Summary: This article examines part A of the personal auto policy (PAP) PP 00 01 01 05. The insuring agreement of part A of the PAP provides liability coverage to the insured should the insured become legally responsible for damages to another party because of an auto accident; the agreement also provides for defense costs coverage in case the insured is sued by the injured party. These coverages are subject to certain exclusions that are listed on the policy, and to a limit of liability that is shown in the declarations.

Topics covered: Insuring agreement

Insureds

Supplementary payments

Exclusions

Limit of liability

Additional provisions

Insuring Agreement

We will pay damages for "bodily injury" or "property damage" for which any "insured" becomes legally responsible because of an auto accident. Damages include prejudgment interest awarded against the "insured". We will settle or defend, as we consider appropriate, any claim or suit asking for these damages. In addition to our limit of liability, we will pay all defense costs we incur. Our duty to settle or defend ends when our limit of liability for this coverage has been exhausted by payment of judgments or settlements. We have no duty to defend any suit or settle any claim for "bodily injury" or "property damage" not covered under this policy.

Analysis

The promises to pay damages and to defend any claim or suit asking for those damages are separate and independent promises. The insurer has a duty to indemnify and a duty to defend the insured. That is why defense costs are considered to be in addition to the limit of liability. For example, if the policy has a limit of liability of $300,000, this full amount is available for indemnification; an attorney's fee of $10,000 plus court costs of $2000 will not reduce the limit of liability by the $12,000. However, the insurer's duty to settle or defend does end when the limit of liability has been exhausted through the payment of judgments or settlements. Note this point, in that it means that the insurer can not just deposit the policy limits into an escrow account and walk away from the defense of the insured; the duty to defend the insured must be carried on until the actual payment of a judgment against the insured or if a settlement with the claimant exhausts the limit of liability.

Furthermore, the insuring agreement includes as covered damages, i.e., paid within policy limits, any prejudgment interest awarded against the insured. This coverage, which parallels similar coverages in other commercial liability policies, has resulted from the enactment in several states of laws that allow claimants to collect interest on judgments between the time suit was entered and judgment was rendered. Because the policy language states that such amounts are included as damages, they are subject to PAP limits that apply to all damages. In contrast, interest that accrues after a judgment is entered and up to the time that judgment is paid remains a supplementary payment, that is, payable in addition to the limit of liability.

Also present in the insuring agreement is a statement that the insurer has no duty to defend any suit or settle any claim for bodily injury or property damage not covered under the policy. This serves to clarify the insurer's duty to defend. The general rule is that the insurer's duty to defend is triggered by the allegations of the complaint against the insured regardless of the apparent facts, or the insurer's interpretation of facts, of a particular loss. If, for example, an obviously fraudulent suit is filed against the insured, the insurer is still required to defend so long as the suit alleges bodily injury or property damage that could conceivably be covered under the policy. However, a suit alleging the insured committed an assault with the express intention of causing bodily injury is not considered as alleging an act that is covered by the policy (regardless of the truth or falsity of the allegation), and so the insurance company would be on solid ground should it decide not to mount a defense.

Note that the personal auto policy ties coverage to "auto accident." Since 1966, general liability insurance provisions have used "occurrence"—defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions"—as the triggering event; the purpose has been to meet the particular needs of public liability where repeated exposure to dangerous conditions in areas of products, operations, professional activities, etc., is a large concern. In automobile liability insurance, the distinction between the two terms is of less significance. The reverting to "accident" in the personal auto policy might be viewed as no more than another of the drafters' attempts to achieve greater understandability.

Insureds

"Insured" as used in this Part means:

1.     You or any "family member" for the ownership, maintenance or use of any auto or "trailer".

2.     Any person using "your covered auto".

3.     For "your covered auto", any person or organization but only with respect to legal responsibility for acts or omissions of a person for whom coverage is afforded under this Part.

4.     For any auto or "trailer", other than "your covered auto", any other person or organization but only with respect to legal responsibility for acts or omissions of you or any "family member" for whom coverage is afforded under this Part. This provision (B.4) applies only if the person or organization does not own or hire the auto or "trailer".

Analysis

Of key importance to the liability insuring agreement provision is the meaning of "insured." The personal auto policy outlines four categories of insureds, which vary as to persons (for example, "you"—the named insured—as opposed to "any person") and vehicles (for example, "your covered auto" as opposed to "any auto").

First, the named insured and his or her family members are covered for the "ownership, maintenance or use of any auto or trailer." Although the policy does not specifically say that "use" includes loading and unloading—as previous automobile policies have—there is no reason to believe that the phrase "ownership, maintenance, or use" does not encompass loading and unloading. Dropping the reference to loading and unloading can be seen as avoiding a redundancy in favor of simplicity. Besides, there is no exclusion or definition on the PAP that even broaches the subject of "loading and unloading," so the insured would certainly be given the benefit of the doubt should any dispute arise in this area.

Also, it should be noted that "use" need not be equated with actual operation of a vehicle in all cases. A passenger of a car can be using the car, or a car can even be "used" by a person not occupying the car, as may be the case when a domestic servant runs an errand for an employer. A case in point is BATS, Inc. v. Shikuma, 617 P.2d 575 (Haw. Ct. App. 1980), in which the court held that a rented van while being returned to its owner by a friend of the insured was being used by the insured even though the insured was not an occupant of the van at the time of the accident. In reaching its decision, the court analyzed two factors: (1) whether the vehicle was under the supervision and control of the insured, and (2) whether the vehicle was being operated to serve a purpose of the insured. Answering both questions in the affirmative, the court ruled that the insured was therefore entitled to payment under his auto physical damage insurance, which covered damage to nonowned autos being operated or used by the insured.

The second category of insured includes any person using the named insured's covered auto. Previous auto policies have provided this coverage to persons other than family members only when the owner has given permission and the borrower uses the auto within the scope of this permission; likewise, the named insured and family members have not been covered for driving nonowned autos unless by permission of the owner and within the scope of permission. The current personal auto policy, however, excludes coverage only when the insurer can establish that the insured under this category did not have "a reasonable belief" that he or she was entitled to borrow the auto.

The third category of insured includes any person or organization for liability arising out of any insured's use of the covered auto on behalf of that person or organization. Thus, for example, if the named insured drives the covered auto on the business of his or her employer, the employer is covered to the extent of its liability for a resulting accident.

"Any person or organization" is the subject of the fourth category as well. But in this case, the person or organization is covered for the named insured's or family member's use of any auto or trailer other than the covered auto—and other than any auto or trailer owned by the "person or organization." If, for example, the employee named insured described above drives a fellow employee's car on his employer's business, this clause extends coverage to the employer in the event the employer becomes liable for the employee's operation of the car. The provision does not extend coverage to the employer when the named insured is using an auto that is owned by the employer.

Note that the PAP applies separately to each insured who is seeking coverage or against whom a claim or suit is brought. This is the severability of interests or separation of insureds feature that is found in liability policies. The liability insuring agreement of the PAP is the source of its severability of interests feature. In the personal auto policy, the liability insuring agreement specifies that the company will cover the liability of any insured and will settle or defend any claim or suit. Neither here nor elsewhere does the policy prevent claim or suit by one insured against another. The "limit of liability" section fills out the intent of severability provisions by stating that regardless of the number of insureds involved in an accident, the limit of liability for the policy will not be increased. An insured, though able to bring claim or suit against another insured, would not be able to collect on two suits, together exceeding the limit of liability, against two insureds for damages caused in one accident. The most any claimant-insured—or, for that matter, any other claimant—can recover for one accident is the limit that is stated in the declarations.

Supplementary Payments

We will pay on behalf of an "insured":

1.     Up to $250 for the cost of bail bonds required because of an accident, including related traffic law violations. The accident must result in "bodily injury" or "property damage" covered under this policy.

2.     Premiums on appeal bonds and bonds to release attachments in any suit we defend.

3.     Interest accruing after a judgment is entered in any suit we defend. Our duty to pay interest ends when we offer to pay that part of the judgment which does not exceed our limit of liability for this coverage.

4.     Up to $200 a day for loss of earnings, but not other income, because of attendance at hearings or trials at our request.

5.     Other reasonable expenses incurred at our request.

These payments will not reduce the limit of liability.

Analysis

Besides settling or defending any claims or suits, the company agrees to pay certain supplementary payments on behalf of an insured. These payments are in addition to the limit of liability and do not reduce that limit as they are paid out by the company. Note that the payment for the cost of bail bonds are for when bonds are required for accidents resulting in bodily injury or property damage that is covered under the auto policy; a bail bond for a simple speeding ticket is not covered.

In the 2005 form, the wording has been revised somewhat. Heretofore, the preface was "In addition to our limit of liability, we will pay…." But now the insured is advised, following the five payments, that any payment made here will not reduce the limit of liability. In addition to the provision's being more consistent with other lines of coverage, the placement makes it clear that supplementary payments can be made whether or not any payments are made under the limit of liability provision.

Exclusions

We do not provide liability coverage for any "insured":

1.     Who intentionally causes "bodily injury" or "property damage".

Analysis

This exclusion reinforces the stipulation in the insuring agreement that damages for bodily injury or property damage must result from an auto accident. Note that the wording of the exclusion differs from the "expected or intended injury" exclusion that is found on the commercial general liability coverage form. Often, the "expected or intended" phrase is interpreted by courts as meaning that the exclusion does not apply unless the insured expects or intends the injury; in other words, even if the act is intended by the insured, the exclusion will not apply unless the insurer can show that the insured also intended the resultant injury. The wording on the PAP presents an exclusion that is clearer and more to the point.

We do not provide liability coverage for any "insured":

2.     For "property damage" to property owned or being transported by that "insured".

Analysis

The principle that underlies the exclusion of owned property is "you can't sue yourself." If, for example, the insured destroys his or her car (even if negligently), that insured can not make claim against himself or herself and expect the liability insurer to pay for the loss. Instead, direct physical damage coverage is the appropriate insurance treatment for owned property. The exclusion of property transported by an insured is necessary to prevent a personal auto policy from becoming its insured's "cargo" policy. If the insured wants insurance coverage for property he or she transports for others, he or she will need to purchase coverage separate from the PAP.

We do not provide liability coverage for any "insured":

3.     For "property damage" to property rented to, used by, or in the care of that "insured". This exclusion (A.3.) does not apply to "property damage" to a residence or private garage.

Analysis

This exclusion is the PAP's version of the "care, custody, or control" exclusion. For example, if the insured accidentally backs his car into a boat that he has rented or borrowed, he will not be covered under part A of the PAP if the boat owner asks for reparations. The exception to the exclusion should be noted because an exception tells what the exclusion does not apply to; it is, in effect, a statement of something that the policy does cover. An example of this exception for a residence or private garage is if the insured accidentally runs his car into the back porch of his apartment building, the insured's PAP will respond to the landlord's claim.

We do not provide liability coverage for any "insured":

4.     For "bodily injury" to an employee of that "insured" during the course of employment. This (A.4.) exclusion does not apply to "bodily injury" to a domestic employee unless workers compensation benefits are required or available for that domestic employee.

Analysis

The named insured and a nondomestic employee qualifying as an insured are both insured for liability to outsiders arising out of the employee's operation of a covered auto, but any injury to the employee is not covered. Rather, the employee would look to the applicable workers compensation law for benefits.

Of considerable note is the absence of any specific exclusion of liability for injury to fellow employees. Even though an employer-named insured may not receive any liability coverage for injuries sustained by an employee covered by workers compensation, any other insured injuring a fellow employee may, so long as some other exclusion does not apply. This is so because the exclusion precludes liability coverage for any insured for bodily injury to an employee of "that insured during the course of employment". The wording of this exclusion clearly shows a reference to an employer-insured and not a fellow employee, for how can one employee be an employee of a fellow employee? Therefore, if an employee is driving the named insured-employer's personal auto on business and injures a fellow employee, the personal auto policy of the employer will not extend liability coverage to the named insured-employer, but will provide liability coverage for the employee-driver.

Such coverage has to be considered in light of any coverage that the employee-driver has under his own personal auto policy. Under that policy, the employee-driver is the named insured and, as such, has potential coverage for the use of any auto, even nonowned autos (other than autos furnished or available for the insured's regular use). Using the same scenario described in the previous paragraph, the other insurance clause comes into effect with the statement that "any insurance we provide for a vehicle you do not own, including any vehicle while used as a temporary substitute for 'your covered auto', shall be excess over any other collectible insurance". Therefore, the employee's PAP will give him excess coverage over that provided by the employer's PAP since a nonowned vehicle was used by the employee.

We do not provide liability coverage for any "insured":

5.     For that "insured's" liability arising out of the ownership or operation of a vehicle while it is being used as a public or livery conveyance. This exclusion (A.5.) does not apply to a share-the-expense car pool.

Analysis

This "public or livery conveyance" phrase was the language in the exclusion prior to that used in the simplified language version that was introduced some years ago. The simplified language policy used the phrase "while being used to carry persons or property for a fee", and that phrase resulted in some problems. Many in the insurance field felt that the simplified language version was more restrictive than the public or livery language form; also, the simplified language phrase was subject to conflicting judicial interpretations. (See Public or Livery Conveyance for examples of this judicial conflict.) Therefore, in an attempt to clarify the situation and to reinforce the idea that the intention of the exclusion is to deny coverage in those situations where it is obvious that the insured is holding the vehicle out for hire to the general public, the language of the exclusion has reverted to the "public or livery conveyance" wording. There is an extensive body of law as to what constitutes a public or livery conveyance; it means, in short, hiring out an automobile, for example, or renting such a vehicle to carry persons or property as the main business concern. See, for example, Morris. v. Buttney , 606 N.W.2d 626 (Wisc. App. 1999). Here, the insured argued that the exclusion should be applied to the conveyance of persons as opposed to delivering packages (his business). The court, however, concluded that the exclusion applied to the transport of things as well as people. The proper application of the exclusion was to a vehicle held out to the general public for carrying people or property and must be used as such at the time of the accident. The return to the public or livery conveyance language will therefore, presumably, serve to resolve any further interpretive problems.

We do not provide liability coverage for any "insured":

6.     While employed or otherwise engaged in the "business" of selling, repairing, servicing, storing, or parking vehicles designed for use mainly on public highways. This includes road testing and delivery. This exclusion (A.6) does not apply to the ownership, maintenance, or use of "your covered auto" by you, any "family member", or any partner, agent, or employee of you or any "family member".

Analysis

A number of exclusions to the liability agreement affect coverage with respect to any insured using autos in business. To illustrate this particular "auto business" exclusion, if the named insured were an employee at a garage and had an accident while road testing a customer's auto, there would be no liability coverage under the employee's personal auto policy (or the customer's policy). The liability for the accident would be the subject of the employer's garage liability insurance. However, a named insured driving his or her covered auto in an automobile business would still be a covered person.

We do not provide liability coverage for any "insured":

7.     Maintaining or using any vehicle while that "insured" is employed or otherwise engaged in any "business" (other than farming or ranching) not described in exclusion A.6. This exclusion (A.7.) does not apply to the maintenance or use of a private passenger auto, pickup, or van, or a "trailer" used with a vehicle just described.

Analysis

This exclusion is another auto business exclusion making the case that the personal auto policy is not supposed to be used to cover a business auto exposure; that is the function of the business auto coverage form. Note the exceptions that allow coverage under the PAP for the maintenance or use of a private passenger auto, pickup or van, or a trailer. One way of looking at this is that the named insured, for example, is covered, while using in a business other than an "auto business", a private passenger auto, say, to deliver a contract proposal to a client.

We do not provide liability coverage for any "insured":

8.     Using a vehicle without a reasonable belief that that "insured" is entitled to do so. This exclusion does not apply to a "family member" using "your covered auto" which owned by you.

Analysis

There is no liability coverage for that insured under the PAP for bodily injury or property damage that occurs during the unentitled use of a vehicle. The key element here is the phrase "reasonable belief". The phrase is not defined on the PAP and, therefore, is subject to an open interpretation. For example, an insured's son has a reasonable belief that he is entitled to use the covered auto (of course, being a family member would mean that the exclusion does not apply to the son anyway), but if the son allows his friends to drive the auto, do the friends have such a belief? If the friends are of driving age and the son allows them to drive that auto, a case can be made that the friends do have a reasonable belief that they are entitled to use the auto. On the other hand, if the son allows an underaged friend (say, for example, a thirteen-year-old) to drive the car, does that friend have a reasonable belief that he is entitled to use the car? In such a situation, the insurer would have a rational basis to deny coverage for the thirteen-year-old because someone so young should not have a reasonable belief that he is entitled to drive a car, especially if the state does not allow him to have a driver's license at that young age. (Montana, for example, will permit a thirteen-year-old to have a driver's license based on "individual hardship.")

We do not provide liability coverage for any "insured":

9.     For "bodily injury" or "property damage" for which that "insured" is an insured under a nuclear energy liability policy, or would be an insured under a nuclear energy liability policy but for its termination upon exhaustion of its limit of liability. A nuclear energy liability policy is a policy issued by any of the following or their successors: Nuclear Energy Liability Insurance Association; Mutual Atomic Energy Liability Underwriters; or Nuclear Insurance Association of Canada.

Analysis

In recognition of the potential hazards nuclear reaction poses to the public, Congress enacted the Price-Anderson act of 1957. The act, which has been amended since its original introduction, requires firms that own or operate nuclear reactors above a certain capacity to have proof of financial responsibility up to certain limits. The normal method of proving this financial responsibility is a nuclear energy liability policy issued by one of the nuclear insurance pools mentioned in the exclusion. This type of policy covers insureds against liability for causing some kind of nuclear damage. Because the PAP is not intended to duplicate the coverage offered by the nuclear liability policies, the nuclear exclusion is present in the PAP.

We do not provide liability coverage for the ownership, maintenance or use of:

1.     Any vehicle which has fewer than four wheels or is designed mainly for use off public roads. This exclusion does not apply while such vehicle is being used by an "insured" in a medical emergency or to any "trailer" or to any nonowned golf cart.

Analysis 

The personal auto policy expresses its coverage in terms of "autos"; yet, there is no definition of "auto" in the policy. In many persons' minds, autos are four wheel motor vehicles, but this is not invariably the case when it comes to policy interpretation. Courts in some states have held that a motorcycle, for example, qualifies as an automobile. Because the purpose of the PAP is to cover only certain four wheel motor vehicles, this exclusion is presented. Basically, this exclusion makes the point that vehicles such as motorcycles or dune buggies should not be automatically covered autos under the PAP. For information on available coverage for these types of vehicles, see Miscellaneous Type Vehicle Endorsement.

The exception pertaining to a medical emergency should be noted. If the named insured was on a dirt bike rushing to a ranger station to get help because someone had ridden off a cliff in a national park, and the insured accidentally ran into some hikers and injured them, the PAP would provide liability coverage for the named insured.

The exception for a nonowned golf cart means that if the insured is driving a golf cart on the course and hits someone with the cart, the personal auto policy will apply to a claim against the insured. And, of course, many insureds live in communities where the mode of transportation is the golf cart; as long as the golf cart is not owned by the insured (a rented one or one that is loaned to the insured, for example), the PAP is there to provide liability coverage in case the insured runs into someone or something while driving the cart.

We do not provide liability coverage for the ownership, maintenance or use of:

2.     Any vehicle, other than "your covered auto", which is owned by you or furnished or available for your regular use.

Analysis

An automobile furnished to a named insured by an employer is a familiar example of the type of exposure customarily excluded from coverage. For an additional premium, the named insured or a family member can insure the use of furnished or available autos under the PAP through use of the extended nonowned coverage for named individual endorsement. This point was noted in Withrow v. Liberty Mutual Fire Ins. Co., 595 N.E.2d 529 (Oh. App. 3d 1991). Withrow regularly drove a van owned by Wayne Backus for use in Backus's business. Even though he knew the vehicle to be uninsured, he did not ask his agent for coverage. While driving the van, he injured someone and asked his insurer to defend him. The court said "The general purpose of this type of provision [the exclusion for regularly used vehicles] is to cover occasional or incidental use of vehicles without the payment of an additional premium, but to exclude the habitual use of other cars, which would increase the risk on the insurance company without a corresponding increase in the premium."

This exclusion (and the following one) eliminates liability coverage for certain autos "furnished or available for the regular use of" the named insured or a family member. The phrase is not new—nor is it untested. In Waggoner v. Wilson, 507 P.2d 482 (Col. App. 1972), the court was called upon to decide whether an insured's use of a car fell under a policy exclusion of coverage for any nonowned car "furnished or available for the frequent or regular use" of the insured. The insured had had an accident in a previously owned auto that she had driven on two or three occasions between the time of sale and the accident. On each occasion the car was used, the insured first had to obtain keys and permission from the new owner.

Although the court noted that "furnished" and "available" are not synonymous—"furnished" implying actual use, "available" implying potential use—it nevertheless construed "available" to require that the potential use of the automobile be to a substantial degree under the control of the insured. The court concluded that a car is not "available" when the keys and specific permission must be obtained each time use of the car is desired. The court's application of the exclusionary language hinged only upon its construction of "available" and not upon the frequency of the insured's use of the car. It may be questionable, nevertheless, whether another court would reach the same verdict where a car has been borrowed under the same arrangement of asking for the keys and permission, but used far more frequently and regularly than in the Waggoner case.

In Hughes v. State Farm, 236 N.W.2d 870 (Tenn. 1976), a nonowned car had been used by the insured about six or eight times during a period of eight or nine months. Because the insured had had to request permission before each use and was even denied permission on several occasions, the Tennessee Supreme Court deemed the car not to be "furnished or available" for the insured's use. Here, too, as in the Waggoner case, the insured did not keep a key to the car.

As for autos made available through car pools, such as those kept by corporations, government agencies, and other organizations, even though the named insured may not have used a particular pool auto regularly, his or her regular access to some car from the pool makes, in effect, a furnished auto of any auto driven under this arrangement. Courts have generally upheld this interpretation. See Galvin v. Amica Mutual Insurance Co., 417 N.E.2d 34 (Mass. App. 1981), for a summary of court cases so holding.

When does a short-term rental car become furnished or available for regular use? Unfortunately, there is no single objective guideline for answering this question, but it seems unlikely that a rental of a few days up to two or three weeks would be viewed as "regular use." In one case, a United States court of appeals applying Florida law held that a three week rental of an auto did not constitute regular use. The case is Factory Mutual Liab. Ins. Co. v. Continental Cas. Co., 267 F.2d 818 (1959). In the case of American States Ins. Co. v. Tanner., 563 S.E.2d 825 (W. Va. 2002) the question to the court was "does a 'regular use' exclusion, in a motor vehicle insurance policy that insures one automobile and provides coverage to the policyholder's spouse, preclude coverage for a rental vehicle driven by said spouse as a replacement vehicle for a different automobile insured under a separate policy of motor vehicle insurance?" The court looked to other jurisdictions, and noted particularly that a short-term rental agreement did not qualify as "regular use" under the generally accepted definition of that term. The court noted as well that "the general consensus is to consider, on a case-by-case basis, whether the facts of a particular controversy suggest regular use of the subject vehicle." Naturally, if coverage is at all in doubt and the insured wishes to have the benefit of his own insurance while using a rental car, the extended nonowned coverage for named individual endorsement, PP 03 06 01 05, can be used to eliminate the regular use exclusion.

We do not provide liability coverage for the ownership, maintenance or use of:

3.     Any vehicle, other than "your covered auto", which is owned by any "family member" or furnished or available for the regular use of any "family member". However, this exclusion does not apply to you while you are maintaining or "occupying" any vehicle which is owned by a "family member" or furnished or available for the regular use of a "family member".

Analysis

The exception to this exclusion is designed to eliminate the troublesome situation in which named insureds (usually parents) might find themselves, that is, without liability insurance following an accident involving their use of a car owned by another household member; under this exception in the personal auto policy, the named insured and spouse have coverage for third-party claims in such an event.

The use of the term "occupying" in this exception to the exclusion should be noted. By such use, the insurer is requiring the named insured to physically be in or upon the vehicle in question in order for the exception to take hold. Thus, if the named insured, a father for example, directs his son to drive the son's car to the store to purchase an item for the father, it can not be said that the father is using the car. This possibility could exist if the exception stated that the exclusion did not apply to the named insured while he "uses" a vehicle owned by a family member. Since "use" is not a defined term as is "occupying", it could be interpreted in favor of the named insured thereby giving him coverage; a court could say that the father was really using the car because he directed the son on an errand to solely benefit the father and that is the only reason the son was driving the car. Except for the directed, albeit not physical, use of the car by the named insured, the accident would not have happened. Presumably, the phraseology in the current PAP will preclude any such interpretation.

This exclusion, by the way, as it relates to the use of a family member's car by a family member, was held to be valid by the Florida district court of appeals for the fourth district, in South Carolina Ins. Co. v. Heuer, 402 So. 2d 480 (Fla. App. Fourth 1981). In this case the insureds' daughter had sued the insurer for coverage for her use of a car owned by her, on the ground that her parents' personal auto policy stated that family members were covered persons "for the ownership, maintenance or use of any auto or trailer." The court upheld the exclusion, stating that "it is not uncommon for an insurance company to seemingly grant coverage in one section while excluding such coverage in another." A lower court had held in favor of the insured's daughter.

We do not provide liability coverage for the ownership, maintenance or use of:

4.     Any vehicle, 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.

Analysis

This is an exclusion that mirrors an exclusion for racing activities that ISO attached to the new business auto form (see Business Auto Form—Liability Provisions . This exclusion simply makes the point that a high-risk exposure such as auto racing should be insured under a specialty policy. The weakness of the exclusion is in the use of the phrase "located inside a facility designed for racing". It is conceivable that an insured could use his covered auto to race on public roads; granted that this activity is illegal, the PAP still has no exclusion that would preclude coverage if the insured injured someone while racing.

Limit of Liability

The limit of liability shown in the Declarations for each person for Bodily Injury Liability is our maximum limit of liability for all damages, including damages for care, loss of services or death, arising out of "bodily injury" sustained by any one person in any one accident. Subject to this limit for each person, the limit of liability shown in the Declarations for each accident for Bodily Injury Liability is our maximum limit of liability for all damages for "bodily injury" resulting from any one auto accident.

The limit of liability shown in the Declarations for each accident for Property Damage Liability is our maximum limit of liability for all "property damage" resulting from any one auto accident.

This is the most we will pay regardless of the number of "insureds"; claims made; vehicles or premiums shown in the Declarations; or vehicles involved in the auto accident.

No one will be entitled to receive duplicate payments for the same elements of loss under this coverage and:

1.     Part B or Part C of this policy; or

2.     Any Underinsured Motorists Coverage provided by this policy.

Analysis

This clause allows split limits for bodily injury and property damage coverages. The limit of liability shown for bodily injury liability is the maximum amount the insurer will pay due to any one auto accident; the property damage limit of liability is the most the insurer will pay due to any one auto accident.

This clause also declares that the policy has a per person limit. The amount shown in the declarations is the most the insurer will pay for all damages arising out of bodily injury sustained by any one person in any one accident. In other words, the auto policy limits the amount that any one person can receive in an accident. If the stated limit is $25,000, that is the most any one person can receive, regardless of the total amount of damages suffered.

As an example, say the PAP has a $25,000 per person BI limit; a $50,000 per accident BI limit; and a $25,000 PD limit. If an accident occurs and there are two people injured due to the negligence of the named insured, each person could receive $25,000 total for the bodily injuries. If there were more than two persons injured, the insurer would pay no more than the $50,000 limit for the accident; the amounts that the individuals would receive could vary (though no more than $25,000), but the insurer would pay no more than $50,000 total to all the injured parties combined. If there were only one person injured and the bodily injury damages amounted to $50,000, the named insured's PAP would only pay the $25,000 per person limit. If the total property damages were $25,000, that is the amount the insurer would pay. It makes no difference how many cars were involved in the accident, or how many insureds (under one PAP) were involved, or how much actual property damage occurred; the insurer will pay no more than the listed $25,000 figure.

The limit of liability clause also prohibits duplicate payments. This means that if the injured claimant receives payments under part A of the PAP (liability coverage), that same claimant will not be entitled to payments under part B (medical payments coverage) or part C (uninsured motorists coverage) for the same elements of loss. This is sort of an anti-stacking clause; the insurer does not want to make duplicate or triplicate payments for the same injuries. Parts B and C of the PAP have the same prohibition against duplicate payments.

Additional Provisions

Out of State Coverage

If an auto accident to which this policy applies occurs in any state or province other than the one in which "your covered auto" is principally garaged, we will interpret your policy for that accident as follows:

A.   If the state or province has a financial responsibility or similar law specifying limits of liability for "bodily injury" or "property damage" higher than the limit shown in the Declarations, your policy will provide the higher specified limit. If the state or province has a compulsory insurance or similar law requiring a nonresident to maintain insurance whenever the nonresident uses a vehicle in that state or province, your policy will provide at least the required minimum amounts and types of coverage.

B.   No one will be entitled to duplicate payments for the same elements of loss.

Analysis

This clause offers a liberalization of coverage. An insured involved in an out-of-state auto accident is provided all coverages of his or her policy as usual, and if the state (or Canadian province) where the accident occurs has a financial responsibility law calling for higher limits than the insured has on his or her auto policy, this clause grants those higher limits. For example, if the named insured lives in Mississippi and has the required BI limits of $10,000/$20,000, and then has an at-fault auto accident in Minnesota where the required BI limits are $30,000/$60,000, the PAP states that it will provide the higher specified BI limits.

The out of state coverage clause also declares that if the state where the accident occurs has a compulsory insurance law requiring a nonresident to maintain insurance, the PAP will provide at least the required minimum amounts and types of coverage. This might seem to indicate that if the state required no-fault coverage and the insured did not have that type of coverage, the PAP would provide it. However, there is a disagreement over whether the out of state coverage clause actually requires the PAP to provide coverages such as no-fault or uninsured motorists coverages if the named insured does not have these types of coverages on his or her PAP. The argument here is that the clause is referring to bodily injury and property damage liability coverage and the minimum financial amounts required by a state for these coverages. This reasoning makes sense in that a state would be more interested in making sure nonresidents had auto liability coverages in order to protect that state's residents in an auto accident than in making sure a nonresident had first party coverages, such as no-fault and uninsured motorists coverages; after all, a state's first responsibility is to its own residents.

Financial Responsibility

When this policy is certified as future proof of financial responsibility, this policy shall comply with the law to the extent required.

Analysis

Financial responsibility laws require drivers who have been involved in accidents to maintain proof of financial responsibility for the future. Most people called upon to do so use liability insurance as their proof. The PAP guarantees that when it is certified as future proof of financial responsibility, the policy will comply with the law to the extent required. Thus, for example, if the limits of liability required by the financial responsibility law increase during the policy period, the policy will be interpreted as providing at least those limits. Most auto policies in use before the PAP had a similar provision, yet they required the insured to reimburse the insurance company for the difference between the stated policy limits and any higher limits paid to a claimant. The current PAP does not call for reimbursement.

Other Insurance

If there is other applicable liability insurance 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 for a vehicle you do not own, including any vehicle while used as a temporary substitute for "your covered auto", shall be excess over any other collectible insurance.

Analysis

This clause sets forth the extent of recovery when one or more other policies apply to a covered loss. In accidents covered by the named insured's policy and other liability insurance, the named insured's policy pays no more than its share, a pro-rata settlement. Insurance provided for vehicles not owned by the named insured, however, is excess over any other collectible insurance covering the loss; and the key term here is "collectible." For example, if the named insured is driving his son's car and has an accident, the son's insurance should be primary; however, if the son had allowed his insurance to lapse, there is no other "collectible" insurance and the named insured's coverage will become primary.

Note that the wording has been changed from the earlier PAP. Because of some courts' decisions that primary coverage was intended to apply under both the policy insuring the owner of a temporary substitute vehicle and the policy insuring the operator of the temporary substitute, the language has been revised to clarify the intent that any insurance provided for a nonowned auto, including one used as a temporary substitute, is considered excess over any other collectible insurance.