Personal Auto Policy – Part A Liability

Personal Auto Policy – Part B Medical Payments

Personal Auto Policy – Part C Uninsured Motorists Coverage

Personal Auto Policy – Part D Coverage for Damage to Your Auto

Personal Auto Policy – Part E & F Duties after a Loss/General Provisions

Topics covered:

Insuring agreement

Transportation expenses

Exclusions

Limit of liability

Payment of loss

No benefit to bailee

Other sources of recovery

Appraisal

Insuring Agreement

A. We will pay for direct and accidental loss to "your covered auto" or any "non-owned auto", including its equipment, minus any applicable deductible shown in the Declarations. If loss to more than one "your covered auto" or "non-owned 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 indicates that Other Than Collision Coverage is provided for that auto. 2. "Collision" only if the Declarations indicates that Collision Coverage is provided for that auto.

If there is a loss to a "non-owned 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 non-owned 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 "its," 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 non-owned 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 non-owned 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 non-owned 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.

B. "Collision" means the upset of "your covered auto" or a "non-owned auto" or its 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 non-owned auto or the impact with another vehicle or object. Impact is not defined, so we turn to a standard desk reference. Merriam Webster online defines impact as: an impinging or striking especially of one body against another, or b: a forceful contact or onset. For example, Steve runs a stop sign and collides with Bob's vehicle, this is a collision loss. The two vehicles forcefully made contact.

The traditional division of automobile physical damage insurance into collision and comprehensive is maintained in the personal auto policy, but the terminology has changed. The comprehensive coverage is now named other than "collision". While breakage of glass falls under other than "collision", if a "collision" incident breaks glass, the insured has the option to have it considered a "collision" loss. Depending on how the insured has set his deductibles, this lets the insured select the lowest deductible.

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?

C. "Non-owned 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 "non-owned 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.

The term also includes any non-owned 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 non-owned auto now includes a temporary substitute, if there is a loss to a non-owned 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 because the definition of non-owned 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 for those owned by family members or furnished or available for their regular use.

D. "Custom equipment" means equipment, furnishings and parts in or upon any auto, other than:

1. Original manufacturer equipment, furnishings or parts; or 2. Any replacement of original manufacturer equipment, furnishings or parts with other equipment, furnishings or parts of like kind and quality.

"Custom equipment" includes but is not limited to:

a. Special carpeting or insulation; b. Furniture or bars; c. Height-extending roofs; d. Body, engine, exhaust or suspension enhancers; e. Winches, or anti-roll or anti-sway bars; f. Custom grilles, louvers, side pipes, hood scoops or spoilers; g. Custom wheels, tires or spinners; h. Custom chrome, murals, paintwork, decals or other graphics; or i. Caps, covers or bedliners.

"Custom equipment" does not include electronic equipment that reproduces, receives or transmits audio, visual or data signals.

Analysis

Custom equipment is the last definition within the physical damage section of the policy. It is defined so that exactly what is considered "custom equipment" by the insurer is understood by the insured. Not that electronic equipment the reproduces, receives or transmits audio, visual or data signals is considered custom equipment. Therefore, televisions, radios, navigation and other such systems are not considered "custom equipment". "Custom equipment" is describing actual physical equipment that modifies the body or mechanical components of a vehicle.

Transportation Expenses

A. In addition, we will pay, without application of a deductible, up to a maximum of $900 for:

1. Temporary transportation expenses not exceeding $30 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 indicates that Other Than Collision Coverage is provided for that auto. b. "Collision" only if the Declarations indicates that Collision Coverage is provided for that auto.

2. Expenses for which you become legally responsible in the event of loss to a "non-owned auto". We will pay for such expenses if the loss is caused by:

a. Other than "collision" only if the Declarations indicates 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 $30 per day.

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 $900 maximum for temporary transportation expenses incurred by the named insured in the event of a loss to the named insured's covered auto. This limit has been increased in the 2018 policy from the earlier limit of $600.

The expenses are paid if the loss is caused by other than collision or collision if the declarations indicate that the coverage is provided for the auto in question. Note that the temporary transportation expenses will be paid only up to $30 per day, again, an increase from the earlier $20 limit in the previous policy. If the insured wants to rent a Mercedes for $100 per day as a temporary vehicle, he or she will be responsible for $70 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 non-owned 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 $30 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 $30, the insured must pay for the excess over $30, and the $900 transportation expenses maximum affects this coverage also.

B. Subject to the provisions of Paragraph A., if the loss is caused by:

1. A total theft of "your covered auto" or a "non-owned 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 "non-owned auto" is returned to use or we pay for its loss.

2. Other than theft of a "your covered auto" or a "non-owned 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 "non-owned auto"

Analysis

If the loss is caused by a total theft of the covered auto or a non-owned auto, the expenses do not apply until 48 hours after the theft, and they end when the covered auto or non-owned 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 cause of loss is 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 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 09 18 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 expense coverage is afforded, then the transportation expenses are increased to the limits shown in the schedule of the endorsement. This endorsement applies to non-owned autos also. Available limits are as follows:

Towing and labor costs coverage can be added to the policy, through endorsement PP 03 03 09 18 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 non-owned auto. Labor is covered only if performed at the place of disablement.

Exclusions

We will not pay for:

1. Loss to "your covered auto" or any "non-owned auto" which occurs while it is being used as a public or livery conveyance. This includes but is not limited to any period of time "your covered auto" or any "non-owned auto" is being used by any person who is logged into a "transportation network platform" as a driver, whether or not a passenger is "occupying" the vehicle.

This exclusion (1.) does not apply:

a. To a share-the-expense car pool; or b. While "your covered auto" or any "non-owned auto" is being used for volunteer or charitable purposes.

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 "non-owned auto".

Analysis

There is no coverage for any "your covered auto" or "non-owned auto" while the vehicle is being used as a public or livery conveyance. With the development of ridesharing, a new exclusion has been added for when a "covered auto" or "non-owned auto" driver is logged into a transportation network platform such as Uber or Lyft, nor would there be coverage for a passenger(s) being transported under such a network.

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 the 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."

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.

Analysis

This exclusion covers events that are essentially uninsurable events that are of such a scale that it would be extremely difficult if not impossible for the insurance industry to respond to. War, nuclear weapons and rebellions are impossible to predict and develop rates for.

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 disc systems; d. Navigation systems; e. Internet access systems; f. 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, discs or other media used with equipment described in Exclusion 4.

Analysis

The insuring agreement covering Part D of the Personal Auto, 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.

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. Because of advances in technology, coverage has changed overtime to provide coverage for permanently installed navigation 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.

The exclusion 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 09 18 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.

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.

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 14 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 "homes on wheels" have to be looked upon as separate and distinct items from regular autos used mainly for transportation. These home-type vehicles can be considered covered autos under the Personal Auto, but they must be scheduled in order for the proper premium to be charged to adequately cover the exposures.

An exception to this exclusion is a trailer that the named insured does not own., or 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.

8. Loss to any "non-owned auto" when used by you or any "family member" without a reasonable belief that you or that "family member" are entitled to do so. 9. Loss to equipment designed or used for the detection or location of radar or laser. 10. Loss to any "custom equipment" in or upon "your covered auto" or any "non-owned auto".

This exclusion (10.) does not apply to the first $1,500 of "custom equipment" in or upon "your covered auto" or any "non-owned auto".

Analysis

Coverage is excluded when the insured or a "family member" drives a "non-owned auto" without the reasonable belief that they are entitled to do so. At first glance this is theft – if the insured takes someone else's vehicle without permission and wrecks it, the policy will not pay for the loss.

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.

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 Personal Auto policy. Fuzz busters and similar types of equipment are not covered. The point of such equipment is to avoid detection by police when driving over the speed limit or in another unsafe manner. No insurer wants to imply that such activity is ok, and will not pay for equipment that helps an insured avoid detection.

The exclusion for "custom equipment" seems to eliminate coverage for the customizing equipment; however, there is an exception for the first $1,500 of "custom equipment" on the vehicle. Anything beyond that needs to be scheduled with the PP 03 18 Excess Custom Equipment endorsement. This endorsement allows the insured to schedule additional "custom equipment" onto the vehicle.

The endorsement PP 03 18 09 18 provides coverage for customizing equipment, subject to these rules: comprehensive or collision coverage for customizing equipment may be purchased only if the vehicle with such customizing equipment itself has the corresponding comprehensive or collision coverage; and the deductibles on the coverages are the same as those listed for the vehicles on the declarations page of the Personal Auto. 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 policy; 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. Limits can be raised in $1,000 increments from $2,000 to $10,000.

11. Loss to any "non-owned 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 e. Parking;

vehicles designed for use on public highways. This includes road testing and delivery.

Analysis

There are restrictions on coverage for a non-owned auto used in business. There is no physical damage coverage whatsoever for any non-owned 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 Personal Auto policy will provide no coverage for the damage. This is an exposure that is best handled under commercial insurance.

12. Loss to "your covered auto" or any "non-owned auto", located inside a facility designed for racing, for the purpose of:

a. Participating or competing in; or b. Practicing or preparing for; any prearranged or organized:

(1) Racing or speed contest; or (2) Driver skill training or driver skill event.

13. Loss to, or loss of use of, a "non-owned 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

There is a racing exclusion similar to this one under the liability section on the personal auto policy. The insurer will not pay under Part D for loss to the named insured's covered auto or any non-owned auto located inside a facility designed for racing, for the purpose of competing in, practicing or preparing for any prearranged or organized racing or speed contest. Note that the exclusion is only for racing within a facility; street racing, albeit inherently dangerous, is not excluded.

The insurer will not pay for loss to or loss of use of a "non-owned 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 that 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 collision 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 Personal Auto insurer.

14. Loss to "your covered auto" which occurs while:

a. Enrolled in a personal vehicle sharing program under the terms of a written agreement; and b. Being used in connection with such personal vehicle sharing program by anyone other than you or any "family member".

15. Loss to, or loss of use of, a "non-owned auto" used by:

a. You; or b. Any "family member";

in connection with a personal vehicle sharing program if the provisions of such a personal vehicle sharing program preclude the recovery of such loss or loss of use, from you or that "family member", or if otherwise precluded by any state law.

16. Loss to any vehicle which is designed or can be used for flight.

Analysis

These last three exclusions are new in the 2018 policy. The gig economy invented not just ride-sharing programs, but vehicle sharing programs. These programs allow the insured to rent out his vehicle to others for additional income. As the drivers are unknown to the insurer and the rentals are for short lengths of time, the insurer has no way to develop premium for then unknown drivers. Therefore, coverage is excluded when an insured is renting out his vehicle through any vehicle sharing program. Likewise, if the insured or a "family member" is renting a vehicle through a vehicle sharing program, damage to that rented vehicle is excluded as well, if the provisions of the vehicle sharing program or state law preclude such.

A last new exclusion has been added for any vehicle that is designed or can be used for flight. While such vehicles are not available for purchase by the public, they are in development. Therefore, the exclusion has been added so that when such vehicles are available it is clear that there is no coverage provided by the personal auto policy.

Limit of Liability

A. 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:

a. Any "non-owned auto" which is a trailer is $1,500. b. 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. c. "Custom equipment" in or upon "your covered auto" or any "non-owned auto" is $1,500

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.

Analysis

The limit of liability is the lesser of actual cash value or the cost to repair or replace the vehicle. Definite limits for certain items are specified. In determining the actual cash value, an adjustment will be made fro depreciation and physical condition of the vehicle. A ten-year old vehicle does not have the same value as a brand new vehicle, and the insured will be compensated for what he had.

The most the insurer will pay for loss to any non- owned trailer is $1500. Coverage for loss to electronic equipment permanently installed in a location not used by the manufacturer for such installation is limited to $1,000. If the insured wants more than the $1,000 coverage, he can use endorsement PP 03 13 09 18 Excess Electronic Equipment Coverage 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.

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.

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.

When a vehicle is stolen, insurers often wait for thirty days before settling the loss as the vehicles are often found. In such instances unless the vehicle is a total loss repairs are made. If the vehicle is found after the settlement is made, the insurer may allow the insured to take the vehicle back in return for the settlement amount, in which case the insurer will make any needed repairs. If the insured does not want the vehicle or it has been too long since settlement, the insurer will keep the vehicle as salvage. The insurer can then sell the vehicle or the parts if it is significantly damaged in order to recoup some of what was paid to the insured.

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.

Another method by which to fix the limit of liability can be provided by theCoverage for Damage to Your Auto (Maximum Limit of Liability) endorsement PP 03 08 09 18. A maximum value is allowed to be scheduled for each vehicle listed with a description of the vehicle. Payment is for the lesser of the amount scheduled, the actual cash value of the vehicle, or the amount necessary to repair or replace the vehicle.

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 and 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.

No Benefit to Bailee

This insurance shall not directly or indirectly benefit any carrier or other bailee for hire.

Analysis

The no benefit to bailee clause makes it clear that when a bailee or other carrier for hire is in possession of the vehicle, that the policy will not apply to those bailees or carriers. If the vehicle is in the shop for repairs, the repair shop is the bailee. If the vehicle is damaged while at the shop, the insured's policy will not pay for the repair of those damages as it is the responsibility ofo the bailee to make those repairs. Under the physical damage portion of the policy, only the insured, who owns the vehicle, may benefit from the repairs or replacement of the vehicle.

Other Sources of Recovery

If other sources of recovery also cover the loss, we will pay only our share of the loss. Our share is the proportion that our limit of liability bears to the total of all applicable limits. However, any insurance we provide with respect to a "non-owned 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 "non-owned auto". 2. Any other applicable physical damage insurance. 3. Any other source of recovery applicable to the loss.

Analysis

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 which is the proportion of its limit of liability to the total of all other applicable limits. 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 Personal Auto policy, "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 non owned autos shall be excess over any other collectible source of recovery. This means, for example, when the owner of a car that is borrowed by the insured carries physical damage insurance on that car, that policy will be primary. Then, if some part of the loss is not covered under the owner's policy, the personal auto policy of the insured who borrowed the auto will step in. Often, the only part of the loss not covered will be the owner of the auto's deductible. If that deductible is larger than the borrower's deductible, the borrower's insurer will pay the difference between the two deductibles.

Appraisal

A. If we and you do not agree on 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.