Includes copyrighted material of Insurance Services Office, Inc., with its permission.
June 2016
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 collision or other than collision loss, without additional charge. Coverage for additional rental reimbursement, towing and labor costs, and miscellaneous property such as tapes, CDs, and records or electronic property not installed in the location provided by the auto manufacturer can be arranged by endorsement.
Topics covered: 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. "Equipment" is not a defined term, so the insured must be given the benefit of the broadest interpretation. "Equipment" is, however, modified by "their," so the equipment must pertain to the auto in question, and not something that happens to be in or on the auto at the time of loss. For example, some foreign-made vehicles have tool kits (in metric) made for use with the cars. Such a tool kit can be considered the auto's equipment, while a common, everyday tool kit tossed into the trunk would not qualify.
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 other than collision, and another owned auto for other than collision only, a nonowned auto will be covered for both coverages if a covered 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.
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.
"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 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.
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. The damage must be "direct and accidental." and is subject to any deductible or to any applicable exclusions. Sometimes a narrow reading of the "other than collision" perils is made, so that if the cause of loss does not neatly fit, an over-zealous adjuster may state that the loss in question is not covered. This is not the case. The list is not intended to be all-inclusive; it is merely a description of losses that otherwise could, in some cases, be attributed to collision, rather than other than collision. For example, if a boulder—a "falling object"—falls off a cliff and lands on a vehicle, it could be said that damage arose from the boulder's colliding with the vehicle. Similarly, collision with a bird or animal is moved from collision to other than collision. Traditionally, this is because collision with an animal is usually impossible to avoid because animals, notably deer, are so unpredictable.
There are two main reasons for separating losses into collision and other than collision categories. First, traditionally other than collision coverage has been subject to a lower deductible than has collision coverage. Second, most insurers charge points for at-fault collision losses but not for other than collision losses. So, if an unlucky insured hit a deer (with $2,000 ensuing damage), he or she might have to pay a surcharge if it was not clearly pointed out by the policy that the loss fell into the "other than collision" category.
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. Insurers often will not allow the purchase of collision without also purchasing comprehensive; if there is a question consult the insurer. 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; see What Is Collision?.
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. A pickup the insured borrows from a neighbor to move some lumber, since the lumber will not fit in the trunk of his own auto, is an example. 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. Coverage for a nonowned auto is not necessarily on a "first-dollar" basis, however. See Other Sources of Recovery—Appraisal later in this article.
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.
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. Subject to the provisions of Paragraph A., if the loss is caused by:
1. A total theft of "your covered auto" or a "nonowned auto", we will pay only expenses incurred during the period:
a. Beginning 48 hours after the theft; and
b. Ending when "your covered auto" or the "nonowned auto" is returned to use or we pay for its loss.
2. 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 (sometimes called rental reimbursement) 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. (See also exclusion 13.) As an example, a vacationing insured rents a car and the signed rental agreement states he will be responsible for any damage as well as the daily rental charge while the car is being repaired. The insured has an accident, and 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, and not simply "misplaced" in a parking lot.
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, since 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 06 98 optional limits transportation expenses coverage. 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 04 86 towing and labor costs coverage. The limit of liability is set at $25, $50, $75, or $100, depending on the named insured's preference. The endorsement applies to "your covered auto" or any nonowned auto. Labor is covered only if performed at the place of disablement.
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 (1.) 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
There is no coverage for any "your covered auto" or "nonowned auto" while the vehicle is being used as a public or livery conveyance. This is similar to the exclusion found in Part A – Liability. (See Personal Auto Policy—Part A.)
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 (Fla. 1965).
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 (Tex. App. 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 court 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 is a Louisiana case, Leone v. Government Employees Insurance Co., 433 So. 2d 307 (La. App. 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 that reproduces, receives or transmits audio, visual or data signals. This includes but is not limited to:
a. Radios and stereos;
b. Tape decks;
c. Compact disk players;
d.Navigation systems;
e.Personal computers;
g.Video entertainment systems;
h.Telephones;
i.Televisions;
j.Two-way mobile radios;
k.Scanners; or
l.Citizens band radios.
This exclusion (4.) does not apply to electronic equipment that is permanently installed in "your covered auto" or any "non-owned auto";
5. Loss to tapes, records, disks, or other media used with equipment described in Exclusion 4.
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 (Id. 1979), the 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 was incorporated into the personal auto policy as an exclusion. The current form (2005 edition), however, provides broader coverage for electronic equipment than did the previous form. Rather than excluding coverage for, say, television monitor receivers, the current form excludes coverage unless the television is permanently installed. It is common today for vans and SUVs to have built in TVs for passengers. Until the 2005 PAP, there was no coverage unless added by endorsement. But now there is coverage for permanently installed navigational systems (a GPS), TVs, CD players, phones, and even internet access equipment. The equipment need not be permanently installed by the auto manufacturer; aftermarket equipment is covered so long as it is permanently installed. In this edition, the exception for electronic equipment necessary for the normal operation of the vehicle is no longer required, since the new exclusion (4.) and its exception makes that unnecessary. However, as discussed later, there is a limit applying to equipment not permanently installed in the location provided by the manufacturer.
"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., 63 A.D.2d 1042 (N.Y.A.D. 1978), 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.
Exclusion 5 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 as well as to additional electronic equipment not already covered. PP 03 13 01 05 excess electronic equipment coverage gives coverage for these items and sets the limit of liability for tapes, CDs, etc., 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:6. A total loss to "your covered auto" or any "nonowned auto" due to destruction or confiscation by governmental or civil authorities.
This exclusion (6.) 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 convicted of a crime 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:7. 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 (7.) 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.
Excepted from this exclusion is 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 $1500 (increased from $500 in the prior edition) 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. This exception does not mention motor homes.
We will not pay for:8. 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 might 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:9. 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. Sometime a cursory reading of the exclusions ends with exclusion (4.) loss to electronic equipment, and the reader, seeing that radar detectors are not included in the list, mistakenly believes they are covered. Obviously, coverage cannot be assumed without reading the remainder of the exclusions until exclusion (9.) is reached.
We will not pay for:10. 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 (10.) 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 for 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 01 05 customizing equipment coverage 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 property that is already excluded from coverage under exclusions 4., 5., 7., or 9. of the current (2005) edition; that is, certain electronic property, awnings, cabanas, or equipment designed to create additional living facilities; or equipment designed or used for the detection or location of radar. For more information on this endorsement, see Endorsements Used With Personal Auto Policy pages.
We will not pay for:11. 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. This is an exposure that is best handled under commercial insurance.
We will not pay for:12. 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
As with the exclusion found in the liability section of the PAP, there is 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:13. 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. Some states hold that a vehicle being out of service because of damage is part of the cost of doing business, and has already been calculated in the rental fee being charged. Thus, laws have been enacted to prevent recovery from the renter.
In other cases, signing the collisions damage waiver and being charged an extra fee by the rental company means the insured renting the vehicle will not be charged loss of use in event of a loss. This exclusion prevents the rental company from collecting from the insured's PAP insurer.
Limit of LiabilityA.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 $1500.
2. Electronic equipment that reproduces, receives or transmits audio, visual or data signals, which is permanently installed in the auto in locations not used by the auto manufacturer for installation of such equipment, is $1,000.
B.An adjustment for depreciation and physical condition will be made in determining actual cash value in the event of a total loss.
C.If a repair or replacement results in better than like kind or quality, we will not pay for the amount of the betterment.
Payment of Loss
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." The use of "may" in the loss payment provisions should be explained. When "may" is used in the insurance contract, it is in the sense of "have permission to" and not in the sense of "might or might not." So, when the insurer in these provisions states it may settle a loss in money, it is merely stating that this is one of the things it is contractually allowed to do.
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 and whether actual cash value should include taxes, since taxes can not be valued or depreciated based on 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"—in that repair costs amount 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. If a repair or replacement results in better than like kind or quality, the insurer will not pay for the amount of the betterment.
The concept of "betterment" has become a topic generating much discussion ever since this clause was inserted into the payment provision. If a covered loss results in a damaged front end (including the radiator), does the repair make the vehicle "better" in that it now has a new hood and radiator, or has it simply put the car back into the position it was prior to the loss? Perhaps the question that should be asked with regard to any payment is, "would a potential buyer pay more for the car with the new parts?" If the answer is "no," then how has the insured been made better? In the example just given, the answer is "probably not." However, if the vehicle were 10 years old (with 100,000 miles on it) and the engine had to be completely replaced, then the answer changes.
Another method by which to fix the limit of liability can be provided by the maximum limit of liability endorsement PP 03 08 06 94. 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 (or stated value) 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 $1500. And, in a change to the current PAP (2005 edition) the insurer will at most pay $1,000 for loss to electronic equipment permanently installed in a location not used by the manufacturer for such installation. The prior edition stated that the most the insurer would pay for loss to equipment designed solely for the reproduction of sound was $1,000. So, 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, so long as the equipment is permanently installed. If the insured wants more than the $1,000 coverage, he can use endorsement PP 03 13 01 05 excess electronic equipment to increase the limit of liability from $1,000 to the amount shown in the endorsement's schedule. Tapes, CDs, etc. are limited to $200.
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 RecoveryIf 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.
Appraisal
A.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 and impartial 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.
B.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 the right 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. Often, the only part of the loss not covered will 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.