Summary: Section III of the business auto coverage form (BAP) contains the provisions relating to physical damage coverage for a covered auto or its equipment. This article discusses the insuring agreement, the exclusions, the limit of insurance, and the deductible clauses that make up Section III.
1. We will pay for "loss" to a covered "auto" or its equipment under:
a. Comprehensive Coverage.
From any cause except:
(1) The covered "auto's" collision with another object; or
(2) The covered "auto's" overturn.
b. Specified Causes of Loss Coverage Caused by:
(1) Fire, lightning, or explosion;
(2) Theft;
(3) Windstorm, hail, or earthquake;
(4) Flood;
(5) Mischief or vandalism; or
(6) The sinking, burning, collision, or derailment of any conveyance transporting the covered "auto".
c. Collision Coverage.
Caused by:
(1) The covered "auto's" collision with another object; or
(2) The covered "auto's" overturn.
Analysis:
The physical damage insuring agreement of the business auto coverage form states that the insurer will pay for loss to a covered auto or its equipment under any of three coverage choices: comprehensive, specified causes of loss, or collision. Note that none of these choices will be in effect unless a covered auto designation symbol or symbols are listed in item two of the policy declarations beside each coverage that the named insured desires.
When comprehensive coverage is selected, the insurer will pay for loss from any cause except the covered auto's collision with another object or its overturn. As an alternative to comprehensive coverage, coverage against a group of specified causes of loss can be purchased instead. These perils are fire, lightning, or explosion; theft; windstorm, hail, or earthquake; flood; mischief or vandalism; and the sinking, burning, collision, or derailment of any conveyance transporting the covered auto.
By the use of endorsement CA 99 14, the named insured can select any of four different packages of specified perils: (1) fire, (2) fire and theft, (3) fire, theft, and windstorm and (4) limited specified causes of loss. The first three packages also cover loss by lightning, explosion or by the sinking, burning, collision, or derailment of any conveyance transporting the covered auto. The fire, theft, and windstorm package and the limited specified causes of loss coverage include all of the above plus loss by hail or earthquake; the limited specified causes of loss package goes on to include loss by flood.
Collision coverage, if purchased, insures against loss caused by the covered auto's collision with another object or its overturn. Some physical damage forms used prior to the current business auto form have defined collision as including "upset," rather than "overturn." With respect to collision insurance, both terms have the same meaning. Courts have consistently held that overturn or upset takes place upon a vehicle's loss of equilibrium; the vehicle need not "roll over" or come to rest on its side or roof.
The North Dakota supreme court case of Williams v. Niesen, 261 N.W.2d 401 (1977), illustrates this principle. The loss involved a tractor trailer unit being used to transport cattle. While the unit was enroute to its destination, the left wheels of the trailer slid into a ditch causing the trailer to tilt at a 45 degree angle or more and the right wheels of the trailer to leave the ground; however, the trailer did not fall on its side. As a result of the tilting, the upper deck of the trailer collapsed and some of the cattle were killed. The court held that the death of the cattle was proximately caused by "overturn of the vehicle." The decision contains a detailed summary of other cases involving overturn and upset of vehicles.
In the case of collision, the vehicle must actually collide with a vehicle or an object. While there are many interpretations of terms when they are undefined in the policy, courts will turn to a standard desk reference for meaning. While there are variations, in general the definitions are alike in that collision involves two objects striking each other in some way.
However, there are at least two initial rules that may help in determining whether a loss is properly characterized as a collision loss. First, the insured automobile need not be in motion. Second, the collision need not be with another automobile. Unfortunately, these two rules do not serve as instant and resolute clarification of the issue in every claim situation. As the Court of Appeals of Kentucky noted in Calvert Fire Insurance Company v. Little, 421 S.W.2d 584 (Ky. 1967), ". . . the word 'collision' is susceptible of various constructions." The definition of the term in the auto policy does offer some guidelines by which these various constructions can be made, but enough truly murky loss situations do exist so as to keep the question "what is collision?" open to discussion.
In this case the driver traversed the same stretch of road six or eight times a day for two months and was fully aware of the ditch. The appellate court determined that the impact with the ditch could not be considered a "collision" as "collision" has been defined in part as unforeseen, accidental impact with any kind of object. The appellate court reversed the trial court's judgment for the insured for the loss, and stated that the insurer was responsible only for the damage caused by the truck hitting the coal tipple, and not the ditch.
For further discussion of what types of losses qualify for collision coverage, see What Is Collision?
2. Towing And Labor
We will pay up to the limit shown in the Declarations for towing and labor costs incurred each time a covered "auto" that is a private passenger type, light truck or medium truck is disabled. However, the labor must be performed at the place of disablement.
Analysis:
New with the 11 20 edition of the form, the towing and labor coverage has been enhanced to provide coverage for not only private passenger type vehicles, but also for light or medium trucks.
The physical damage coverage section of the business auto form has this clause discussing the towing coverage that the insurer provides to the insured. The important points to remember about this coverage are the following: the most that the insurer will pay under this clause is the limit shown on the declarations page, so the insured and the insurer should put in a limit that is acceptable and appropriate for both parties; the insurer will pay each time a covered auto is disabled, so the designated limit can be paid each and every time a covered auto is disabled even if it is the same auto that is disabled time and time again; the disabled auto must be of the private passenger type, so no trucks or trailers will receive this towing coverage; finally, the labor must be performed at the place of disablement, so the insurer is not going to pay for labor costs under this clause that arise after the disabled auto is towed into the repair shop.
3. Glass Breakage — Hitting a Bird or Animal — Falling Objects or Missiles
If you carry Comprehensive Coverage for the damaged covered "auto", we will pay for the following under Comprehensive Coverage:
- Glass Breakage;
- "Loss" caused by hitting a bird or animal; and
- "Loss" caused by falling objects or missiles.
However, you have the option of having glass breakage caused by a covered "auto's" collision or overturn considered a "loss" under Collision Coverage.
Analysis:
A distinct insuring agreement states that glass breakage and loss by collision with a bird or animal or by falling objects or missiles will be paid as comprehensive losses if the named insured carries comprehensive coverage on the damaged auto (if the policy does not include comprehensive coverage—perhaps the insured has selected specified causes of loss coverage—then this provision of course has no applicability). This will obviously work to the insured's advantage if the policy does not include collision coverage, which in the absence of this provision would be the only applicable coverage, or if the insured carries both coverages but with a higher deductible on collision.
This provision also states that the named insured has the option of having glass breakage caused by a covered auto's collision or overturn considered a collision loss. Without this option, the provision respecting glass breakage could result in the application of both the collision deductible and the comprehensive deductible in an accident where a collision resulted in both glass breakage (subject to comprehensive deductible) and damage to other parts of the auto (subject to collision deductible).
4. Coverage Extension
- Transportation Expenses
We will pay up to $30 per day to a maximum of $900 for temporary transportation expense incurred by you because of the total theft of a covered "auto" of the private passenger type. We will pay only for those covered "autos" for which you carry either Comprehensive or Specified Causes Of Loss Coverage. We will pay for temporary transportation expenses incurred during the period beginning 48 hours after the theft and ending, regardless of the Policy's expiration, when the covered "auto" is returned to use or we pay for its "loss".
b. Loss Of Use Expenses
For Hired Auto Physical Damage, we will pay expenses for which an "insured" becomes legally responsible to pay for loss of use of a vehicle rented or hired without a driver, under a written rental contract or agreement. We will pay for loss of use expenses if caused by:
(1) Other than collision only if the Declarations indicate that Comprehensive Coverage is provided for any covered "auto";
(2) Specified Causes of Loss only if the Declarations indicate that Specified Causes of Loss Coverage is provided for any covered "auto"; or
(3) Collision only if the Declarations indicate that Collision Coverage is provided for any covered "auto".
However, the most we will pay for any expenses for loss of use is $30 per day to a maximum of $900.
Analysis:
The business auto form provides a coverage extension for transportation expense incurred by the named insured because of the total theft of a covered auto of the private passenger type that is insured for comprehensive or specified causes of loss. The most that the insurer will pay has been increased under the 11 20 edition of the form to $20 per day, to a maximum of $900 in any one disablement. Coverage begins 48 hours after the theft and may last no longer than when the covered auto is returned to use or the insurer pays for its loss. Expiration of the policy period does not end the period of coverage for transportation expense coverage, however. Note that the coverage is for temporary transportation expenses; this coverage extension is not meant to be permanent in nature and the inclusion of this term in the extension clause simply reinforces that point.
If similar coverage is desired on vehicles of other than the private passenger type, it can be provided through rental reimbursement coverage endorsement CA 99 23. Rental reimbursement coverage, however, is a broader form of coverage in that it can be arranged to apply to the expenses incurred by the named insured for the rental of an auto because of loss of use resulting from collision, comprehensive, or specified causes of loss instead of just theft alone. Moreover, rental reimbursement coverage can be written to provide higher daily and aggregate limits than the $30/$900 limits found on the auto coverage form, and it is subject to a 24-hour waiting period instead of the 48-hour waiting period for transportation expense coverage. Naturally, rental reimbursement coverage can be purchased for private passenger autos as well, if the named insured wants broader loss of use coverage than transportation (theft) expense. It should be noted that the coverage provided by this endorsement does not apply while there are spare or reserve autos available to the named insured for his operations; also, no deductibles apply to this coverage.
The coverage extension also applies to loss of use expenses. This comes into play when the insured becomes legally responsible to pay for the loss of use of a rented or hired vehicle under a written rental contract. The covered causes of loss are collision, specified causes of loss, and other than collision, provided they are indicated on the insured's declarations form. An example of this is: the insured rents a car and agrees to be responsible for the loss of use expenses if an accident occurs; subsequently, the insured has a collision, and the rental car is out of commission for a week. The insured's BAP will pay the rental agency's loss of use expense claim if the insured had collision coverage under his BAP.
Exclusions
1. We will not pay for "loss" caused by or resulting from any of the following. Such "loss" is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the "loss".
- Nuclear Hazard
(1) The explosion of any weapon employing atomic fission or fusion; or
(2) Nuclear reaction or radiation, or radioactive contamination, however caused.
Analysis:
This exclusion is prefaced with anti-concurrent cause of loss language to preclude coverage even if the loss occurs in combination with a cause of loss that is not excluded. Other than that, this exclusion is a standard nuclear hazard exclusion as is found on most, if not all, standard insurance policies.
b. War or Military Action
(1) War, including undeclared or civil war;
(2) Warlike action by a military force, including action in hindering or defending against an actual or expected attack, by any government, sovereign or other authority using military personnel or other agents; or
(3) Insurrection, rebellion, revolution, usurped power or action taken by governmental authority in hindering or defending against any of these.
Analysis:
This exclusion, like the nuclear hazard exclusion, is affected by the anti-concurrent cause of loss language.
2. We will not pay for "loss" to any covered "auto" while used in any professional or organized racing or demolition contest or stunting activity, or while practicing for such contest or activity. We will also not pay for "loss" to any covered "auto" while that covered "auto" is being prepared for such a contest or activity.
Analysis:
Just as the BAP excludes liability coverage arising out of racing or demolition or stunting activities, so also is physical damage coverage to the covered auto engaged in such activities excluded. If the insured wants coverage for his auto while engaged in racing or demolition derbies, there are specialty markets for that exposure.
3. We will not pay for "loss" due and confined to:
- Wear and tear, freezing, mechanical or electrical breakdown.
- Blowouts, punctures, or other road damage to tires.
This exclusion does not apply to such "loss" resulting from the total theft of a covered "auto".
Analysis:
This is the exclusion that may be troublesome to adjusters. It states that physical damage coverage does not apply to loss due and confined to wear and tear, freezing, or mechanical or electrical breakdown. The problem lies in trying to determine the "due and confined to" phrase. For example, the insured has an older vehicle and the seal around the sunroof deteriorates (unknown to the insured). This fact allows water to seep into the vehicle and damage the interior. Without the "due and confined to" language, a case could be made that the resulting damage was caused by the normal wear and tear, and so, the claim would be denied. However, with the language as it now is, and since exclusions have to be read as narrowly as is reasonable in order to give the insured as much coverage as possible, the better course for the insurer is to deny coverage for the wear and tear of the seal, confine that exclusion to that part of the overall damage, and then pay for the water damage.
The most usual application of the freezing exclusion is probably when the engine block cracks due to the freezing and consequent expansion of engine fluids. The freezing exclusion is not applicable to sudden and accidental cracking of vinyl seats, windows, or other plastic parts of an auto that results when cold weather makes such items brittle. This type of damage is simply not due to freezing. Freezing is the changing from a liquid to a solid by reduction in temperature. Plastic, being a solid, is already "frozen" when installed in the car. The further reduction in temperature merely causes contraction and possibly an increase in brittleness, but not "freezing."
Another part of this exclusion applies to blowouts, punctures, or other road damage to tires. The classic example of tire damage that is not reached by this exclusion is tire slashing by vandals if the insured has comprehensive or specified causes of loss coverage.
The exception to the exclusion is important in theft losses. If, for example, an auto covered for theft is stolen while in good mechanical condition and later recovered with burned-out clutch and brakes, the "wear and tear" and "mechanical breakdown" can be attributed to the theft and therefore will be covered. Naturally, the exception can apply in connection with any other type of covered loss. If, for example, electrical circuitry found in the dash area of the auto is damaged as a result of a covered collision that occurs after a theft of the auto, the exclusion will not apply to the resulting "electrical breakdown."
4. We will not pay for "loss" to any of the following:
- Tapes, records, discs, or other similar audio, visual, or data electronic devices designed for use with audio, visual, or data electronic equipment.
- Any device designed or used to detect speed measuring equipment such as radar or laser detectors and any jamming apparatus intended to elude or disrupt speed measurement equipment.
- Any electronic equipment, without regard to whether this equipment is permanently installed, that reproduces, receives or transmits audio, visual, or data signals.
- Any accessories used with the electronic equipment described in paragraph c. above.
5. Exclusions 4.c. and 4.d. do not apply to equipment designed to be operated solely by the use of the power from the "auto's" electrical system that, at the time of "loss", is:
- Permanently installed in or upon the covered "auto";
- Removable from a housing unit which is permanently installed in or upon the covered "auto";
- An integral part of the same unit housing any electronic equipment described in Paragraphs a. and b. above; or
- Necessary for the normal operation of the covered "auto" or the monitoring of the covered "auto's" operating system.
Analysis:
This exclusion applies in one way or another to various types of equipment or accessories that are often found in autos.
Physical damage coverage does not apply to loss to tapes, records, discs, or other similar audio, visual, or data electronic devices designed for use with audio, visual, or data electronic equipment (coverage can be provided through the use of endorsement CA 99 30—see Business Auto Endorsements). The purpose here is to not insure small, portable items like tapes and discs under the auto form, but just what is meant by "data electronic devices or equipment" is not clear; the words are not defined on the form. Perhaps the exclusion is meant to apply to things like fax machines or computers that are beginning to show up in some types of autos; but, without a definition in the auto form to confine the parameters of those words, "data electronic devices and equipment" are going to be open to just about any interpretation.
Physical damage coverage does not apply to any electronic equipment, without regard to whether this equipment is permanently installed, that reproduces, receives or transmits audio, visual, or data signals; so, radios and tape decks, for example, as well as television sets are included in this part of the exclusion. Note that loss to any accessories used with the electronic equipment is also excluded. However, see the following paragraph.
The parts of the exclusion that refer to electronic equipment and accessories (paragraphs 4.c and 4.d) do not apply to equipment designed to be operated solely by use of the power from the auto's electrical system under certain conditions. The exception applies to equipment permanently installed in the covered auto at the time of loss, or provided such equipment is removable from a housing unit that is permanently installed in the covered auto at the time of the loss. Furthermore, such equipment must be necessary for the normal operation of the covered auto. This exclusion (5) simply makes the point that a direct and accidental loss to things like radios, tape decks, and television sets can be covered under the auto form, but the coverage is conditional.
6. We will not pay for "loss" to a covered "auto" due to "diminution in value".
Analysis:
Diminution in value is the loss of value for a damaged auto after that vehicle has been repaired. The market value of a damaged auto is less than it was prior to the accident even if the auto has been completely repaired. But, since an exact loss in value cannot be easily and objectively established, and since such a market loss is not a direct physical loss to the auto, the BAP will not cover such a loss. A diminution in value loss was considered to be a consequential (not direct) loss by the BAP's drafters, and therefore not covered, but argument and controversy surrounding the issue resulted in this attempt to clarify the matter.
Limit of Insurance
1. The most we will pay for "loss" to any one covered auto is the lesser of:
- The actual cash value of the damaged or stolen property as of the time of the "loss"; or
- The cost of repairing or replacing the damaged or stolen property with other property of like kind and quality.
2. The most we will pay for all electronic equipment that reproduces, receives, or transmits audio, visual or data signals in any one "loss" is $1,000, if at the time of "loss", such electronic equipment is:
- Permanently installed in or upon the covered "auto" in a housing, opening or other location that is not normally used by the "auto" manufacturer for the installation of such equipment;
- Removable from a permanently installed housing unit such as described in the previous paragraph; or
- An integral part of such equipment as described in the previous paragraphs.
3. An adjustment for depreciation and physical condition will be made in determining actual cash value in the event of a total "loss".
4. 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 physical damage coverage of the business auto coverage form is said to be on an actual cash value basis. That is, the insurer will pay no more than the actual cash value of the damaged or stolen property at the time of loss. If, however, it would cost less to repair or replace damaged or stolen property with property of like kind and quality, the insurer may pay that lesser amount.
To alter the usual actual cash value provisions described above, the underwriter can, by attaching stated amount endorsement CA 99 28, limit recovery for any loss to no more than the amount shown for that auto in the endorsement, even if less than actual cash value or repair cost. However, if the actual cash value or repair cost of the damaged property is less than the stated amount, the lower amount governs. In other words, attachment of the stated amount endorsement does not create a valued policy as in some classes of inland marine insurance or other property coverage forms.
The insurer will also pay up to $1,000 for loss to all electronic equipment that reproduces, receives, or transmits audio, visual, or data signals in accordance with the exception noted previously in the exclusions section of the BAP. This payment depends on the equipment being permanently installed somewhere in the covered auto.
If the insured suffers a total loss to his covered auto, an adjustment for depreciation and physical condition is made when the insurer determines the actual cash value. So, if the insured has a 1985 Ford which has high mileage and plenty of wear and tear, the insurer will take these physical conditions into consideration before paying the insured for a total loss.
Deductible
For each covered "auto", our obligation to pay for, repair, return, or replace damaged or stolen property will be reduced by the applicable deductible shown in the Declarations prior to the application of the Limit Of Insurance, provided that:
1. The Comprehensive or Specified Causes Of Loss Coverage deductible applies only to "loss" caused by:
- Theft or mischief or vandalism; or
- All perils.
2. Regardless of the number of covered "autos" damaged or stolen, the maximum deductible applicable for all "loss" in any one event caused by:
- Theft or mischief or vandalism; or
- All perils,
will be equal to five times the highest deductible applicable to any one covered "auto" on the Policy for Comprehensive or Specified Causes Of Loss Coverage. The application of the highest deductible used to calculate the maximum deductible will be made regardless of which covered "autos" were damaged or stolen in the "loss".
Analysis:
The deductible provision has changed effective with the 11 20 edition of the form.
For each covered auto, the insurer's obligation to pay for, repair, return, or replace damaged or stolen property is reduced by the applicable deductible shown in the declarations, and the exception for loss caused by fire or lightning has been eliminated. The deductible may remain on a per auto, rather than an occurrence basis. The deductible applicable to comprehensive or specified causes of loss will apply only to loss caused by either theft or mischief or vandalism; or for all perils.
In addition, to provide more flexibility for insureds with auto fleets garaged at a single location, a per occurrence option is available to apply to all loss in any one event caused by either theft or mischief or vandalism; or for all perils.
This deductible will be equal to five times the highest deductible that applies to any one covered auto on the policy for either comprehensive or specified causes of loss coverage. So, regardless of which covered autos were damaged or stolen in the loss, the highest deductible of any one auto will be used to calculate the maximum deductible amount. So if there are 50 covered autos and 25 of those autos are garaged at a location that suffers a hailstorm damaging 20 of those vehicles, the policy will look to the highest deductible for any auto on the policy. For example, if most of the autos are at a $1,000 deductible but there is a Jaguar scheduled with a $5,000 deductible, then the policy will use 5 times the $5,000 deductible, or $25,000, as the maximum deductible, even if the Jaguar was not at the garaged location where the hailstorm hit. So this could result in a higher deductible amount than if a single $1,000 deductible applied to the 20 damaged autos. So it will be important for the insured to carefully assess their maximum values at risk at any one location, and establish deductible amounts taking all of this into consideration.
Includes copyrighted material of Insurance Services Office, Inc., with its permission.
July 2018, September 2014