Lecture Eleven ： Automobile Insurance

1. Lecture Eleven：Automobile Insurance

2. Learning Objective • Know the brief history and status of auto insurance in the world • Describe the liability coverage under the Personal Auto Policy (PAP) • Explain the medical payments coverage • Describe the uninsured motorists coverage • Explain the coverage for damage to your auto • Explain the duties imposed on the insured after an accident or loss • The status of auto insurance in Chinese market

3. Main Contents • Brief introduction to the history of auto insurance from global perspective • Liability Coverage of Personal Auto Policy (PAP) in USA • Medical Payments Coverage • Uninsured Motorists Coverage • Coverage for Damage to Your Auto • Duties after an Accident or Loss • General Provisions

4. History and Status of Auto Insurance in the World • The Automobile Insurance ( shorted as auto insurance) came into being in late 19th century on the basis of ocean marine insurance, fire insurance, theft insurance. • UK was the first country established auto in 1896. • USA is the No.1 in auto insurance in the world. Japan is the No.2. UK is the No.3.

5. Auto Insurance in U.S. • In 1898, the first auto liability insurance policy was established in U.S. • In 1899, auto property loss insurance policy (physical damage coverage on atuo) came into being. • In 1902, vehicle insurance came into being.

6. Auto Insurance in U.S. • In 2000, the total premium of auto insurance was $136 billion, covering 45.12% of the property insurance.

7. Highlights: Auto insurance in 2000 in U.S. (billion)

8. Brief introduction to PAP in U.S. • ThePersonal Auto Policy (PAP) PAP was introduced in 1997 and has been revised several times. The following discussion is based on the latest 1998 edition of the PAP.

9. Brief introduction to PAP • Eligible Vehicles • four-wheel motor vehicle • owned by the insured or leased by the insured for at least six continuous months. • Not apply to • incidental use of vehicle • Ranching or farming

10. Brief introduction to PAP • The PAP consists of a declarations page, a definitions page, and the following six parts: • Part A: Liability Coverage • Part B: Medical Payments Coverage • Part C: Uninsured Motorists Coverage • Part D: Coverage for Damage to Your Auto • Part E: Duties after an Accident or Loss • Part F: General Provisions

11. Part A：Liability Coverage • Insuring agreement • Insured persons • Supplement payments • Exclusion

12. Part A：Liability Coverage Insuring agreement • the insurer agrees to pay any damages for bodily injury or property damage for which an insured is legally responsible because of an auto accident • Split limits • $250,000/$500,000/$00,000 • a single limit • $500,000 • The amount paid includes: • loss+ defense costs+ interest

13. Part A：Liability Coverage Insured Persons The following four groups are insured under the liability section of the PAP: • the named insured and resident family members • any other person using the named insured’s covered auto with permission • any person or organization legally responsible for the acts of a covered person • any person or organization legally responsible for the named insured’s or family members’ use of any auto or trailer

14. Part A：Liability Coverage Supplementary Payments • In addition to the policy limits and a legal defense, certain supplementary payments can be paid • Up to $250 for the cost of a bail bond • Premiums on appeal bonds and bonds to release attachments • Interest accruing after a judgment • Up to $200 daily for the loss of earnings • Other reasonable expenses

15. Part A：Liability Coverage Exclusions • Intentional injury or damage • Property owned or transported • Property rented, used, or in the insured’s care. • Bodily injury to an employee （Why？） • Use as a public or livery conveyance • Vehicle used in the automobile business. • Other business vehicles（Why？） • Using a vehicle without reasonable belief of permission. • Nuclear energy exclusion • Vehicle with fewer than four wheels • Vehicle furnished or made available for the named insured’s regular use（non-owned vehicle • Vehicle owned by, furnished, or made available for the regular use of any family member • Racing vehicle.

16. Part A：Liability Coverage Other insurance If more than one liability policy covers a loss, PAP has a provision for determining the amount and priority of payments: Pro rata share the loss Example: (P100)

17. Primary and excess insurance(Pro rata share of loss) • Ken is the named insured and borrows Karen’s car with her permission. Both policies will cover any loss. Ken has $50,000 of liability insurance and Karen has $100,000. Ken negligently injures another motorist and must pay damages of $125,000. The rule is that insurance on the borrowed car is primary, and other insurance is excess. Each company pays as follows: • Karen’s insurer (primary) $100,000 • Ken’s insurer (excess) 25,000 • Total $125,000 • Karen’s insurer pays $100,000 while Ken’s insurer pays the remaining $25,000.

18. Part B：Medical Payments Coverage • Insuring agreement • Insured persons • Exclusion • Other insurance

19. Part B： Medical Payments Coverage Insuring agreement • The insurer agrees to pay all reasonable medical and funeral expenses incurred by an insured for services rendered within three years from the date of the accident • Covered expenses include medical, surgical, X-ray, dental, and funeral expenses • Not based on fault Medical payments can be paid to the insured and the passengers in the car

20. Part B： Medical Payments Coverage Insured Persons • Named insured and family members • Other persons while occupying the covered auto

21. Part B： Medical Payments Coverage Exclusions • Motorized vehicle with fewer than four wheels • Public or livery conveyance • Using the vehicle as a residence • Injury occurring during course of employment • Vehicle furnished or made available for the named insured’s regular use • Vehicle furnished or made available for the regular use of any family member • Using a vehicle without a reasonable belief of permission • Vehicle used in the business of an insured • Nuclear weapon, radiation, or war • Racing vehicle

22. Part B： Medical Payments Coverage Other insurance If other automobile medical payments insurance applies to an owned vehicle, the insurer pays its pro rata share of the loss based on the proportion that its limits bear to the total applicable limits. Example: (P101)

23. Part C：Uninsured Motorists Coverage The uninsured motorists coverage pays for the bodily injury (and property damage in some states) caused by an uninsured motorist, by a hit-and-run driver, or by a negligent driver whose insurance company is insolvent. • Insuring agreement • Insured persons • Exclusion • Other insurance

24. Part C： Uninsured Motorists Coverage Insuring agreement • The insurer agrees to pay compensatory damages that an insured is legally entitled to receive from the owner or operator of an uninsured motor vehicle • Damages include medical bills, lost wages, and compensation for a permanent disfigurement resulting from the accident • Some conditions must be met

25. Part C： Uninsured Motorists Coverage Insured Persons • the named insured and his or her family members • any other person occupying a covered auto • any person legally entitled to recover damages

26. Part C： Uninsured Motorists Coverage Exclusions • No uninsured motorists coverage on vehicle (owned by that insured) • Primary coverage under another policy (family members occupying a vehicle are not covered) • Settling a claim without the insurer’s consent • Using the vehicle as a public or livery conveyance. • No reasonable belief of permission. • No benefit to workers compensation insurer • No punitive damages

27. Part C： Uninsured Motorists Coverage Other insurance • When more than one uninsured motorist coverage provision applies to the loss • Textbook P103

28. Part D：Coverage for Damage to Your Auto Part D provides coverage for the damage or theft of an automobile • Insuring agreement • Transportation expenses • Exclusion • Limit of liability • Payment of loss

29. Part D：Coverage for Damage to Your Auto Insuring agreement • The insurer agrees to pay for any direct and accidental loss to a covered auto or nonowned auto, including its equipment, less any deductible • Two optional coverages are available： • collision coverage • other-than-collision coverage (also called comprehensive）

30. Part D：Coverage for Damage to Your Auto • Collision Loss Collision is defined as the upset of your covered auto or nonowned auto or its impact with another vehicle or object （including your car lose control, hits another car or building, damage from parking ) • Other-Than-Collision Loss loss from any of the following perils is considered to be an other-than-collision loss: • Missiles or falling objects • Fire • Theft or larceny • Explosion or earthquake • Windstorm，hail, water, or flood • Malicious mischief or vandalism • Contact with a bird or animal • Glass breakage

31. Part D：Coverage for Damage to Your Auto Deductible • Both the collision coverage and other-than-collision losses is written with direct deductibles ($250 or higher amount) • The purpose of deductibles： • reduce small claims • Hold down premiums • Encourage the insured to be careful in protecting the car

32. Part D：Coverage for Damage to Your Auto Transportation Expenses Part D also pays for temporary transportation expenses, up to $20 daily to a maximum $600 due to loss of covered auto.

33. Part D：Coverage for Damage to Your Auto Exclusions • Use as a public or livery conveyance. • Damage from wear and tear, freezing, and mechanical or electrical breakdown • Radioactive contamination or war • Electronic equipment designed for the reproduction of sound • Other electronic equipment • Tapes, records, and discs • Government destruction or confiscation • Trailer, camper body, or motor home • Loss to a nonowned auto used without reasonable belief of permission • Radar detection equipment • Custom furnishings or equipment • Nonowned auto used in the automobile business • Racing vehicle • Rental car

34. Part D：Coverage for Damage to Your Auto Limit of liability The amount paid for a physical damage loss to a covered vehicle is the lower of ： • actual cash value of the damaged or stolen property, or • amount necessary to replace the property with other property of like kind an quality In practice, insurers declare a total loss if the estimated cost of repairs and salvage value exceed the value of the car.

35. Three terms: • Betterment • Diminution in value • Gap insurance

36. Part D：Coverage for Damage to Your Auto Payment of loss The insurer has the option to pay for a physical damage loss in money, or repairing, or replacing the damaged or stolen vehicles.

37. Part D：Coverage for Damage to Your Auto Other source of recovery • If other insurance covers a physical damage loss, the insurer pays only its pro rata share. • Any physical damage insurance on the borrowed car is primary, and your physical damage insurance is excess.

38. Part E：Duties After an Accident or Loss what to do if an insured driverhas an accident or loss? • determine if anyone is hurt, save the injured, and notify the police • give the other driver your name, address, and the name of your agent and insurer and request the same information from him or her • get the name and address of any witnesses • Send to the insurer copies of any legal papers or notices • Submit a proof of loss at the insurer’s request

39. Part F：General Provisions • Policy period and territory • Termination

40. Part F：General Provisions • Policy period and territory The PAP provides coverage only in the United States, its territories or possessions, Puerto Rico, and Canada.

41. Part F：General Provisions • Termination An important provision applies to termination of the insurance by either the insured to insurer. There are four parts to this provision: • Cancellation • Nonrenewal • Automatic Termination • Other Termination Provision

42. Part F：General Provisions Cancellation • The named insrued can cancel at any time by returning the policy to the insurer or by giving advance written notice. • The insurer also has the right of cancellation.

43. Part F：General Provisions Nonrenewal The insurer may decide not to renew the policy when it comes up for renewal, and giving notice to the named insured at least 20 days before.

44. Part F：General Provisions Automatic Termination If the insurer decides to renew the policy, an automatic termination provision becomes effective.

45. Part F：General Provisions Other Termination Provision Many states place additional restrictions on the insurer’s right to cancel or not renew.

46. Insuring Motorcycles and Other Vehicles • The PAP excludes coverage for motorcycles, mopeds, and similar vehicles. • You should be aware of several points if the miscellaneous-type vehicle endorsement is added to the PAP.

47. Insuring Motorcycles and Other Vehicles • First, the liability coverage does not apply to a nonowned vehicle. • Second, a passenger hazard exclusion can be elected, which excludes liability for bodily injury to any passenger on the motorcycle. • Finally, the amount paid for any physical damage losses to the motorcycle is limited to the lowest

48. Insuring Motorcycles and Other Vehicles • A miscellaneous-type vehicle endorsement can be added to the PAP to insure motorcycles, mopeds, and motor homes, etc.

49. Summary • The personal auto insurance policy (PAP) consists of a declarations page, a definitions page, and six major parts: Part A (liability coverage), Part B (medical payments coverage), Part C (Uninsured motorists coverage), Part D (coverage for damage to your auto), Part E (duties after an accident or loss), and Part F (genera provisions) • Liability coverage protests the insured from bodily injury and property damage liability arising out of the auto accident. • Medical payment coverage pays all reasonable medical , dental, and funeral expenses incurred by an insured person. • Uninsured motorists coverage pays for the bodily injury of a covered person caused by an uninsured motorist, a hit-and-run driver, or a negligent driver whose insurer in insolvent.

50. Review Questions 1. Describe the major coverage that is found in the PAP. 2. Who are the persons insured for liability coverage under the PAP? 3. If you drive a non-owned auto an damage it, will your PAP pay for the damage? Explain. 4. Who are the persons insured for medical payments coverage under PAP? 5. Explain the major features of the uninsured motorists coverage in the PAP. 6. Describe the insuring agreement under coverage for damage to your auto in the PAP? 7. Explain the duties imposed on the insured after an accident or loss occurs.