Part II B Supplemental Coverages

PART II A – MAIN LIABILITY COVERAGES

1. APPLICATION OF THIS INSURANCE (PART II)

This insurance applies to liability arising out of covered autos designated in the Declarations to the extent covered in this policy. We have no obligation to provide any insurance or service, or pay any expense or sum, other than those specifically described as applicable and insured in this policy.

2. COVERAGE A – LIABILITY TO OTHERS

A. We will pay for the benefit of insureds, up to the applicable limit of liability (see Part II D) shown in the Declarations, those sums that insureds become legally liable to pay as damages because of bodily injury or property damage insured in this policy that is caused by an accident and results from the maintenance, ownership, or use of a covered auto.

Such accident must occur during the policy term and take place within the applicable coverage territory (see Common Conditions).

B. We have no obligation to pay any damages not covered in this policy or in excess of our limit of liability (see Part II D) for any covered damages.

ANALYSIS:

As the title implies, this is the main liability section of the policy. The section begins with a statement that coverage applies to autos listed in the declarations and to the extent covered in the policy, and that the carrier has no obligation to pay any claims that are not outlined in this policy. This is just to clarify that only what is covered in the policy is what will be paid for at the time of a loss.

The policy then begins the section for Coverage A, Liability to Others. If the insured becomes legally liable to others for any amount of bodily injury or property damage as the result of an accident for which this policy provides coverage, those sums will be paid. The accident must result from the use, maintenance, or ownership of a covered auto. The accident must occur during the policy period and within the coverage territory. If the amount of damages exceeds the limits of the policy, then the carrier has no obligation to pay those excess damages. Only the policy limits are what is paid, which is why there are policy limits to begin with. No policy will have an open-ended limit available.

C. Who is an Insured – Coverage A

For Coverage A, insured means the following:

1. You for any covered auto. 2. Anyone else while using with your permission a covered auto borrowed, hired, or owned by you, other than any of the following persons:

a. The owner or anyone else from whom you borrow or hire a covered auto, and any of their agents or employees, is not an insured. However, this exception does not apply if such covered auto is a trailer attached to a covered auto owned by you. b. Your employee for a covered auto owned by that employee or by a member of such employee's household is not an insured. c. Your partner (if you are a partnership) for a covered auto owned by that partner or by a member of such partner's household is not an insured. d. A member (if you are a limited liability company) for a covered auto owned by that person or by a member of such person's household is not an insured. e. Anyone while moving property to or from a covered auto is not an insured. However, this exception does not apply to your employees or partners, or to a lessee or borrower or any employee of such lessee or borrower. f. Anyone using a covered auto while such person is working in a business that parks, repairs, sells, services, or stores autos is not an insured. However, this exception does not apply if such business is yours.

3. Anyone liable for the conduct of an insured (as described in the preceding Paragraphs 1 and 2) but only to the extent of that liability.

ANALYSIS:

This section details who exactly is considered an insured, since coverage applies to others aside from the owner of the business who purchased the insurance policy. Naturally, you for any insured auto is an insured, since you is defined as the first person named in the declarations.

Then anyone using a covered auto with permission is an insured, as long as they are using a covered auto that is owned, hired, or borrowed by the insured. There are however exceptions to this coverage; there are seven categories of people who will not be considered insureds under various parameters.

The first is the owner or anyone else from whom the insured borrows or hires a covered auto, and any of their agents or employees. However, if the auto in question is a trailer attached to a covered auto owned by the insured, then that person will be covered. For example, Sam, our insured, borrows a vehicle from Bob. If Bob drives his own vehicle on an errand for Sam, then Bob is not covered under Sam's policy. However, if Sam borrows a trailer from Bob and attaches it to one of Sam's covered autos, then Bob would be covered for any damages caused by the trailer while it was pulled by Sam and his vehicle.

The next category of people not considered insureds under the policy are employees for covered autos owned by that employee or a member of the employee's household. An employee will have his own insurance on his vehicle, and that will apply to any loss, even if that employee uses his personal auto on an errand for Sam.

If the insured is structured as a partnership, then the partner will not be considered an insured for vehicles owned by that partner or a member of the partner's household. Again, a partner's vehicle will be covered under the partner's individual policy.

Limited liability companies work the same way as partnerships; if the insured is an LLC, then members will not be considered insureds for autos owned by that member or individuals in that member's household.

Anyone moving property to or from a covered auto is not considered an insured. However, this does not apply to employees of the insured or partners, lessees, or borrowers or any employee of said lessee or borrower.

Lastly, anyone using a covered auto while that person is working in a business that parks, repairs, sells, services or stores autos is not an insured. Such a person should be covered under a garagekeepers policy. An exception is made however if the business of parking, servicing, selling or repairing vehicles is the insured's business.

The last category of insured is anyone liable for the conduct of an insured as we have just outlined, but only to the extent of that person's liability. If someone has the authority to direct an insured to perform a particular act that results in an accident that leads to a loss, that person in authority will also be considered an insured.

3. COVERAGE B – MEDICAL PAYMENTS

A. We will pay, up to the applicable limit of liability (see Part II D) shown in the Declarations, the reasonable necessary medical expenses, incurred by an insured, arising out of an accident. Such expenses must be both incurred and reported to us by you or the coverage beneficiary within three years from the date of such accident. The accident must occur during the policy term and take place within the applicable coverage territory (see Common Conditions).

Fault or legal liability is not a condition for such payment (and our payment is not an admission of liability by any insured); however, we pay medical expenses only for bodily injury not otherwise excluded or uninsured under this policy.

B. Medical expenses means expenses for: ambulance, dental, funeral, hospital, medical, professional nursing, surgical, or X-ray services; prosthetic devices; drugs, and surgical supplies.

C. Who is an Insured – Coverage B For Coverage B, insured means the following:

1. You while occupying or, while a pedestrian, when struck by any auto. 2. If you are an individual, any family member while occupying or, while a pedestrian, when struck by any auto. 3. Anyone else while occupying a covered auto or a temporary substitute for a covered auto that is out of use because of loss to it or its breakdown, repair, servicing, or destruction. If no limit is shown in the Declarations, then Coverage B does not apply under this policy.

ANALYSIS:

For insureds injured in an accident, the policy pays reasonable medical expenses, regardless of fault. Medical expenses pays for ambulance, dental, funeral, hospital, medical, professional nursing, surgical, x-ray services, prosthetic devices, drugs and surgical supplies. The accident must occur during the policy period and within the coverage territory, and be reported to the carrier within three years of the date of the accident. Coverage is for bodily injury that is not otherwise excluded or uninsured in this policy. The insured does not have to be in a vehicle in order for this coverage to apply; if the insured is crossing the street and is hit by an oncoming car, medical payments will provide coverage for the insured's injuries.

Like Coverage A, this section has its own definition of who is an insured. First is you while occupying, or while a pedestrian, when struck by an auto. For individuals, any family member while occupying or, while a pedestrian, when struck by an auto. Lastly is anyone else while occupying a covered auto or a temporary substitute for a covered auto that is out of use because of loss or servicing, repair, breakdown or destruction.

A limit must be shown in the declarations in order for Coverage B to apply. If no limit is shown on the declarations, then there is no coverage for medical payments.

PART II B – SUPPLEMENTAL COVERAGES

The following coverages do not extend or modify any provisions in this policy, including our Limits of Liability or any applicable Exclusions, except to the extent specifically described.

1. DEFENSE COVERAGE

A. With counsel of our choice, we will defend suits (civil proceedings) against insureds seeking damages covered by this insurance. We have no duty to investigate any claim, defend, or provide for a defense for any insured:

1. In connection with either suits seeking damages not covered by this policy or allegations within a suit which are not covered by this policy; or 2. When the applicable limit of liability is used up in payment of judgments or settlements.

B. We may investigate and settle any claim or suit as we deem such to be reasonable. C. We assume the following costs and expenses in a suit defended by us:

1. All costs incurred by us. 2. The interest which accrues after entry of a judgment, but only until that time when we pay, offer to pay, or deposit in court that part of the judgment within our limit of liability. 3. The prejudgment interest awarded against any insured on that part of the judgment we pay. However, if we offer to pay our applicable limit of liability under this policy, we will not pay any prejudgment interest which is based on the period of time that follows our offer. 4. Costs taxed against the insured. However, costs taxed against the insured do not include attorney expenses or fees. 5. Costs of appeal bonds or bonds to release attachments, for that amount of the bond within our applicable limit of liability. We need not furnish or secure such bonds. 6. Up to $250 for costs of bail bonds, resulting from accidents including related traffic law violation covered by this insurance. We need not furnish or secure such bonds. 7. The reasonable expenses incurred by the insured at our request, as well as earnings lost up to $250 per day because of absence from work at our request.

Suit includes alternative dispute resolution proceedings to which an insured either must submit or may choose to submit, but only if done with our prior written consent.

ANALYSIS:

This section describes supplemental coverages, which are additional coverages that don't fit neatly into any of the main coverage sections. The section begins with a statement that the supplemental coverages do not increase the limits listed in the policy nor do they modify any provisions or exclusions in the policy unless specifically noted.

The first supplemental coverage is defense of the insured. If the insured is sued for damages that would fall under the coverages in this policy, the carrier will provide a defense with counsel of its choice. The carrier has no duty to defend the insured for suits seeking damages not covered by this policy or when the applicable limit of liability is used up in payment of judgments or settlements. Once a carrier has paid out policy limits, the carrier is no longer bound to provide a defense for the insured. Practically speaking it is unlikely that a carrier will leave an insured hanging in the middle of a lawsuit. They may continue to defend, but ask the insured for reimbursement later.

The insurer has the option to settle any claim or suit as it sees fit. Even if the insured has done nothing wrong, it may be less expensive for a carrier to settle a suit rather than defend one; the carrier has that option.

When a carrier does defend a suit for an insured, certain costs and expenses are paid by the carrier. The first is all costs incurred by the carrier; this would include court costs, attorney fees, and similar expenses. Likewise, any interest that accrues after a judgment has been entered, but the interest is applicable only until that judgment is paid within the carrier's limit of liability.

Prejudgment interest is also paid; if the carrier offers to pay policy limits, no prejudgment interest is paid after that offer has been made. Costs taxed against the insured are covered, however these costs do not include attorney expenses or fees.

The cost of various types of bonds is covered as well. Cost of appeal bonds or bonds to release attachments are paid as long as the cost is within the carriers liability limits. The carrier only has to pay for the bonds, it does not have to supply the bonds. Bail bonds up to $250 are paid resulting from accidents including those related to traffic law violations. Again, the cost of the bond up to $250 is paid; the carrier still does not have to actually provide the bond. It is up to the insured to find a supplier of the bond itself.

The last category is expenses incurred by the insured at the request of the carrier, as well as earnings up to $250 per day because the insured missed work at the request of the carrier. This could be because the insured had to appear in court or attend pretrial meetings with the carrier's attorneys. The earnings loss must be actual earnings such a salary. Someone working on commission does not have a predictable income; they may or may not make sales on any given day. Also included as a suit is any alternative dispute resolution to which the insured may submit as long as it's done with the carrier's prior written consent.

2. CONTRACTUAL COVERAGE

A. Coverage A is extended to include your liability to pay damages to others (third parties) because of bodily injury or property damage – to the extent otherwise insured by this policy – arising out of your expressed assumption of the liability of another (your indemnitee) under the oral or written contracts described in the following Paragraph B. This Supplemental Coverage applies only to contracts made in connection with your business/operations covered by this policy and, then, solely to bodily injury or property damage which occurs subsequent to execution of the covered contract.

B. Insured Contracts This Supplemental Coverage applies to the following oral or written contracts:

1. Agreements to indemnify a municipality as required by law or ordinance. This does not include agreements made in connection with work for a municipality: but the assumption of tort liability of another for such work is included under the following Paragraph 6. 2. Easements. This does not include easements involving work on, or within 50 feet of, a railroad, nor is the assumption of tort liability for such included under the following Paragraph 6. 3. Leases of premises. 4. Sidetrack agreements. 5. That part of any contract involving the lease or rental of any auto to you or your employees. This does not include any obligation to pay for property damage to any auto leased or rented to you or your employees. 6. That part of other contracts not as described in the preceding Paragraphs 1 thru 5, in which you have expressly assumed the tort liability (liability imposed by law in the absence of contract) of another.

C. Contracts Not Insured This Supplemental Coverage does not apply to that part of any contract that:

1. Holds a person or organization that is engaged in the business of transporting property by auto for hire harmless for your use of a covered auto over a route or territory such person or organization is authorized to serve by a public authority. 2. Pertains to the lease, loan, or rental of an auto with a driver to you or your employees.

If MCA 501 is listed in the Declarations, then coverage applies solely to those written contracts that you furnish to us within 60 days of their execution.

If MCA 502 is listed in the Declarations, then coverage applies solely to written contracts.

ANALYSIS:

Coverage is provided for injury or damage to others because of an insured's liability that the insured assumed under a particular type of contract outlined in the policy. There are six types of contracts listed as approved contracts for which the policy will provide coverage, and the contract can be oral or written.

The first type of covered contract is agreements to indemnify a municipality as required by law or ordinance. If the insured is required to indemnify a municipality by law, then this policy will provide coverage. However, agreements between the insured and the municipality made in connection with work the insured is conducting for the municipality are not covered, although if the insured has expressly assumed tort liability of another and that is not described in any of the other portions of the policy, then coverage applies. This is described in section 6 of covered types of contracts. For example, an insured was contracted to manufacture, print and install stop signs for the city. The contract required that the city be indemnified for any errors or misplacements of the insured. The insured hired a subcontractor to install the signs, thus assuming the tort liability of the subcontractor. If one of the signs is placed in the wrong spot and an accident ensues because of the misplacement, the insured may be held liable.

Easements are the second type of covered contracts, although this does not include easements involving work on, or within fifty feet of, a railroad. Likewise not included is the assumption of tort liability outlined under section 6.

Lease of premises, sidetrack agreements, and the part of any contract involving the leasing or renting of any auto to the insured or his employees are all covered contracts. An obligation to pay for damage to any auto leased or rented to the insured or the insured's employees is not included under this type of contract.

Section 6 describes that part of other contracts not otherwise listed as covered contracts, in which the insured has expressly assumed the tort liability of another. Tort liability is liability imposed by law and in the absence of a contract. So if the insured is found to be legally liable for a particular action, then unless it is excluded any damages would be covered. So if an insured signs a rental contract they will be liable for tort damages in an accident in a state where such damages are permissible by law in a civil court case.

The next section discusses contracts that are not covered by the policy. Any contract that holds a person or organization engaged in the business of transporting property by auto for hire harmless for the insured's use of a covered auto over a route or territory that person or organization is authorized to serve by a public authority is not covered. If the insured is hired by another to transport any type of property by auto, and a public authority authorizes the insured to use a particular route or travel through a particular territory, that hold harmless agreement is not considered a covered contract.

Likewise, any part of a contract that pertains to the lease, loan, or rental of an auto with a driver to the insured or one of the insured's employees is not covered. The issue here is the driver; a rented vehicle may be covered under other circumstances, but not when the rented vehicle comes with a driver provided for the use of the insured.

There are two statements pertaining to when certain forms are listed in the declarations. When MCA 501 is listed, coverage applies solely to the written contracts that the insured provides to the carrier within sixty days of their execution. If the insured does not provide the carrier with written contracts within sixty days, those contracts will not be covered.

If MCA 502 is listed in the declarations, then coverage applies solely to written contracts. Any verbal contracts an insured makes will not be covered.

3. INDIVIDUAL NAMED INSURED COVERAGE

If you are an individual, Coverage A is extended as follows:

A. While any private passenger type auto you own is a covered auto for Coverage A: 1. The Who is an Insured provision (Item C under Part II A – Main Liability Coverages) also includes family members for such autos and for any auto available or furnished for your or any family member's regular use. 2. Any auto not owned by you is a covered auto while being used by you or any family member other than the following: a. Any auto owned by any family member. b. Any auto available or furnished for your or any family member's regular use. c. Any auto used by you or any family member while such person is working in a business that parks, repairs, sells, services, or stores autos. d. Any auto, other than a private passenger type, that is used by you or any family member while such person is working in any other business or occupation. 3. The Pollution / Environmental Damage Exclusion under Part II C – Liability Not Insured does not apply to any covered auto that is a private passenger type. B. Paragraph D of the Employee, Employment and Related Injury Exclusion does not apply to bodily injury to your or any family member's fellow employees.

ANALYSIS:

If the named insured is an individual, then there are some additional coverages under Coverage A. The first is the inclusion of family members as insureds for autos owned and covered under Coverage A, and for any auto available or furnished for the insured or a family member's regular use.

Autos not owned by the insured are considered to be covered autos while being used by the insured or a family member except for:

• autos owned by a family member; • autos furnished or available for the insured or a family member's regular use; • an auto used by the insured or a family member while that person is working in a business that sells, services, repairs, or stores autos; or • any auto other than a private passenger auto used by the insured or a family member while working in any other business or occupation.

Autos owned by family members are different than autos owned by friends or strangers; likewise autos furnished for a family member's regular use should be covered under a different policy, and is likely insured by whomever is providing that vehicle for the family member's use. The business of working on, repairing, selling, or otherwise handling autos is best insured under different policy forms. Vehicles provided by an insured's or family member's business that is not the insured's business covered here are not covered under this policy. When a business provides an employee a vehicle, the business owns or leases the vehicle and likewise provides the insurance coverage for that vehicle. The insured on this policy has no liability for a vehicle provided to a family member by their employer.

Next is an exception that removes the pollution exclusion for private passenger autos. Likewise, an exception is made allowing coverage for injury to the insured or any family member's fellow employees outside of the exclusion for employment and related injury section.

4. OUT OF STATE COVERAGE

While a covered auto is within the coverage territory but out of the state where it is licensed, we will do the following:

A. Increase the Coverage A limit of liability under Part II D to meet the limits required by any compulsory insurance or financial responsibility law that applies in the jurisdiction where such covered auto is being used. However, this extension does not apply to any limits required by any law governing motor carriers of passengers or property.

B. Provide the minimum amounts and types of other coverages, such as a first party benefit or no-fault coverage, required for an out-of-state auto by the jurisdiction where such covered auto is being used.

However, we will not pay anyone more than once for the same elements of loss because of these extensions of coverage.

ANALYSIS:

Coverage for insured vehicles that are within the coverage territory but are out of the state they are licensed in is straightforward. The limit of Coverage A is automatically increased to meet the state's compulsory or financial responsibility laws in the jurisdiction the insured auto is being used. However this does not apply to laws that govern motor carriers of passengers or property; those exposures belong on different policies.

The policy also expands to provide the minimum amounts of other coverages, such as first party or no-fault benefits if they are required for an out-of-state auto by the jurisdiction where the auto is being used. For example an insured maintains his vehicles in Kentucky, but on occasion any of his vehicles may be used to travel into Tennessee. Since Tennessee has higher required limits than Kentucky, the insured's policy will expand and provide those higher limits as required by Tennessee laws. The policy only pays once for the same elements of loss because of these extensions; the policy will not provide duplicate coverage.