STRUCTURE OF PERSONAL AUTO POLICIES

As with homeowners policies, there is a standard personal auto policy published by the Insurance Services Office. As is the case with homeowners policies, many insurers, particularly direct writers such as State Farm, Allstate, and Farmers, use proprietary policy forms for their personal auto policies. Furthermore, jurisdictions, like Massachusetts, have established a statutorily-mandated personal auto policy. The provisions of the standard ISO personal auto policy and of the proprietary policies sold by other insurers tend to be more alike in their basic coverage provisions than they differ. Coverage provisions in the ISO personal auto policy are grouped as follows: ◆ definitions; ◆ liability coverages; ◆ medical payments coverage; ◆ uninsured motorist coverage; ◆ first-party physical damage coverages; ◆ insured’s duties after accident or loss; and, ◆ general provisions. Proprietary personal auto policy forms used by insurers that do not employ the ISO personal auto policy forms may differ in the order in which Personal Automobile Policies 151 these categories of provisions appear. Personal auto policies issued in no-fault states also differ from the ISO personal auto policy. For example, the Massachusetts Automobile Insurance Policy first lists the policy’s definition and the four compulsory coverages, which include the no-fault coverages. Following the basic coverage provisions are the optional coverage provisions. These are then followed by the general provisions and exclusions, with provisions relating to cancellation and renewal, the insured’s duties in case of accident or loss, and the safe driver insurance plan provisions. INSURABLE INTEREST Before discussing the actual provisions of auto policies, the concepts of insurable interest and insured capacity, as they relate to the coverages afforded by auto policies, should be discussed. As with homeowners policies, the concept of insurable interest relates to the coverages for physical damage to your auto. A person must have an insurable interest in the auto in question to be entitled to payment of a loss. The easy insurable interest concepts are those of the registered owner and a lien holder, such as your auto loan lender or leasing company of a covered vehicle. However, coverage also extends to nonowned autos. The common definitions of nonowned autos includes rental vehicles and borrowed vehicles as long as they are not regularly available for use by a named insured or a family member. Spouses will generally be considered to have an insurable interest even if not a registered owner of the vehicle. The concept of insured capacity is mostly a question of the definitions of insured, covered person, family member, or eligible injured person, as well as those arising under the vehicle codes and other state laws. For example, the laws of a particular state may require that a person using a vehicle with the named insured’s express or implied permission be covered as an insured under the named insured’s policy. Such requirements are related to the named insured’s statutory liability as the vehicle owner for bodily injury or property damage arising out of its use. 152 The Complete Book of Insurance PERSONAL AUTO POLICY DEFINITIONS Common definitions used in the ISO personal auto policy form include the following. Accident The ISO personal auto policy uses the terms auto accident, accident, and accidental, without specifically defining any of those terms. Many of the policy forms used by insurers that do not employ the ISO personal auto policy do define accident. Most such definitions incorporate some form of unexpected or unintended language. This is to make clear the fundamental concept that insurance applies only to fortuitous losses, not to expected or intended losses. Bodily Injury Bodily Injury means bodily harm, sickness, or disease, including death that results. This is essentially the same as the bodily injury definition of the ISO HO 3 homeowners policy’s liability coverage. Occasional variations are seen in other policies, but this is a standard and workable definition. (However, the Massachusetts Auto Insurance Policy does not contain a definition of bodily injury at all.) Business Business includes trade, profession or occupation. Not all personal auto policies contain a definition of business. Family Member Family member means a person related to you by blood, marriage, or adoption who is a resident of your household. This includes a ward or foster child. Other insurers’ definitions can add qualifications that eliminate coverage for wards or foster children or for children who have manifested an intent to reside elsewhere permanently. Where you need to be careful is if you have children who reside temporarily elsewhere because they are attending school or are in the military, but whose legal address is still your residence. You need to assure that your policy’s definition of family member extends to your chilPersonal Automobile Policies 153 dren in such a situation in order to assure that they continue to qualify as insureds under your policy. If the definition of family member does not extend to such circumstances, then it may be necessary to obtain a separate policy to cover your child’s use of vehicles while temporarily away at school or in the military. (The Massachusetts Auto Insurance Policy contains a definition of household member that is substantially the same as the definition of family member in the ISO personal auto policy.) Occupying Occupying means in, upon, or getting in, on, out, or off. This definition relates to a very important concept applicable to auto liability insurance. Historically, the insuring agreements of many auto policies stated in substance and effect that coverage applied to liability arising out of the ownership, maintenance, or use of covered autos. Over the decades, there has been an enormous amount of litigation over what constitutes ownership, maintenance, or use of covered autos. Occupying will be discussed in greater detail in the discussion on liability coverages of auto policies. (see Chapter 14.) Suffice it to say for now that the concept of occupying a covered auto is one that relates to what constitutes ownership, maintenance, or use of covered autos. Property Damage Property damage means physical injury to tangible property, including its loss of use. This is essentially the same definition as appears in homeowner’s liability coverage. The discussion of the property damage definitions of homeowners policies also applies to the concept of property damage under auto liability coverages. (The Massachusetts Auto Insurance Policy does not contain a definition of property damage.) Trailer There are two concepts that are important to understand with respect to this definition. First, trailers are vehicles that are designed to be towed by private 154 The Complete Book of Insurance passenger autos, pickup trucks, vans, or other similar vehicles designed for use on public roads. This also includes farm wagons and implements when towed by one of the above categories of vehicles. Second, trailers are deemed to be covered vehicles for purposes of the policies’ liability coverages. In the policies of insurers that do not use the ISO form, these concepts are likely to be included, but they may appear within the policies in other locations or under other headings. Your Covered Auto The concepts embraced by this definition contained in the ISO personal auto policy are relatively complex. Most of these concepts appear in one form or another in the policies of insurers that do not use the ISO form. Again, check your own policy to confirm whether these provisions are included. The complexity of the definition reflects the increasing complexity of modern life and reflects insurers’ attempts to make clear for their customers what loss exposures are and are not covered. Some of the complexities in this definition also correspond to statutory requirements under states’ vehicle and insurance codes. The first subcategory under this definition is any vehicles shown in the policy’s declarations. However, when more than one policy may apply to a particular loss, confusion can occur. Since it is common in the case of auto accidents that more than one policy may apply to the same loss, there are rules for determining which policy applies. Often these rules are statutory, and thus can vary from state to state. An almost universal rule, however, is the rule that states that the policy in which an insured vehicle is specifically rated or described always applies to the loss first. The next category of covered autos includes private passenger autos, pickup trucks, or vans that have gross vehicle weights of less than 10,000 pounds. This provision has many qualifications. First, the insured must acquire the vehicle during the policy period. Second, the insured must report the acquisition of the vehicle to the insurer within thirty days after the insured acquires it. Third, pickup trucks or vans do not qualify if any other policies afford coverage for those vehicles. Personal Automobile Policies 155 These latter qualifications mean that small installation or repair contractors and farmers who purchase pickups or vans that are comparable to those that people purchase for ordinary personal use can cover their business- or work-related use of such vehicles under their personal auto policy. This is available for those people whose business use is not so extensive as to require a commercial auto policy. This provision of your auto policy makes clear that you get automatic coverage for newly acquired vehicles. However, such automatic coverage only applies for thirty days and only if you actually report the acquisition to your insurer within the thirty-day period. If you take the responsibility for reporting your acquisition of a new vehicle to your agent, you will minimize the risk of a gap in coverage that could result if the dealership’s finance department fails to timely notify your insurer. There are a couple of other qualifications to this newly acquired auto coverage provision. If the newly acquired vehicle is a replacement for a covered vehicle described in the policy’s declarations and you report the new vehicle within thirty days of its acquisition, the coverages that applied to the former vehicle will apply to the newly acquired vehicle. Further, if the new vehicle is a new vehicle in the absolute sense, that is, the vehicle is not replacing an existing vehicle, this new vehicle is automatically covered and it will be covered to the broadest extent of any existing covered vehicle under the policy. Your covered vehicle also includes any car, truck, or trailer that you rent or use as a temporary substitute vehicle if you are out of your normal vehicle because of: ◆ breakdown; ◆ repair; ◆ servicing; ◆ loss; or, ◆ destruction. In practical terms, this means that if you borrow or rent a vehicle while your car is unavailable to you because of any of these circumstances, you are 156 The Complete Book of Insurance covered for use of that substitute vehicle. In other words, if your car breaks down or even is in the shop or dealership for normal maintenance work, you are covered for use of: ◆ a friend’s or neighbor’s vehicle; ◆ a rented vehicle; or, ◆ a loaner vehicle while yours is in the shop. The definitions of the concepts of your covered auto in proprietary policy forms used by insurers that do not use the ISO personal auto policy form can be more restrictive or more liberal than these definitions. Some insurers place lower gross vehicle weight limits on this coverage, effectively limiting coverage to private passenger cars and effectively excluding most SUVs, vans, and many full-size pick-up trucks. Other companies do not include any sort of gross vehicle weight limitation in the definition of your covered auto. (The Massachusetts Automobile Insurance Policy incorporates the same 10,000 pound gross vehicle weight limit as does the ISO policy.) 

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