Under part f of the personal auto policy, the legal action against us provision states that:

MOTOR VEHICLE INSURANCE

Introduction

Automobile accidents can cause financial and economic havoc to individuals and families. Legal liability arising out of the negligent operation of an automobile can reach traumatic levels. Medical expenses, pain and suffering, the death of a family member, and the damage or loss of property, or loss of the automobile itself can be devastating. The insurance buying public relies on insurance producers for guidance toward the proper insurance policy.

The Tort Liability System and Automobile Insurance

Each individual has certain legal rights. A legal wrong is a violation of the individual�s legal rights or a failure to perform a legal duty owed to an individual or to society as a whole.

A tort is a legal wrong. Specifically, a tort can be defined as a legal wrong, other than a breach of contract, for which the law allows a remedy in the form of money damages. The person who is injured or harmed (called the plaintiff or claimant) by the actions of another person (called the defendant) can sue for damages.

Torts can generally be classified into three categories:

�  Intentional torts.

An intentional act or omission that results in harm or injury to another person or damage to the person�s property. (For example, assault, battery, trespass, false imprisonment, fraud.)

�  Absolute liability.

Absolute liability exists when a party is liable for damages even though that party�s fault or negligence cannot be proven. Examples of circumstances giving rise to absolute liability include occupational injury, blasting operations that injure another person, manufacturing of explosives, and crop spraying by airplanes.

�  Negligence.

Negligence is a tort that results in harm or injury to another person. Negligence typically is defined as the failure to exercise the standard of care required by law to protect others from harm. The meaning of the term �standard of care� is based on the care required of a reasonably prudent person. Actions are compared with the actions of a reasonably prudent person under the same circumstances. The standard of care required by law is not the same for each wrongful act.

Liability coverage is the most important part of the Personal Auto Policy. It protects a covered person against a suit or claim arising out of the negligent ownership or operation of an automobile.

Personal Auto Policy: Overview

The Personal Automobile Policy (also referred to as the �Personal Auto Policy�) is designed to be the most commonly purchased insurance policy for the average family automobile. The Insurance Services Office (ISO) first introduced the Personal Auto Policy in 1977. The ISO form of the Personal Automobile Policy is written in simplified English, making it easier to read and understand than earlier contracts of automobile insurance. It contains simple definitions and short sentences. Highly technical terms have been eliminated from the policy, and the policy language is informal and personal.

The Personal Auto Policy emphasizes liability protection, making it the first coverage in the policy. (As a comparison, a Homeowners Policy provides liability protection as the last coverage in the policy.)  The nature of the property covered, mobile rather than stationary, makes the Personal Auto Policy quite different from a Homeowners Policy. The potential number of non-family members using an automobile is greater than those potentially living in the family house. The possibility that the insured may drive several different non-owned automobiles also makes the Personal Auto Policy a more complicated policy with respect to defining the �insured.�

The Personal Auto Policy begins with a Declarations page, an Insuring Agreement, and Definitions. (Examples of policy language appear in shaded boxes throughout this chapter.) The Declarations identify the named insured, the vehicles covered, and the premium charged for the coverage. The Insuring Agreement makes the contract effective.

The Declarations Page

The Declarations Page is the first part of most insurance contracts. Declarations are statements that provide information about the property being insured. Information contained in the Declarations Page is used for underwriting and rating purposes and for identification of the property to be insured. The Declarations section can be found on the first page of the policy or on a policy insert. In some contracts the declarations are part of the written application that is attached to the policy. In property insurance, the declarations section contains information concerning the identification of the insurer, name of the insured, location of the property, period of protection, amount of insurance, amount of the premium, size of the deductible (if any), and other relevant information.

The Declaration Page lists a single limit of liability for the insurer, such as $100,000. This is the limit for all types of damage an insured may cause, including bodily injury and property damage. If judgments are greater than this limit, the insured, not the insurer, pays the excess.

The Personal Auto Policy may also be written on a split limit basis (e.g. $50,000 / $100,000 / $25,000). When coverage is written with split limits of $50,000 / $100,000 / $25,000, the insurer will pay only $50,000 to any one individual and only $100,000 for one accident for bodily injury liability. The $25,000 indicates the maximum amount which the insurer will pay for property damage liability.

for property damage liability.

Insuring Agreement and Definitions

After the Declarations Page, the Personal Auto Policy sets forth the Insuring Agreement and Definitions. The Insuring Agreement states that, �In return for payment of the premium and subject to all the terms of the policy, the insurer agrees with the insured as follows:�  The definitions and body of the insurance policy then follow that Insuring Agreement.

Definitions in a standard Personal Auto Policy may include the following:

�  Throughout this policy, �you� and �your� refer to:

�  The �named insured� shown in the Declarations; and

�  The spouse if a resident of the same household.

�   �We,� �us� and �our� refer to the Company providing this insurance. For purposes of this policy, a private passenger type auto shall be deemed to be owned by a person if leased:

�  Under a written agreement to that person; and

�  For a continuous period of at least 6 months.

�  Bodily injury means bodily harm, sickness or disease, including death that results.

�  Business includes trade, profession or occupation.

�  Family member means a person related to you by blood, marriage or adoption that is a resident of your household. This includes a ward or foster child.

�  Occupying means in, upon, getting in, on, out or off.

�  Property damage means physical injury to, destruction of or loss of use of tangible property.

�  Trailer means a vehicle designed to be pulled by a:

�  Private passenger auto; or

�  Pickup or van.

�  It also means a farm wagon or farm implement while towed by one of the above.

Eligible Vehicles

Only certain types of vehicles are eligible for coverage under the Personal Auto Policy. An eligible vehicle is a four-wheel motor vehicle (other than truck-type) that is owned by the insured or is leased by the insured for at least six continuous months.

Pickups and vans are also eligible for coverage if the vehicle is not customarily used in the insured�s business or occupation other than farming or ranching. A vehicle that is owned by a family farm or ranch partnership or corporation is eligible for coverage if the vehicle is garaged principally on the farm or ranch, and other eligibility requirements are met.

A private passenger automobile owned by two or more resident relatives or two or more non-related individuals living together can be insured by adding a miscellaneous type vehicle endorsement to the policy. Motorcycles, motor homes, motor scooters, golf carts, and similar vehicles can be insured under the Personal Auto Policy by adding the same endorsement to the policy.

The actual definition for eligible vehicles may include the following:

 �Your covered auto� means:

�  Any vehicle shown in the Declarations.

�  Any of the following types of vehicles on the date you become the owner:

�  A private passenger auto; or

�  A pickup or van.

�  This provision applies only if:

�  You acquire the vehicle during the policy period.

�  You ask us to insure it within 30 days after you become the owner.

�  With respect to a pickup or van, no other insurance policy provides coverage for that vehicle.

If the vehicle you acquire replaces one shown in the Declarations, it will have the same coverage as the vehicle it replaced. You must ask us to insure a replacement vehicle within 30 days only if:

�  You wish to add or continue Coverage for Damage to Your Auto.

�  It is a pickup or van used in any �business� other than farming or ranching.

 If the vehicle you acquire is in addition to any shown in the Declarations, it will have the broadest coverage we now provide for any vehicle shown in the Declarations.

�  Any �trailer� you own.

�  Any auto or �trailer� you do not own while used as a temporary substitute for any other vehicle described in this definition which is out of normal use because of its:

�  Breakdown;

�  Repair;

�  Servicing;

�  Loss; or

�  Destruction.

Personal Auto Policy: Liability Coverage

After the Declarations Page, Insuring Agreement and Definitions, Part A of the Personal Auto Policy then sets forth Liability Coverage. Part A sets forth its own Insuring Agreement which describes the major promises of the insurer regarding liability coverage. In the Insuring Agreement, the insurer agrees to pay damages for bodily injury or property damage for which the insured is legally responsible because of an automobile accident.

The insuring agreement in Part A may read as follows:

We will pay damages for bodily injury or property damage for which any covered person becomes legally responsible because of an auto accident. We will settle or defend, as we consider appropriate, any claim or suit asking for these damages. In addition to our limit of liability, we will pay all defense costs we incur. Our duty to settle or defend ends when our limit of liability for this coverage has been exhausted. We have no duty to defend any suit or settle any claim for �bodily injury� or �property damage� not covered under this policy.

Liability coverage is generally written as a single limit that applies to both bodily injury and property damage liability. That is, the total amount of insurance applies to the entire accident without a separate limit for each person. The Personal Auto Policy can also be written with split limits. Split limits mean the amounts of insurance for bodily injury liability and property damage are stated separately.

In addition to the payment for damages for which the insured is legally liable, the company also agrees to defend and pays all legal defense costs. The defense costs are paid in addition to the policy limits. However, the company�s duty to settle or defend the claim ends when the limit of liability has been exhausted. Once the policy limits are paid out, the company has no further obligation to defend the insured. The company also has no obligation to defend any claim not covered under the policy.

Insured Persons

Part A of the Personal Auto Policy provides liability coverage for four different categories of parties:

�  Category 1 � You or any �family member� for the ownership, maintenance or use of any auto or �trailer.�

In Category 1 the named insured and resident family members are covered for the ownership, maintenance, or use of any auto, whether it is owned or borrowed, unless exclusions apply.

�  Category 2 � Any person using �your covered auto.�

Category 2 relates to any person using a covered auto. The car owner�s insurance, not the driver�s insurance, would pay a claim if the owner allows another party to borrow his or her car. Coverage on the auto involved in an accident is considered primary coverage. If the owner�s insurance is exhausted by the claim, then the driver could turn to his own insurer to pay the remainder of the claim until his own insurance was exhausted.

�  Category 3 � For �your covered auto,� any person or organization but only with respect to legal responsibility for acts or omissions of a person for whom coverage is afforded under this part.

�  Category 4 � For any auto or �trailer,� other than �your covered auto,� any other person or organization but only with respect to legal responsibility for acts or omissions of you or any �family member� for whom coverage is afforded under this Part. This provision applies only if the person or organization does not own or hire the auto or �trailer.�

Categories 3 and 4 recognize that in some situations, people or organizations other than a driver can be sued due to a driver�s negligence. In some of these instances the Personal Auto Policy will cover the liability of these people. Assume that a trade union sends a member, John, to buy some supplies for a union picnic. Also assume that John uses his own car. If an accident occurs during this trip, the Personal Auto Policy would cover the trade union�s liability in a suit resulting from the accident. The union�s liability arises because John was technically an agent of the union while on his way to purchase supplies for the picnic. The difference between Categories 3 and 4 is the difference between the insured driving an owned or non-owned vehicle.

Supplementary Payments

Under the Personal Auto Policy, the insurance company may provide liability coverage beyond its stated limit of liability by making certain supplementary payments. Part A of the Policy describes five categories of supplementary payments:

�  Up to $250 for the cost of bail bonds required because of an accident, including related traffic law violations. The accident must result in �bodily injury� or �property damage� covered under this policy.

Premiums up to $250 may be paid for bail bonds arising out of an automobile accident that results in property damage or bodily injury. Payment would not be made for a traffic violation such as a speeding ticket except if an accident occurs.

�  Premiums on appeal bonds and bonds to release attachments in any suit we defend.

�  Interest accruing after a judgment is entered in any suit we defend. Our duty to pay interest ends when we offer to pay that part of the judgment, which does not exceed our limit of liability for this coverage.

Premiums on appeal bonds and any bond to release an attachment of property in any suit defended by the insurer are also paid as supplementary payments. If interest accrues after a judgment is handed down, the interest is also paid as a supplementary payment. However, any prejudgment interest is subject to the policy�s liability limits.

�  Up to $50 a day for loss of earnings, but not other income, because of attendance at hearings or trials at our request.

�  Other reasonable expenses incurred at our request.

The insured may be a defendant in a trial and be requested to testify, and the policy will cover up to $50 per day for loss of earnings. If the insured incurs meal or transportation expenses as a result of requests by the insurer, those expenses would be paid as a supplemental payment.

Exclusions

Part A of the Personal Auto Policy next details the specific exclusions to liability coverage.

Specifically, the insurance company will not provide liability coverage for any person:

�  Who intentionally causes �bodily injury� or �property damage.�

For example, if the insured intentionally runs over a bicycle with his car, the property damage is not covered.

�  For damage to property owned or being transported by that person.

For example, if a suitcase or camera were damaged in an automobile accident while a person is on vacation, the damage would not be covered.

�  For damage to property:

�  Rented to;

�  Used by; or

�  In the care of� that person.

This exclusion does not apply to damage to a residence or private garage.

For example, if the insured rents skis that are damaged in an automobile accident, the property damage is not covered by the policy. However, if the insured rents a house and carelessly backs into a partly opened garage door, the property damage would be covered by the policy.

�  For �bodily injury� to an employee of that person during the course of employment. This exclusion does not apply to �bodily injury� to a domestic employee unless workers compensation benefits are required or available for that domestic employee.

The intent here is to cover the employee�s injury under a workers compensation law. However, a domestic employee injured during the course of employment would be covered if workers compensation benefits are not required or available.

There is no liability coverage on a vehicle while it is being used to carry persons or property for a fee. If bus drivers or taxicab drivers are on strike and the insured transports passengers for a fee, the policy�s liability coverage does not apply to that circumstance.

�  For that person�s liability arising out of the ownership or operation of a vehicle while it is being used to carry persons or property for a fee. This exclusion does not apply to a share-the-expense car pool.

�  While employed or otherwise engaged in the �business� of:

�  Selling;

�  Repairing;

�  Servicing;

�  Storing; or

�  Parking vehicles designed for use mainly on public highways. This includes road testing and delivery. This exclusion does not apply to the ownership, maintenance or use of �your covered auto� by:

�  You;

�  Any family member; or

�  Any partner, agent or employee of you or any �family member.�

If a person is employed or engaged in the automobile business, liability arising out of the operation of vehicles in the automobile business is excluded from coverage under the policy. The automobile business refers to the selling, repairing, servicing, storing, or parking of vehicles designed for use mainly on public highways. This also includes road testing and delivery. If an automobile mechanic has an accident and injures someone while road testing an insured�s car, the Personal Auto Policy liability coverage does not apply to that circumstance. However, if the insured is sued because he is the owner of the car, coverage applies. The intent of this exclusion is to exclude loss exposures that should be covered under the employee�s liability policy, such as a garage policy.

�  Maintaining or using any vehicle while that person is employed or otherwise engaged in any �business� (other than farming or ranching) not described in the prior exclusion. This exclusion does not apply to the maintenance or use of a:

�  Private passenger auto;

�  Pickup or van that you own; or

�  Trailer used with a vehicle described in above.

The purpose here is to exclude liability for commercial vehicles and trucks that are used in a business. However, if a party drives your car on company business, the Personal Auto Policy liability coverage remains in force.

�  Using a vehicle without a reasonable belief that the person is entitled to do so.

For example, if the insured�s car is stolen, and someone is injured in an ensuing accident, the injured party is not covered under the insured�s liability policy.

�  For �bodily injury� or �property damage� for which that person:

�  Is an insured under a nuclear energy liability policy; or

�  Would be an insured under a nuclear energy liability policy but for its termination upon exhaustion of its limit of liability.

A �nuclear energy liability policy� is a policy issued by any of the following or their successors:

�  American Nuclear Insurers;

�  Mutual Atomic Energy Liability Underwriters; or

�  Nuclear Insurance Association of Canada.

Each of the above exclusions relate to the actions of a person, whether the insured or another party using the insured�s vehicle. The Personal Auto Policy also presents exclusions which are tied to a particular type of property.

Specifically, the Personal Auto Policy does not provide liability coverage for the ownership, maintenance or use of:

�  Any motorized vehicle having fewer than four wheels.

Motorcycles, motor scooters, mini-bikes, mopeds, and trail bikes are excluded under the policy; however, the insured may add a miscellaneous vehicle endorsement to the policy in order to cover these types of vehicles.

�  Any vehicle, other than �your covered auto,� which is:

�  Owned by you;

�  Furnished or available for your regular use.

The insured may occasionally drive another person�s car and still have coverage under the policy; however, if a non-owned vehicle is driven regularly or is furnished or made available for regular use, the Personal Auto Policy liability coverage will not apply to use of that vehicle. If the insured�s employer furnishes the insured with a car, or if a car is available for regular use in a company carpool, the liability coverage will not apply to use of that vehicle.

�  Any vehicle, other than �your covered auto,� which is owned by, furnished or available for the regular use of any �family member.�

If a son or daughter drives a non-owned vehicle on a regular basis, or the vehicle is furnished or made available for their regular use, the liability coverage does not apply.

However, this exclusion does not apply to your maintenance or use of any vehicle, which is:

�  Owned by a �family member;� or

�  Furnished or available for the regular use of a �family member.�

The exclusion does apply to the named insured and spouse, or if a mother occasionally drives a car owned by another household member, (for example, a son or daughter), the mother�s Personal Auto Policy provides coverage while driving her son�s or daughter�s car.

Limit of Liability

The next portion of Part A of the Personal Auto Policy explains the limits of liability under the policy:

The limit of liability shown in the Declarations for this coverage is our maximum limit of liability for all damages resulting from any one-auto accident. This is the most we will pay regardless of the number of �

�  �Insureds;�

�  Claims made;

�  Vehicles or premiums shown in the Declarations;

�  Vehicles involved in the auto accident.

We will apply the limit of liability to provide any separate limits required by law for bodily injury and property damage liability. However, this provision  will not change our total limit of liability.

The company�s maximum limit of liability from any single automobile accident is the amount stated in the Declarations. This is true regardless of the number of insureds, claims made, vehicles or premiums shown in the declarations, or vehicles involved in the auto accident.

Out of State Coverage

The Personal Auto Policy next provides details regarding out of state liability coverage:

If an auto accident to which this policy applies occurs in any state or province other than the one in which �your covered auto� is principally garaged, we will interpret your policy for that accident as follows:

�  If the state or province has:

�  A financial responsibility or similar law specifying limits of liability for �bodily injury� or �property damage� higher than the limit shown in the Declarations, your policy will provide the higher specified limit.

If an accident occurs in a state that has a financial responsibility law with higher liability limits than the limits shown in the declarations, the Personal Auto Policy automatically provides the higher specified limits.

�  A compulsory insurance or similar law requiring a nonresident to maintain insurance whenever the nonresident uses a vehicle in that state or province, your policy will provide at least the required minimum amounts and types of coverage.

If the state has a compulsory insurance or similar law that requires a nonresident to have insurance whenever he or she uses a vehicle in that state, the Personal Auto Policy also provides the required minimum amounts and types of coverages.

�  No party will be entitled to duplicate payments for the same elements of loss.

Other Insurance

The final section of Part A of the Personal Auto Policy explains the policy�s liability coverage benefits in the event the insured carries other, additional insurance:

If there is other applicable liability insurance 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 for a vehicle you do not own shall be in excess over any collectible insurance.

In some cases, more than one automobile liability policy covers a loss. If other applicable liability insurance applies to an owned vehicle, the company pays only its pro rata share of the loss. The company�s share is the proportion that its limit of liability bears to the total applicable limits of liability under all policies. However, if the insurance applies to a non-owned vehicle, the company�s insurance is in excess over any other collectible insurance.

Personal Auto Policy: Medical Payments Coverage

Part B (or sometimes included as Part B1) of the Personal Auto Policy sets forth Medical Payments Coverage for the insured. Part B�s insuring agreement sets forth the company�s promises regarding its coverage of medical payments required as a result of bodily injury arising out of an automobile accident. Specifically, the policy may provide: 

We will pay reasonable expenses incurred for necessary medical and funeral services because of �bodily injury:�

�  Caused by accident; or

�  Sustained by an �insured.�

 We will pay only those expenses incurred within 3 years from the date of the accident.

The company will pay all reasonable medical and funeral expenses incurred by an insured within three years from the date of the accident. The benefits limits apply to each insured that is injured in the accident.

Medical payments coverage is not based on fault. If an individual is injured in an automobile accident and that individual is at fault, medical payments can still be paid to the individual and to other injured passengers in the car.

The Personal Auto Policy defines �Insured� as used in this part B as:

�  You or any �family member:�

�  While �occupying� or

�  As a pedestrian when struck by:

a motor vehicle designed for use mainly on public roads or a trailer of any type.

The named insured and family members are covered if they are injured while occupying a motor vehicle or are injured as pedestrians when struck by a motor vehicle designed for use mainly on public roads. If a farm tractor, snowmobile, or bulldozer injures an individual, that individual�s injury is not covered.

�  Any other person while �occupying� �your covered auto.�

If an individual owns his car and is the named insured, all passengers in his car are covered for their medical expenses under his policy. However, if the insured is operating a non-owned vehicle, other passengers in the car (other than family members) are not covered for their medical expenses under his policy. The reason for this is to cause the other passengers in the non-owned vehicle to seek protection under the medical expense coverage that applies to the non-owned vehicle.

Exclusions

Part B of the Personal Auto Policy provides specific exclusions to medical payments coverage. The insurer will not provide medical payments coverage for any person for �bodily injury�:

�  Sustained while �occupying� any motorized vehicle having fewer than four wheels.

If the insured is injured while operating a motorcycle or moped, medical expense coverage does not apply.

�  Sustained while occupying your covered auto when it is being used to carry persons or property for a fee. This exclusion does not apply to a share-the-expense car pool.

�  Sustained while occupying any vehicle located for use as a residence or premises.

If the insured owns and occupies a house trailer as a residence, medical expense coverage does not apply to injuries arising out of use of that vehicle.

�  Occurring during the course of employment if workers compensation benefits are required or available for the �bodily injury.�

Coverage does not apply if the injury occurs during the course of employment and workers compensation benefits are required or available.

�  Sustained while occupying or when struck by, any vehicle (other than your covered auto) which is:

�  Owned by you;

�  Furnished or available for your regular use.

The purpose here is to exclude medical payments coverage on an owned or regularly used car that is not described in the policy and for which an appropriate premium has not been paid.

�  Sustained while �occupying,� or when struck by, any vehicle (other than �your covered auto�) which is:

�  Owned by any �family member;�

�  Furnished or available for the regular use of any family member.

�            However, this exclusion does not apply to you.

If a son living at home owns a car that is separately insured, and the parents are injured while occupying the son�s car, the parent�s medical expenses would be covered under their policy.

�  Sustained while �occupying� a vehicle without a reasonable belief that that person is entitled to do so.

If a covered auto is stolen, the thief has no coverage for medical payments.

�  Sustained while occupying a vehicle when it is being used in the business of an insured. This exclusion does not apply to �bodily injury� sustained while �occupying� a:

�  Private passenger auto;

�  Pickup or van that you own;

�  �Trailer� used with a private passenger auto or pickup or van that you own.

The purpose here is to exclude medical payments coverage for non-owned trucks and commercial vehicles used in the business of an insured person. The exclusion does not apply to a private passenger auto (owned or non-owned), an owned pickup or van, or trailer used with any of the preceding vehicles.

�  Caused by or as a consequence of:

�  Discharge of a nuclear weapon (even if accidental);

�  War (declared or undeclared);

�  Civil war;

�  Insurrection;

�  Rebellion or revolution.

�  From or as a consequence of the following, whether controlled or uncontrolled or however caused

�  Nuclear reaction;

�  Radiation;

�  Radioactive contamination.

If the insured drives his car in the vicinity of a nuclear power plant and a nuclear meltdown occurs, the radiation exposure is not covered.

Limit of Liability

The next portion of Part B of the Personal Auto Policy explains the limits of liability for medical payments coverage:

The limit of liability shown in the Declarations for this coverage is that our maximum limit of liability for each person injured in any one accident. This is the most we will pay regardless of the number of:

�  �Insureds;�

�  Claims made;

�  Vehicles or premiums shown in the Declarations;

�  Vehicles involved in the accident.

Any amounts otherwise payable for expenses under this coverage shall be reduced by any amounts paid or payable for the same expenses under Part A or Part C.

No payment will be made unless the injured person or that person�s legal representative agrees in writing that any payment shall be applied toward any settlement or judgment that person receives under Part A or Part C.

Other Insurance

The final section of Part B of the Personal Auto Policy explains the policy�s liability coverage benefits in the event the insured carries other, additional insurance:

If there is other applicable auto medical payments insurance 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 vehicle you do not own shall be excess over any other collectible auto insurance providing payments for medical or funeral expenses.

Personal Auto Policy: Uninsured Motorists Coverage

Some people drive without liability insurance, causing exposure to risk for other parties in the event of an automobile accident. Part C of the Personal Auto Policy sets forth Uninsured Motorists Coverage for the insured. The uninsured motorists coverage is designed to pay for the bodily injury (and property damage in some states) caused by an uninsured motorist, hit-and-run driver, or by a driver whose company is insolvent.

Part C�s insuring agreement sets forth the company�s promises regarding uninsured motorists coverage. Specifically, the policy may provide:

We will pay damages which an �insured� is legally entitled to recover from the owner or operator of an �uninsured motor vehicle� because of �bodily injury:�

�  Sustained by an �insured;�

�  Caused by an accident.

The owner�s or operator�s liability for these damages must arise out of the ownership, maintenance or use of the �uninsured motor vehicle.�

Any judgment that is for damages arising out of a suit brought without our written consent is not binding on us. The company pays the damages that an insured person is legally entitled to receive from the owner or operator of an uninsured motor vehicle because of bodily injury caused by an accident. However, the coverage applies only if the uninsured motorists are legally liable. If the uninsured motorists are not liable, the company will not pay for the bodily injury.

For purposes of Uninsured Motorists Coverage, �Insured� means:

�  You or any �family member�;

�  Any other person �occupying� your covered auto;

�  Any person for damages that person is entitled to recover because of �bodily injury� to which this coverage applies sustained by one of the above parties.

 �Uninsured motor vehicle� means a land motor vehicle or trailer of any type:

�  To which no bodily injury liability bond or policy applies at the time of the accident;

�  To which a bodily injury liabilities bond or policy applies at the time of the accident. In this case its limit for bodily injury liability must be less than the minimum limit for bodily injury liability specified by the financial responsibility law of the state in which �your covered auto� is principally garaged.

This means the maximum amount paid for a bodily injury usually is limited to the state�s financial responsibility or compulsory insurance law requirements.

�  Which is a hit and run vehicle whose operator or owner cannot be identified and which hits:

�  You or any family member;

�  A vehicle which you or any family member are occupying or;

�  Your covered auto.

If a hit-and-run driver strikes the named insured or any family member while occupying a covered auto, non-owned auto or while walking, the uninsured motorists coverage will pay for the injury.

�  To which a bodily injury liabilities bond or policy applies at the time of the accident and the bonding or insuring company:

�  Denies coverage;

�  Is or becomes insolvent.

However, �uninsured motor vehicle� does not include any vehicle or equipment:

�  Owned by or furnished or available for the regular use of you or any �family member�;

�  Owned or operated by a self-insurer under any applicable motor vehicle law;

�  Owned by any government unit or agency;

�  Operated on rails or crawler treads;

�  Designed mainly for use off public roads while not on public roads;

�  While located for use as a residence or premises.

Exclusions

Part C of the Personal Auto Policy also provides exclusions to its Uninsured Motorists Coverage. Specifically, the Personal Auto Policy states that the insurer will not provide Uninsured Motorists Coverage for �bodily injury� sustained by any person:

�  While �occupying,� or when struck by, any motor vehicle owned by you or any �family member� which is not insured for this coverage under this policy. This includes a trailer of any type used with that vehicle.

This exclusion was designed to prevent �free� uninsured motorists coverage on automobiles owned by the named insured or family member.

�  If that person or the legal representative settles the �bodily injury� claim without our consent.

If a person settles a bodily injury claim without the company�s consent, coverage does not apply. The purpose of this exclusion is to protect the company�s interest in the claim.

�  While �occupying� �your covered auto� when it is being used to carry persons or property for a fee. This exclusion does not apply to a share-the-expense car pool.

�  Using a vehicle without a reasonable belief that that person is entitled to do so.

If a thief steals the insured�s car and is later injured by an uninsured motorist, the thief is not covered under the insured�s policy.

The exclusions also state that uninsured motorists coverage shall not apply directly or indirectly to benefit any insurer or self-insurer under any of the following or similar law:

�  Workers compensation law;

�  Disability benefits law.

The uninsured motorist coverage cannot directly or indirectly benefit a workers compensation insurer or self-insurer. A workers compensation insurer may have a legal right of action against a third party who has injured an employee. If an uninsured driver injures an employee who receives workers compensation benefits, the workers compensation insurer could sue the uninsured driver or attempt to make a claim under the injured employee�s uninsured motorist coverage. This exclusion prevents the uninsured motorist coverage from providing benefits to the workers compensation insurer.

Limit of Liability

The next portion of Part C of the Personal Auto Policy explains the limits of liability for uninsured motorists coverage under the policy:

The limit of liability shown in the Declarations for this coverage is our maximum limit of liability for all damages resulting from any one accident. This is the most we will pay regardless of the number of:

�  �Insureds�;

�  Claims made;

�  Vehicles or premiums shown in the Declarations;

�  Vehicles involved in the accident.

Any amounts otherwise payable for damages under this coverage shall be reduced by all sums:

�  Paid because of the �bodily injury� by or on behalf of persons or organizations that may be legally responsible. This includes all sums paid under Part A; and

�  Paid or payable because of the �bodily injury� under any of the following or similar law:

�  Workers compensation law;

�  Disability benefits law.

Any payment under this coverage will reduce any amount that person is entitled to recover for the same damages under Part A.

The amount paid under the uninsured motorist�s coverage can be reduced under certain conditions. The amount paid is reduced by any sums paid by the negligent driver or organization legally responsible for the accident or by any benefits payable under workers compensation, disability benefits, or similar law.

Other Insurance

The next section of Part C of the Personal Auto Policy explains the policy�s liability coverage benefits in the event the insured carries other, additional insurance:

If there is other applicable similar insurance 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 vehicle you do not own shall be excess over any other collectable insurance.

Underinsured Motorist Coverage

In addition to uninsured motorist coverage, underinsured motorist coverage can be added to the Personal Auto Policy to provide more complete protection. This coverage pays damages for a bodily injury caused by the ownership or operation of an underinsured vehicle. The maximum amount paid under this coverage is the underinsured motorists limit less the amount paid by the negligent driver�s insurer.

Underinsured Motorist Coverage and Uninsured Motorist Coverage are exclusive and do not duplicate each other. An insured can collect on one coverage or the other, but not both.

The conditions that must be satisfied before an underinsured motorist�s coverage can be written are:

�  Higher uninsured motorist coverage limits must be carried than the limits required by the state�s financial responsibility or compulsory insurance law.

�  Both the uninsured and the underinsured motorist coverage must be written for the same amount of insurance.

�  The underinsured motorist coverage must apply to all automobiles covered under the policy.

Personal Auto Policy: Coverage for Damage to Automobile

Part D of the Personal Auto Policy sets forth coverage in the event of damage to the insured�s automobile. Part D�s insuring agreement explains the company�s promises regarding its coverage of damage to the auto. Specifically, the policy may provide: 

We will pay for direct and accidental loss to �your covered auto� or any �non-owned auto,� including their equipment, minus any applicable deductible shown in the Declarations. We will pay for loss to �your covered auto� caused by:

�  Other than �collision� only if the Declarations indicate that Other Than Collision Coverage is provided for that auto;

�  Collision only if the Declarations indicate 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.

The company agrees to pay for any direct and accidental loss to a covered auto or any non-owned auto, including its equipment, less any applicable deductible. A covered auto can be insured for both (1) a collision loss and (2) an other-than-collision loss (formerly called comprehensive coverage). A collision loss is covered only if the declaration page indicates that collision coverage is provided for that auto. Coverage for an other than collision loss is in force only if the declarations page indicates that other than collision coverage is provided for that auto. If both coverages are selected, the premium for each coverage is shown separately on the declaration page.

Part D of the Personal Auto Policy contains certain definitions:

�  �Collision� means the upset of your covered auto or its impact with another vehicle or object.

Collision losses are paid regardless of fault. If the insured causes the accident, the insurer will pay for the damage to his car, less any deductible. If another driver damages his car, he can collect from the negligent driver (or the negligent driver�s insurer), or from his insurer. If an insured collects from his own company, he must give up subrogation rights to his company, thus allowing the company to seek reimbursement from the other driver�s insurance company.

�  Loss caused by the following is considered other than �collision�:

�  Missiles or falling objects;

�  Fire;

�  Theft or larceny;

�  Explosion or earthquake;

�  Windstorm;

�  Hail, water or flood;

�  Malicious mischief;

�  Riot or civil commotion;

�  Contact with bird or animal;

�  Breakage of glass.

If breakage of glass is caused by a �collision,� the insured may elect to have it considered a loss caused by �collision.�

This is important because both coverages (collision loss and other-than-collision loss) may be written with deductibles. Without this qualification, an insured would have to pay two deductibles if the car had both body damage and glass breakage in the same accident (assuming both coverage�s are elected). By treating glass breakage as part of the collision loss, only one deductible has to be satisfied.

�  �Non-owned auto� means 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. However, �non-owned auto� does not include any vehicle used as temporary substitute for a vehicle you own which is out of normal use because of its:

�  Breakdown;

�  Repair;

�  Servicing;

�  Loss;

�  Destruction.

A non-owned auto is defined as any private passenger auto, pickup, van or trailer not owned by or furnished or made available for the regular use of the named insured or family member, while it is in the custody of or is being operated by the named insured or family member.

The key point is not how frequently an insured individual drives a non-owned auto, but whether the vehicle is furnished or made available for that individual�s regular use.

Note that Part D coverages that apply to a covered auto also apply to a temporary substitute vehicle for that auto.

Part D also provides that the insurer will pay the insured certain amounts for transportation expenses. The policy may specifically provide the following:

In addition, we will pay up to $10 per day, to a maximum of $300, for transportation expenses incurred by you. This applies only in the event of the total theft or �your covered auto.�  We will pay only transportation expenses incurred during the period:

�  Beginning 48 hours after the theft;

�  Ending when �your covered auto� is returned to use or we pay for its loss.

Payments can be for a train, bus, taxi, rental car, or any other transportation expense.

Exclusions

As with other coverages in the Personal Auto Policy, Part D�s auto damage coverage is subject to specific exclusions:

We will not pay for:

�  Loss to �your covered auto,� which occurs while it is used to carry persons or property for a fee. This exclusion  does not apply to a share-the-expense car pool.

�  Damage due and confined to:

�  Wear and tear;

�  Freezing;

�  Mechanical or electrical breakdown or failure;

�  Road damage to tires.

This exclusion does not apply if the damage results from the total theft of �your covered auto.�

The intent of this exclusion is to cover tire defects under the tire manufacturer warranty and to exclude normal maintenance costs of operating an automobile.

�  Loss due to or as a consequence of:

�  Radio active contamination;

�  Discharge of any nuclear weapon (even if accidental);

�  War (declared or undeclared);

�  Civil war;

�  Insurrection;

�  Rebellion or revolution.

�  Loss to equipment designed for the reproduction of sound. This exclusion does not apply if the equipment is permanently installed in �your covered auto� or any �non-owned auto.�

�  Loss to tapes, records or other devices for use with equipment designed for the reproduction of sound.

An endorsement can be added that covers tapes, records, or other devices owned by the named insured or family members.

�  Loss to a camper body or �trailer� you own which is not shown in the Declarations. This exclusion does not apply to a camper body or �trailer� you:

�  Acquire during the policy period;

�  Ask us to insure within 30 days after you become the owner.

�  Loss to any non-owned auto or any vehicle used as a temporary substitute for a vehicle you own, when used by you or any family member without a reasonable belief that you or that family member is entitled to do so.

�  Loss to:

�  TV antennas;

�  Awnings or cabanas;

�  Equipment designed to create additional living facilities; or

�  Loss to any of the following or their accessories;

�  Citizens band radio;

�  Two-way mobile radio;

�  Telephone;

�  Scanning monitor receiver.

This exclusion does not apply if the equipment is permanently installed in the opening of the dash or console of �your covered auto� or any �non-owned auto.� The auto manufacturer for the installation of a radio must normally use this opening.

�  Losses to any custom furnishings or equipment in or upon any pick-up or van. Custom furnishings or equipment include but are not limited to:

�  Special carpeting and insulation, furniture, bars or television receivers;

�  Facilities for cooking and sleeping;

�  Height-extending roofs;

�  Custom murals, paintings or other decals or graphics.

A special customizing equipment endorsement can be added that covers the excluded furnishings or equipment by payment of an additional premium.

�  Loss to equipment designed or used for the detection or location of radar.

This exclusion has been incorporated into the policy because radar detection equipment is designed, and has been used, to circumvent state and federal speed laws.

�  Loss to any �non-owned auto� being maintained or used by any person while employed or otherwise engaged in the �business� of:

�  Selling;

�  Repairing;

�  Servicing;

�  Storing;

�  Parking

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

The above are business loss exposures that should be covered under a commercial garage policy.

�  Loss to any �non-owned auto� being maintained or used by any person while employed or otherwise engaged in any �business� not described in the prior exclusion. This exclusion does not apply to the maintenance or use by you or any �family member� of a �non-owned auto� which is a private passenger auto or �trailer.�

The above is a business loss exposure that should be insured by a commercial policy covering the �business.�

Limit of Liability

The next portion of Part D of the Personal Auto Policy explains the limits of liability for auto damage coverage under the policy:

�  Our limit of liability for loss will be the lesser of the:

�  Actual cash value of the stolen or damaged property; or

�  Amount necessary to repair or replace the property.

�            However, the most we will pay for loss to any �non-owned auto� which is a �trailer� is $500.

The actual cash value of the vehicle at the time of loss is determined by adjusting for depreciation and the physical condition of the damaged property. If the vehicle is declared a total loss, the amount paid is the actual cash value of the vehicle (less any deductible).

�  An adjustment for depreciation and physical condition will be made in determining actual cash value at the time of loss.

Payment of Loss

The next section of Part D describes the manner in which the insurer will pay for loss resulting from damage to the auto:

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:

�  You;

�  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.

In the case of an expensive antique or customized car, a stated amount endorsement can be inserted in the policy. If the stated amount of insurance is less than the actual cash value of the car, only the amount of insurance is paid (less any deductible). If the stated amount of insurance exceeds the actual cash value of the car, or the amount necessary to repair or replace the car, the lower of these latter two figures is the amount paid (less any deductible).

No Benefit to Bailee

Next, Part D of the Personal Auto Policy states that auto coverage shall not directly or indirectly benefit any carrier or other bailee for hire.

In other words, any hired driver will not be entitled to collect from the insurance company for any damage to the automobile. Only the owner of the car is entitled to collect from the insurer for damage to the automobile.

Other Insurance

As with other sections of the Personal Auto Policy, Part D discusses the consequences of the insured carrying additional automobile coverage:

If other insurance also covers 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� or any vehicle used as a temporary substitute for a vehicle you own shall be excess over any other collectible insurance.

Appraisal

The final section of Part D of the Personal Auto Policy covers the use of an appraisal to determine the amount of loss:

If you and we do not agree on the amount of loss, either may demand an appraisal of the loss. In this case, each party will select a competent 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:

�  Pay its chosen appraiser;

�  Bear the expenses of the appraisal and umpire equally.

We do not waive any of our rights under this policy by agreeing to an appraisal.

The appraisal provision is intended to set forth an equitable solution to determine the amount of the loss in the event that the parties can not agree on their own.

Personal Auto Policy: Duties After an Accident or Loss

Part E of the Personal Auto Policy describes the duties and obligations of the insured in the event of an accident or loss. The individual insured must follow these procedures in order to obtain the benefits of the policy. A typical Personal Auto Policy may set forth the duties and obligations as follows:

�  We must be notified promptly of how, when and where the accident or loss happened. Notice should also include the names and addresses of any injured persons and of any witnesses.

�  A person seeking any coverage must:

�  Cooperate with us in the investigation, settlement or defense of any claim or suit.

�  Promptly send us copies of any notices or legal papers received in connection with the accident or loss.

�  Submit, as often as we reasonably require to physical exams by physicians we select and to examination under oath. We will pay for these exams.

�  Authorize us to obtain:

�  Medical reports;

�  Other pertinent records.

�  Submit a proof of loss when required by us.

�  A person seeking Uninsured Motorist Coverage must also:

�  Promptly notify the police if a hit and run driver is involved;

�  Promptly send us copies of the legal papers if a suit is brought.

�  A person seeking Coverage for Damages to Your Auto must also:

�  Take reasonable steps after the loss to protect �your covered auto� and its equipment from further loss. We will pay reasonable expenses incurred to do this;

�  Promptly notify the police if �your covered auto� is stolen;

�  Permit us to inspect and appraise the damaged property before its repair and disposal.

�  Under no circumstances should the insured admit that he caused the accident. The question of negligence and legal liability will be resolved by the insurers involved (or court of law if necessary) and not by the insured. The insured does not have the right to admit that he is responsible for the accident.

Personal Auto Policy: General Provisions

Part F of the Personal Auto Policy contains a list of general provisions which apply to the policy. The following are examples of provisions which appear in Part F:

Bankruptcy

Bankruptcy or insolvency of the �insured� shall not relieve us of any obligations under this policy.

Changes

This policy contains all the agreements between you and us. Its terms may not be changed or waived except by endorsement issued by us. If a change requires a premium adjustment, we will adjust the premium as of the effective date of change. We may revise this policy form to provide more coverage without additional premium charge. If we do this, your policy will automatically provide the additional coverage, as of the date the revision is effective in your state.

Fraud

We do not provide coverage for any �insured� that has made fraudulent statements or engaged in fraudulent conduct in connection with any accident or loss for which coverage is sought under this policy.

Legal Action Against Us

�  No legal action may be brought against us until there has been full compliance with all the terms of this policy. In addition, under Part A, no legal action may be brought against us until:

�  We agree in writing that the �Insured� has an obligation to pay; or

�  The amount of that obligation has been finally determined by judgment after trial.

�  No person or organization has any right under this policy to bring us into any action to determine the liability of an �Insured.�

Our Right To Recover Payment

�  If we make a payment under this policy and the person to or for whom payment was made has a right to recover damages from another we shall be subrogated to that right. That person shall do:

�  Whatever is necessary to enable us to exercise our rights; and

�  Nothing after loss to prejudice them.

However, our right in this paragraph does not apply under Part D, against any person using �your covered auto� with a reasonable belief that that person is entitled to do so.

�  If we make a payment under this policy and the person to or for whom payment is made recovers damages from another that person shall:

�  Hold in trust for us the proceeds of the recovery; and

�  Reimburse us to the extent of our payment.

 Policy Period And Territory

�  This policy applies only to accidents and losses, which occur:

�  During the policy period as shown in the Declarations; or

�  Within the �policy territory.�

�  The �policy territory� is:

�  The United States of America, its territories or possessions.

�  Puerto Rico.

�  Canada.

�  This policy also applies to loss to, or accidents involving, �your covered auto� while being transported between their ports.

Termination

This policy may be cancelled during the policy period as follows:

�  The named insured shown in the Declarations may cancel by:

�  Returning this policy to us;

�  Giving us advance written notice of the date cancellation is to take effect.

�  We may cancel by mailing to the named insured shown in the Declarations at the address shown in this policy:

�  At least 10 days notice;

�  If cancellation is for nonpayment of premium;

�  If notice is mailed during the first 60 days this policy is in effect and this is not a renewal or continuation policy; or at least 20 days notice in all other cases.

�  After this policy is in effect for 60 days, or if this is a renewal or continuation policy, we will cancel only:

�  For nonpayment of premium.

�  If your drivers license or that of

�  Any driver who lives with you

�  Any driver who customarily uses your covered auto has been suspended or revoked.

�  This must have occurred:

�  During the policy period; or

�  Since the last anniversary of the original date if the policy  period is other than 1 year.

�  If the policy was obtained through material misrepresentation.

Two Or More Auto Policies

If this policy and any other auto insurance policy issued to you by us apply to the same accident, the maximum limit of our liability under all the policies shall not exceed the highest applicable limit of liability under any one policy.

Personal Auto Policy: Insuring Motorcycles and Other Vehicles

The basic Personal Auto Policy does not provide coverage for motorcycles, motor homes or off-road vehicles; however, a miscellaneous-type vehicle endorsement can be added to the Personal Auto Policy to provide coverage for motorcycles, motor homes, mopeds, golf carts, dune buggies, and other vehicles. Snowmobiles and large trucks, however, cannot be added to the policy with the miscellaneous type vehicle endorsement. The endorsement provides the same coverages that are found in the Personal Auto Policy, and it has a schedule that describes the vehicle to be covered, the limits of liability for each coverage, and the premium owed.

If the miscellaneous type vehicle endorsement is added to the Personal Auto Policy, there are certain conditions that should be brought to the policyholder�s attention:

�  First, liability coverage generally does not apply if the insured is operating a non-owned motorcycle.

�  Second, property damage to a non-owned vehicle is excluded; a borrowed or rented vehicle would not be covered.

�  Third, passenger hazard exclusion is available; this excludes liability for bodily injury to any passenger on the vehicle. The election of this exclusion reduces the premium.

�  Finally, the amount paid for any physical damage loss to the vehicle is limited to the lowest of:

�  The stated amount shown in the endorsement.

�  The actual cash value.

�  The amount necessary to repair or replace the property (less any deductible).

Approaches for Compensating Automobile Accident Victims

The Personal Auto Policy provisions described above have evolved as a balance between the insurance companies� requirements to operate a profitable insurance business and public policy considerations with respect to society and the individual consumer. The following concepts have affected the development of the standard Personal Auto Policy and may also supplement or modify the standard form insurance policy in some states.

�  Financial Responsibility Laws. These types of laws require persons to furnish proof of financial responsibility up to certain minimum dollar limits.

Financial responsibility laws can be divided into two broad categories:

�  Security-type.

�  Security and proof method.

Under a security-type law, a person involved in an automobile accident is required to furnish proof of financial responsibility up to certain minimum dollar limits. Purchasing an automobile liability policy for the specified limits, posting a bond, or depositing securities or money in the amount required by law can establish proof of financial responsibility. The person may also establish responsibility by showing that the person is a qualified self-insurer.

Under the security-and-proof method, the driver�s license and vehicle registration can be suspended unless the involved person submits security to pay for a judgment arising out of a current accident and also shows proof of financial responsibility for future accidents. Both conditions must be met before the driver�s license and registration is restored.

Some flaws in the financial responsibility laws are:

�  There is no guarantee that all accident victims will be paid. Financial responsibility laws normally have no penalties other than the loss of driving privileges.

�  Accident victims may not be fully indemnified for their injuries. Most financial responsibility laws require only minimum liability insurance limits. If the bodily injury exceeds the minimum limit, the accident victim may not be fully compensated.

�  There may be considerable delay in compensating the accident victim if the case goes to trial.

�  Compulsory Insurance Laws. These laws require the owners and operators of automobiles to carry automobile liability insurance at least equal to a certain amount before the automobile can be registered and licensed. More than half of the states have enacted some type of compulsory automobile liability insurance law as a condition for driving within the state.

Compulsory insurance laws are considered superior to financial responsibility laws because they provide a stronger guarantee of protection to the public against loss.

However, compulsory insurance laws also have certain flaws:

�  A compulsory insurance law may not reduce the number of uninsured motorists. Drivers may let their insurance lapse after the vehicle becomes licensed.

�  Compulsory laws do not provide complete protection. The laws require only a minimum amount of liability insurance, which may not meet the full needs of the victims.

�  Payment to all injured persons is not guaranteed. Some injured victims may not be compensated because they are injured by an out-of-state, uninsured driver.

�  Compulsory laws do not prevent or reduce the number of automobile accidents, which ultimately is the heart of the automobile accident problem.

�  Unsatisfied Judgment Funds. Some states have established unsatisfied judgment funds for compensating innocent accident victims. An unsatisfied judgment fund is a fund established by the state to compensate victims who have exhausted all other means of recovery.

To receive compensation from the unsatisfied judgment fund, the accident victim first must obtain a judgment against the negligent motorist who caused the accident and must show that the judgment cannot be collected.

The negligent motorist is not relieved of legal liability when payments are made out of the fund. The negligent motorist must repay the fund or lose his or her driver�s license until the fund is reimbursed.

�  Uninsured Motorist Coverage. The insurer agrees to pay the accident victim who has a bodily injury (or property damage) caused by an uninsured motorist, by a hit-and-run driver, or by a driver whose company is insolvent.

�  No-Fault Automobile Insurance. No-fault insurance means that after an automobile accident each party collects from his or her own insurer, regardless of fault. It is not necessary to determine who is at fault and prove negligence before a loss payment is made. A true no-fault law places some restrictions on the right to sue the negligent driver who actually caused the accident. If a claim is below a certain dollar threshold, ($2,500 for example) the motorist would not be permitted to sue but would instead collect from his or her own insurer. If the injury exceeds the threshold amount, the injured person has the right to sue the negligent driver for damages. A �verbal threshold� means that a suit for damages is allowed only in serious cases, such as those involving death, dismemberment, disfigurement, or permanent loss of a bodily member or function.

Under a pure no-fault law, the injured cannot sue at all, regardless of the seriousness of the claim, and no payments are made for pain and suffering. In effect, the tort liability system is abolished. The insured person receives unlimited benefits from his or her own insurer for medical expenses and the loss of wages.

Under a modified no-fault law an insured person has the right to sue a negligent driver only if the claim exceeds the monetary or verbal threshold.

An add-on plan pays benefits to an accident victim without regard to fault, but the injured person still has the right to sue the negligent driver who caused the accident.

�  Arguments for no-fault laws.

�  Difficulty of determining fault. Most accidents occur suddenly and unexpectedly, and details surrounding them can seldom be accurately determined.

�  Limited scope of reparations system. Smaller claims may be overpaid, while serious claims may be underpaid. Small claims may be over-compensated because inflated settlements cost insurers less than taking claims into court.

�  Large proportion of premium dollars used to pay legal costs.

�  Delay in payments. Large numbers of claims may not be promptly paid because of investigations, negotiations, and wafting for court dates. Seriously injured persons or their survivors had to wait an average of sixteen months for final payment from automobile liability insurance.

�  Arguments against no-fault laws.

�  The defects of the negligence system are exaggerated.

�  Claims of efficiency and premium savings are exaggerated.

�  Safe drivers may be penalized.

�  The present system needs only to be reformed, rather than completely overhauled.

�  Basic characteristics of no-fault laws.

�  About half the states have some type of no-fault insurance plan in existence. The majority of states have modified no-fault plans where restrictions are placed on the right to sue.

�  No-fault benefits are provided by adding an endorsement to the automobile insurance policy. The endorsement is typically called personal injury protection coverage. The following no-fault benefits are typically provided:

�  Medical expenses usually paid up to some maximum limit.

�  No-fault benefits are made for a stated percentage of the disabled person�s weekly or monthly earnings, with a maximum limit in term of time and duration.

�  Benefits are also paid for essential service expenses for certain services ordinarily performed by the injured person.

�  Funeral expenses are also paid up to some limit.

�  Survivors� loss benefits can also be paid to eligible survivors, such as a surviving spouse and dependent children.

Automobile Insurance for High-Risk Drivers

Drivers who have difficulty obtaining automobile insurance through normal market channels have an opportunity to obtain automobile insurance in the residual market (the shared market). In this market automobile insurers participate to make insurance available to drivers unable to obtain coverage in the standard market.

�  Assigned Risk Plans. Under this arrangement, all automobile insurers in a state are assigned their proportionate share of high-risk drivers based on the amount of automobile liability insurance premiums written in the state.

�  Persons applying for insurance in an automobile insurance plan must show that they have tried but were unsuccessful in obtaining automobile insurance within sixty days of the date of application.

�  Premiums paid for the insurance are substantially higher than the insurance obtained in the voluntary markets.

�  A company is not required to insure a high-risk driver for more than three years.

The major advantage of the Assigned Risk Plan is that a high-risk driver generally has at least one source for obtaining liability insurance.

The major disadvantages of Assigned Risk Plans include the following:

�  Despite higher premiums paid by high-risk drivers, the automobile insurance plans have incurred substantial underwriting losses.

�  High premiums may cause many high-risk drivers to remain uninsured.

�  The driver does not have a choice of insurer, since the state assigns the driver to a particular insurer.

�  Joint underwriting associations.

A joint underwriting association is an organization of automobile insurers in which high-risk business is placed in a common pool, and each company pays its pro-rata share of pool losses and expenses. Some states have established joint underwriting associations to make automobile insurance available to high-risk drivers.

�  Reinsurance facilities.

Under this arrangement, the company must accept all applicants for insurance, whether both good and bad drivers. If the applicant is considered a high-risk driver the company has the option of placing the driver in the reinsurance pool. In the past, the reinsurance facilities have experienced substantial underwriting losses.

�  Specialty automobile insurers.

Specialty automobile insurers are companies that specialize in insuring motorists with poor driving records. These companies typically insure drivers who have been cancelled or refused insurance, teenage drivers and drunk drivers. The premiums are substantially higher than premiums paid in the normal or standard markets.

Cost of Automobile Insurance

There are a number of major factors for determining the rates of private passenger automobile premiums.

Territory

Each state is divided into rating territories: a large city, a suburban, or a rural area. Largely, the territory where the automobile is principally used and garaged determines the base rate.

Age, Sex

Most states permit age and sex to be used as factors in determining premiums. Age is an important rating since young drivers account for a disproportionate number of accidents. Young male drivers who own or are the principal operators of automobiles normally pay the highest rates, since this group has the highest accident rate and the most costly accidents.

Use of The Automobile

Insurers classify automobiles on the basis of the purpose for which the car is driven.

�  Pleasure use; not used in business or driven to work less than a specified distance, for example, less than three miles one way.

�  Driven to work; not used in business but driven less than a specified number of miles to work each day.

�  Business use; customarily used in business or professional pursuits.

�  Farm use; garaged on a farm or ranch, and not used in any other business or driven to school or other work.

A car classified for farm use has the lowest rating factor, using a car for business purposes requires a higher rating factor.

Driver Education

This discount is based on the premise that driver education courses for teenage drivers can reduce accidents and hold down insurance costs.

Good Student Discount

This discount is available from a limited number of companies and is based on the premise that good students are better drivers. To qualify the driver must be a full time high school or college student and be at least sixteen years of age. A school official must sign a form certifying that the student has met the scholastic requirements.

Number and Type of Automobiles

The multi-car discount is based on the assumption that two cars owned by the same person will not be driven as frequently as only one car owned by the same person. The year, make and model of the cars also affect the cost of insurance on the car.

Individual Driving Record

Some companies offer safe driver plans where the premiums paid are based on the individual driving record of the insured and operators who live with the insured. In states that have an accident point system, the actual premium paid may be based on the total number of accumulated points assessed against the insured�s driving record.

Purchase Higher Deductibles

If the insured purchases a higher deductible on collision and comprehensive insurance, the premium can be reduced by as much as twenty percent.

Improved Driving Record

A clean driving record covering the previous three years can substantially reduce the premiums of a high-risk driver. A conviction for drunk driving can be extremely costly when purchasing automobile insurance.

Conclusion

Approximately $100 Billion a year in damage is estimated to be caused by automobile accidents. This damage includes destroyed property, medical and funeral expenses, and the lost income of people involved in accidents.

Since auto insurance is the first experience for most people with respect to the insurance industry, it is especially important for the agent to provide these purchasers the extra attention and care they need and desire in order to create a lifetime relationship with the purchaser.

Which of the following is not insured under a personal auto policy?

What are the four parts of a personal automobile policy?

What is the most important part of a personal auto policy?

Which of the following coverages is provided by the PAP?