oneofthemajorfactorsaffectingthepriceofcollisioncoverageisthedeductible.Andthisissomethingthatyoucancontrol.
Adeductibleissimplyariskthatisself-insured.Witha$1,000deductible,thedriverself-insuresthefirst$1,000ofeachloss.Soadriverneedstoaskhowfrequentsuchlossesmightbe,howmanyautosarebeinginsuredandhowmanyloss-freeyearsyouwillneedtodrivebeforethepremiumsavingsequaltheextrariskbeingtaken.
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Ifallotherfactorsareequal,thegreaterthedeductibleamount,thelowerthecostforcollisioninsurance.Thisistruebecausehigherdeductiblesreducetheinsurancecompany'sexposure.Smalllosseswhichdonotexceedthedeductibledonotrequireaclaimsettlement,andlargelosseswhichexceedthedeductibleresultinasmallersettlement.
Deductiblesusuallyrangefrom$100to$500perclaim.Otherdeductibles,rangingfromaslowas$50toashighas$1,000,arecommonlyavailableforcollisioncoverage.Acaveat:Ifyoufinanceyourcar,thefinancecompanymaynotletyouhaveahighdeductible.
Todeterminewhetheradeductibleworksforyou,compareayear'spremiumswithouttoayear'spremiumswithadeductibleplusthatdeductible.Thedeductibletotalwillbehigher.But,ifyougothroughtheyearwithoutmakingaclaim,yougettokeepthedeductibleamount.
Inmostcases,insurancecompanieswillstructurepremiumstoencouragehighdeductibles.Forexample,thecostofcollision
coveragewitha$500deductiblecanbeasmuchas45percentlessthanthecostwitha$100deductible.Inthisscenario,a$500deductiblewillpayforitselfinpremiumsavingsinaslittleasthreeyears.A$1,000deductiblecanpayforitselfin
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justalittlelongerthanthat.Butbothofthesescenariosassumeyoudon'tmakeanyclaimsduringthatperiod.DEDUCTIBLE/PREMIUMGRIDInsurancecompany:
_______________________________________________________
premium premium premium premiumpersonalinjury$0$100$250$500$1000
collision$0$100$250$500$1000
Page162DEDUCTIBLE/PREMIUMGRIDInsurancecompany:
_______________________________________________________
premium premium premium premiumotherthancollision$0$100$250$500$1000
othercoverage$0$100$250$500$1000
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Theintentofdeductiblesistoencouragedriverstoassumeresponsibilityforthesmaller,moreaffordablelossesthatcanoccurtoacar.(Theydon'tusuallyapplytoliabilityormedicalpaymentclaims.)Thiseliminatessmallclaimsandpaperworkfortheinsurancecompanyandhelpskeeppremiumsdown.
Ifthedamagetoyourcarissmallerthanyourdeductibleorevenclosetoyourdeductibleamount(between$500and$1000inmostcasesthoughtheamountvaries),itmightmakethemostsensenottomakeaclaimatall.Youcanshoparound,paycashfortherepairandnevertellyourinsurancecompany.Thispreventsthecompanyfromnotingthatyouhadtheaccident.
Insituationswhereyou'retheat-faultdriverandhaveadeductibleforliabilityclaims,youcanoffertopayfortherepairstotheotherperson'scaryourself.
Somepeoplewillwanttopayfordamagesoutofpocket,eveniftheyhavenodeductible.Thepresenceofanat-faultaccidentinsomeone'sclaimshistory(especiallyifit'snotthefirst)canraisepremiumsdramaticallyenoughthatit'sworthavoidingtheclaimalltogether.
Directmarketing
Increasingly,smartconsumersarebuyingtheirautoinsurancedirectlyfrominsurancecompanies.Youcan
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dothisthroughthemail,onthetelephone,orthemostrecentdevelopmentviaon-linecomputerservices.
Theon-lineservicesareanareainwhichmostinsurancecompaniesseemarketingpotential.Theypredictadaywhenyoucantapintoacomputerandseeacomparativelistofautoinsuranceratesofferedbyeachcompany.
Armedwiththisinformation,youcouldsettheagendawhenitcomestimetobargainforthepolicythatwillcoverthatprizedcar,trustyfamilywagon,oratleastkeepyouontheroadlegally.
Thiswillrequireagreaterlevelofconsumersophistication.You'llneedtoknowmoreaboutwhatcoveragesyouneedandwhatyourbuyingwithyourpremiumdollars.
Here'salistofsuggestionsfortrimmingautoinsurancechargeswhenyou'redealingdirectlywithaninsurancecompany:
Cancelcollisioncoverageonoldercars.Oncarsthatarefinanced,banksrequirecollision,whichpaysfordamagetoadriver'sowncarwhenheorsheisinvolvedinawreck,andcomprehensive,whichpaysfortheft,fireandotherlosses.Butoncetheloansarepaidoffandthecarsgetfiveorsixyearsold,adrivermaywanttodroponeorbothcoverages.
Weighthecostofcomprehensiveandcollisioncoverageagainstthevalueofthe
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car.Anytimethatvaluesgetsbelow$3,000,it'sagoodtimetolookatthecoverage.
Thesamebasicruleapplieswithcomprehensiveinsurance,whichcoversagrab-bagofthingsvandalism,theft,explosion,hittingananimal,fire,etc.
Ifyourstate'slawsallowit,dropyourautomedicalpaymentscoverage.Medicalpaymentscoveragestakecareofmedicalbillsforyouandyourfamily,regardlessofwhoisatfaultinanaccident.Ifyouandyourfamilyalreadyhavegoodhealthinsurance,youprobablydon'tneedmedicalcoveragethroughyourautopolicy.
Trytoavoidgettingtickets.Themoretrafficviolationsadriverhas,themorerecoupmentchargesheorshemustpay.Adriverwithmorethanfiveexperiencepointsonhisorherrecordcanpaydoubleandsometimeseventriplestandardpremiums.
Cutthecostsofteenagers.Teenagerswhohavedriver'slicensesareexpensivetoinsure.Infact,addingateenagertoatwo-driver,two-carpolicycanboostafamily'spremiumsby50percent.Tocutyourcosts,seeiftheinsureroffersdiscountsforstudentswhohavetakenadriver'seducationcourseorhavegoodgrades.
Getadiscountwhenyourchildgoestocollege.Manyinsurerswillreduceyour
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premiumswhenyourchildisatcollege,solongastheschoolisatleast100milesawayfromyourhome.
Ifyou'reaseniorcitizen,checkoutdriversafetycoursediscounts.Somecompaniesoffer10percentormoreofftheirstandardpoliciesfordriverswhoareage50orolder.(However,thosediscountsmaynotapplytodriverswhoareolderthan65,forexample.)
Letyourinsurancecompanyknowifyoukeepyourcarinagarage.Carsingaragesarelesslikelytobehitinthemiddleofthenightbyerrantdriversthancarsleftonthestreet.Garagedcarsalsoarelesslikelytobestolen.
Findoutwhetheranagentcangetyouabetterdeal.Afteryou'vedoneyourownshoppingandcomparing,youcangotoanindependentinsuranceagentsomeonewhosellspoliciesfromseveralcompaniesforacommissionandseeifheorshecanfindalowerprice.
Lookahead:Whathappensifyougetinanaccident?Whatifyou'reintwoaccidentsinayear?It'sworthknowinghowaccidentsandclaimsmightaffectyourfuturerates.Andhowtheinsurancecompanyyouchoosehandlesclaims.
Don'tsmoke.Severalcompaniesofferlowerratestononsmokersthansmokers.Reason:Smokingisthoughtofasahigher-riskbehavior.
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Finally,toprepareforthelogicalendoftheshoppingprocess,reviewastandardautoinsuranceapplicationform.You'llfindalloftheelementsofcoveragewe'veconsideredaddressedinit.
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Conclusion
Justabouteveryconsumeradvocatetellsyoutoshoparoundandcomparepricesandproductsbeforeyoubuysomethingasexpensiveasautoinsurance.Theproblemisthatshoppingforinsurancecanbecomplicated.
Thebestwaytothinkofshoppingforinsuranceisthattherearetwoissuesoccurringatonce:Thepremiumsthatdifferentinsurancecompanieswillchargeforthesamekindofcoverageandthepremiumsthateachindividualcompanywillchargeforvariationsonthestandardinsurancepackage.
Mostinsuranceprofessionalssuggestthatyoustartbycomparingthepricesandlevelsofserviceamongdifferentcompanies.Onceyou'veselectedoneortwothatworkbestforyou,adjustitemslikedeductiblesandcoveragelimitsuntilyouhaveapackagethatsuitsyourneedsandthatyoucanafford.
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Chapter10HowInsuranceCompaniesPriceCoverageWithintheinsuranceindustry,professionalsrefertopricinginsurancecoverageasrating.Arateisthecostforaunitofinsurance.Asyoumightguess,somemethodshadtobedevisedforchargingindividualpolicyholdersappropriatepricesfordifferentamountsofcoverage.
Asasmartconsumer,youshouldhaveabasicunderstandingofthesemethodssoyouknowhowinsurancecompanieslookatyouandyourcarwhentheycalculatewhatyouhavetopayforcoverage.
Withautomobileinsurance,abaserateispublishedforeachspecifickindofcoverage,suchasbodilyinjuryandpropertydamageliability.Forexample,abaseratemightbe$300for$100,000ofliabilitycoverage.Adriverwithagooddrivingrecordmightqualifyforthisbaserate,whileadriverwithapoordrivingrecordmustbechargedanincreasedamounttoreflectthepoorrecord.Thisincreasedamountiscomputedbymultiplyingthebaseratebyaratingfactor.
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Ratingisanimportantfunctionintheinsuranceindustry.Inorderforinsurancecompaniestobefinanciallystable,ratesmustbeadequatetocovercosts.Inorderforinsurancecompaniestoremaincompetitive,ratesmustbefairandreasonableinrelationtotheriskofloss.
Increasingly,though,statesdon'tallowinsurancecompaniestosharepricinginformation.Asaresult,differentcompaniesmayquotethesamedriverwildlydivergentprices.Thisisbecausesomecompaniesconsidercertaincharacteristicssuchasyourageoryourdrivingrecordasmoreofariskthanothercompaniesdo.
There'snotevenmuchagreementintheindustryaboutthephilosophybehindpricinginsurance.Somepeoplethinkpremiumsshouldbehigherthanmarketaverages.
Ina1994reporttotheinsurancepracticesectionoftheAmericanBarAssociation,UniversityofFloridalawprofessorRichardPearsonwrotethatreducedautoinsurancecostsmaynotbeinthepublic'sbestinterest.''Fromaneconomicperspective,"heargued,"loweringthecostofdrivingisnotnecessarilysociallydesirable."
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Pearsonconcludedthatartificiallylowinsurancepremiumsunderstatethetruecostofaccidents,whichincludespainandsufferingdamages,andleadtomoredrivingbypeoplewhocan'taffordinsurance.Thisleadstomoreaccidentsthattheinsureddrivershavetocover.
Howratinginformationisshared
Inordertohaveconsistentratinginformationwithoutcolluding,mostinsurancecompaniesuseratingmanualsbasedonastandardmanualpublishedbytheInsuranceServicesOfficeanindustrytradegroup.TheISO'sstandardmanualsuggestsratingrules.Amongthemostimportantare:
DefinedAutosandEligibility
Generally,privatepassengerautosarefourwheelvehicles,suchassedansandstationwagons,whicharenotusedtocarrypassengersforafeeandarenotrentedtoothers.Pickupsandvansaretreatedasprivatepassengerautosiftheydonotexceedweightlimits,andarenotusedinadeliveryorfreightbusiness(exceptfarmingoperationswhicharepermitted).
Ownership
Underthegeneraleligibilityrules,aprivatepassengerautomustbeownedorleasedbyanindividualormarriedcouplewholivetogether.However,aPersonal
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AutoPolicymayalsobeissuedtocoveranautoownedbyrelativesotherthanhusbandandwife,oranautoownedbyunrelatedindividualswhoresidetogether,ifaJointOwnershipendorsementisattachedtothepolicy.
AutomobileClassifications
Severaltypesofclassificationsareconsideredintheratingofautomobilerisks.Somerelatetotheuseofcoveredautos,somerelatetotheoperatorsoftheautos,andsomerelatetotheautomobiles.
PolicyPeriod
Thisis,simply,theamountoftimeforwhichapolicyisinforce.
Ratesandpremiumsforphysicaldamagecoveragearebasedonthevalueofcoveredcars.Generally,themaximumexposurefortheinsurancecompanyisaknownamount.Forthisreason,unliketheothercoverageswehavestudied,alimitofliabilityisnotshownintheDeclarationsforphysicaldamage,andisnotusuallynecessary.Instead,wefindprovisionswhichimposelimitationsontheamountthatwillbepaidforanyloss.
Tocalculaterates,mostinsurancecompaniesuseratingchartsortablesthatincludethevariousrelevantfactors.Anagent,brokerorsalespersonusesthesechartstofindapremiumdollaramount.
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Ratesandpremiums
Automobileratingdeterminesbaseratesandapplicableratingfactors,andthencalculatesindividualcoveragepremiumsandthetotalpremiumforthepolicy.
Apremiumistheproductofthebaseratemultipliedbytheapplicableratingfactor.Separatepremiumsaredeterminedforeachofthefourmajorpersonalautocoveragesliability,medicalpayments,collisionandotherthancollision.Theseseparatepremiumsarethenaddedtogethertoobtainthetotalpolicypremium.
THISISASAMPLEOFINDIVIDUALPREMIUMSFORASTANDARDAUTOMOBILEINSURANCEPOLICY
Coverage BasePremium x TotalFactor = PremiumBI/PDLiability 170 x 1.00 = $170MedPay 12 x 1.00 = $12UM = $18Comprehensive 74 x 1.00 = $74Collision 93 x 1.00 = $93Inthisexample,wehaveusedatotalfactorof1.00.Dependingonthefactorsrelevanttoagivenpolicyholderandagivencar,thisnumbercanchange.
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Traditionalautoinsuranceratesarebasedonbroadaveragesoflossandexpensedataandincludecomponentsforexpectedlossesandexpenses.Individualcompanieshavegenerallybeenpermittedtodeviatefrompublishedratesbasedonindividualcompanydifferencesinexperienceandexpensefactors.
Inrecentyears,theinsuranceindustryhasbegunatransitiontowardsomenewratingapproaches.TheInsuranceServicesOfficeshasbeguntodevelopprospectivelosscostsforanumberoflinesofinsurance,includingautomobileinsurance.Prospectivelosscostsarebasedonlossdataandlossadjustmentexpenses,butnottheothercomponentsofafinalrate(suchasaninsurancecompany'sexpensesandprofit).
Insurersthatuseprospectivelosscostsmustapplymodificationsintheformofalosscostmultipliertoaccountforindividualcompanyexpenses,underwritingprofitandcontingencies,inordertoarriveatfinalrates.Generally,individualcompaniesbelievelosscostratinggivesthemmoreflexibilityindevelopingtheirrates.
Primaryandsecondaryratingfactors
Totakeintoconsiderationthedifferencesbetweendifferentautomobilerisks,theinsuranceindustryusesasystemofprimaryandsecondaryratingfactors,whichareaddedtogethertoproduceatotalratingfactor.
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Theprimaryratingfactorisbaseduponmanythings,includinguseofthevehicleandtheageandsexofthedrivers.Foryouthfuloperators,theprimaryfactorisalsoaffectedbymaritalstatus,drivertraining,andscholasticachievement.Weconsideredthesefactorsinthepreviouschapter.
Thetotalratingfactoristhenmultipliedbythebaserateforallmajorcoveragesexceptuninsuredmotoristscoverage.RatingfactorsdonotapplytoUMcoverage,ortotowingorotherminorcoveragesthatmaybeaddedbyendorsement.
Inmoststates,territorialratingofautomobilerisksispermittedandinsurancecompaniesdoconsidertheneighborhoodinwhichyoulive.Thismeanstheprimaryratingfactoralsodependsontheterritorywherethevehicleisgaraged(thismeanswhereitisparkedatnight,evenifitisparkedonthestreet).Usually,thislocationisthesameastheaddressofapolicy'snamedinsured.
Differentareaspaydifferentratesbecauseofanumberoffactors:stateinsurancerequirements,localpopulation,weatherconditions,collisiondamagerepaircosts,autotheftratesandhospitalcosts.
Also,insurancecompanieschargecustomersinaparticularareaforthecostofnearbyaccidentsinvolvinguninsureddrivers.
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Premiumrangesvaryfromstatetostate.In1995,driversinHawaiipaidthehighestpremiumsinthecountry,anaverageofnearly$1000ayear;driversinNorthDakotapaidthelowest,anaverageoflessthan$350ayear.
Otherthanthestateyouliveanddrivein,aconsistentsetoffactorsdeterminethepremiumsyoupayforautoinsurance.Theseinclude:
whoyouare;
yourdrivingrecord;
whereyoulivewithinthestate;
howyouuseyourcar;
themodel,mileageandyearofyourcar;and
thetypeofcoverageyouselect.
Thedriver'sage
Perhapsthemosthotlydisputedratingfactorisage.Aswithmostinsurancecoverage,itisillegaltodiscriminateagainstapersonbecauseofageintheissuance,nonrenewal,orcancellationofanautomobileinsurancepolicy.Whatinsurancecompaniescandoisstructurepremiumstoaccomplishtheirgoals.
Formostmenandwomen,autopremiumsactuallydropabitwhilethey'reintheir50s.Therateofaccidentspermilesdrivenislowerforpeopleinthe40sand50sthananyothergroup.Insurancecompaniesknowthisandrespondaccordingly.
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Sinceolderpeopletendtodrivelessandtoavoidthemostdangerousconditions(atnight,duringrushhourandinbadweather)fewerolderpeoplethanteenagersdieontheroads.Thatmeansolderpeopletendtopaylowerinsuranceratesthanevenmiddle-ageddrivers.
Accidentratesandpremiumsbegincreepingupagainwhendriversreach60;overage75,therateoffatalcrashespermilesdrivenisevenhigherthanitisforteenagers.
Theaccidentnumbersfortheoldestdriversskewperceptionsamongautoinsuranceriskanalysts.Theytendtocharacterizetheentirepopulationofover-65driversashighrisk.Thismeansthatdriversbetween65and75,whoseaccidentratesremainrelativelyclosetodriversinthemiddle-agecategories,subsidizethedriversover75.
"Alogicalstepwouldbetoadjustpremiumssothattheoldestdriverspaidmuchhigherrates,"saysoneriskanalystforabigmultilineinsurancecompany.Herequestedanonymityforhiscommentsonthissubject."Butthatwouldeffectivelyforcepeopleover70certainlyover75offtheroads.Thepoliticalfall-outfromthatwouldbehuge.Therewouldn'tbeanelectedofficialinFloridawhostillhadajob."
TheAmericanAssociationofRetiredPersonsandothergroupsofferdriversafetytrainingcoursesforpeopleover50.TheAARPstressesthattheentire
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groupitstargetmarkethasmoreaccidentspermiledriventhananyotheragegroup.Butsomeinsuranceindustryprofessionalsarguethisismerelyanattempttospreadrisk.
Proposedplansforreducingolderdrivers'accidentratesincludetighterrelicensingrulestoensurethattheirvisionorothercapabilitieshaven'tfallenbelowminimumlevels.
In1994,sixteenstateshadage-basedlicenserenewalregulations,butadvocacygroupsliketheAARPconsidersthemdiscriminatory."Asageneralrule,"saidTedBobrow,anAARPautoinsurancespecialist,"weopposeage-basedtesting.Itmaybeagoodideatotestalldriverseveryyearoreveryfouryears."
Ratingthecar
Collisioncoveragepaysyouforlossordamagetoyourownautomobileastheresultofupset,overturnorcollisionwithanotherobject.Inordertoprovidethiskindofinsurance,acompanyhastocalculatehowmuchyourcarisworthandthencalculatehowmuchitwillchargeinpremiums.Toavoidinconsistencies,theinsuranceindustryusesstandardformulasforcalculatingpremiums.
Fourfactorsinfluenceautoinsurancepremiums:
theageofthevehicle,
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thevalueofthevehicle,
thedeductibleamountyou'vechosen,and
theterritoryinwhichthevehicleislocated.
Ifallotherfactorsareequal,theolderthevehiclethelessthecostforcollisioncoverage.Mostvehicleswearoutwithuseandthereplacementvaluedeclinesovertime.
Shownbelowisasectionofasampleratetableusedbyinsurancecompaniestocalculatetheriskfactorsthatinfluencetheinsuredvalueofacar.Thebaserateforcollisioncoverageforaparticularautomobileiswheretheappropriateterritory,agegroup,andsymbolcolumnsintersect.
AutoNo
ClassificationCode
PrimaryFactor
+ SecondaryFactor
= TotalFactor
1 ___________ ___________+___________=___________
Symbol_______________AgeGroup_______________Terr.____________________
Page182Auto1
Coverage BaseRate x TotalFactor = Premium$________BI _______ x ______ = _______$________PD _______ x ______ = _______$________BI/PDSL _______ x ______ = _______$________MP _______ x ______ = _______$________UM _______$______DedCOMP _______ x ______ = _______$______DedCOLL _______ x ______ = _______$________TOWING _______
TOTAL $_______
Thehighertheagegroupnumber,thelowertherate.Thissuggeststhatoldervehiclesareassignedtoahigheragegroup,whichistrue.
Aconvenientwaytofiguretheagegroupofanautomobile:Firstdeterminethecurrentmodelyear.IfitispriortoOctober1,thecurrentcalendaryearisthecurrentmodelyear.IfthedateisOctober1orlaterintheyear,thenextcalendaryearisconsideredthecurrentmodelyear.Thus,ifthecurrentdateisNovember1,1994,youcallit1995.
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Onceyouhavedeterminedthecurrentmodelyear,yousimplycountbackwards.If1995isthecurrentmodelyear,thenextearlieryearwouldbe1994,precededby1993,etc.Sinceagegroup6isthemaximumage,allautomobileswhichare1990orearliermodelswouldin1995fallintoagegroup6.
Someinsurancecompaniesuseratetablesthatshowvehiclemodelyearsinsteadofagegroups.Theratingconceptisthesamewhetheryouareusingactualmodelyearsoragegroups.
Thesecondfactorwhichaffectscollisionratesisthevalueofthevehicle,whichisreflectedbythesymbolgroup.Thesymbolgroupisaratingcodedevelopedbyadjustinganautomobile'spricenewupwardordownwardtoreflectthephysicaldamagelossexperienceforthatparticularmodel.
Twoautomobilesofdifferentmakesandmodelsmighthavethesamemarketvalue,butbeassignedtodifferentsymbolgroupsifonetendstosuffergreaterdamageinanequalcrash,orifitismoreexpensivetorepairequaldamageinonemodelbecauseofthecostofindividualparts.
Youcanthinkofthesymbolgroupassomethingthatreflectsthevalueofavehicleandtheinsurancecompany'srelativeexposuretoloss.
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Thehigherthesymbolgroupcode,thehighertherate.ThekeytoidentifyinganautomobileisthevehicleidentificationnumberorVIN.AlthoughanactualVINmayconsistof17characters,onlythefirsteightarecriticaltotheratingprocess.
Theratingsymbolgroupcodeisbasedonthefirsteightcharactersofanautomobile'sVIN.
Thisinformationisalsousefultoinsurancecompaniesinvariousways.Forexample,ifanapplicationstatesthatanautoisatwo-doormodelwithasmallengineandtheVINindicatesthatitisafour-doorwithabigengine,thecompanywilllikelydouble-checktodeterminewhichdescriptioniscorrect.
TheadditionalcharactersinaVINareusefulforconfirmingtheidentityofaspecificautomobile.Whiletheydonotaffectrating,theyindicatethespecificmanufacturingorassemblyplantandeventheproductionunitnumberofeachcompletedvehiclethatcomesofftheproductionline.EachautomobileVINisuniqueinthisrespect.Thus,whenastolenvehicleisrecovered,thepolicemayusetheVINtoconfirmthatanautomobilebelongstoaspecificregisteredowner.
Ratingforcomprehensivecoverage
Otherthancollisionorcomprehensiveinsuranceisaphysicaldamagecoveragethatappliestoyourown
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vehicleforlossesotherthanthosecausedbycollision.
Alloftheproceduresyoujustusedtodeterminecollisionratesalsoapplytodeterminingthecomprehensiverate.Comprehensivecoverageisusuallyratedbyterritory,agegroup,symbolgroup,anddeductibleamount.
Alternativecomprehensivedeductibles,rangingfrom$50to$1,000,areusuallyavailable.Insomestates,fullcoveragemaybewrittenwithnodeductible.
Mostratingtablesincludedifferentsecondaryfactorsforstandard,intermediateandhighperformancevehicles,andforsportsvehicles.Amongthefourmostcommonperformancecodes:
''i"meansintermediate,
"h"meanshighperformance,
"s"meanssportsmodel,and
"p"meanssportspremiummodel.
Ifacarmodeldoesn'thaveaspecificperformancecode,itispresumedtobeastandardperformancemodel.Mostcarsarestandardperformancevehicles.
Ratingthedriver
Themostimportantclassificationthataffectsthesecondaryratingfactoristhesub-class,whichisbased
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onthedrivingrecordofthepolicyholderorotherdriverslivinginthesamehousehold.Theapplicablesub-classforanautomobileisbasedonaseriesofpoints(from0to4)whichmaybeassignedbecauseofmotorvehicleviolationsoraccidents.
Thesepointsaredifferentthanpointsthatyourstate'sdepartmentofmotorvehiclesorpublicsafetymaychargeagainstyourdriver'slicensetotrackviolations.
ManycompaniesassignpointsbasedontheSafeDriverInsurancePlanwhichispartofthestandardratingmanualpublishedbytheInsuranceServicesOffice.ThisPlanliststypesofviolationsoraccidentsandassignsapointvaluebasedontheseverityoftheproblem.
Example:Whileinitiallyratingyourautopolicy,yourinsurancecompanydiscoversthatapointshouldbechargedforanaccident.Thispointincreasesyoursecondaryratingfactorfrom0.00to0.40andthetotalfactorfrom1.30to1.70.Thebasepremiumaffectedwas$400.Therefore,insteadofpaying$520,youwillpay$680.
Everyaccidentdoesnotresultinpointsbeingcharged.Butpoints(or,
usually,onepoint)areassignedforcertain
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inexperienceddrivers,evenifthey'vehadnoaccidentsorconvictions.
Thechartbelowshowshowpointsareassignedandadjustedinthecaseofhouseholdsthatincludeyouthfuloperatorandseekagoodstudentdiscount.
PRIMARYCLASSIFICATIONSRATINGFACTORSANDSTATISTICALCODES
YOUTHFULOPERATORGOODSTUDENTCLASSIFICATIONS
AGE
UNMARRIEDMALENotOwnerorPrincipal
OperatorPleasureUseor
FarmUse
DrivetoWorkorBusiness
UseWITHOUTDRIVER
TRAINING17orless
FactorCode
2.05 2.308514-- 8515--
18 FactorCode
1.90 2.158524-- 8525--
19 FactorCode
1.80 2.058534-- 8535--
20 FactorCode
1.65 1.908544-- 8545--
WITHDRIVERTRAINING
17orless
FactorCode
1.75 2.008564-- 8565
18 FactorCode
1.60 1.858574-- 8575--
19 FactorCode
1.50 1.758584-- 8585--
20 FactorCode
1.35 1.608594-- 8595--
WITHORWITHOUTDRIVER
21thru
FactorCode
1.20 1.45
8614-- 8615--
TRAINING 24
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AGE
UNMARRIEDMALEOwnerorPrincipal
OperatorPleasureUseor
FarmUse
DrivetoWorkorBusiness
UseWITHOUTDRIVER
TRAINING17orless
FactorCode
2.70 2.958724-- 8715--
18 FactorCode
2.50 2.758724-- 8725--
19 FactorCode
2.30 2.558734-- 8735--
20 FactorCode
2.10 2.358544-- 8745--
WITHDRIVERTRAINING
17orless
FactorCode
2.50 2.758574-- 8765
18 FactorCode
2.30 2.558774-- 8775--
19 FactorCode
2.15 2.408784-- 8785--
20 FactorCode
2.05 2.308794-- 8795--
WITHORWITHOUTDRIVERTRAINING
21thru24
FactorCode
1.45 2.258814-- 8815--
Therateswouldbeevenhigheriftheyoungdriverdidn'tqualifyforagoodstudentdiscount.
Threeconditionsarenecessaryinorderforpointstoapplyonthebasisofaninexperiencedoperator:Thepersonmustbelicensedlessthanthreeyears,betheprincipaloperatoroftheauto,andhavenopointschargedduetoanaccident.
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Autoinsurancereformmeasureshavefocusedondrivingrecordsandexperienceasthemostsecondaryfactors.Forexample,California'sProposition103gaveratingprioritytoadriver'srecord,thenumberofmilesdrivenperyearandthenumberofyearsofdrivingexperienceoverallotherfactorsinsettingrates.
Othermorerecentreformshaveattemptedtoreversethattrend.Theyallowinsurerstoattachnomoreweighttodrivers'recordsthanotherfactors,suchastheirresidentialZIPcodes,maritalstatusandgender.
Whilesomereformlawslayouttheorderoffactorstobeconsidered,manydonotprovidepriorityweightsforeach.Thisisamajortechnicalcriticismofpopulistreforms.Theabsenceofpriorityweightsallowsinsurancecompaniestousesequentialanalysis.Thisleavesratingprioritiestothecompany'sdiscretionandarguemostanalystsraisestheprospectofratesbasedonwhereyouliveratherthanhowyoudrive.
Ratingfamilypolicies
Themannerinwhichratingfactorsareappliedtomulti-carpoliciessoundscomplicatedbutisactuallyprettysimple.Therearetwokeyelementstoremember:
Whenratingmorethanonecar,drivingrecordpointsareappliedtoamaximumoftwocars.Whenratingthreeormore
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cars,thedrivingrecordpointsareassignedtothetwocarswiththehighestbasepremium.Alladditionalcarsdon'thavetohavepoints.
Whentherearenoyouthfuloperators,theprimaryfactorfortheprincipaloperatorofacarisappliedtothatcar.Ifyouaddyouthfuloperatorstoyourpolicy,theprimaryfactorsforyouthfuloperatorswillapplytoallvehiclesthosedriversuse.
Inallcases,ifanyyouthfuloperatoristheprincipaloperatorofacar,theprimaryfactorforthatyoungdriverappliestothatcar.
Althoughyouthfuloperatorswhoarenotprincipaloperatorsareassignedtocarsintheorderofthecarshavingthehighestbasepremiums,itispossiblefortwoormorecarstohavethesamebasepremium.Thereisaratingruletoresolvethispotentialconflictwhenitarises.
Ifthetotalbasepremiumisthesamefortwoormorecars,ayouthfuloperatorwhoisnotaprincipaloperatorwillbeassignedtothecarwiththelowestrateduseclassification(the"pleasure"versus"business"distinction).
Conclusion
Ratingistheprocessinsurancecompaniesusetocalculatehowmuchtochargedifferentpeoplefortheamountandkindofinsurancetheyneed.Youdon'thavetobearatingexpertinordertobuyinsurancesmartlybutunderstandinghowinsurancecompanies
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usetheinformationyougivethemcanhelpyoumakebetterdecisionswhenyoufilloutapolicyapplication.
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Chapter11HowtoMakeanInsuranceClaimAlltheworkyouputintochoosingtherightkindofautoinsurancecomestoapointwhenyoumakeaclaimonyourpolicy.Stirredbytheemotionsthatoftenfollowanaccident,somepeopleunleashangerandfrustrationattheadjustersandclerkswhoarepartoftheclaimsprocess.
It'simportanttorememberthatthisisaprocess.Makingaclaimonyourautopolicyislikeanyotheraspectofacontracttransaction.Thebestcompanieswillbesupportiveandunderstandingofwhatyou'veexperienced.Butwhatyoureallywantistohaveyourclaimpaid.
Inthischapter,we'llconsiderhowyoucanmakeaclaiminthemosteffectiveway.Throughout,afairlyconsistentpatternemerges.Instatesthathavepassedinsurancereformsaimedatlimitingpremiums,systematicproblemsrelatedtoclaimsmakingsometimesfollow.
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Itseemstobeamarket-drivenresponse:Ifyoupaylessforinsurance,you'relikelytohavemoretroublemakingaclaim.
Makingtheclaim
Whenyoudohavetomakeaclaim,don'tbeafraidtocountonyouragentifyouhaveone.Agentswhoareeagertokeepyourbusinesswillbecomeyourbestadvocates.
Ontheotherhand,ifthey'renothelpfulorevendifficult,don'thesitatetogotoyourinsurancecompany'sconsumercomplaintdepartment.Thefactthatagentssometimesandit'susuallyjustsometimesgetinthewayofmakingaclaimisabigreasonthatagrowingnumberofpeopledealdirectlywithinsurancecompanies.
Ifyoudon'tknowwhomtocallwhenyou'vebeeninanaccidentoryourcarhasbeenstolen,lookatyourpolicy,billingstatementsorproof-of-insurancecards.
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Yourcorrespondencewithaninsurancecompanywillusuallyincludeatelephonenumberformakingclaims.Thesenumbersareusuallyworking24hoursaday.
Youcancallthecompanyfromanaccidentscenebutpeopleusuallyonlydothiswhentheircarhasbeen
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sobadlydamagedthatithastobetowedaway.Ifyourcarstillruns,concentrateongettingthenames,drivers'licensenumbersandvehicleIDinformationofeveryoneelseinvolved.
Eachstatehassomeformoffinancialresponsibilityorcompulsoryinsurancelawrequiringautomobiledriverstoshowthattheyarecapableofpayingaccidentclaimsagainstthemuptoaspecifiedminimumamount.Generally,theselawsrequiredriverstoshowproofoffinancialresponsibilityaftertheyhavebeeninvolvedinanaccident.
"Oncesomethinghappens,youneedtoletusknowimmediately,becausewemayneedtoinvestigatesomething,liketiretracksforexample,whichdon'tstayaroundverylong,"saysonespokeswomanforStateFarmInsuranceCompanies."Knowwhoyouwereinanaccidentwith.Gettheotherparty'sinsuranceinformation,thenumberonthepolicereportandthenameofthepersonwho'sinsuredbeforecallingus."
Althoughstatelawsvaryonrequiringdriverstomakeclaimswithinacertaintimeperiod,mostcompaniespreferthatclaimsbefiledwithin15days.Ifsomeone'sbeenhurtinanaccident,there'sbeenserious
damageorsomelawhasbeenbroken,callthepolicefirst.Youcancallyourinsurancecompanylater.
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Ofcourse,insurancecompanieswanttobenotifiedasquicklyaspossible.Andit'struethat,thesooneryoufileaclaim,thesooneryou'llgetasettlement.
Thebiggestreasonyouwillprobablyhavetocallyourinsurancecompanyquicklyistostartcoveragefortowingorareplacementrentalcarifyou'vechosenthoseoptionalcoverages.
Moststatesdorequirethatinsurancecompanieseitherprocessaclaim,oratleasttellyouwhyithasn'tbeenprocessed,withineither60or90days.
Dutiesafteranaccidentorloss
Aprettygoodguideforhowtomakeaclaimexistsrightinyourautoinsurancepolicy.ThestandardpolicyincludesasectioncalledDutiesafteraLoss.Thissectionspecifieswhatapersonmustdoinordertogetrecoveryforlossescoveredbythepolicy.
Theinstructionsareprettystraightforward:
Wehavenodutytoprovidecoverageunderthispolicyunlesstherehasbeenfullcompliancewiththefollowingduties:
A.Wemustbenotifiedpromptlyofhow,whenandwheretheaccidentorlosshappened.Noticeshouldalsoincludethenamesandaddressesofanyinjuredpersonsandofanywitnesses.
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Youshouldreportalosstothecompanyaspromptlyaspossibleinordertogivetheinsurancecompanytheopportunitytoactquicklytosettletheclaim.Generally,thelongeraclaimgoeswithoutsettlement,themoreitwillcost.Promptforwardingoflegalpapersandnoticesisextremelyimportantsinceoftentheyrequirearesponseorappearancewithinalimitedtimeand,ifnotforwardedpromptly,mayresultinforfeituresorpenalties.Promptnoticeofahitandrunorastolenvehicleshouldbegiventothepolice.
B.Apersonseekinganycoveragemust:
1.Cooperatewithusintheinvestigation,settlementordefenseofanyclaimorsuit.
2.Promptlysenduscopiesofanynoticesorlegalpapersreceivedinconnectionwiththeaccidentorloss.
3.Submit,asoftenaswereasonablyrequire:
a.tophysicalexamsbyphysiciansweselect.Wewillpayfortheseexams.
b.toexaminationunderoathandsubscribethesame.
4.Authorizeustoobtain:
a.medicalreports;and
b.otherpertinentrecords.
5.Submitaproofoflosswhenrequiredbyus.
C.ApersonseekingUninsuredMotoristsCoveragemustalso:
1.Promptlynotifythepoliceifahit-and-rundriverisinvolved.
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2.Promptlysenduscopiesofthelegalpapersifasuitisbrought.
D.ApersonseekingCoverageforDamagetoYourAutomustalso:
1.Takereasonablestepsafterlosstoprotect''yourcoveredauto"orany"non-ownedauto"andtheirequipmentfromfurtherloss.Wewillpayreasonableexpensesincurredtodothis.
2.Promptlynotifythepolicyif"yourcoveredauto"orany"non-ownedauto"isstolen.
3.Permitustoinspectandappraisethedamagedpropertybeforeitsrepairordisposal.
ThefivedutieslistedunderpartBapplytoanypersonseekingcoverageunderanypartofthepolicy.ThedutieslistedunderpartCapplyonlywhenaclaimisbeingsubmittedforcoverageunderuninsuredmotoristscoverage.
Ifthesedutiesarenotcarriedout,theinsurancecompanyisnotobligatedtopayaloss.
Morethanjustthemechanics
Themechanicsofcontactingyourinsurancecompanyandthepoliceafteryou'vesufferedalossarerelativelysimple.Butyouwanttomorethanjustcomplywiththeruleswhenyoumakeaclaimyouwanttodoit
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inawaythatassuresyouthemaximumtimelysettlement.
Inordertodothis,youneedtorememberhowtheinsurancecompanylooksataclaim.
Insurancecompaniesusethetermlimitofliabilitybecausewhenalossoccurswhichiscoveredbythepolicy,theybecomelegallyresponsibleforhonoringtheircontractualagreementtopaydamagestoyouortoathirdpartyonyourbehalf.Theliabilityandthelimitsappliestotheinsurancecompany.
Thelimitofliabilityforanycoverageissimplytheamountofcoverage,themaximumamountofinsuranceorupperlimitthattheinsurancecompanyislegallyobligatedtopayifacoveredlossoccurs.Ifacoveredlossoccursforlessthanthelimitofliability,theinsurancecompanywillpaytheamountoftheloss(minusanydeductiblethatmayapply).Iftheamountofacoveredlossismorethanthelimitofliability,theinsurancecompanywillpaythelimitofitscoverageandyouareresponsibleforpayinganyadditionalcosts.
Ifyourinsurancecompanysellsyouorrenewsforyouanypolicythatdoesnotsatisfythefinancialresponsibilitylawofyourstate,thatpolicymustcomewithaclear,writtenwarningthatit
doesnotmeetthelaw.
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Thelimitofliabilityforphysicaldamagecoverageisnotaspecificamountit'susuallytheactualcashvalue(ACV)minusanydeductible.
ACVgenerallymeansreplacementcostminusdepreciation.Mostcarsdepreciateinvalueovertime.Ifyoupaid$10,000foranewcarfiveyearsagoanditistotallydestroyedtoday,itwouldnotbeworthitsoriginalcostnorwoulditbeworththecurrentcostforanewcar.Instead,yourinsurancecompanywouldpaytheACV,andyoumightreceive$3,500asasettlement.
Generally,theACVshouldallowyoutopurchaseanotherfive-year-oldcarofthesame(orsimilar)makeandmodel.
Ifyourcarwasnotatotalloss,thecompanywillpaywhatitwouldcosttorepairthecarwithmaterialsoflikekindandquality(whichmaymeanusingusedorsubstituteparts).
Defensecosts
Becausedefendingasuitincourtcanbeveryexpensive,paymentofdefensecostsisanimportantpartofliabilityinsurancecoverage.Insomecases,thecostofdefensecanbeasmuchas,ormorethan,theamountultimatelyawardedasdamages.
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Defendmeanstoresisttheclaimorgotocourtandtrytoshowthattheinsuredisnotliableandshouldthereforenotberequiredtopaythedamages.
Aninsuringagreementinastandardpolicyconsistsofoneormorestatementsmadebytheinsurer,underwhichitmakescontractualcommitmentswhicharebindingaslongastheinsuredpaysthepremiumandcomplieswithpolicyconditions.Automobileliabilitycoverageappliestobodilyinjury(BI)andpropertydamage(PD)forwhichyouarelegallyliable.Italsocoverssomemiscellaneousrelatedexpenses.
Theliabilityinsuringagreementstatesthatcovereddamagesunderthepolicyincludeprejudgmentinterestthatacourtmayrequireapolicyholdertopay.Prejudgmentinterestisinterestontheamountofanawardtoaninjuredperson,calculatedfromthetimetheinjuredpersonbringsthesuittothetimethecourtdeterminedthedamages.Whenapolicyholderisrequiredtopaysuchinterest,itiscoveredaspartoftheliabilitydamagesthepolicywillpay,andthecombinedtotalofthedamagesandprejudgmentinterestissubjecttothelimitofliability.
Theremainderoftheinsuringagreementstatesthat,whenaliabilityclaimhasbeenmadeagainsttheinsured,theinsurancecompanyhasachoiceofwhetheritwillsettle(paythedamages)ordefend.
Defensecostsarepaidinadditiontothepolicyliabilitylimit,butthecompany'sliabilityendswhenithas
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paidoutitsliabilitylimit.Ifyoucarry$100,000ofliabilitycoverage,thecompanymaypaythe$100,000totheinjuredpartyandowenofurtherobligationtoyoufordefense.Inaddition,thecompanyhasnodutytodefendaclaimforinjuryordamagenotcoveredbythepolicy.
It'simportanttorememberthattheinsurancecompanypaysunlimiteddefensecosts(ineffect,thereisnolimitondefensecosts)andthatdefensecostsarepaidinadditiontothelimitofliability.
Ifdefensecostswereincludedwithinthelimitofliability,mostofuswouldhavetopurchasemuchhigherlimitsofinsurancetobeadequatelyprotected.Forexample,ifyouhada$50,000limitofliabilityandtheinsurerdefendedaclaimforwhichyourliabilitywasquestionable,butlostthecaseanywayandincurred$38,000ofexpensefordefensecosts,therewouldonlybe$12,000ofcoverageavailablefordamages.Ifthedamageawardwas$40,000,youwouldthenhavetopay$28,000outofyourownpocket.
Theliabilityinsuringagreementmakesitclearthattheinsurancecompanyisonlyobligatedtodefendclaimswhichare,ormaybe,coveredbythepolicy.Ithasnodutytodefendorsettleaclaimforinjuryordamagewhichisnotcoveredbythepolicy.
Iftheinsurancecompanydefendsagainstaliabilitysuitandthecourtreachesaverdictagainstyouand
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iftheinsurancecompanydelaysmakingthepaymentthecourtmightrequirethatinterestbepaidontheamountofthejudgmentfromthetimeitisentereduntilitispaidoranofferofpaymentismade.Thisinterestispostjudgmentinterest.Itcountstowardthepolicy'soveralllimitofliability.
Inadditiontopaymentofliabilityclaimsandcostsofdefendingasuit,thecompanyprovidesasadditionalamountsofcoverageseveralsupplementarypayments:
Ifyou'reinvolvedinanaccidentinvolvingbodilyinjuryorpropertydamage,thecompanywillpayupto$250towardthecostofabailbondrequiredbecauseoftheaccidentoratrafficviolationarisingoutoftheaccident.However,thecompanyisundernoobligationtofurnishthebond.
Thecompanywillpaythecost,butnotfurnishanycourtbonds(suchasappealbondsorreleaseofattachmentbonds)foranysuitthecompanydefends.
However,iftheinsurancecompanyshoulddefendasuit,lose,andthendecidetoappeal,theinsurancecompanywouldberesponsibleforthepremiumforanynecessaryappealbond,andwouldpayforitunderthesupplementarypaymentssectionoftheliabilitycoverage.
Theinsurancecompanyalsoagreestopayforbondstoreleaseattachmentsinanysuitthatitdefends.
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Forexample:Youhaveanaccidentinwhichyoudriveyourcarintothewallofsomeoneelse'sgarage.Thegarageownerhastherighttoattachyourcar(takeitintocustody)asawayofguaranteeingthatyouwillpayforrepairingthedamage.Ifyourinsurancecompanydecidestodefendthesuitagainstyouratherthansettlewiththegarageowner,underthesupplementarypaymentscoverageitwillpaythepremiumforabondtoreleasetheattachmentofyourcar.
Theinsuringagreementstatesthatprejudgmentinterestisincluded,alongwithdamages,inthelimitofliability.Butpostjudgmentinterestiscoveredinadditiontothelimitofinsuranceundersupplementarypayments.
Otherexpensesincurredatthecompany'srequest.
Aninterestingnote:Mostpolicieswillpayupto$50adayforlossofearnings(butnototherincome)youincurbecauseofattendanceathearingsandtrialsattheinsurancecompany'srequest.
Subrogationandinsurableinterest
Tobesubrogatedmeanstobesubstitutedintheplaceofanother.Ininsurancepolicies,asubrogationprovisionsaysthatiftheinsurancecompanyhasmadeapaymentunderthepolicytoyouortoathird
partyon
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yourbehalfandifyouhavealegalrighttorecoverforthatlossfromanotherpersontheinsurancecompanyissubrogatedtoyourright.
Subrogationisanimportantprotectionfortheinsurancecompany.Itmeansitmayseekrecoveryfromaresponsiblethirdparty.
Mostautomobileownersdonotpaycashfortheircarsinstead,theyborrowmoneyfromabankorautofinancecompanytomakethepurchase.Untiltheloanispaidoff,boththepurchaserandthelenderhaveafinancialinterestinthecar,andthisinterestissaidtobeaninsurableinterest.Thus,virtuallyallbanksorlendingcompaniesrequirethatDamagetoYourAutocoveragebecarriedonafinancedvehicleandthatthey(asthelender)belistedonthepolicyashavinganinsurableinterestinthecar.
Calculatingasettlement
Inmostcases,thereisnodollaramountstatedasamaximumlimitofcoverageforcollisionorotherthancollisionlosses.Themaximumlimitisusuallytheactualcashvalueofthevehicleminusanydeductible.
IndeterminingwhatistheACVforanentirevehicleorthedamagedportionofone,aninsurancecompanyconsiderstheamountofdepreciationasavehicleages.Insuranceadjustersalsousetablesthatshowcurrentmarketvaluesfordifferentmakes,modelsandyears
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ofvehicles,aswellasstandardvaluesforrepairsandreplacementpartsforthevariousvehicles.
Theinsurancecompanymayeitherrepairorreplaceadamagedvehicle,anditalsohastheoptionofsimplypayingtheACVofthestolenordamagedproperty.Accordingtothestandardpolicyprovisions,theinsurancecompanyisonlyobligatedtopaythelesseroftheseamounts.
Inpractice,theinsurancecompanyislikelytodecidethattheACVisthelesseroftherepairorreplacementcost.Whenrepaircostsexceedthecostofreplacingtheentirevehicle,itwillusuallybeconsideredatotallossandthesettlementwillbebasedonthecurrentdepreciatedmarketvalueofthecar.Thissameprincipleappliestototallosssituationsandtopartiallosssituations.
Onekeypointtoremember:Neveracceptaclaimsettlementthatyoubelieveistoolow.Iftworepairshopssayyourdamagedcarneedstobefixedatacostof$2,000,buttheinsurancecompany'sadjusteroffersyoujust$500,it'stimetostartnegotiating.
Onegoodtactic:Asktherepairshopforline-itemestimatesthatexplainwhatneedstobedoneandwhy,andsendthesetoallparties:youragent,theinsurancecompany'sdirectorofconsumeraffairs,themanageroftheclaimsdepartmentandanyoneelseinvolved.
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Iftheinsurancecompanystilldeniesyourclaimorinsistsyoutakeittocourtforyourmoney,don'tbeintimidated.Askforthelanguageinyourpolicyorinstatelawthatallowsittodenyyourclaim.Saveallpaperworkandlogallphoneconversationswithcompanyrepresentatives.
Ifwhatyourinsurancecompanysaysdoesn'tagreewithyourreadingofyourpolicy,askyourstateregulatorforhelp.
Whilestateinsurancecommissionersusuallyhavenolegalauthoritytoforceaninsurancecompanytopayanindividualclaim,thecommissionercanfineacompanyortakeotherpunitiveactionsifaninsurermakesapracticeofunfairlyunderpayingordenyingclaims.
Delayingpayment
Insurancecompaniesusedtosettleclaimsmorequicklythantheydotoday.Thetheorywasthatiftheysettledquickly,theycoulddosoforasmalleramountthey'djustmakesurethepolicyholdersignedareleasedenyinganyfurtherclaimsrelatedtotheaccidentinquestion.But,aspolicieshavebecomemorecomplicatedandreleaseshardertoenforce,manyinsurancecompanieshavechangedtheirtactics.
Now,manyinsurancecompaniesdelaypaymentsaslongastheycanwithoutinvitinglawsuits.
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Youdon'thavetoacceptthedelays,though.Thereareseveralbasicprinciplesthatyoushoulduseincollectingfrominsurancecompanies:
Analyzeeverypartofanaccidentorotherlossforhowitmightbecoveredbyyourpolicyliability,collision,medicalpayments,uninsuredmotorists.Dothisevenifitmeanswaitingadayortwotocallyourinsurancecompany.(Ruleschangebystateandspecificpolicy,butyoucanusuallywaitaslongastwoweekstoreportanaccidenttoyourinsurancecompany.)
Consideralloftheclaimsyoumightmakefollowinganaccidentorloss.Ifyouhavehealthinsurance,homeownersorrenters,canyoumakeclaimsunderthesecoverages?
Neveracceptafirstofferorevenafirstdenialbyaninsurancecompanyasthefinal,unequivocalword.Youknowinsurancecompanieswilldelayordenyclaimsiftheycan.Iftheydo,askforanexplanationfortheirdelayordenial.Inresponse,youshouldgatherfactsandrereadyourpoliciesyourself.Ifyoucan'tdeciphereverythinginthepolicy,talktoyouragentorifnecessaryalawyer.
Evenifdenialisn'taninsurancecompany'sultimategoal,byplayingthedenialgame,itcanachievesomethingalmostasadvantageousalengthydelayinpayingtheclaim.Thelongeraninsurancecompanycanholdontoitsmoney,thebetteroffitis.
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Butthelaw,andmoreimportantlythecourts,don'tgiveinsurancecompaniesfreereintodelayfairsettlementsastheyplease.
Inthespringof1995,thelargestautoinsurancecarrierinNorthernCaliforniahadsettledamassivelawsuitthatchargedthecompanywithrefusingtopaythemedicalbillsof78accidentvictims.
Thelawsuithadbegunas78separatecomplaints,andthecomplaintswereconsolidatedin1991.EachpolicyholderhadbeeninsuredbytheCaliforniaStateAutomobileAssociationinthelate1980s,andeachtoldasimilarstoryofbeinginacarwreck,gettingtreatmentandhavinghisorherbenefitsdelayedordeniedafteranexaminationbyacompanydoctor.
Accordingtolawyerswhoworkedonthecase,CSAAdecidedin1987tostoppayingfortreatmentsbychiropractorsandotherdoctorsofsoft-tissueinjuries,thebruisesandstrainsthatoftenresultfromcaraccidents.Butcompanyofficialsdeniedmakinganysuchdecision,contendingthattheyweremerelytakingmoretimetoinvestigatesuddenincreasesinthenumberandexpenseofquestionableclaims.
Butacriminalinvestigationhadbolsteredthepolicyholders'claims.In1991,theSanFranciscodistrictattorney'sofficeandthestateDepartmentofInsurancehadopenedinvestigationsintoallegationsthatCSAAwaspayingclaimslate,inpartornotatall.Theinvestigationsendedayearlaterwhenthecompanyagreedtopayabout$260,000inwhatitcalledassessments.
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CSAAspokesmanBarryShillersaidthecostofpolicyholders'medicalclaimshadjumped42percentfrom1985through1987,andthatsoft-tissueclaimswerethesinglebiggestcause.''The[policyholders]didnotthinkthatitwasreasonabletoaskthemtolookatahealthcarebillandverifythattheywereatthedoctor'sofficeasmanytimesaswaslisted,"Shillersaid.
Healsostressedthatthesettlementisnotanadmissionofguilt,andisforanamount"farlessthanwewouldhavespenttotryit(thecase)beforeajury."
CSAAsettledthecaseaftertwodaysofatrialthatlawyershadexpectedtolastalmostayear.Theamountofthesettlementwasconfidential,butsourcessaidittotalledmorethan$4million.
Ingeneral,though,suinginsuranceisdifficult.Thestandardautoinsurancepolicyaddressesthematterofwhen,andunderwhatconditions,legalactionmaybetakenagainsttheinsurancecompanytorecoveronaclaim.
Forexample,ifcoverageappliesandtheinsurerdoesnotpayalegitimateclaim,theclaimantmaysuetheinsurancecompany,butonlyaftertherehasbeencompliancewiththeconditionsspecifiedinthissection.
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Nopersonhasanyrighttosuethecompanyuntilthecompanyhasagreedinwritingthatyouhavealegalobligationtopaytheclaimantorajudgmentagainstyouhasbeenmadeincourt.Noonehasarighttotakelegalactionagainstthecompanyinordertodetermineyourliability.
Regulatoryreformissues
In1993,CaliforniaInsuranceCommissionerJohnGaramendiputinplaceanumberofregulationstosimplifytheclaimsprocess.
TheCaliforniaregulationswerelooselypatternedaftermodelstandardsadoptedin1991bytheNationalAssociationofInsuranceCommissioners.InsuranceindustryanalystspredictedtheiruseinCaliforniamayinfluenceotherstates'treatmentofsimilarstandards.
Increasingly,though,autoinsurancecompanieslookatallthelawsuitsasreasontopayclaimsquickly.
AmongGaramendi's1993regulations:
Within15daysofanynoticeofclaim,aninsurancecompanymustacknowledgereceivingthenotice.Thecompanymustalsostartitsinvestigationwithin15daysofreceivinganoticeofclaim.
Within40daysofreceivinganoticeofclaim,aninsurancecompanymustaffirm
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ordenytheclaimandaffirmordenyliability.
If40daysisn'tsufficienttime,thecompanymustwritetotheclaimantandspecifywhymoretimeisneeded,andwhatfurtherinformationitneeds.
Adenialofapolicyholder'sclaim,inwholeorinpart,mustbeaccompaniedbyaletterthatspellsoutthepolicyprovisionsandfactorsonwhichthecompanyisrelying.Allwrittendenialsmustincludeanoticethatthecompany'sdecisioncanbereviewedbytheInsuranceDepartment,andmustprovidethedepartment'saddressandphonenumber.
Insurancecompaniesmustdisclosetotheirpolicyholdersallbenefits,coverage,timelimitsorotherrelevantprovisionsofanypolicytheyhaveissuedthatmayapplytoaclaim.
"Anyothercommunication"that"reasonablysuggeststhataresponseisexpected,"andthatregardsaclaimnotinlitigation,mustberespondedtowithin15daysofreceipt.
Garamendisaidthatstringentregulatoryeffortswouldhelpinsurancecompaniesimprovetheircustomerserviceaswellassignificantlydrivedownthenumberofjustifiedcomplaintsfiledwiththedepartmentin1993.
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AjustifiedcomplaintisonethatinvolvesaviolationoftheInsuranceCodeorotherinsurancelaws,oroneinwhichtheconsumerwasunabletogetaninsurertorespondtohisorherconcernsofquestions.Typicalcomplaintsinvolvedelayofpaymentonclaims,disputesonamountsowedtopolicyholdersbytheirinsurancecompaniesandmisrepresentationofcoveragepurchased.
Conclusion
Whentheythinkaboutmakinginsuranceclaims,mostpeopleworryaboutfollowingalltherulesforreportinganaccident,theftorotherloss.Theserulesareimportantbutfairlystraightforward.
Whatyoushouldbethinkingofwhenyoumakeaclaimisgettingthemaximumpaymentintheminimumtime.Inordertodothis,youhavetokeepinmindhowinsurancecompaniesthinkofclaims.Theyusuallyhandleclaimsinasystematic,impersonalmanner.Theirbiggestconcernsarenotpayingmorethantheyhavetoandnotgettingsued.
Thissaid,mostinsurancecompanieswillsettleclaimsfairlyquicklyoncethey'vebeenmade.
Butmakingyourclaiminatimelymannerisn'ttheendoftheprocess.Thesettlementyourcompanyofferscanbenegotiated.Ifyoukeeptrackoftheexpensesandlossesyou'veincurred,you'llusuallybeina
decentpositiontoargueformorecoverageifyoufeelit'sowed.
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Chapter12CommonProblemsAndHowtoAvoidThemWhetheryou'reshoppingforautoinsurance,makingaclaimornegotiatingasettlement,thereareanumberofcommonproblemsthatplaguetheautoinsuranceprocess.Understandingtheseproblemsgivesyouthebestchancetoanticipateandavoidthem.And,ifyoucan'tavoidthem,ithelpsyoufindaquicksolution.
Exclusions
Exclusionsidentifytypesoflossesthatarenotcoveredbythepolicy.WhiletheInsuringAgreementdefinesthecoverageinbroadtermsbydescribingwhatiscovered(likebodilyinjuryandpropertydamageresultingfromaccidents),theexclusionshelptoshapethecoverageandnarrowthescopeofcoveragebyspecifyinglossesthatthepolicywon'tpay.
Exclusionsformthebasisofmostofthelegaldisputesthatoccurbetweenpolicyholdersandinsurancecompanies.
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Exclusionsaregenerallyincludedininsurancepoliciestoaccomplishthesefourbroadpurposes:
toclarifytheintentofcoverage;
toremovecoveragesforlosseswhichshouldbecoveredbyotherformsofinsurance;
toremovecoverageforlosseswhichresultfromabove-averageriskfactorswhicharenotanticipatedinaverageratesandpremiums(usuallythiscoverageisavailableatanadditionalcharge);and
toremovecoverageforcatastrophiclosseswhicharegenerallynotinsurable(althoughcoveragemaybeavailablethroughspecialinsurancepoolsorgovernmentprograms).
Aninsuredpersonwhousesanautomobiletointentionallyinjureanotherpersonordamagepropertyisnotcoveredsince,inmostcases,theseactswouldbeofacriminalnatureandagainstpublicpolicytocoverthem.
Nocoverageisprovidedfordamagetoanypropertyofothersinyourpossession.Ifyoubackedoveralawnmowerborrowedfromaneighbor,therewouldbenocoverage.Notethatthisexclusiondoesnotapply(therefore,coverageisgranted)forpropertydamagetoresidencesorgaragesyoudon'town.
Thereisnocoverageforinjuriestoanemployeeinjuredwhileworkingforyou.Butinjurytoadomesticemployeewouldbecoveredifworkerscompensationfordomesticswasnotrequiredoravailable.
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Thestandardpolicyexcludescoveragefortheliabilityofanypersonwhileavehicleisbeingusedasapublicorliveryconveyance.Thisexclusionisdesignedbothtoclarifytheintentofcoverageandtoexcludesomethingthatshouldbecoveredbyotherinsurance.(AnyonewhooperatesataxiorlimousineserviceandcarriespassengersforafeeneedsaBusinessAutoPolicy.)
Theliveryexclusiondoesnotapplytoashare-the-expensecarpool.Whenpeopleparticipateinacarpoolandonlysharetheexpensesforfuel,tollsandparking,thedriverisnotchargingafeeforservices.
Severalexclusionseliminatecoverageforsomethingwhichshouldbecoveredbyanotherkindofinsurance.On-the-jobinjuriestoemployeesaremoreproperlycoveredunderaWorkersCompensationandEmployersLiabilitypolicy(infact,formostoccupations,thiscoverageisrequiredbystatelaw).Anemployeeinjuredon-the-jobisgenerallyeligibleforworkerscompensationbenefits,eveniftheinjuryresultedfromanautomobileaccident.
Forexample,ifyoutookyourcartoagarageforrepairsandanemployeeofthegaragehadanaccidentwhileroadtestingyourcar,therewouldbenocoveragefortheemployeeunderyourPersonalAutoPolicy(youwouldstillbecoveredastheownerofthecar).
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Someoftheexclusionsformedicalpaymentsaresimilartothoseforliabilitycoverageandothersapplyonlytothemedicalpayments.Amongthese:
Thereisnocoveragewhileoccupyingavehiclehavingfewerthanfourwheels,suchasamotorcycle.
Thereisnocoveragewhileoccupyingavehicleusedprimarilyasaresidence.Thismightsoundabitunusualatfirst,butitmakesmoresensewhenyouconsiderthatsomevansandpickupsmaybeequippedtoincludelivingspace.Ifavehicleisusedasaregularresidence,thenthemedicalcoveragewouldamountto24-hourhealthcoverage.
Physicaldamageexclusionsarenumerous.Afewoftheseexcludelosseswhicharenotinsurableunderastandardpolicy.Butmanyofthemsimplyexcludetypesofvehiclesorequipmentwhichrepresentanabove-averageriskwhichisnotincludedinaverageratesandpremiums.Amongthese:
Thepolicywillnotpayforlossduetowearandtearandotherkindsoflossesthatoccurasanormalpartofowningandusingavehicle.Becausesuchlossesaretobeexpected,theyarenotaccidentalandarethereforenotcoveredbyinsurance.
Thepolicyeliminatescoverageforlossescausedbycatastrophicexposures,similartoexclusionswefoundinthemedicalpaymentssection.
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Thepolicygenerallyexcludescoverageforsoundreproductionequipment(suchasradios,stereos,tapeplayersandcompactdiscplayers).Italsoexcludescoveragefortheaccessoriesandmediausedwiththese(suchastapes,recordsanddiscs).However,thisisonecoveragewhichisavailablebyendorsementforanextracharge.
Inrecentyears,thisexclusionhasbeenmodifiedtoreflectadvancesinmoderntechnology.Theexclusionappliestootherelectronicequipmentwhichreceivesortransmitsaudio,visualordatasignals.Inearlieryears,policiesmadenoreferenceto"visualordatasignals."Buttheexclusionnowalsoappliestosuchdevicesascartelephones,televisionmonitors,videocassetterecorders(VCRs),andpersonalcomputers.
Thereisnocoverageforlossbyconfiscationordestructionbygovernmentalauthoritiesbecausethecarisbeingusedinillegalactivities(e.g.,transportingdrugs),orforfailuretocomplywithEPA(environmental)standards.TheEPAitemisaimedat"graymarket"vehicles(shippedhereillegallyfromothercountries).Underbothofthesesituations,thegovernmentcanconfiscate,andsometimesdestroytheinvolvedvehicles.
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Thereisnocoveragefordamagetoanon-ownedautousedbytheinsuredorafamilymemberunlessthereisa"reasonablebelief"thattheinsuredorfamilymemberisentitledtodoso.
Thepolicyexcludescoveragefordevicesthatdetectorlocateradarorlaserbeams.Thesedevicesareusedbysomedriverstodeterminewherethepolicehavesetupradartohelpenforcethespeedlimit.Becausethepurposeofradardetectorsistohelpdriversavoidobeyingspeedlaws,andbecausesuchequipmenthasbeenoutlawedinsomestates,insurancecompaniesareunwillingtoprovidecoveragesforthesedevicesunderanautopolicy.
ThestandardPersonalAutoPolicyincludestwoadditionalexclusions:
Therewillbenophysicaldamagecoverageforanyautolocatedinsidearacingfacilityforthepurposeofcompetingin,orpracticingorpreparingfor,anyprearrangedororganizedracingorspeedcontest.
Coverageappliestolosstoarentalcaronlyiftherentalcarcompanyispreventedfromseekingrecoveryfromyouorafamilymemberunderthetermsoftherentalagreementorunderstatelaw.Inotherwords,theinsurancecompanyisnotgoingtopaywhenyouwouldnototherwisesufferaloss.
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Otherinsurance
Thestandardpolicy'sOtherInsuranceclauseexplainshowthecoveragewillapplyifthereisotherinsurancecoveringthesameloss.Thisisdesigned,inpart,topreventclaimantsfromprofitingfromanaccidentbycollectingthefullamountofdamagestwice.Itisalsodesignedtoallowinsurancecompaniestosettleclaimsinafairandjustmanner,bypermittingthemtopayonlytheirshareofalosswhenthereiscoverageundermultiplepolicies.
Asyoumightguess,disputessometimesariseoverhowtermslikefairandjustandonlytheirsharearedefined.Butthisdisputelikesubrogationdisputeswe'veconsideredelsewhereareusuallymostimportantamonginsurancecompanies.
Thelanguageoftheclauseitselfisprettystraightforward:
Ifthereisotherapplicableliabilityinsurancewewillpayonlyourshareoftheloss.Ourshareistheproportionthatourlimitofliabilitybearstothetotalofallapplicablelimits.However,anyinsuranceweprovideforavehicleyoudonotownshallbeexcessoveranyothercollectibleinsurance.
Ifvalidinsurancecoverageisplacedonanautoundertwopolicies,theneachcompanywillpayitsproportionateshareofaclaim.Ifonepolicyhasalimitof$100,000andanotherpolicyhasalimitof$200,000,thetotalavailablewouldbe$300,000,soonecompanywouldpayone-thirdandtheothercompanywouldpaytwo-thirdsofanyliabilityclaim.
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Withrespecttocoverageforanynon-ownedauto,yourPersonalAutoPolicyappliesasexcessoveranyothercollectibleinsurance.
Non-standardrisks
Havingchildrenwhodrive,gettingticketsorbeinginseveralaccidentsmaymakeyouineligibleforthebestratesacompanyoffers.Normallycompaniesdivideautopoliciesintothreecategoriespreferredforthebestdriverswiththeleastrisk;standardforpeoplewithgoodbutlessthanperfectrecords;andnon-standardforhigh-riskdrivers.
Atypicalpurchaserofnon-standardautoinsuranceoftenseeksminimumlimitsofliabilityrequiredbylaw,hasanundesirableorunverifiabledrivingrecord,poorcredithistory,poorclaimsexperience,orminimalnetworth.
Ingeneral,personalcreditratingsarebecominganimportantelementofratingautoinsurancepremiums.Mostlargeinsurancecompanieswillusepersonalcreditratingsasasecondaryfactorifapolicyapplicantmeetssomepre-determinedriskprofile.
MorethanahundredAmericaninsurancecompaniesuseacredittestdevelopedbyFair,Isaac&Co.,aCalifornia-basedstatisticalrisk-evaluationfirm.OtherbigcompaniesAllstateInsuranceisoneusetheirowncredittests.
Buthowreliablearethesetests?Thecompaniessaythere'saclearconnectionbetweengoodcreditrisksandgoodinsurancerisks.Theyclaimthatpeoplewho
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don'tpaytheirbillsaremorelikelytofileatheft,fireoraccidentclaim.
Fair,Isaac&Co.evaluatesatleast35piecesofcreditinformation.Nosingleonemakesabadinsurancerisk.Whatmattersisyourtotalscore.Itincludeshowlongyou'vehadacreditcard,thenumberofaccountsthatare60dayspastdue,andanyliens,judgmentsorbankruptcyfilings.Thetestcoversgeneralcreditinformationforthepastfiveyearsandlate-payinformationforthepasttwoyears.
Allstatescreensforseveralmajorcreditblemishesincurredinthepastfiveyears,includingforeclosures,judgments,bankruptciesandliens.Italsolooksforthesecondtimeyouweresubjecttogarnishmentorrepossession,orleftabillof$100ormoreunpaidforatleastthreemonths.JustoneoftheseproblemscantipyouintoAllstate'shigh-riskcompany,whichcharges50percentto100percentmoreforcoverage.
Enforcingreleases
Sometimes,whenyoumakeclaimonyourautoinsurance,thecompanywillagreetopayifyousignareleasefreeingitfromanyfurtherliabilityconnectedtoyourclaim.Beextremelycarefulaboutsigninganyreleasesaninsurancecompanyoffers.
The1993ArizonaappealscourtcaseBobbySidTaylorv.StateFarmMutualAutomobileInsuranceCo.showshowcomplicatedahastily-signedreleasecanmakeaninsuranceclaim.
Thecasebeganwithanautomobileaccidentthatoccurredin1977.Theaccidentinvolvedthreevehicles
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oneoccupiedbyAnneRingandpassengerJamesRivers,thesecondbyDouglasWistrom,andthethirdbyTaylor.
Ring,RiversandTaylorallwereinjured.Ring,herhusbandandRiversfiledactionsagainstTaylorandWistrom.Taylor'sinsurer,StateFarm,retainedattorneyLeroyW.HofmanntodefendTaylor.TayloralsopersonallyretainedattorneyNormanBruceRandall,whofiledacounterclaimagainstRingforTaylor'sdamages.Taylor,therefore,wasrepresentedbybothRandallandHofmanninthematter.
TheRingsandRiverssettledwithWistrombeforetrial,soTaylorwastheonlypartyleftfacingtheRing/Riversclaims.Attrial,theRingsandRiversobtainedcombinedverdictsagainstTaylorforapproximately$2.5millioninexcessofhisinsurancepolicylimits.Thecourtofappealsaffirmedthejudgments.
TheRingseventuallysettledwithStateFarm.Taylor,however,suedStateFarmforbadfaithseekingdamagesfortheexcessRiversjudgment,claiming,amongotherthings,thatStateFarmimproperlyfailedtosettletheRiversmatterwithinpolicylimits.
StateFarmaskedforasummaryjudgment,claimingthatTaylorrelinquishedhisbadfaithclaimwhen,in1981,hesignedareleasedraftedbyattorneyRandallinexchangeforStateFarm'spaymentof$15,000inuninsuredmotoristsbenefits.
ThereleaseTaylorsignedread,initsentirety:
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ThisAgreementmadeandenteredintothis4thdayofAugust,1981,byandbetweenBOBBYSIDTAYLORandtheSTATEFARMMUTUALAUTOMOBILEINSURANCECOMPANY,(hereinafterreferredtoasSTATEFARM),byandthroughitsagentundersigned.
WHEREAS,BOBBYSIDTAYLORwascoveredbyanautomobileinsurancepolicyissuedbySTATEFARM,whichwasineffectonthe9thdayofApril,1977,providingliabilityanduninsuredmotoristscoveragetohim,and
WHEREAS,anautomobilecollisionoccurredonApril9,1977betweenvehiclesoperatedbyBOBBYSIDTAYLOR,DOUGLASALANWISTROMandANNEL.RING,and
WHEREAS,atrialtookplaceintheSuperiorCourtofMaricopaCounty,StateofArizonainconsolidatedcausesC-382960andC383090,resultinginajuryverdictagainstBOBBYSIDTAYLORinthetotalamountof$2,621,000,andjudgmentshavingbeenenteredagainstBOBBYSIDTAYLORinaccordancewithsaidjuryverdicts,and
WHEREAS,havingbeenfullyapprisedofallsettlementoffersmadebytheplaintiffsintheconsolidatedcasesreferredtoabove,duringthediscoveryprocess,priortotrial,duringthetrial,andsubsequently,BOBBYSIDTAYLORmaintainedanddoesnowmaintainthattheoperationofhismotorvehicleonApril9,1977didnotcontributetotheinjuriessustainedbytheplaintiffs,andatnotimehasheinsisted,demanded,orevenencouragedhisinsurertosettletheplaintiffs'claimswithinhispolicylimits,and
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WHEREAS,oneofthedriversofanautomobileinvolvedinthecollisiononApril9,1977,towit:DOUGLASALANWISTROM,wasuninsuredonthedateofsaidcollision,andBOBBYSIDTAYLORhavingabonafidebeliefthatthenegligenceofDOUGLASALANWISTROMcontributedtohisbodilyinjuriessustainedinthatcollision,and
WHEREAS,BOBBYSIDTAYLORhasdemandedcompensationfromSTATEFARMundertheuninsuredmotoristscoverageaffordedtohim,and
WHEREAS,BOBBYSIDTAYLORdesirestosettletheuninsuredmotoristclaim,andtorelieveSTATEFARMofanyandallothercontractualclaims,interests,orcausesofactionhehasormayhaveagainstSTATEFARM,and
WHEREAS,STATEFARMhasagreedthatuninsuredmotoristscoverageisavailabletoBOBBYSIDTAYLORandappropriateunderthefactssurroundingthecollisiononApril9,1977,andSTATEFARMhavingbeenfullyapprisedinthepremises,
THEREFORE,inconsiderationofthemutualcovenantscontainedherein,STATEFARMagreestopaythesumof$15,000toBOBBYSIDTAYLORinfullsatisfactionofallcontractualrights,claims,andcausesofactionhehasormayhaveagainstSTATEFARMunderthepolicyofinsurancereferredtoherein,inconnectionwiththecollisiononApril9,1977,andallsubsequentmatters,andBOBBYSIDTAYLORherebyacceptsthatsumpursuanttotherecitalscontainedherein.
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Havingbeeninstructedontheinterpretationoftherelease,thejuryreturnedaverdictinfavorofTaylorforcompensatorydamagesof$2.1million.ThecourtalsoawardedTaylor$300,000inattorneyfees.
Thecourtofappealsreversed,holdingthatthereleaseagreementwasnotambiguousandthereforethejudgeerredbyadmittingevidencetovaryitsterms.
Accordingtothecourt,becausethereleaseshouldhavebeenstrictlyenforced,therewasnobasisforTaylor'sbadfaithclaim.Taylorappealed.
Thestatesupremecourtwrote:
...Taylorreleased''allcontractualrights,claims,andcausesofactionheha[d]ormayhaveagainstStateFarmunderthepolicyofinsurance...inconnectionwiththecollision...andallsubsequentmatters."
...thereleasesatisfies"allcontractualrights,claims,andcausesofaction."Asamatterofstatutoryorcontractconstruction,theword"contractual"modifiesthewords"rights,""claims,"andthewords"causesofaction."
...Itisreasonabletobelievethatifthepartieshadagreedtoreleasethebadfaithclaim,theywouldnothavedrawnthereleasesonarrowlyconfiningitto"contractual"and"subsequent"matters,withnomentionoftortclaimsorbadfaith.
Surely,StateFarmknewwhatlanguagewouldeffectivelyreleaseitfromTaylor'spotentialbadfaithclaim.Itcanbeinferredthat
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sophisticatedpartiesinthebusinessofsettlinginsuranceclaims,facedwiththetaskofreleasingaclaimaslargeasTaylor's,wouldhaveusedmorespecificoratleastbroaderlanguageifthatwastheiragreement.
...Forthesereasons,weholdthatextrinsicevidenceproducessupportforTaylor'scontentionthatthereleaselanguagewasnotintendedtoreleasehisbadfaithclaim.
ThetrialjuryhadresolvedthereleaseissueinTaylor'sfavor.Thehighcourtleftthatresolutionundisturbed.
Cancellationprocedures
Thelastimportantfactorinunderstandinghowautoinsuranceworksistheissueofcancellation.Oneofthemostcommoncomplaintspeoplemakeaboutcarinsuranceishowquicklyinsurancecompanieswilldropsomeonewhohasanaccidentorgetssometickets.
InMay1994,GeorgiaInsuranceCommissionerTimRylesorderedAllstateInsuranceCo.topaya$3.547millionfineforviolatinginsurancedepartmentautocancellationrules.
TheAllstatenonrenewalnoticefailedtoinformpolicyholdersaboutthereasonsfornonrenewal,theavailabilityofthestateautoinsuranceassignedriskplan,thedatecoveragewastobeterminated,aswellastheirrighttocontactthedepartmentforassistance.
"Thepoliciesforwhichthenotices[ofnonrenewalonstandardautopolicies]wereissuedwere
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nonrenewedforvalidandlegalreasons,"AllstatespokesmanAlOrendorfftoldoneinsuranceindustrytradejournal."...webelievethatAllstate'snonrenewalnoticesubstantiallycompliedwiththestate'sstatutorynonrenewalrequirements."
Inearly1995,WashingtonstateInsuranceCommissionerDeborahSennannouncedapackageofproposedlaws,changesinprocedureandconsumereducationprogramstohelppeopledealwithautoinsurance.TheWashingtonreformpackageisagoodexampleofthekindofconsumer-orientedreformgoingonaroundtheUnitedStates.
ThecenterpieceoftheWashingtonpackagewasaproposedlawwhichwouldstopinsurancecompaniesfromdroppingordenyingautocoveragebasedonasingleaccidentperinsureddriverorbecauseofaccidentsthataren'tthefaultoftheinsured.
Insuranceregulatorshearmanyconsumercomplaintsthatinsurancecompaniesarbitrarilyassignedpartialblametopolicyholderswhenaccidentsaren'ttheirfault.Afterassigningblamewithoutconsultingthepolicyholder,somecompaniesthencancelthecoverage.
AnotherWashingtonproposalwouldprohibitinsurancecompaniesfromdenyingpeopleautocoveragebecausecoveragewaspreviouslycanceledordeniedbyanothercompany.Consumergroupscallthepracticeblacklisting.
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Agrowingnumberofpolicyholderscomplainthat,iftheymakeevenasmallclaim,insurancecompanieswillthreatentocanceltheircoverageunlesstheybuyotherinsurancepolicieslikehomeownersorumbrellaliability.
Whenaninsurancecompanycancelsyourpolicy,itusuallyhastotellyouwhyit'sdoneso.Somestatesrequirethattheinsurancecompanyofferyoualternativecoverageusuallyatahighercost.
Ifyourpolicyiscanceled,theinsurancecompanyhastorefundpartofwhateverpremiumyou'vealreadypaid.Therefundiscalculatedonaproratabasis,whichmeansanevendistributionofthepremiumbasedonthetimecoveragewasineffect.
Ontheotherhand,therearesituationswhereareturnpremiumcomputationisnotbasedonanevendivisionofthepremium,andtheinsurancecompanyisallowedtoretainslightlymorethanaproratashareinordertorecovertheexpensesofissuingthepolicy.Whenapolicyisissued,theinsurancecompanyexpectstorecoveritsadministrativeexpensesoftypingupthepolicyandkeepingpolicyrecordsovertheentiretermofthepolicy.
Whenapolicyiscanceledearly,theexposuretolossterminatesbutsomeoftheinsurer'sfixedexpensesremainthesame.Theinsurerrecoverstheseexpensesbydeductingaslightpenaltyfromthereturnpre-
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mium.Returnpremiumcalculationswhichincludethispenaltyareoftenreferredtoasshortratecancellations.
Forpolicycancellationsrequestedbyyou,theinsurerusuallyreturnsonly90percentoftheprorataportionoftheunearnedpremiumforthefirstpolicyyear(thus,thepenaltyis10percent).Thisappliestoannualpolicies,andtopolicieshavingashorterterm,suchasthreeorsixmonths.
Ifatwoorthreeyearpolicyiscanceledduringthefirstyear,theinsurerwillusuallyreturn90percentoftheprorataunearnedpremiumforthefirstyearplusthefullpremiumforanysubsequentperiods.Ifatwoorthreeyearpolicyiscanceledafterthefirstyear,thefirstyearpremiumisfullyearned,theinitialexpenseshavebeenrecovered,andtheinsurerwillreturnthefullprorataunearnedpremiumfortheunexpiredterm.
Thecancellationpenaltydoesnotapplyinallcaseswhereyourequestcancellation.
Determiningtheprorataportionofanannualpremiumisasimpleprocedure.Yousimplyconvertdatestodecimalequivalents,andsubtracttheeffectivedatefromthecancellationdate.Theresultisthenmultipliedbythefullannualpremiumtodeterminetheearnedpremiumtheamounttoberetainedbythecompany.Thedifference,orunearnedpremium,istheamountreturnedtotheinsuredinfullortobereducedby10percentiftheshortratepenaltyapplies.
TheterminationprovisionisthelongestoftheGeneralProvisionsinthestandardpolicy.Itaddressesthe
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issuesofwhen,how,andforwhatreasonscoverageunderaPersonalAutoPolicycanbeterminated.
Thisprovisionoftenvariesfromstatetostate.Checkanyapplicableendorsementstodeterminewhetherthereareanyvariationsofthepolicyprovisionsrelatingtocancellation.
Youmaycancelthepolicybyeitherreturningthepolicyorgivingthecompanyadvancenoticetocancelasofacertaindate.Thecompany'srightstocancelaremorerestrictive.Itmaycancel:
Forfailuretopaythepremiumwith10daysnoticetotheinsured.
Ifthepolicyisnewtothecompany(notarenewalorcontinuation),itmaybecanceledwithinthefirst60dayswith10daysnotice.Forrenewalorcontinuationpolicies,20daysnoticeisrequired.
Afterthepolicyhasbeenineffectfor60days,theinsurermaycancelonly:
a.Fornonpaymentofpremium.
b.Ifthedriver'slicenseoftheinsured,anyresidentofthehousehold,oranypersonwhoregularlyusestheautoissuspendedorrevokedduringthepolicyperiod.Ifthepolicyisforaperiodoflessthanoneyear,thepolicyperiodwouldstartwiththedateofthelastanniversary.
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c.Ifthepolicywasobtainedthroughmaterialmisrepresentation.
Thestandardpolicyalsopresentstheprovisionsthatapplytononrenewalofapolicy.Insurancecompaniescanhavemanydifferentreasonsfordecidingnottorenewanautomobileinsurancepolicywhenitcomesupforrenewal.
Forexample,thecompanymightdecidenottorenewapolicybecauseofaccidents,trafficviolations,orotherfactorswhichmakeitanundesirablerisk,butforwhichmidtermcancellationisnotpermitted.Oracompanymightdecidetowritefewerautopoliciesinthestateandtowritemorecommercialfirepoliciesinstead.
Ifthecompanydecidesnottorenewthepolicy,itmustnotifyyouatleast20daysinadvanceofexpiration.Ifthepolicytermislessthansixmonths,thecompanyhastherightnottorenewthepolicyeverysixmonths.Ifthepolicytermisotherthanoneyear,itmayonlyexercisethisrightonananniversarydate.
Italsodescribesconditionsunderwhichautomaticterminationofcoveragewilloccur.Thepolicyterminatesautomaticallyifyoufailtoacceptthecompany'sofferbypayingtherenewalpremium.Coverageforanyspecificautoterminatesassoonasanyothersimilarinsuranceforthatautotakeseffect.
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AfinalsetofprovisionsistitledOtherTerminationProvisions.Herethepolicyspecifiesseveralmiscellaneousconditionsrelatingtocancellationornonrenewal.
Proofofmailingnoticeofcancellationornonrenewalisproofthatpropernoticehasbeengiventotheinsured.Thecompanymaydeliverthenoticeinsteadofmailingit.
Thecompanyagreestorefundanyunearnedpremiumtotheinsuredifthepolicyiscanceled.
Thecancellationdateonthenoticebecomestheexpirationdateofthepolicy.
Negligententrustment
The1994LouisianacaseCarolynSuePanzico(forJenniferPowell)v.DiannePrice,etal.consideredsomecomplicatedfamilyconnectionsandanotheroften-disputedissuenegligententrustment.Thisissuerelatesparticularlytotheinsuranceissuesraisedwhenyoulendsomeoneyourcar.
InJanuary1989,acardrivenbyDannyKnightstruckJenniferPowell,whowasstandinginaparkinglotinMonroe,Louisiana.Powellwasseriouslyinjured.
ThecarbelongedtoDiannePrice,thenamedinsuredontheStateFarmpolicythatcoveredthevehicle.Pricehadgivenherminorstepson,Shane,permissiontousehercarthateveningforadate.Whenhisdatewascanceled,ShanepickedupDannyKnightandthetwoboyswentforaride.Theyeventuallyparkedthecar
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andstoodvisitingwithfriends.ShanegaveDannypermissiontoborrowthecartodrivetoanearbyA&Pparkinglot,wherehehitPowell.
Dannywassixteenyearsoldatthetimeoftheaccident.Policeinvestigationoftheaccidentrevealedthathedidnothaveadriver'slicense.Shane,however,wasnotawarethatDannywaswithoutalicense.HehadseenDannydrivinginthepastandassumedthat,becausehewasoldenoughtoobtainalicense,hehadone.
JenniferPowell'smother,CarolynPanzico,filedsuitonbehalfofherdaughterfordamagesmostlyrelatingtobackinjuriesarisingfromtheaccident.
DannyKnight,hisfatherandStateFarmFireandCasualtyInsuranceCompanywereformallydismissedasdefendantsfollowingaprivatesettlement.TheremainingdefendantswereDiannePrice,hersonShaneandStateFarmMutualAutomobileInsuranceCompany.
DiannePriceandShanebothtestifiedthathehadverylimitedaccesstoDianne'svehicle.Thekeyswereunavailabletohim.Hehadtoseekspecialpermissionandstatehispurposeeachtimehewantedtoborrowthecar.Ifpermissionwasgranted,Shanewasremindednottodrinkanddriveortoallowanyoneelsetodrivethecar.PricewasunawarethatShanepreviouslylethisfriendsdrivethecar.
ThetrialcourtconcludedthatDannywasnotcoveredunderDiannePrice'sinsurancepolicybecauseitwasnotreasonablyforeseeabletoPricethatShanewouldlendhercartoathirddriver.Italsofoundthe
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claimofnegligententrustmentlackedmeritbecausetheevidencewasnotsufficienttoestablishthatShanenegligentlyentrustedDannywithPrice'scar.
Furthermore,thecourtfoundthatiftherehadbeenanynegligence,itwasstrictlyinDanny'soperationofthevehicle,notinShane'slendingthecartohim.Powellappealed.
Theappealscourtruled:
ThetrialcourtdeterminedthatPricecouldnothavereasonablyforeseenthatShanewouldlendthecartoanotherperson.PricerestrictedShane'suse[ofthecar]tospecificoccasions,alwayssubjecttotherestrictionthathenotdrinkanddriveorallowanyoneelsetousethecar....
ThePricecourtfoundareasonableforeseeabilitytestcompelling.Inexplainingthistest,itcitedanearlierstatesupremecourtdecision:
Implyingpermission,asinothercontractualimplications,isnothinglessthanajudicialextensionofthetermsofanobligationbyreadingintothelanguageameaningwhichisnotclearlyexpressed.Itis,ineffect,arewritingofthecontractbetweentheparties....Itisanauthoritytobemostcarefullyexercisedcallingforaproperrestraintbycourts.
Inthelate1980s,anumberofstatecourtdecisionshadproceededtoimplyexactlythispermission.TheLouisianasupremecourthaditselfinterpretedsomeinsurancepoliciesinthisway.InthedecisionNorton
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v.Lewis,itchosetousetheword''permission"inthebroadestsensepossible.Itheldthat:
Oncethepermission,whetherexpressorimplied,touseamotorvehicleisestablisheditisgivenawideandliberalmeaningindeterminingcoverage.Solongastheinitialuseofthevehicleiswiththeconsent,expressorimplied,oftheinsured,anysubsequentchangesinthecharacterorscopeoftheusedonotrequireadditionalspecificconsentoftheinsured;coveragewillbeprecludedonlywherethedeviationfromtheuseconsentedtoamountstotheftorotherconductdisplayingutterdisregardforthereturnorsafekeepingofthevehicle.
ThoughtheLouisianacourtscontradictedthistheoryinthePricedecision,manycourtsmightstandbyit.So,becarefultowhomyoulendyourcar.
Conclusion
Therearemoresituationsthatcancauseproblemsinapolicyorclaimthanwe'veconsideredinthischapterbutthesearethemostcommongroundsfordispute.
Asyoucanseeintheexamples,mostproblemswithinsurancedon'tsurfaceuntilyoumakeaclaimwhichisdeniedorunderpaid.Theseresponsesfromtheinsurancecompanymakepeopleangrybutthey're
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usuallyaresultofmisperceptionsorconfusionwhichoccurredmuchearlier.
So,thebestwaytoavoidtheproblemslateristoreadyourpolicycarefullyandknowthetroublespotssooner.
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Chapter13FraudIt'sarealityofthemoderninsurancemarketthatunwittingconsumersgetrippedoff.Inmanymarkets,therip-offsfocusonsellingmultiple,redundantpolicies.Inautoinsurance,thetwobiggestscamsaresellingpolicieswrittenbyinsurancecompaniesthatarebankruptordon'texistandaddingbogussurchargestopremiumbills.
InAugust1995,theownerofasouthFloridainsuranceagencywasarrestedandchargedcriminallywithbilkingmorethan1,000customersoutofnearly$100,000byslippingunneededorunwantedchargesintotheirautopolicies.
MonthslaterinnorthFlorida,fouragentsworkingforanotherinsuranceagencyinitsTallahasseeandPensacolaofficeswerechargedinadministrativecomplaintsinwhatinvestigatorssaidwasasimilarscheme.
Ineachinstance,theagentsallegedlyrippedoffconsumersthroughadeceptivesalesschemeknowninindustryjargonassliding.
Besidesthecasesresultingincharges,investigatorswiththeFloridaDepartmentofInsurancehadanumber
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ofotherslidingallegationsunderactiveinvestigation.
Insurancedepartmentinvestigatorsinotherheavily-populatedstatesincludingCalifornia,Texas,NewJerseyandNewYorkhavebeguncampaignstostampoutsliding.
Thecostofhard-selltactics
Themainbenefitofchartingvariousquotesisthatitmakesresistinghard-sellsalestacticseasier.The1994IllinoisappealscourtdecisionStevenGolembiewskiv.HallbergInsuranceAgency,Inc.illustratesjusthowcomplicatedbasicautoinsurancecangetwhenaggressiveagentsusehard-selltactics.
InAugust1988StevenGolembiewskicontactedMarkZintak,whowasassociatedwiththeHallbergInsuranceAgencyand"requestedthathebeboundwithautomobileinsurancecoverage."
Golembiewskihadjustboughta1985ChevroletCamarofor$9,200.Hehadfinancedthecar,soheneededtoobtaincollisionandliabilityinsurancetomeetthetermsofhisloan.HisfatherhadrecommendedHallberg.
Zintaktookdownhis"information...driver'slicensenumber,andaddress."ZintaksentGolembiewskianapplicationinthemail.Zintaktoldhimtofillinthe"highlightedareas."
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Twodayslater,GolembiewskicalledZintakagainandsaid,"[T]heladyfromthefinancecompanyhadcalledandthatIwouldhavetohaveinsurancetoday....ItoldhimthatImusthaveinsurancetoday,Imustbebinded.Ididnotknowwhatbindedwas."
Beingbindedmeanstobetemporarilyinsuredwhileanapplicationisprocessed.
ZintaktoldGolembiewskithathecouldconsiderhimselfcoveredimmediatelyandthatheshouldsendthesignedapplicationandacheckfor$225immediately.
Earlythenextmorning,Golembiewskisentacheckfor$225toHallbergInsuranceAgency.Ontheapplication,heonlyfilledinthehighlightedportions;hedidnotknowwhofilledintherestoftheinformationonit.Attrial,helookedattheapplicationandnotedthattherewasanothersignaturebythelinemarked"producer."
Whenhecalledtheautomobiledealershiptoinformitthathehadprocuredinsurance,GolembiewskisaidthatKemperwashisinsurancecompanyandHallbergwashisagent.Hetoldthedealershipthathehadcoverageforliabilityandcollision.
Twodayslater,Golembiewskiwasinvolvedinanautomobileaccident.HecontactedZintakandnotifiedhimoftheaccident.Zintakputhimonholdforafewmomentsandthentoldhimthathewasn'tcoveredfortheaccident.Hallberghadnotreceivedhischeck
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therefore,hisinsurancecoveragehadnotcomeintoeffectyet.
GolembiewskisuedHallbergandZintak,allegingabreachofcontractandaconsumerfraudclaim.(GolembiewskieventuallydismissedZintakfromthecase.)
ThetrialjudgeultimatelydirectedverdictsinfavorofGolembiewskionthebreachofcontractandconsumerfraudclaims.Sheenteredjudgmentintheamountof$6,811.03,whichincludedthe$4000amountthatGolembiewskipaidtotheotherdriver,interestontheloanhetookouttopayherandthecostofrepairinghisowncar.
Ontheconsumerfraudclaim,thejudgedidnotmakeanyseparateaward,butshedidassess$4,000inattorneyfeesagainstHallberg,basedontheConsumerFraudandDeceptiveBusinessPracticesAct.
Hallbergappealed,makingvariousarguments.Theappealscourtreviewedrecordsofthecaseinanexceptionallydetailedmanner.Itsupportedthetrialcourtonalmosteverycount.
TheawardtoGolembiewskistood,thoughhehadtopayhisownattorneyfees.Hallbergtriedtoplacehimwithasubstandardinsurancecompany,sohewentwithanotheragency.
Policyprovisions
Thestandardautopolicyrefusestocoveranysortoffraudulentclaims:
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Wedonotprovidecoverageforany"insured"whohasmadefraudulentstatementsorengagedinfraudulentconductinconnectionwithanyaccidentorlossforwhichcoverageissoughtunderthispolicy.
Thisprovision,whichisverybrief,dealswithvoidingtheinsurancecoverageincaseswhereapolicyholderhascommittedfraud.Otherinsuredpersonsinvolvedinthesameaccidentarenotaffectedbythisprovision,aslongastheyarenotguiltyoffraudthemselves.
Theinsurancecompanyisundernoobligationtohonorthepolicywhentheinsured'sactionsorstatementsinconnectionwithanaccidentaredishonest.
So-called"California-style,"autoinsuranceclaimsoperationshavedefraudedinsurancecompaniesofhundredsofmillionsofdollarsnationwide.Ahighvolumeoflow-pricedinsuranceclaimsforstagedaccidentsorexaggeratedinjuries.
Californiahastoughenedlawsoninsurancefraudandtighteneditsregulatorycontrolsoftheaffectedprofessions,somanyofthesharpestoperatorshavemovedontootherstates.Wherevertheyare,thesecrooksexploitonebasictrend.
"Mostcompanies,includingStateFarm,hadafigureunderwhichtheywouldn'tbothertoevenquestionaclaim,"saysaformerStateFarminvestigator."Inmostcases,thatwasabout$5,000althoughitcanvarywithdifferentadjusters."
Althoughaninsurancecompanymayseeapatternofsuspiciousclaimshandledbycertainattorneysorphysicians,
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ithastotreateachclaimindividuallyorfacechargesofbadfaith.
Insurancecompanyresponse
Finally,oneofthecoverageissuesthatinsurancecompaniespursuemostaggressivelyissuspectedfraud.Ifacompanyeventhinksthataclaimmightbebogus,itwilldelayandperhapsdenyanycoverage.
"EveryAmericanhouseholdisburdenedwithmorethan$200annuallyinadditionalinsurancepremiumstomakeupforthistypeoffraud,"saidFBIDirectorLouisFreehina1995pressrelease."Stagedautomobileaccidentsareamajorcontributortothemorethan$20billionayearpropertyandcasualtyinsurancefraudproblemoutofanestimated$70billionto$80billionayearinhealthcarefraudandillustratethesubversionoftheAmericanhealthcaresystembyunscrupulousmedicalprovidersandtheirpartnersincrime."
The1994MassachusettsappealscourtdecisionRicardoGuityv.CommerceInsuranceCompanyillustrateswhyautocarriersoftensuspectfraud.
Guityhadreportedhisautomobile,a1985BMW745I,stolenonNovember6,1988,fromashoppingmallwhilehewaswatchingamovie.
Whenhehadappliedforautomobileinsurance,GuityhadgivenashisaddressthatofhisparentsintheHydeParksectionofBoston,ratherthanhisownintheMattapansection.HisapplicationforinsurancemadeinMay,1988,listedanodometerreadingof29,900
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miles,butthevehicle,whenfoundafteritsreportedtheft,showedanodometerwith29,449milesonit.
Thecarwhenfoundhadbeenvandalized,atotalwreck,yettheignitionsystem,doorlocks,andtrunklockwereintact.Guityclaimedtohavepaid$25,000forhisBMW,butdocumentsfiledwiththeRegistryofMotorVehiclesstatedasalespriceof$11,500.DocumentsoftheUnitedStatesCustomsServiceestimatedavalueof$5,866.67,apparentlyowingtothevehicle'snonconformancewithapplicableenvironmentalspecifications.
AtacertainpointGuityhadallowedhisinsurancetolapseandwhenhereappliedforinsuranceinOctober1988,onemonthbeforehereportedhiscarstolen,helistedmileageof31,000miles.
CommerceInsurancepromptlybeganinvestigationofthereportedtheft.Itsinvestigator,FranklinJones,experiencedsomedifficultyincatchingupwithGuity.Whenhefinallydidmakecontact,JonesaskedGuityforanaffidavitandtoconductatapedinterview.Guityprovisionallydeclinedeitheraffidavitorinterviewuntilhetalkedtohislawyer.WhenJonespressedhisrequests,Guityrespondedthathehadspokentohislawyerandwouldneitherputanythinginwritingnorsubmittoataperecordedinterview.
Theapplicableinsurancepolicy,thestandardMassachusettsform,providedinconnectionwithclaimsprocedures:
Ifyouarefilingaclaimfordamagetoyourauto,youorsomeoneonyourbehalfmustfileaproofoflosswithin91daysaftertheaccident.
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Wemayalsorequireyoutosubmittoanexaminationunderoath.
Afteranaccidentorloss,you...mustcooperatewithusintheinvestigation,settlementanddefenseofanyclaimorlawsuit....
ByletterdatedMarch13,1989,CommercedeniedcoveragebecauseofGuity'sfailuretocooperateandthesubmissionoffalsedocumentsatthetimeofpurchasinghisinsurance.CommercealsodeclinedsettlementinresponsetoaletterfromGuity'slawyer.
Guitysued,claimingtwopoints:breachoftheinsurancecontractandtheviolationofstatelawonunfairsettlementpractice(whichwouldautomaticallytripleanyawardmadefromthefirstcharge).
Thecontractclaimwastriedandsubmittedtoajury,whichfoundthat:GuityhadnotmadematerialmisrepresentationseitherinapplyingfortheCommercepolicyorinhisclaimoflossforhisBMW;hehadnotfailedtocooperatewithCommerce'sinvestigationoftheclaimedtheft;andthatthecashvalueofthecarbeforethelosshadbeen$18,075.
Thetrialjudgethenheardsupplementaryevidenceonthetripledamagesclaim.Onthebasisofthatevidence,aswellastheevidenceshehadheardattheproceedingsbeforethejury,sheruledagainstGuity.Morespecifically,shewrotethat:
CommercebegantheinvestigationofGuity'sclaimedlossreasonablypromptly....Commercethereafterproceededwithreasonableefficiencyandthoroughnessinitsinvestigation,andpromptlyinformedGuity(byletter
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datedNovember28,1988)that...[he]wasfailingtocooperatewiththeinvestigation.Guitydidfailtocooperatebydecliningorrefusingtobeinterviewedortofilloutanyaffidavitdescribingtheloss.
Guityappealed,pressingforthetripledamages.Theappealscourtconsideredthewordsoftheunfairsettlementpracticesstatute:
[A]nunfairclaimsettlementpracticeshallconsistofanyofthefollowingactsoromissions:
...Compellinginsuredstoinstitutelitigationtorecoveramountsdueunderaninsurancepolicybyofferingsubstantiallylessthantheamountsultimatelyrecoveredinactionsbroughtbysuchinsureds.
Theappealscourtagreedwiththetrialcourtthattherewasmoretothiscasethanjustlow-ballingaclaim.InthefaceofGuity'sfailuretocooperate,theevidencethatthetheftoftheBMWmayhavebeencontrived,andtheinflationofthepurchasepriceonGuity'sclaim,thecompanyreasonablyandpromptlynotifiedhimofthereasonsfordecliningpaymentonthepolicy.Therewasnounfairsettlementpractice.
So,insurancecompanieshavegoodreasontosuspectfraud.AccordingtotheFBI,typicalcasesinvolveoneofseveralscenarios:
Causedaccidentsinwhichaninnocentvictimcanbemadeanunwittingparticipantinanactualaccident,suchasasideswiping(lawenforcementpeoplecallthisscam''swoopandsquat").
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Stagedaccidentsinwhichvehicleswithpriordamagearebroughttogetherandmadetoappeartohavebeeninvolvedinanaccident.
Paperaccidentsinwhichnoaccidentoccurredbutfalseaccidentreportswerefiledtosupportinsuranceclaims.
So-calledphantomvehicleclaims,inwhichmotoristsclaimtohavesufferedalossfromahit-and-rundriverwhodoesnotexist.
Personal-injurymills,inwhichlawyersandphysicianssomeworkingalone,someworkingtogethersubmitclaimsforpatients'nonexistentorexaggeratedinjuries.
Carsabandonedbyownershopingtocashinonthetheftcoverageintheirinsurancepolicies.
Historically,basedonafinancialdecisiontoavoidexpensivetrials,insurancecompanieshaveagreedtosettlesuspectmedicalandautodamageclaims.Butthat'schanging.Thesescamsespeciallythe"swoopandsquat"claimshavebecomeacoast-to-coastproblem.
Solodriversmoreoftenwomenandtouristsarethefavoritetargetsofswoopandsquatteams.Asaresult,rentalcarcompaniesandlargeinsurancecompanies
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havebeenhitwithmillionsofdollarsinfalseclaims.
Lawenforcementagencieshavealsoclampeddownonthemoreorganizedinsurancefraudrings.
Inthefallof1995,theU.S.AttorneyinBostonannouncedthatchiropractorAlanRosenthalofWellesley,Massachusetts,hadbeenconvictedofinsurancefraudandwouldservea15-monthtermofimprisonment.Inadditiontotheprisonterm,Rosenthalfacedacriminalfineof$300,906.61whichwouldhavetobepaidbytheendof1995and$129,093.39inrestitution.
CaterinaRosenthal,thechiropractor'swife,wassentencedtoatwo-yeartermofprobation.Aspartofapleaagreement,shealsorelinquishedherinterestinassetsjointlyheldwithherhusband.
TheRosenthalsdefraudedautomobileandworkers'compensationinsurersbyoverstatingpatients'injuriesandbyrunning-uppatients'billswithunnecessarytestsandtreatments.Theirbusiness,whichatitspeakemployedasmanyassix"associate"chiropractorsandnumerousclericalemployees,wasalmostentirelydependentonreferralsfrompersonalinjurylawyers.
Tobuildandsustainthebusiness,theRosenthalspreparedreportsforusebylawyersnegotiatinginsurancesettlementsinwhichvirtuallyallautomobileandworkers'compensationpatientswerefoundtosufferperiodsoftotalorpartialdisability,regardlessofwhetherthepatients'medicalrecordssupportedsuchfindings.
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Inaddition,theRosenthalsmadesurethatvirtuallyeveryautomobileaccidentpatientwhocametotheirclinicreceivedahighenoughbilltogetoverthe$2,000"no-fault"lawsuitthreshold.(UnderMassachusetts'"no-fault"autoinsurancelaws,peoplewhoclaimtohavebeeninjuredincaraccidentsareentitledtohavetheirmedicalbillspaid,butthosewhoclaimso-called''soft-tissue"injuries,suchas"whiplash,"cannotbringlawsuitsfor"painandsuffering"damagesunlesstheirmedicalbillsexceed$2,000.)
TheRosenthals'falsereportshelpedlawyersobtainlargersettlementsthantheycouldhaveifpatient'struemedicalconditionhadbeenreportedandtheirexcessivetestingandtreatmentenabledlawyerstobringlawsuitsthatwouldotherwisehavebeenbarrediftheRosenthalshadnotrunthebillsupover$2,000.
Inordertopadbills,AlanRosenthalinstitutedpoliciesdesignedtoensureunnecessaryandexcessivetestingandtreatmentofpatients.Healsorequiredthatallautomobileaccidentandworkers'compensationpatientsundergoatleast25officevisits,regardlessofthepatients'injuriesorneeds.
Threemonthsearlier,inJune1995,stateandlocalinvestigatorsinLosAngeleshadcrackedamajorautoinsurancefraudringbasedinaHollywoodinsuranceagencywhereuninsureddriverswhohadcaraccidentscouldobtainbackdatedinsurancepolicies.
ThesuspectedringleaderswereSamuelNadjarianandKhatchikSahakian,partnersinRedLightInsuranceServices.Investigatorssaidthetwomen,fora$1,000fee,wouldsupplyuninsuredmotoristswithautoinsurancepoliciesbackdatedtothedateoftheircaraccidents
Page251
orafewdaysbeforesothatthedriverscouldfileclaimsformedicalbillsanddamagetotheirvehicles.
PolicieswrittenundertheCaliforniaAssignedRiskPlanarerandomlydistributedtoindividualinsurancecompaniesbasedontheirCaliforniamarketshare.Thataspectmadeitharderforinsurerstospotapatternintheclaimsthanifonlyoneortwocompanieshadbeenvictimized,investigatorssaid.Buttheydidbegintosolvethecasewithinformationprovidedfrominsurancecompaniesdisputingcoverage.
SahakianandNadjarianweresuspectedofbackdatingpoliciessince1992,ifnotearlier.Thefraudulentclaimswhichrangedfromalittlemorethan$1,000toahighof$35,000totaled$410,000,investigatorssaid.
Badfaith
Lawsuitsorregulatorycomplaintsrelatingtodelaysordenialsusuallyallegebadfaithonthepartoftheinsurancecompany.Thisisoneoftheheaviestclubsapolicyholdercanwieldtostrikebackataninsurancecompany.
Onewayinwhichaninsurancecompanycanactinbadfaithisbynotinvestigatingaclaimwithaneyetowardprovidingcoverage.
InJanuary1995,StateFarmMutualAutomobileInsuranceCo.thelargestproviderofautoinsuranceinArizonawasorderedtopay$910,000toafamilyafterajuryfoundthatthecompanyactedinbadfaithonanaccidentclaim.
Page252
ThreechildrenintheAhringfamilywereinjuredinahead-oncollisionin1989.Theownershipofthetruckinwhichtheywereridingwasindispute,andStateFarmwasaccusedoffailingtodiscloseamemothatwouldhaveclearedupownership.
AccordingtoJohnOsborne,alawyerfortheAhrings,thepickupwasaloanerfromagaragetothechildren'sgrandfather,MilburnSherwood.OsbornedescribedSherwoodassenileandsaidthatafterthewreck,thegarageownerinsistedthatthegrandfatherhadboughtthetruck.
Thepointwasimportant,becausetheotherdriver,whowasatfault,didnothaveinsurance.Becauseitwasinitiallythoughtthatthegrandfatherownedthetruck,thefamilycollectedunderhisuninsuredmotoristsinsurance,providedbyStateFarm.
Butthefamilywouldhavebeenmuchbetteroffcollectingunderthegarage'spolicies,whichprovidedhighercoverage.Thegarage'suninsuredmotoristscoveragewasthroughTruckInsuranceExchange.
ThefamilysuedStateFarmafteramemowasdiscoveredataStateFarmagent'sofficeclearlyindicatingthatthegarageownedthetruck.Thefamily'slawyersallegedthatStateFarmwasmotivatedtohidethememobecauseofconfusionoverwhetheritmightbeliable(amongotherthings,ithadissuedanumbrellaliabilitypolicytothegarage).
SteveSmith,alawyerrepresentingStateFarm,saidtheverdictwouldbeappealed.Smithsaidthememowasneverhiddenandprovednothing.Hesaidthe
Page253
jurywasswayedbytheinjuriessufferedbytheAhringchildren.
"Thisisaveryliberalstandardagainsttheinsurancecompanies.Itisprobablythemostliberal,comparedtootherstateswhorequireeithermaliceortheabsenceofanyreasonablebasis,"saysoneattorney."Wecouldhaveabadfaithclaimbasedonlyondelay,andalltheworry,griefandturmoilcaused.Thiswasthefirstimportantresultofthiscase,becauseinsurersthinkthataslongastheyultimatelypayup,itdoesn'tmatterhowlongtheydragitout."
Conclusion
Fraudismorethanjustaproblemforpeoplewhoarerippedoffbycriminals.Itpervadesinsurance,surfacingaseverythingfromhard-sellsalestacticstoquestionableorinflatedclaimstothesaleofboguspolicies.Itaffectstheday-to-dayrelationshipbetweeninsurancecompaniesandeventheirhonestcustomers.
Asasmartconsumer,youwanttoavoidgettingrippedoff.Butyoualsowanttomakesurethatyourlegitimatecoverageandclaimswhenyoumakethemaren'tunderminedbyanenvironmentoffraud.Youcanbestdothisbydealingwithestablishedpeopleandcompanies,usingsomediscretionwhenyoudriveandreportingfraudwheneveryouhavegroundstosuspectit.
Page255
Index
A
accidents1-6,9,10-18,23-28,31,36,38,40,45,48,51,53-59,62-65,71-72,79-80,82,86,89-101,104-108,113,114,117,119-120,122-124,127,129-130,134-135,147,149-150,154-157,159,163,165-166,173,177-180,186-188,193-197,203-204,207,209,213,215,217-218,221-223,228-229,233,235,241-251
fatalaccidents5
injuryaccidents5
actualcashvalue(ACV)38,59,61,137,139,140
additionalinsured139
adjuster147,154,193,205-206
age5,22-26,33-34,37,40-41,81,157,166,172,177-183,185,187-188
alcohol36
alternativemarkets56
AmericanAssociationofRetiredPersons(AARP)179-180
AmericanBarAssociation172
application4,59,167,184,191,240-241,244
appraisal60-61
appraiser60-61,147
arbitration61,112-113
assets28-29,31,43,72,93,102,127,149,249
assignedrisk56-59,251
atfault2,51,89-90,165,252
automobileclassifications174
B
badfaith224,227-228,244,251,253
bailee82-83
Page256
bankruptcy(bankrupt)61-62,223,239
benefit2-3,14,17-18,31,44,53-54,81-83,97,104,106,118-120,122,126,128-129,135,155,217,224,240
bond9,108,203-204
bound107,240
broker145,146,174
businessuse32,187-188
C
CaliforniaDepartmentofInsurance103
CaliforniaHighwayPatrol5
cancellation84,178,228,231-234
carpool110,156,217
cash9,29,59-61,114,129,137,139-140,163,200,205,246,248
ChangeEndorsement41,133,136
claim4,7-9,13,16-18,27,32,44,47,51-52,55,57-59,64-65,70-71,82,88,92,96-100,105-106,110,113-114,117,119-130,143,146-147,149,160-161,163,166,193-215,221-230,236-237,242-253
catastrophic(claim)53,125,216,218
claimsexperience125,222
claimspaying7
collision2,10,12-13,15-17,25,30,32,41-43,55-56,70,77,85-86,104,117,150,152,155,159-162,164,175,177,180-185,205,208,225-227,240-241,252
collisiondamagewaiver(CDW)15-17
commerciallender1
commission7,166
complaint8,154,194,209,212-213,228-229,239,251
computeron-lineservices7
confiscation219
consumerrights146
ConsumersUnion4
Page257
contents76
contract15,33,47,70,72,73,84,100,131,142,193,227,236,242,246
contractualterms83
correspondence194
costcontainment119,148
counterfeitinsurancecard104
coverage2-35,38-185,196-233,237,240-246,248,251-253
comprehensive55,184-185
excess65
crashinvolvementrate5
currentmarketvalue29,205
D
damages2-3,6,11-12,25,31,43,56,61,65-66,89-92,95-101,106,107,108,111-114,118,120,122,128,130,163,173,199-204,221,224,227,235
compensatorydamages97,106-107,227
non-economicdamages128
punitivedamages107
deceptivesalesscheme239
declarationspage36,39-40,42,48,69,73,83,131,133
declaredvalue34
deductible2-3,11-13,16,43,150,152,159-160,163,170,181,185,199-200,205
defects122
defensecosts96,200-202
definitions69,71,73,78,80,83,88
delayingpayment207
delivery50,75,173
denial208,212,251
directmail7,146
disability3,18,90,97,111,155,249
discount35,95,155,158,165,187-188
discrimination24
Page258
driversafety23,166
drivertraining22,177
drivingrecord1,10,24-25,56,81,86-87,148,158,171-172,178,186,189,190,222
drivingwhileintoxicated25
drugs122,219
drunkendriver119
DutiesafteraLoss196
DutiesafteranAccident196
dutytodefend96,202
E
earthquake12
effectivedate41,48,133,231
eligibility49,173
employee50,81-82,216-217,249
endorsement41-42,62-63,109,131-143,174,177,219,232
exclusion6,26,44,45,56,84-88,105,110-111,132,136,138,215-220
expirationdate40,48,234
F
fallingobjects12
familymembers26,44,51,74,78
financialresponsibility9,10,108,112-113,134,195,199
fire2,12,58,83,95,159,164-165,223,233
flood2,12,95
forfeiture197
fraud129,242-244,247,249-251,253
freight50,75,173
funeralbenefit3
G
garage27,83,166,204,217,252
garagedcar27,166
generalprovisions61,231
goodstudent22,155,158,187-188
governmentalauthorities219
GrossVehicleWeight50
Page259
H
hard-selltactics240
hazard2,122,141
healthinsurance31,44,120-121,124,147,165,208
hit-and-runaccidents27
household4,17,25,32-33,49,73-75,80,87,142,155-157,186-187,232,244
I
illegalactivities219
incomecontinuationbenefit18
indemnification36,62,125
insurableinterest138-139
insuranceagents7,145
insurancecompanies4,7-8,22-27,32,35,39,50,53-58,64,70,76,80,82,90-92,114,117,121-122,126,133,145,147-150,158,160,163-164,170-174,177-178,181,183-184,189-190,194,196,207-209,211-213,215,220-222,228-230,239,243-244,247-248,251,253
carriers146,157
InsuranceInformationInstitute145
InsuranceServicesOffice(ISO)9,13,23,36,55,173,176,186
InsuringAgreement16,51,84,96,106,108,111,215
intangibles90
intentofcoverage216-217
interest96,121,125,128,138-139,172,201,203-205,242,249
postjudgment(interest)204
prejudgment(interest)96,201,204
J
JointOwnershipCoverageEndorsement49,141-142
judgment10,31,100,203,211,224,242
justifiedcomplaint212-213
Page260
L
lawenforcement247,249
lawsuit11,80,101,105,118-120,125,130,150,207,209,211,246,250
lawyer11,90,120,124,127,208-210,245,246,248-250,252
legalrepresentative80-81,110
liability2-3,6,9,14,16-17,23,25,28,30-32,35,38,41-44,48,52,64-65,72,79,81,83-84,86,89-130,134-136,141,150-151,163,171,174-175,199-204,208,211-212,217-218,221-223,225,230,240-241,252
bodilyinjuryliability2-3,90-91,108,112,114
minimumliability93
personalliabilityumbrellapolicy94
propertydamageliability2,91,171
liberalizationclause84
license10,25,33,104,180,186,195,232,235,240
licenseddrivers5
lifestyle22
limitsofliability41,48,92-94,104,111,222
limousine50,217
line-itemestimate206
loss3,6,11-18,34,41,55-61,63,65,69,75,77,82,84-85,92,108,121,135-140,155,159,172,174,176,180,183,196-200,204-206,
208,213,218-221,230,243,245-248
lossofconsortium108
LossPayableClause138-139
lostwages3,18,95
luxurycar34
M
maliciousmischief12
maritalstatus22-24
medicalbenefits2-3,127
medicalexpenses6,51-54,98-101,104-106,108,118,123
Page261
MiscellaneousTypeVehicleEndorsement42,140,142
model25,33,35,40-41,125,128,130,140,178,182-185,200,205,211
currentmodelyear182-183
motorcycle42,53,218
movingviolations25
multi-carrisk33,35-36
N
nameddriverexclusion85,87
namedinsured13,39,40,45,50,72-74,78-81,108,177,234
NationalHighwayTrafficSafetyAdministration5
NationalInsuranceConsumerOrganization149
negligententrustment234,236
neighborhood26-27,177
networth28,150,222
no-fault2,9,14,51,53,85,117-130,250
partialno-fault120,122-123,126
pureno-fault119-122
non-ownedauto11-13,45,70,198,220,222
non-renewal178,228-229,233-234
non-standardrisk22
O
otherinsurance64,75,94,110,111,213,217,221,230,239
otherthancollision(OTC)12,25,41,42,55-56,70,77,85,152,162,175,205
out-of-pocketexpenses95
out-of-statecoverageprovisions13,95
ownership49-50,78,106,141-142,173-174,252
P
painandsuffering3,90,95,99,121,128-129,173,250
paperaccidents248
passengers13,16-17,44,49-52,74,119,128,141,173,217,224
penalties14,30,197
Page262
pension29-31,133,134
personalaccidentinsurance17
PersonalAutoPolicy11,33,41,48-50,55,76,91,93,104,134-136,140-141,173,217,220,222,232
personaleffectscoverage17,76
personalinjuryprotection(PIP)53,124-126,128
personal-injurymills248
phantomvehicleclaims248
pickuptruck49,75
pleasureuse32,187-188
points9,58,146,156,165,186-190,246
police184,195,197,198,220
policy2-17,21,23,26,30-31,36-49,53-54,56,58-66,69-101,104-114,118-119,122,123,125,128,131-146,156,158-159,164-165,171,174-175,177-178,186,190-191,193-194,196,198-199,201-252
policylimits10,94,224-225
policynumber39,133
policyperiod40,48,61,63-64,70,84,141,232
policyprovisions132,206,212,232,242
redundantpolicies239
policyholder6-7,47-48,54,58,71,76,82,90,101,105,122,135,140,171,175,186,201,207,209-210,212-213,215,228-230,243,
251
pre-existingduty82
preferredprovideroption147-148
premium1-2,11-12,21-23,27,32,34,38,40-44,47,55,62-63,70,77,81,84-166,170,172-175,178-180,185-186,190,193,201,203-204,216,218,222,230-234,239
principaloperator187-188,190
Page263
prorata230,231
proof-of-insurancecard194
Proposition103189
prospectivelosscosts176
provisions13,61,63-64,75,84,87,98,100,104,111,132,174,206,212,232-234
punitiveaward(punitivedamages)107
R
racing88,220
radardetectors220
rate1,5,7,12-13,15,26-28,30-31,33,35,50,54,61,66,73,85-88,92-94,99-101,109,114,119,126-129,134-135,137,140,142,147-148,154-158,164,166,171-172,174-185,188-190,195,197,209,216-218,222,225,231,240,242-244,246-248
baserate27,171,175,177,181
ratesetting7
rating6,18,23-24,32,58,80,129,137,171-178,183-186,189-190,222
ratingfactors22,24,185,189
primaryfactor(primaryratingfactor)22,24
secondaryfactor(secondaryratingfactor)24,185,189
territorialrating177
reasonablebelief65,79,110-111,220
recklessdriving25
red-lining26
reformlaws189
regulator7,117,124,207,212,229,243,251
regulatorytrends124
rehabilitation2,3
release105,203-204,207,223-224,227-228
enforcingreleases223
renewal84,180,232-233
Page264
rentalcar3,15,16,135,196,220,248
repair2,59-60,75,77,83,90,137,140,147-148,153,155,163,177,183,198,200,206
replacementinsurance10
replacementvalue34,42,181
residence76,109,128,218
rightsandobligations47
riot12
riskprofile22-23,222
S
seniorcitizen23,166
service3,50,75,83,145-148,170,212,217
set-offs97,100
settlement58-59,66,82,120,139,140,143,160,196-197,199,200,205-206,209,210,213,215,225,235,246-247,249-250
singlecarrisk33,35
sliding239,240
soundreproductionequipment219
specialinterestgroups128
speedlaws220
speeding25
splitlimits27,92-94,134,151
sportscar34-35,156,158
spouse39,45,72-74,80-81,108
stagedaccidents243,248
stolenproperty59,60
sub-class24,185-186
subrogation65-66,82,204-205,221
supplementalliabilityinsurance17
suspensionofinsurance133-134
swoopandsquat247-248
symbol40-41,181,183-185
T
teenagers25-26,36,157-159,165,179
telephonemarketing7
temporarysubstituteautomobiles13
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