Chapter 18

What are the minimum limits for an umbrella policy?

1. Auto: $250,000 | $500,000 | $50,000 OR, $300,000 to $500,000 single limit. 2. Homeowners: $100,000 or $300,000. 3. Watercraft: $300,000 to $500,000.

What are the three state program models in regard to the residual market?

1. Automobile insurance plans. 2. Joint underwriting associations. 3. Reinsurance facilities.

Boatowners and yacht policies contain warranties, such as: (3)

1. Be used for pleasure. 2. Not be used during specific seasonal periods, unless permission granted. 3. Be operated only in the navigational area described in the policy.

What are the two types of packages for boats?

1. Boatowners policy. 2. Yacht policy. They contain: A. Liability. B. Medical payments. C. Uninsured boaters. D. Physical damage coverage, often referred to as Hull insurance.

What are the two major coverages under PART D?

1. Collision. 2. Other than collision. An insurance applicant can elect both, or only one, but he or she cannot purchase collision coverage alone.

What are the methods of ensuring compensation? (6)

1. Compulsory insurance. 2. Financial responsibility laws. 3. Unsatisfied judgement funds. 4. Uninsured motorists coverage. 5. Underinsured motorists coverage. 6. No-fault auto insurance.

What are the two approaches to Modified No-Fault Insurance?

1. Dollar Threshold: if a person's injuries are below this amount, he or she must collect from first-party no-fault benefits and cannot sue. Suits are allowed once the face amount is reached. The injured party can still receive no-fault benefits, but his or her insurer is reimbursed to the extend any amount from a legal judgement duplicates any no-fault benefits received. 2. Verbal threshold: allows suit when there is a fatal injury, serious injury, or serious disfigurement.

What exclusions apply to PART D?

1. Electronic equipment, unless permanently installed in vehicle. Then, limit is $1,000. 2. More than $1500 of non electronic customer equipment not otherwise excluded. 3. Radar detectors. 4. Trailers, etc, not shown in policy declarations; does not apply to non owned trailers or trailers acquired during there policy period as longs the insurer is asked to insure them within 14 days.

Numerous laws and regulations have been passed to control the number of auto accidents and to lessen the number of injuries and deaths. Among these are:

1. Federal auto design and safety standards. 2. Highway design standards. 3. Seat belt laws. 4. Drunk-driving laws. 5. Tightening of licensing standards for young drivers. 6. License retesting for older drivers.

What are the arguments against No-Fault insurance?

1. Inability in some states to sue for pain and suffering has not been popular with attorneys. 2. There are ways to modify the current tort system. 3. Some of the costs of auto accidents tend to shift from negligent parties to innocent victims. 4. Widespread fraud.

What are additional coverages available to boat and yacht owners? (4)

1. Legal obligation of the policy owner to remove a wrecked or sunken vessel. 2. Liability arising out of transportation of the boat on land. 3. Costs of towing. 4. Liability to crew members and other maritime workers.

Why have traditional insurance and tort systems for compensating auto accident victims been subject to criticism?

1. Many innocent persons are unable to collect anything for their injuries under the traditional system because injuries are caused by uninsured and hit and run drivers. 2. Injuries from auto accidents are a societal problem. 3. It is difficult to determine who is at fault in an accident. 4. Evidence that small claims are overpaid for the sake of quick settlement. 5. A large portion of premium dollars are used to pay claims costs and attorneys fees. 6. The traditional tort system is slow. In some states, delays of 3 to 5 years between an accident and a resulting trial are common.

What are the three categories within pure no-fault insurance?

1. Modified no-fault laws. 2. Add-on plans. 3. Choice no-fault laws.

How is a PAP structured?

1. Part A. Liability Coverage. 2. Part B. medical payments coverage. 3. Part C. Uninsured motorists coverage. 4. Part D. Coverage for Damages to your auto. Two other sections: 1. Part E. 2. Part F. Spell out the duties of an insured following a loss and that contain other policy provisions.

The insurer's maximum limit of liability is the smallest of the following three amounts (minus the applicable deductible):

1. The stated amount selected. 2. The actual cash value. 3. The amount necessary to repair of like.

What are the supplementary payments for expenses arising from an accident the policy covers, under Part A?

1. Up to $250 for bail bonds. 2. Premiums on appeal bonds and bonds to release attachments. 3. Interest occurring after a judgement. 4. Up to $200 per day for loss of earnings because of attendance at hearings or trials.

What is compulsory insurance?

1. Victim compensation must come through legal channels. 2. Do no guarantee that an innocent victim will be compensated. 3. Required liability limits are relatively low.

For PART C, an uninsured vehicle is considered the following: (3)

1. a vehicle that is insured for less than the limits of financial responsibility laws of the state where the covered auto is principally garaged. 2. A Hit-and-run vehicle whose operator cannot be identified and that hits: A. the insured. B. A vehicle occupied by the insured. C. a covered auto. 3. A vehicle to which insurance applies at the time of the accident but the insurance company is insolvent, becomes insolvent, or denies coverage.

Under PART C and the term uninsured, the following are specifically excluded: (6)

1. owned by or furnished for regular use of any family member. 2. Owned or operated by a self-insurer. 3. Owned by any government agency. 4. Operated on rails. 5. Designed for off public roads. 6. Located for use as a residence.

What is a PAP?

A Personal Auto Policy.

What is the Financial Responsibility Law?

A law that requires a driver to prove he or she can pay for damage or injury caused by an automobile accident if he or she is at fault.

What is the exception and must be considered under a commercial policy?

A vehicle rented to others or used as a public or livery conveyance is not eligible and must be insured under a commercial policy.

What is considered an eligible vehicle?

A. Includes private passenger autos that have been owned by the policy owner or leased under a written contract of 6 continuous months or longer. B. Pickups are eligible if their gross vehicle weight rating is 10,000 lbs or less. C. Vans and pickups are ineligible if they are used for transportation or delivery of goods and materials except when: (1) they are used for farming and ranching. (2) their use is incidental to the named insured's business of installing, maintaining, or repairing furnishings or equipment.

Explain the Limited Mexico Coverage.

Acceptable coverage must be obtained through a licensed Mexican insurance company before driving into Mexico. Coverage can be purchased at the border. Or, add it via member of foreign insurance association. Covers losses that occur within 25 miles of border. Coverage only applies while the insured is in Mexico for 10 days or less.

What is a Joint Underwriting Association (JUA)?

All business is pooled. Losses are shared proportionally to the auto insurance premiums each company writes in the state. Limited number of companies.

What is a covered auto?

Any vehicle listed in the policy's declarations.

What is an automobile insurance plan?

Applicant must show inability to acquire coverage in certain period of time. Each auto insurer in the state is assigned its proportionate share of the drivers in the plan based on total volume written. The company, assigned, services and receives any profits or assorts any losses.

What vehicles are covered under PART D?

Applies to both covered autos and non owned autos.

What is the purpose of the auto loan/lease coverage endorsement?

Considered gap coverage. Provides indemnification for any unpaid lease or finance amounts other than overdue payments at the time of loss, financial penalties under a lease for excessive use or abnormal wear and tear, security deposits not refunded by a lessor, costs for extended warranties or life and health insurance purchased, and carryover balances from previous leases and loans.

What is an umbrella liability policy?

Covers everything, not just auto. Designed to provide liability coverage for catastrophic legal claims or judgements.

What are the exclusions found in umbrella policies?

Don't apply to: 1. Intentional injury unless to prevent or eliminate danger to protect persons. 2. Government programs, such as workers' comp. 3. Damage to property owned by an insured. 4. Damage to certain types of non owned property. 5. Use of watercraft. 6. The use of aircraft. 7. Business pursuits. 8. Rendering or failure to render professional services. 9. Directors and offers activities other than those performed for a not for profit. 10. Transmission of communicable diseases. 11. Sexual molestation, corporal punishment, and physical or mental abuse.

What is pure no-fault insurance?

Each owner of an auto would be required to carry first-party insurance that compensated all persons injured in auto accidents involving that vehicle. The right to sue a negligent party, even for pain and suffering, would not exist.

Explain joint ownership coverage.

Endorsement used to modify the definition of "insured".

True or false: subject to certain dollar limits, every PAP automatically covers transportation expenses, such as the costs of renting a car, while a covered auto is out of service because of a collision.

False. A PAP covers transportation expenses while a covered auto is out of service because of a collision only when the policy provides collision coverage on that covered auto.

True or false: financial responsibility laws require owners of autos to carry liability insurance before a vehicle can be registered.

False. Compulsory insurance laws require owners of autos to carry liability insurance before a vehicle can be registered. Financial responsibility laws only require proof of future financial responsibility under certain circumstances.

True or false: because of the highly competitive market, the cost of auto insurance differs little from company to company.

False. Despite the competitive market, the cost of the auto insurance differs significantly from company to company.

True or false: if Jim rented a car, damaged it, and was sued by the rental company, he would be covered under the liability coverage of his PAP for the property damage to the rental car.

False: if Jim rented a car, damaged it, and was sued by the rental company, he would be covered under the collision or other-than-collission coverages of his PAP for the property damage to the rental car. Liability coverage excludes damage to property rented to the insured.

True or false: Medical payments coverage under the PAP applies only to persons other than the named insured.

False: medical payments under the PAP cover the insureds as well as other people riding the insured's car. Insureds are covered while occupying a motor vehicle designed for use on public roads or when struck as a pedestrian.

True or false: under most no-fault laws, the right to sue the negligent party, even for pain and suffering, has been eliminated.

False: under most no-fault laws, the right to sue the negligent party exists once a dollar or verbal threshold has been met. No state has adopted a pure no fault law.

Explain coordination of benefits in terms of Medicare.

Federal regulations prohibit Medicare payments to persons injured in auto accidents who have recovered, or are expected to recover, under no-fault coverage.

What is choice no-fault insurance?

Gives the insurance buyer two choices; 1. Coverage under the traditional tort liability system. 2. Coverage under a modified no-fault law at a reduced premium. A person who elects to retain the right to seek damages under the traditional liability system may or may not be able to purchase no-fault type benefits similar to those in an add-on plan.

What is the residual market?

Hard-to-insure drivers can find some coverage here.

What is considered 'other than auto'?

If a loss is not caused by a collision, it must be a result of other than collision, such as: 1. Missiles. 2. Fire. 3. Theft. etc. Open-perils.

What is a newly acquired auto?

If a new auto replaces an existing vehicle, it is automatically insured for the broadest Parts A, B, and C coverages that apply to any vehicle listed in the declarations. If the new auto is an additional vehicle, the same automatic coverage applies only if the policy owner asks the insurance company to insure the vehicle within 14 days of purchase.

What is self-insured retention?

If an underlying policy does not cover a loss that is not excluded from a personal umbrella policy, the umbrella policy is the primary insurer and will cover the loss subject to an SIR*. Deductible that requires the policy owner to pay the first portion of loss.

How are losses settled under Part C?

If more than one policy provides coverage, the recovery for damages under all policies may not exceed the highest limit for any one vehicle under any of the policies.

Explain the insurance that "follows the car"

In some cases, more than one PAP might provide coverage for when a person drives a friends car.

How would you lower the premiums for PART D?

Increase the deductible.

What is the Excess Customizing Equipment Coverage?

Increase the sublimate on custom equipment.

What are Reinsurance Facilities?

Insurers must accept all drivers with valid license. Considered high risk. The insurer has the option of assigning the premiums to the reinsurance facility.

How would Hank's vehicle be covered if he hit a deer?

It would be paid under other-than-collission.

What does Part B cover?

Medical expenses of accidental injury. Only expenses resulting from medical services rendered 3 years of the date. Benefits are paid under medical payments coverage regardless of fault. No one can collect for the same expenses more than once under Part A, Part B, and Part C.

What are add-on plans?

No restriction on the right to sue a negligent party, but first-party no-fault type benefits are available. The insurer that pays these benefits has subrogation rights against the negligent party.

What is a Personal Injury Protection (PIP) Endorsement?

No-fault benefits include: 1. Medical expenses. 2. Rehab. 3. Loss of earnings. 4. Expenses for essential services, such as a house or yard work that an injured person can no longer perform. 5. Funeral expenses. 6. Survivors benefits arising from death in an auto accident.

The result of traditional tort and insurance compensation shortcomings became the passage of this type of insurance.

No-fault insurance.

What is a single limit under Part A?

One limit that applies in the aggregate to all bodily injury and liability claims arising from an accident.

When would a 4-day notification be required to be given for a newly acquired auto?

PAP provides automatic insurance for the broadest PART D benefits provided the vehicle in the declarations only if the insurance company is notified in 14 days. There is also coverage for newly acquired autos even if Part D is not in effect on any vehicles listed in the declarations, but only if the insurance company is notified within 4 days of purchase that such coverage is wanted. If the 4 day notification is satisfied, any loss prior to insurance company notification is subject to a $500 deductible.

How are losses settled for PARTS A, B?

Prorata basis, except that coverage on a non owned vehicle is primary to coverage on a vehicle that an insured owns.

What is covered under Part A?

Provides bodily injury and property damage liability protection to any insured who is legally responsible for an auto accident.

What is the Covered Property Endorsement?

Provides coverage for awnings, cabanas, and other similar equipment designed to use with insured vehicles, such as vans, trailers, etc.

What is PART D?

Provides coverage for physical damage to the covered auto and toe certain other non owned autos. First-party coverage rather than third-party liability coverage.

What is the Electronic Equipment Coverage?

Provides coverage in excess of $1,000.

What is the Trip Interruption Endorsement?

Provides coverage up to $600 for reasonable transportation expenses, lodging, and meals when a vehicle is withdrawn from use for 24 hours or more because of an accident or breaks down more than 100 miles from home.

What is underinsured motorists coverage?

Provides protection to a victim when a negligent driver has liability insurance, but the limits are insufficient to pay the damages for which he or she is responsible. Example: Owes $30,000 to a person, but only carries $25,000 of insurance.

What is covered under Part C?

Provides uninsured motorists coverage. The insurer agrees to pay compensatory damages that 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 and caused by an accident. Does not include punitive or exemplary damages. Can purchase amounts of coverage as high as liability limits that apply under PART A.

What is a temporary substitute vehicle?

Replacement of vehicle in declarations.

What is modified no-fault insurance?

Right of an injured party to recover damages from a negligent party, but does not eliminate it.

Explain the trust endorsement.

Sometimes, a vehicle is owned by a revocable living trust that the policy owner establishes for estate planning purposes. In 2005, ISO introduced an endorsement that lists the name of the trust and the trustee if other than the named insured.

What happens when a spouse ceases to be a resident of the same household?

Spouse is still a YOU until the earliest of the following: A. The end of 90 days following the spouse's change of residency. B. The effective date of another policy. C. The end of the policy period.

What are the split limits under a Part A?

The applicant selects the limits when he or she purchase insurance. The first limit is the maximum amount that will be paid to any one person for bodily injury. The second limit is the maximum that will be paid for all bodily injury claims in one accident. The third limit applies to total property damage claims.

What is Uninsured motorists coverage?

The injured insured is able to collect the amount he or she would have collected from the insurer of an insured driver if that driver had been carrying insurance. The insured's company acts as the insurer of the uninsured driver.

What happens when a policy owner fails to maintain the required underlying coverages associated with an umbrella policy?

The insurer will pay only the amount it would have been required to pay if the underlying policies had been in force.

Explain the Towing and Labor Cost Coverage Endorsement.

The limit of towing and labor costs coverage is a stated amount, such as $25, $50, or $100 per disablement.

What is defined as a collision?

The upset of the covered auto or any non owned auto or its impact with another vehicle or object.

How are losses settled under PART D?

There is a limit of liability, the lesser of (1) the actual cash value of stolen or damaged property or (2) the amount necessary to repair or replace the property with other property of like kind and quality.

What are unsatisfied judgement funds?

These were established to compensate persons who are unable to collect legal judgements that result from auto accidents. The injured person must show that the judgement cannot be collected. The maximum amount to be collected is limited to the state's minimum compulsory insurance requirement and is reduced by collateral sources of recovery, such as worker's compensation or insurance. The negligent driver must repay the fund for payments made to the injured person or lose his or her driver's license until repayment is made.

True or false: a client driving to Mexico should be advised to purchase liability coverage from a Mexican insurer.

True.

True or false: if Jim has an accident while driving his friend's car and is sued for $250,000 for bodily injury and property damage, the friend's liability insurance would pay first and Jim's liability coverage would be excess and this pay only if needed.

True.

True or false: in uninsured motorists coverage, uninsured motorists include drivers of hit and run vehicles.

True.

How does a PAP relate to a homeowners policy?

Various ISO endorsements can be added.

What is the Optional Limits Transportation Expense Coverage?

$20 per day and $600 maximums are increased to $30 and $900.

Explain PAP in relation to transportation expenses.

$600 is provided, without application of deductible, for the cost of renting a vehicle. The amount is limited to $20 per day and is payable beginning 48 hours after a theft loss and ending when the vehicle is returned.

What are the two types of endorsements under a PAP?

1. "buy back" certain excluded coverage. 2. Expand or extend the types of vehicles that qualify as non owned autos.

Many companies give discounts for at least some of the following: (10)

1. A driver education course for young drivers. 2. Students with good grades. 3. A defensive driving course. 4. Senior citizens. 5. Nonsmokers. 6. Anti-theft devices. 7. Air bags. 8. Reduced use of a vehicle by a student who is away at school over a specified distance from home, provided the student does not have an insured vehicle at school. 9. No accidents for some period, 3 years. 10. Other policies with the same company.

What factors affect auto insurance rates?

1. Age. 2. Gender. 3. Marital status. 4. Use of vehicle. 5. Area. 6. Driving record. 7. Age of vehicles.

What are the three ways that Hull Coverage can be written?

1. All losses. 2. Only losses that occur while the plan is not in flight. 3. Only losses that occur while the plane is not in motion.