Summary: The conditions of the personal auto policy are contained in parts E and F of the policy. The scope of part E is conveyed by its title – “duties after an accident or loss.” Part F, entitled “general provisions,” is a catchall for such matters as policy period and territory, subrogation rights of the insurer, cancellation provisions, etc. Separate descriptions of the two parts follow.
Topics covered:
Insured's duties after an accident or loss
General provisions
Insured's Duties After an Accident or Loss
We have no duty to provide coverage under this policy unless there has been full compliance with the following duties:
A. We must be notified promptly of how, when and where the accident or loss happened. Notice should also include the names and addresses of any injured persons and of any witnesses.
Analysis
The insured's duties after an accident or loss are intended to be conditions precedent for providing coverage under the personal auto policy. In other words, the intent of the PAP has always been to require, after a loss, compliance with the duties section prior to implementing the insuring agreements. At least one state court has held, however, that unless the policy contains a specific statement requiring compliance with the duties section in order to effect coverage, failure to comply with the duties section would not allow the company to deny coverage. In response to this, the current PAP has a lead-in paragraph stating that the insurer has no duty to provide coverage unless there has been full compliance with the duties listed on the policy.
The obvious first duty after an accident or loss is that of “promptly” notifying the company of the particulars of the accident: “how, when and where” the accident occurred and the names and addresses of any persons injured in the accident or witnessing it.
B. A person seeking any coverage must:
1. Cooperate with us in the investigation, settlement or defense of any claim or suit.
Analysis
The insurance company is entitled to whatever legal defense might be available to the insured were insurance not involved. If the insured against whom claim is being made can prove that the claimant's negligence contributed significantly to the accident, that would very obviously be important to the defense of the claim. If the insured refuses to cooperate in that defense position, then that refusal may provide grounds for the insurance company's withdrawal from the claim.
2. Promptly send us copies of any notices or legal papers received in connection with the accident or loss.
Analysis
This provision is essentially a “continuation” of item 1. Knowledge of the allegations of any threatened litigation is vital to preparations for the defense.
3. Submit, at our expense and as often as we reasonably require, to physical examinations by physicians we select and submit to examination under oath and subscribe the same.
Analysis
A third party claimant has no obligation to submit to any kind of examination – except as one might undergo voluntarily in a negotiated settlement. This provision has to do with medical payments, uninsured motorists, underinsured motorists – any feature of the policy under which a named insured or other insured person is entitled to go to the insurance company directly for expenses attendant upon bodily injury in an automobile accident.
4. Authorize us to obtain medical reports and other pertinent records.
5. Submit a proof of loss when required by us.
Analysis
These clauses are meant to enable the insurer to establish the validity of a claim. A proof of loss is a document containing more specific information about values of lost property and details of the occurrence.
C. A person seeking Uninsured Motorists Coverage must also:
1. Promptly notify the police if a hit-and-run driver is involved.
2. Promptly send us copies of the legal papers if a suit is brought.
Analysis
Because of the definition of uninsured motor vehicle, a covered person could in bad faith recover uninsured motorists benefits by blaming a one-car accident on a nonexistent hit-and-run vehicle. The covered person's duty to report promptly a hit-and-run accident to the police subjects such accidents to police investigation and thereby increases the likelihood of detecting fraudulent claims. If a claim stems from a legitimate hit-and-run accident, timely notification of the police is equally of benefit to the insurance company. Apprehension of the wrongdoer is facilitated. If the wrongdoer is apprehended and shown to be financially responsible, the insurer will likely be released from its obligation to compensate its insured with uninsured motorists benefits or, if the insurer has already awarded benefits, will be able to institute subrogation proceedings against the negligent driver.
If a suit is brought, it will be brought by an insured against the uninsured third party. Under uninsured motorists coverage, the roles of claimant and insured are reversed in their relationship to the insurance company, with the company defending the claimant against the suit brought by the insured. Consequently, the insurance company must know the allegations of the suit in order to prepare its defense.
D. A person seeking Coverage for Damage to Your Auto must also:
1. Take reasonable steps after loss to protect “your covered auto” or any “nonowned auto” and their equipment from further loss. We will pay reasonable expenses incurred to do this.
2. Promptly notify the police if “your covered auto” or any “nonowned auto” is stolen.
3. Permit us to inspect and appraise the damaged property before its repair or disposal.
Analysis
These are the additional duties required of claimants for physical damage coverage. As an example of protecting a covered auto from further loss, say the named insured damages the radiator by colliding with an animal. The insured should not continue to drive the car and thereby take the chance of overheating the engine and doing further damage to the car. The cost of having the car towed to a service station would be paid by the insurer in order to prevent further loss.
A prompt notice to police of the theft of a car increases the chances of recovering the stolen car.
Permitting the insurer to inspect and appraise the damaged property enables the insurer to decide upon the actual cash value of the loss.
General Provisions
Bankruptcy. Bankruptcy or insolvency of the “insured” shall not relieve us of any obligations under this policy.
Changes.
A. This policy contains all the agreements between you and us. Its terms may not be changed or waived except by endorsement issued by us.
B. If there is a change to the information used to develop the policy premium, we may adjust your premium. Changes during the policy term that may result in a premium increase or decrease include, but are not limited to, changes in:
1. The number, type or use classification of insured vehicles;
2. Operators using insured vehicles;
3. The place of principal garaging of insured vehicles;
4. Coverage, deductible or limits.
If a change resulting from A. or B. requires a premium adjustment, we will make the premium adjustment in accordance with our manual rules.
C. If we make a change which broadens coverage under this edition of your policy without additional premium charge, that change will automatically apply to your policy as of the date we implement the change in your state. This paragraph does not apply to changes implemented with a general program revision that includes both broadenings and restrictions in coverage, whether that general program revision is implemented through introduction of:
1. A subsequent edition of your policy; or
2. An Amendatory Endorsement.
Analysis
The terms of the policy may be changed or waived only by endorsement issued by the insurance company. If a change requires a premium adjustment, such as a change in the number or type of insured vehicles, or a change in operators using the insured vehicles, or even a change in coverages and deductibles, the company will make the premium adjustment in accordance with its manual rules. If the insurance company revises the policy form to provide more coverage without additional premium charge, the policy automatically provides the additional coverage as of the day the revision is effective in the named insured's state (this is referred to as liberalization of the policy). This latter provision does not apply, however, to changes implemented with a general program revision whether through the introduction of a subsequent edition of the policy or through an amendatory endorsement.
Fraud. We do not provide coverage for any “insured” who has made fraudulent statements or engaged in fraudulent conduct in connection with any accident or loss for which coverage is sought under this policy.
Analysis
This statement only makes explicit what, for reasons of public policy, is implicit in any contract of insurance.
Legal Action Against Us.
A. No legal action may be brought against us until there has been full compliance with all the terms of this policy. In addition, under Part A, no legal action may be brought against us until:
1. We agree in writing that the “insured” has an obligation to pay; or
2. The amount of that obligation has been finally determined by judgment after trial.
B. No person or organization has any right under this policy to bring us into action to determine the liability of an “insured”.
Analysis
No legal action may be brought against the insurance company until the claimant has fully complied with all the terms of the policy. With reference to a liability claim, no legal action may be brought against the insurance company until it agrees in writing that the insured has an obligation to pay or until the amount of that obligation has been finally determined by judgment after trial. No person or organization has any right under the policy to bring the insurance company into any action to determine the liability of an insured. (Some jurisdictions, however, have statutes allowing a third party claimant to name both the insured and the insurance company in a suit. Where applicable, such statues invalidate this provision).
Our Right to Recover Payment.
A. If we make a payment under this policy and the person to or for whom payment was made has a right to recover damages from another we shall be subrogated to that right. That person shall do:
1. Whatever is necessary to enable us to exercise our rights; and
2. Nothing after loss to prejudice them.
However, our rights in this paragraph do not apply under Part D against any person using “your covered auto” with a reasonable belief that that person is entitled to do so.
B. If we make a payment under this policy and the person to or for whom payment is made recovers damages from another, that person shall:
1. Hold in trust for us the proceeds of the recovery; and
2. Reimburse us to the extent of our payment.
Analysis
Regardless of the name of this clause, the subject matter is subrogation. If the insurance company makes a payment under the policy and the person to or for whom payment was made has a right to recover damages from another, the insurance company is subrogated to that right. The covered person is required to do whatever is necessary to enable the insurance company to exercise its rights and may not do anything after loss to prejudice its rights. And, if a compensated covered person recovers damages from another, the covered person must hold in trust for the insurance company the proceeds of the recovery and reimburse the company to the extent of its payment.
The insurance company's right of subrogation, however, does not apply under part D, coverage for damage to your auto, against any person using “your covered auto” with a reasonable belief that he or she is entitled to do so. Thus, if someone borrows the covered auto (with a reasonable belief of entitlement to do so) and becomes legally responsible for physical damage to that auto, the insurance company cannot take subrogation action against the borrower.
Policy Period and Territory.
A. This policy applies only to accidents and losses which occur:
1. During the policy period as shown in the Declarations; and
2. Within the policy territory.
B. The policy territory is:
1. The United States of America , its territories or possessions;
2. Puerto Rico; or
3. Canada .
This policy also applies to loss to, or accidents involving, “your covered auto” while being transported between their ports.
Analysis
Note that insureds who are planning on operating an automobile in Mexico need to be especially aware of the territorial provision and the consequent need to arrange for special insurance for the exposure.
Termination.
A. Cancellation. This policy may be cancelled during the policy period as follows:
1. The named insured shown in the Declarations may cancel by:
a. Returning this policy to us; or
b. Giving us advance written notice of the date cancellation is to take effect.
2. We may cancel by mailing to the named insured shown in the Declarations at the address shown in this policy:
a. At least ten days notice if cancellation is for nonpayment of premium; or if notice is mailed during the first sixty days this policy is in effect and this is not a renewal or continuation policy; or
b. At least twenty days notice in all other cases.
3. After this policy is in effect for sixty days, or if this is a renewal or continuation policy, we will cancel only:
a. For nonpayment of premium; or
b. If your driver's license or that of any driver who lives with you or any driver who customarily uses “your covered auto” has been suspended or revoked. This must have occurred during the policy period, or since the last anniversary of the original effective date if the policy period is other than one year, or if the policy was obtained through material misrepresentation.
B. Nonrenewal. If we decide not to renew or continue this policy, we will mail notice to the named insured shown in the Declarations at the address shown in this policy. Notice will be mailed at least twenty days before the end of the policy period. Subject to this notice requirement, if the policy period is:
1. Less than six months, we will have the right not to renew or continue this policy every six months, beginning six months after its original effective date.
2. six months or longer, but less than one year, we will have the right not to renew or continue this policy at the end of the policy period.
3. one year or longer, we will have the right not to renew or continue this policy at each anniversary of its original effective date.
C. Automatic Termination. If we offer to renew or continue and you or your representative do not accept, this policy will automatically terminate at the end of the current policy period. Failure to pay the required renewal of continuation premium when due shall mean that you have not accepted our offer. 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.
D. Other Termination Provisions.
1. We may deliver any notice instead of mailing it. Proof of mailing of any notice shall be sufficient proof of notice.
2. If this policy is cancelled, you may be entitled to a premium refund. If so, we will send you the refund. The premium refund, if any, will be computed according to our manuals. However, making or offering to make the refund is not a condition of cancellation.
3. The effective date of cancellation stated in the notice shall become the end of the policy period.
Analysis
This provision has four parts, relating to cancellation by the named insured or by the insurance company, nonrenewal, automatic termination, and other termination provisions. (The provisions discussed are those of the standard personal auto policy; in some states, therefore, these provisions are altered by relevant state cancellation laws.)
The named insured may cancel the policy by returning it to the company or by sending advance written notice of the date of cancellation. The insurance company's ability to cancel the policy depends on how long the policy has been in effect. If the policy has been in effect less than sixty days, the insurance company can cancel upon ten days notice without a specific reason. Thus, the insurance company has up to sixty days to investigate a new insured and decide whether or not the insured is an acceptable risk. Once the policy has been in effect for sixty days (or if the policy is a renewal or continuation policy), the insurance company may cancel the policy only for the following reasons: (a) if the named insured has not paid the agreed-upon premium, or (b) if the driver's license of the named insured or any driver living with the named insured or any customary user of the covered auto has been suspended or revoked during the policy period (or since the last anniversary of the original effective date if the policy period is other than one year).
This termination provision does allow an additional reason for the insurer to cancel after the policy has been in effect for sixty days or is a renewal or continuation policy. The additional reason is if the policy was obtained through material misrepresentation. In general, misrepresentation, or misstatement, is considered to be material (i.e., material to the risk that the insurer has assumed) if the insurer would not have issued the policy or would have charged a higher premium had the insured's statement been true.
Note that if the policy cancellation is because of nonpayment of premium, at least ten days notice is required. In all other cases (except for a policy that has been in effect less than sixty days), at least twenty days notice is required.
If the insurance company chooses not to renew the policy, it must mail notice to the named insured at least twenty days before the end of the policy period. If the policy period is less than six months, the insurance company has the right not to renew or continue the policy every six months, beginning six months after its original effective date; if the policy period is one year or longer, the insurer has the right not to renew or continue the policy at each anniversary of its original effective date.
If the insurance company chooses to continue or renew a personal auto policy, the provision relating to automatic termination comes into play. This provision states that if the named insured (or representative) does not “accept” the insurance company's “offer to renew,” the policy will “automatically terminate at the end of the current policy period.” In more concrete terms, the insurance company's “offer” is an invoice or bill mailed or delivered to the named insured's address listed in the declarations; failure to pay the renewal premium when due means that the insured has not “accepted” the “offer.”
Restated, this means that once the insurer has billed the named insured for extension of the policy, the insured has two choices: To renew the policy by paying the required premium when due or to allow the policy to terminate automatically by not paying the premium when due. As “automatically terminate” implies, the policy terminates upon its expiration date without further communication from the insurer. At its own discretion, of course, the insurance company may normally provide for a grace period in its invoice or elect to send a lapse notice after a named insured fails to pay renewal premium as required.
If the named insured obtains other insurance on the covered auto, any similar insurance provided by the current policy terminates as to that auto automatically on the effective date of the other insurance.
Transfer of Your Interest in This Policy.
A. Your rights and duties under this policy may not be assigned without our written consent. However, if a named insured shown in the Declarations dies, coverage will be provided for:
1. The surviving spouse if resident in the same household at the time of death. Coverage applies to the spouse as if a named insured shown in the Declarations; and
2. The legal representative of the deceased person as if a named insured shown in the Declarations. This applies only with respect to the representative's legal responsibility to maintain or use “your covered auto'.
B. Coverage will only be provided until the end of the policy period.
Analysis
Transferring the rights and duties of the auto policy to another person is called assignment. The personal auto policy can not be assigned without the insurer's written consent unless the reason for the assignment is the death of the named insured.
Two or More Auto Policies. If this policy and any other auto insurance policy issued to you by us apply to the same accident, the maximum limit of our liability under all the policies shall not exceed the highest applicable limit of liability under any one policy.
Analysis
This is an anti-stacking measure.