Summary: Part D of the personal auto policy is the policy's physical damage portion, entitled “coverage for damage to your auto.” This part of the policy provides comprehensive insurance and collision insurance on covered autos. Transportation expenses coverage is provided as a supplementary payment after a theft loss, without additional charge. Coverage for rental reimbursement, towing and labor costs, and miscellaneous property such as tapes, records, citizens band radios, and customizing equipment can be arranged by endorsement.
Insuring Agreement
We will pay for direct and accidental loss to “your covered auto” or any “nonowned auto,” including their equipment, minus any applicable deductible shown in the Declarations. If loss to more than one “your covered auto” or “nonowned auto” results from the same “collision,” only the highest applicable deductible will apply. We will pay for loss to “your covered auto” caused by:
1. Other than “collision” only if the Declarations indicate that Other Than Collision Coverage is provided for that auto.
2. ”Collision” only if the Declarations indicate that Collision Coverage is provided for that auto.
If there is a loss to a “nonowned auto”, we will provide the broadest coverage applicable to any “your covered auto” shown in the Declarations.
Analysis
Under the terms of the insuring agreement, the insurer will pay for direct and accidental loss to covered autos or any nonowned auto, including the equipment. Any applicable deductible that is shown in the declarations is subtracted from the loss payment. Also, if there is a loss to a nonowned auto, the insurer will provide the broadest coverage that is applicable to any covered auto shown in the declarations. If, for example, a policy insures one owned auto for collision and comprehensive and another owned auto for comprehensive only, a nonowned auto will be covered for both comprehensive and collision if a loss occurs. And, with reference to the deductible, note that if there is a loss to more than one covered auto or nonowned auto resulting from the same collision, only the highest applicable deductible will apply.
“Collision” means the upset of “your covered auto” or a “nonowned auto” or their impact with another vehicle or object.
Loss caused by the following is considered other than “collision”:
1. Missiles or falling objects;
2. Fire;
3. Theft or larceny;
4. Explosion or earthquake;
5. Windstorm;
6. Hail, water, or flood;
7. Malicious mischief or vandalism;
8. Riot or civil commotion;
9. Contact with bird or animal; or
10. Breakage of glass
If breakage of glass is caused by a “collision”, you may elect to have it considered a loss caused by “collision.”
Analysis
The insuring agreement states that the insurer will pay for loss to “your covered auto” caused by other than collision and collision. However, the insurer will pay for loss caused by collision and other than collision only if the declarations indicate that such coverages are provided.
The traditional division of automobile physical damage insurance into collision and comprehensive is maintained in the personal auto policy, but without any mention of the word “comprehensive.” If “other than collision loss” coverage is indicated in the declarations of a personal auto policy, any damage to the covered auto besides collision is covered on an open perils basis—subject to any deductible listed in the declarations, to the insuring agreement's stipulation that damage be “direct and accidental,” and of course, to any applicable exclusions. As under other policies, the insured is free to buy comprehensive without collision, or to buy both coverages with the same deductible or with different deductibles. As long as these options are available, the distinction between “collision” and “other than collision” can make the difference between application of a deductible and none at all, or even make the difference between coverage and no coverage. The disputes that have resulted from having to distinguish collision from comprehensive are the subject of a separate discussion; seeWhat Is Collision?.
The policy defines collision as the upset of the named insured's covered auto or a nonowned auto or the impact with another vehicle or object. Listed as not being collision—and thus constituting “other than collision”—is loss caused by missiles, falling objects, fire, theft or larceny, explosion, earthquake, windstorm, hail, water, flood, malicious mischief or vandalism, riot or civil commotion, contact with a bird or an animal, or the breakage of glass.
Although breakage of glass is listed as not being loss by collision, the policy states that if glass breakage is caused by collision, the named insured may elect to have it considered loss by collision. Without this qualification, a named insured whose car has deductibles on both collision and comprehensive coverage would become responsible, technically, for paying both deductibles after a collision involving body damage and glass breakage to the car. So, basically, the insured can claim glass breakage as either collision or other than collision, depending on which is more advantageous to the insured.
“Nonowned auto” means:
1. Any private passenger auto, pickup, van or “trailer” not owned by or furnished or available for the regular use of you or any “family member” while in the custody of or being operated by you or any “family member”; or
2. Any auto or “trailer” you do not own while used as a temporary substitute for “your covered auto” which is out of normal use because of its:
a. Breakdown;
b. Repair;
c. Servicing;
d. Loss; or
e. Destruction.
Analysis
The term “nonowned auto” is defined in the insuring agreement section. The definition includes any private passenger auto, pickup, van, or trailer not owned by, or furnished, or available for the regular use of the named insured or any family member, while in the custody of or being operated by the named insured or any family member. There is no requirement that the insured be legally liable for damage to the auto; the insured must only have been operating the auto or had it in his custody at the time of loss.
The term also includes any nonowned auto or trailer used as a temporary substitute for a covered auto that is out of normal use because of its breakdown, repair, servicing, loss, or destruction. Thus, temporary substitute auto coverage is clearly no longer limited to the coverage provided for the covered auto that the temporary substitute replaces. Since the definition of nonowned auto now includes a temporary substitute, if there is a loss to a nonowned auto, as noted above, the insurer provides the broadest coverage applicable to any covered auto shown in the declarations.
Note that the insured will have no coverage under his own policy for physical damage to an auto owned by (or furnished or available for the regular use of) a family member, unless that vehicle is a temporary substitute for the insured's vehicle that is out of normal use due to a breakdown, repair, etc. This is so because the definition of nonowned auto excludes vehicles owned by or furnished or available for the regular use of family members, and the definition of “your covered auto” includes temporary substitute vehicles without any exclusion of those owned by family members or furnished or available for their regular use.
Transportation Expenses
A. In addition, we will pay, without application of a deductible, up to a maximum of $600, for:
1. Temporary transportation expenses not exceeding $20 per day incurred by you in the event of a loss to “your covered auto”. We will pay for such expenses if the loss is caused by:
a. Other than “collision” only if the Declarations indicate that Other Than Collision Coverage is provided for that auto.
b. ”Collision” only if the Declarations indicate that Collision Coverage is provided for that auto.
2. Expenses for which you become legally responsible in the event of loss to a “nonowned auto”. We will pay for such expenses if the loss is caused by:
a. Other than “collision” only if the Declarations indicate that Other Than Collision Coverage is provided for any “your covered auto”.
b. ”Collision” only if the Declarations indicates that Collision Coverage is provided for any “your covered auto”.
However, the most we will pay for any expenses for loss of use is $20 per day.
B. If the loss is caused by a total theft of “your covered auto” or a “nonowned auto”, we will pay only expenses incurred during the period:
1. Beginning 48 hours after the theft; and
2. Ending when “your covered auto” or the “nonowned auto” is returned to use or we pay for its loss.
If the loss is caused by other than theft of a “your covered auto” or a “nonowned auto”, we will pay only expenses beginning when the auto is withdrawn from use for more than 24 hours.
Our payment will be limited to that period of time reasonably required to repair or replace the “your covered auto” or the “nonowned auto”.
Analysis
Besides the collision and other than collision coverages provided in the insuring agreement, part D offers supplementary payments as well. The transportation expenses clause pays, without application of a deductible, up to $600 maximum for temporary transportation expenses incurred by the named insured in the event of a loss to the named insured's covered auto. The expenses are paid if the loss is caused by other than collision (this payment applies only if the declarations page indicates that other than collision coverage is provided for that particular auto), or caused by collision (again, only if the declarations indicate that collision coverage is provided for the auto in question). Note that the temporary transportation expenses will be paid only up to $20 per day. If the insured wants to rent a Mercedes for $100 per day as a temporary vehicle, he or she will be responsible for $80 of that $100 figure.
Under this transportation expenses clause, the insurer will also pay for expenses for which the named insured becomes legally responsible in the event of loss to a nonowned auto. These expenses are paid if the loss is caused by other than collision or collision as long as such coverages are indicated on the declarations page. Although this coverage does apply to loss of use expenses for which the insured may become legally liable, the most that the insurer will pay for this is $20 per day. As an example, the insured rents a car for a vacation; the insured has an accident and the rental car is damaged; the insured has agreed to be responsible for the damage to the rental car and the daily rental charge; in order for the car to be fixed, it has to be towed to a garage; this clause will pay for the towing charge and the daily rental fee since these are expenses for which the insured has agreed to be legally responsible. However, if the daily rental fee is over $20, the insured must pay for the excess over $20, and the $600 transportation expenses maximum affects this coverage also.
If the loss is caused by a total theft of the covered auto or a nonowned auto, the expenses do not apply until 48 hours after the theft, and they end when the covered auto or nonowned auto is returned to use or the insurer pays for the loss. The 48 hour waiting period is probably used in order to allow the insurer to make sure that auto has indeed been stolen. The thinking here is that if the intent has been to steal the car, it will not turn up in 48 hours; this is opposed to the idea that if there were no intent to steal the car but just use it for a joy ride, the car will be abandoned and found soon after it was taken.
If the loss is caused by other than theft, the insurer will pay only expenses beginning when the auto is withdrawn from use for more than 24 hours, and the payment will be limited to that period of time reasonably required to repair or replace the auto. The 24 hour waiting period is based on the idea that if the car is out of use on a short term basis, the insured has made arrangements for necessary transportation or has decided he or she does not need the car during that short a period of time. The insurer does not want to be paying out transportation expenses every time the insured has the auto in the shop for repairs; the cost effectiveness of the transportation expense coverage would be ruined with such short term payments.
Increased limits for transportation expenses are available through endorsement PP 03 02. If a covered auto sustains a loss for which a specific premium charge on the declarations page indicates that increased limits transportation expenses coverages is afforded, then the transportation expenses are increased to the limits shown in the schedule of the endorsement. This endorsement applies to nonowned autos also.
Towing and labor costs coverage can be added to the policy, through endorsement PP 03 03. The limit of liability is set at $25, $50, or $75, depending on the named insured's preference. The endorsement applies to “your covered auto” or any nonowned auto, and labor is covered only if performed at the place of disablement.
Exclusions
We will not pay for:
1. Loss to “your covered auto” or any “nonowned auto” which occurs while it is being used as a public or livery conveyance. This exclusion does not apply to a share-the-expense car pool.
2. Damage due and confined to:
a. Wear and tear;
b. Freezing;
c. Mechanical or electrical breakdown or failure; or
d. Road damage to tires
This exclusion (2.) does not apply if the damage results from the total theft of “your covered auto” or any “nonowned auto”.
Analysis
Many people in the insurance field interpret the exclusion of damage due and confined to wear and tear, freezing, and mechanical or electrical breakdown as referring to initial damage. That is, there is no coverage for the part that fails, but damage flowing from that breakdown to other parts is covered. Say, for example, the thermostat fails and the engine is damaged by being allowed to overheat unnoticed. According to this interpretation, the broken thermostat is excluded but the engine is covered.
On the other hand, there is opinion that the exclusion refers to mechanical breakdown as a cause. That is, in the absence of any intervening factor when the single, solitary cause of loss is due and confined to mechanical breakdown, there is no coverage for any part of the loss. Staying with the above example, this interpretation excludes both the thermostat and the engine, as damage due and confined to mechanical breakdown. Such was the decision, for example, of the Florida supreme court with a similar fact situation in the case of Fireman's Fund Insurance Co. v. Cramer, 178 So. 2d 581 (1964).
Intervention of another peril, such as fire, negates the exclusion for all except the failed part. The cause of the balance of the loss is then no longer due and confined to mechanical breakdown.
There is a legal precedent that when the insured can prove that failure of a mechanical part is caused by the conduct of a third party, the mechanical breakdown exclusion is inapplicable to a claim for loss to that part. In Blackwell v. Allstate Insurance Company, 643 S.W.2d 447 (1982), the insured's car had become disabled due to a broken fan belt and had to be towed approximately 12 miles to a garage. As a result of improper towing, the transmission of the car was extensively damaged. The Texas court of appeals that was hearing the case held that although the towing was necessitated by a mechanical breakdown, the damage to the transmission was caused by the conduct of a third party and therefore was not “due and confined to mechanical breakdown.”
A seemingly opposite view in a Louisiana court of appeal cause, Leone v. Government Employees Insurance Co., 433 So. 2d 307 (1983). In this case, the engine of the insured's car had been damaged by overheating that occurred while the car was in the custody of two repair shops and for which the court held the two shops liable. In determining that the insured's comprehensive physical damage insurance did not apply to the loss, the court said: “Even though the mechanical failure most likely resulted from acts or omissions of compensated depositary repairmen, the loss is expressly excluded from coverage since said is due to mechanical breakdown.”
We will not pay for:
3. Loss due to or as a consequence of:
a. Radioactive contamination;
b. Discharge of any nuclear weapon (even if accidental);
c. War (declared or undeclared);
d. Civil war;
e. Insurrection; or
f. Rebellion or revolution.
4. Loss to any electronic equipment designed for the reproduction of sound and any accessories used with such equipment. This includes but is not limited to:
a. Radios and stereos;
b. Tape decks; or
c. Compact disc players.
This exclusion does not apply to equipment designed solely for the reproduction of sound and accessories used with such equipment, provided:
a. The equipment is permanently installed in “your covered auto” or any “nonowned auto”; or
b. The equipment is:
(1) Removable from a housing unit which is permanently installed in the auto;
(2) Designed to be solely operated by use of the power from the auto's electrical system; and
(3) In or upon “your covered auto” or any “nonowned auto” at the time of loss.
5. Loss to any electronic equipment that receives or transmits audio, visual, or data signals and any accessories used with such equipment. This includes but is not limited to:
a. Citizens band radios;
b. Telephones;
c. Two-way mobile radios;
d. Scanning monitor receivers;
e. Television monitor receivers;
f. Video cassette recorders;
g. Audio cassette recorders; or
h. Personal computers;
This exclusion does not apply to:
a. Any electronic equipment that is necessary for the normal operation of the auto or the monitoring of the auto's operating systems; or
b. A permanently installed telephone designed to be operated by use of the power from the auto's electrical system and any accessories used with the telephone.
6. Loss to tapes, records, discs, or other media used with equipment described in exclusions 4 and 5.
Analysis
The insuring agreement covering part D of the PAP, like the insuring agreements of previous physical damage forms, covers insured autos and their “equipment.” Because there is no policy definition of “equipment,” many persons in actual claims practice take the position that the equipment of an automobile includes any item designed for use in the automobile and attached to it or normally contained in it. In one particular court case, Justice v. Government Employees Insurance Company, 597 P.2d 16 (1979), the Idaho supreme court held that the term “equipment” meant any item, article, piece, part, accessory, or addition installed or attached in, on, or to an automobile whether such installation or attachment is made at the time of the manufacture of the auto or by the owner at a subsequent time. So the word can entail very broad coverage; the broadness of the term, in fact, has necessitated the addition of numerous exclusions of various types of equipment not contemplated in the rating structure but which would be covered as the auto's equipment in the absence of an exclusion.
It was not long after the sudden popularity of tape players in the late 1960s that an endorsement excluding “sound reproducing equipment” not permanently installed in the auto (and therefore more subject to theft) became a mandatory attachment to most companies' private passenger auto policies. The wording of that endorsement is incorporated now into the current personal auto policy as an exclusion. Exclusion 4 applies to a loss to any electronic equipment designed for the reproduction of sound unless the equipment is permanently installed in the insured auto; the electronic equipment includes such things as tape decks, radios and stereos, and compact disc players. “Permanently installed”, by the way, is not defined in the policy, but its meaning was the subject of a 1978 case decided by a New York supreme court, appellate division. In that case, Troncillito v. Farm Family Mutual Insurance Co., 406 N.Y.S.2d 143, the court held that a citizens band radio and a scanner bolted to brackets which in turn were bolted to the underside of the insured's truck were permanently installed to the truck. The insured's testimony that he intended to remove the radio and scanner from the truck if it were sold did not alter the status of the equipment. The important factor, in the eyes of the court, was the insured's intent to keep the equipment installed for as long as he owned the truck. The court relied upon a legal definition of “permanent” which stated that “permanent” does not imply a perpetual installation.
As noted, Exclusion 4 does not apply to equipment designed solely for the reproduction of sound and the accessories used with such equipment provided the equipment is permanently installed in the covered auto or nonowned auto; it also does not apply if the equipment is removable from a housing unit that is permanently installed in the auto, designed to be solely operated by use of the power from the auto's electrical system, and in or upon the covered auto or nonowned auto at the time of loss. It should be noted that the wording of these exceptions to the exclusion allows coverage for equipment designed solely for the reproduction of sound, for example a tape deck or stereo and their accessories, that is installed anywhere in the auto as long as it is permanently installed, but does not allow coverage for such things as a personal computer, VCR, or TV regardless of the manner or place of the installation. These latter items are not equipment designed solely for the reproduction of sound, and therefore, are handled differently by the PAP.
Exclusion 5 is an exclusion of coverage for loss to any citizens band radio, two-way mobile radio, telephone, scanning monitor receiver, personal computers, televisions, video cassette recorders, or any other electronic equipment that receives or transmits audio, visual, or data signals. The exceptions to this exclusion deal with electronic equipment that is necessary for the normal operation of the auto, and with permanently installed telephones designed to be operated by use of the power from the car's electrical system. Today, since most cars (at least, new ones) have computers dictating the internal workings of the autos, it makes sense for the exception pertaining to electronic equipment necessary for the normal operation of the auto to be listed. As for the permanently installed telephone exception, the telephone can also be looked upon as becoming a normal, and sometimes, vital component of today's auto. The important points to remember are that the telephone has to be permanently installed and designed to be operated by use of the power from the auto's electrical system; therefore, pocket phones that an insured can carry with him are not included in this exception.
Exclusion 6 pertaining to tapes, records, and discs reinforces the idea that such items are simply too vulnerable to theft loss or disappearance for the personal auto policy premium to adequately cover the exposure. Of course, there is an endorsement that can be added (for additional premium) to the PAP that applies to direct and accidental loss to tapes, records, and discs. PP 03 13 gives coverage for these items and sets the limit of liability at the lesser of $200, the actual cash value of the stolen or damaged property, or the amount necessary to repair or replace the property with other property of like kind and quality.
We will not pay for:
7. A total loss to “your covered auto” or any “nonowned auto” due to destruction or confiscation by governmental or civil authorities. This exclusion does not apply to the interests of Loss Payees in “your covered auto”.
Analysis
The exclusion relates to the increasing frequency of government confiscation of vehicles due to illegal activities. Some courts decided that, absent a specific exclusion, the confiscation of a vehicle by the government or other civil authority was a covered loss under a policy's physical damage coverage. Therefore, this particular exclusion denies coverage for a total loss to a covered auto or any nonowned auto due to destruction or confiscation by governmental or civil authorities. The insured does not have to specifically be engaged in any illegal activities or be in violation of environmental protection standards for the exclusion to apply. If the government seizes the named insured's auto for any reason, the personal auto policy will not respond to any claim made by the insured. The exclusion does not apply to the interests of any loss payees.
We will not pay for:
8. Loss to:
a. A “trailer”, camper body, or motor home which is not shown in the Declarations; or
b. Facilities or equipment used with such “trailer”, camper body or motor home. Facilities or equipment include but are not limited to:
(1) Cooking, dining, plumbing or refrigeration facilities;
(2) Awnings or cabanas; or
(3) Any other facilities or equipment used with a “trailer”, camper body, or motor home.
This exclusion does not apply to a:
a. ”Trailer”, and its facilities or equipment, which you do not own; or
b. ”Trailer”, camper body, or the facilities or equipment in or attached to the “trailer” or camper body, which you:
(1) Acquire during the policy period; and
(2) Ask us to insure within fourteen days after you become the owner.
Analysis
Loss to a camper body or trailer or motor home that is not shown in the declarations is excluded from coverage. The wording of this exclusion makes the point that vehicles that the insured can use as mobile “homes” have to be looked upon as separate and distinct items from regular autos used mainly for transportation. These home-type vehicles can be covered autos under the PAP, but they must be scheduled in order for proper premium to be charged to adequately cover the exposures.
This exclusion does not apply to a trailer that the named insured does not own (note that the limit of liability clause for this part of the PAP limits coverage to $500 for nonowned trailers). It also does not apply to trailers or camper bodies that the named insured acquires during the policy period and that the named insured asks the company to insure within fourteen days after the insured becomes the owner. Note that this exception does not mention motor homes. Note also the time frame during which the named insured must notify the insurer; the PAP gives fourteen days of coverage but no more unless notification is given to the insurer.
We will not pay for:
9. Loss to any “nonowned auto” when used by you or any “family member” without a reasonable belief that you or that “family member” are entitled to do so.
Analysis
The applicability of this exclusion hinges on the “reasonable belief” phrase. The interpretation of the phrase can be objective or subjective and depends on the certain circumstances of each situation. For example, the named insured's neighbor may allow the named insured to borrow his car for a short trip to the store. If the named insured takes his son to the store with him, does the son have a reasonable belief that he too can drive the neighbor's car while the named insured is in the store, or on the way home as long as the named insured is in the car? Does it make any difference if the son is thirteen years old or is seventeen years old, but without a driver's license? Does it make any difference if the neighbor expressly told the named insured that only he could drive the car? The bottom line is that each situation has to be looked at on a case by case basis. Neither adjusters nor insureds should rush to judgment over this reasonable belief exclusion.
We will not pay for:
10. Loss to equipment designed or used for the detection or location of radar or laser.
Analysis
An exclusion of loss to equipment designed or used for the detection or location of radar or laser is present in part D of the PAP. This resolves the question of whether fuzz busters and similar types of equipment are covered —in the negative.
We will not pay for:
11. Loss to any custom furnishings or equipment in or upon any pickup or van. Custom furnishings or equipment include but are not limited to:
a. Special carpeting or insulation;
b. Furniture or bars;
c. Height-extending roofs; or
d. Custom murals, paintings or other decals or graphics.
This exclusion does not apply to a cap, cover or bedliner in or upon any “your covered auto” which is a pickup.
Analysis
This exclusion applies to “loss to any custom furnishings or equipment in or upon any pickup or van.” Note, first, that the exclusion does not apply to custom equipment in private passenger type cars; second, that the exclusion can apply to items other than those listed in the exclusion (the listed items are special carpeting and insulation, furniture, bars; height extending roofs; or custom murals, paintings, or other decals or graphics). The exclusion was introduced following the boom in popularity of customized vans with all of the expensive additions not contemplated in the original physical damage rating of vans. The intent seems clearly to be to eliminate coverage on the customizing equipment—or to obtain added premium for the insurance. Thus, the exclusion would not be properly applied to such usual, non-custom equipment as a set of spare snow tires or an infant car seat, for example.
Collision coverage and other than collision coverage for customizing equipment can be arranged by endorsement. The endorsement (PP 03 18) provides coverage for customizing equipment, subject to these rules: comprehensive or collision coverage for customizing equipment may be purchased only if the vehicle with such customizing equipment itself has the corresponding comprehensive or collision coverage; and the deductibles on the coverages are the same as those listed for the vehicles on the declarations page of the PAP. The endorsement will not pay for loss to any electronic equipment that is designed for the reproduction of sound, or any tapes, records, discs, or any other accessories used with such equipment. This endorsement also does not apply to awnings, cabanas, or equipment designed to create additional living facilities. Finally, loss to equipment designed or used for the detection or location of radar is also excluded on PP 03 18. For more information on this endorsement, seeEndorsements Used With Personal Auto Policy pages.
We will not pay for:
12. Loss to any “nonowned auto” being maintained or used by any person while employed or otherwise engaged in the “business' of:
a. Selling;
b. Repairing;
c. Servicing;
d. Storing; or
f. Parking
vehicles designed for use on public highways. This includes road testing and delivery.
Analysis
There is a restriction on coverage for a nonowned auto being used in business. There is no physical damage coverage whatsoever for any nonowned auto being maintained or used by any person while employed or otherwise engaged in a business of selling, repairing, servicing, storing, or parking of vehicles designed for use on public highways, including road testing and delivery. If, for example, a car mechanic damages a customer's car on a test drive, the mechanic's PAP will provide no coverage for the damage.
We will not pay for:
13. Loss to “your covered auto” or any “nonowned auto”. located inside a facility designed for racing, for the purpose of:
a. Competing in; or
b. Practicing or preparing for
any prearranged or organized racing or speed contest.
Analysis
In keeping with revisions that have been made on other coverage forms from the Insurance Services Office, there is now a racing exclusion on the personal auto policy. The insurer will not pay under part D for loss to the named insured's covered auto or any nonowned auto located inside a facility designed for racing for the purpose of competing in or practicing or preparing for any prearranged or organized racing or speed contest.
We will not pay for:
14. Loss to, or loss of use of, a “nonowned auto” rented by:
a. You; or
b. Any “family member”;
if a rental vehicle company is precluded from recovering such loss or loss of use, from you or that “family member”, pursuant to the provisions of any applicable rental agreement or state law.
Analysis
The insurer will not pay for loss to or loss of use of a nonowned auto that is rented by the named insured or any family member if a rental vehicle company is precluded from recovering such loss or loss of use pursuant to the provisions of any applicable rental agreement or state law. This is an exclusion that has been put on the current personal auto policy and represents just one more effect of the collision damage waiver controversy.
Limit of Liability—Payment of Loss
Our limit of liability for loss will be the lesser of the:
1. Actual cash value of the stolen or damaged property; or
2. Amount necessary to repair or replace the property with other property of like kind and quality.
However, the most we will pay for loss to:
1. Any “nonowned auto” which is a trailer is $500.
2. Equipment designed solely for the reproduction of sound, including any accessories used with such equipment, which is installed in locations not used by the auto manufacturer for installation of such equipment or accessories, is $1,000.
An adjustment for depreciation and physical condition will be made in determining actual cash value in the event of a total loss.
If a repair or replacement results in better than like kind or quality, we will not pay for the amount of the betterment.
We may pay for loss in money or repair or replace the damaged or stolen property. We may, at our expense, return any stolen property to;
1. You; or
2. The address shown in this policy.
If we return stolen property, we will pay for any damage resulting from the theft. We may keep all or part of the property at an agreed or appraised value.
If we pay for loss in money, our payment will include the applicable sales tax for the damaged or stolen property.
Analysis
The insurance company reserves the right to settle a covered loss in a number of different ways. It may “pay for the loss in money or repair or replace the damaged or stolen property.” In settling a theft loss it may return the stolen property to the named insured and “pay for any damage resulting from the theft”; or, the insurance company may “keep all or part of the property at an agreed or appraised value.”
If the insurer pays for the loss in money, the payment includes the applicable sales tax for the damaged or stolen property. Questions have often been raised in the past as to whether payment for a loss to a covered auto should include sales tax, whether actual cash value should include taxes, an item that can not be valued or depreciated based on its physical condition. This clarification should help to settle the question.
The payment of loss clause deals with how the insurer will pay for a loss under the personal auto policy; the limit of liability clause deals with how much the insurer will pay. The insurer's limit of liability for loss is the lesser of the actual cash value of the stolen or damaged property, or the amount necessary to repair or replace the property with other property of like kind and quality. So, for example, if a car is “totaled”—repair costs amounting to more than the car's actual cash value—the insurer's limit of liability is the actual cash value and that is what will be paid. An adjustment for depreciation and physical condition will be made in determining actual cash value in the event of a total loss; and, if a repair or replacement results in better than like kind or quality, the insurer will not pay for the amount of the betterment.
Another method by which to fix the limit of liability can be provided by the maximum limit of liability endorsement (PP 03 08). If the amount that is entered in the endorsement is less than either of the other two measures of the insurer's limit of liability, then this amount is used for loss settlement. If, however, the amount exceeds the actual cash value of the car or the cost of repair or replacement, then the lesser of the latter two figures is the limit of liability.
Attachment of the maximum limit of liability endorsement is not meant to create a valued policy. Rather, it allows an alternative means of evaluation by which an auto whose value is best measured individually can be rated an insured. For this reason, the use of the endorsement is more appropriate for antique and customized cars—which do not conform to rating procedures suitable for normal cars—than it is for the average car on the road.
The limit of liability clause also sets out definite limits for certain items. As noted previously, the most the insurer will pay for loss to any nonowned trailer is $500. And, the most the insurer will pay for loss to equipment designed solely for the reproduction of sound is $1,000. So, even though exclusion 4 prohibits coverage for loss to equipment designed for the reproduction of sound in certain cases, this clause declares that, if coverage does exist for the sound reproducing equipment, the limit of liability to be paid is $1,000. The covered equipment does not have to be permanently installed in a location used by the auto manufacturer for installation of such equipment; for example, if the insured has installed a stereo system on his own and placed the equipment in such areas of his auto that will give him more listening pleasure as opposed to the standard locations used by the auto manufacturer, the PAP will provide coverage for the stereo system equipment should a loss occur. And, if the insured wants more than the $1,000 coverage, he can use endorsement PP 03 13 to increase the limit of liability from $1,000 to the amount shown in the endorsement's schedule.
No Benefit to Bailee
This insurance shall not directly or indirectly benefit any carrier or other bailee for hire.
Analysis
A question exists as to whether the insurer is barred from subrogating against a carrier or bailee for hire who negligently damages the auto while it is in his custody. In previous automobile physical damage policies, subrogation against a carrier or bailee for hire has been preserved by both a no benefit to bailee clause (which states that the insurance shall not inure directly or indirectly to the benefit of any carrier or bailee for hire liable for loss to the automobile), and a statement that carriers or bailees for hire are not considered to be additional insureds. The current personal auto policy does have a no benefit to bailee clause. That, of course, strongly suggests that the policy drafters intended that the insurer retain its rights of recovery against such entities in the event that they were at fault in damaging the covered auto.
Other Sources of Recovery—Appraisal
If other sources of recovery also cover the loss, we will pay only our share of the loss. Our share is the proportion that our limit of liability bears to the total of all applicable limits. However, any insurance we provide with respect to a “nonowned auto” shall be excess over any other collectible source of recovery including, but not limited to:
1. Any coverage provided by the owner of the “nonowned auto”;
2. Any other applicable physical damage insurance;
3. Any other source of recovery applicable to the loss.
If we and you do not agree with the amount of loss, either may demand an appraisal of the loss. In this event, each party will select a competent appraiser. The two appraisers will select an umpire. The appraisers will state separately the actual cash value and the amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will be binding. Each party will:
1. Pay its chosen appraiser; and
2. Bear the expenses of the appraisal and umpire equally.
We do not waive any of our rights under this policy by agreeing to an appraisal.
Analysis
If the insurance company and the insured disagree on the amount of a loss, the policy allows either party to demand an appraisal. An appraisal clause sets forth the procedures to be followed.
If other sources of recovery apply to a covered loss, then the insurance company is obligated by policy provisions to pay only its pro rata share—the proportion that its limit of liability bears to the total of all applicable limits. Presumably, this clause has no applicability when the other insurance is a policy that the insured has purchased after the effective date of the personal auto policy. This situation is addressed in the automatic termination clause of the general provisions part of the PAP: “If you obtain other insurance on your covered auto, any similar insurance provided by this policy will terminate as to that auto on the effective date of the other insurance.”
The coverage for damage to nonowned autos is stated to be excess over any other collectible source of recovery. This means, for example, that is the owner of a car that is borrowed by the insured carries physical damage insurance on that car, that policy will pay first. Then, if some part of the loss is not covered under the owner's policy, the borrower-insured's policy will step in. If the owner's policy is on an actual cash value basis, the only part of the loss not covered will usually be the owner's deductible. If that deductible is larger than the borrower's deductible, the borrower's insurer will pay the difference between the two deductibles.