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

(continuedonnextpage)

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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

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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

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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

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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