PERSONAL AUTO POLICY

Rough Notes, Jan 2005

Insurance for personal automobiles, like other types of insurance, is constantly changing because the events that the policy must respond to also change. The Insurance Services Office has long offered insurers a standard auto insurance product: the Personal Auto Policy, or PAP. ISO's 2005 edition of the Personal Auto Policy, which replaces the 1998 edition, continues the effort to address the demands of consumers, insurers, regulators and legislators. This is accomplished by regularly updating the basic policy and providing both revised and new endorsements.

Individual companies continue to meet auto insurance needs through various methods. A given company may choose to use the ISO program in its entirety, modify the program or use a completely independent program. Because all policies must provide protection against various vehicle exposures, however, it is likely that a company's forms are based on the PAP or its predecessors.

The Personal Auto Policy provides liability and physical damage coverage for eligible persons and vehicles. The PAP sections are: Part A - Liability Coverage, Part B - Medical Payments Coverage, Part C - Uninsured Motorists Coverage, and Part D - Coverage for Damage to Your Auto. Each coverage part has its own insuring agreement, exclusions, limits of liability and other provisions. This format evolved to advance ISO's goal of continually clarifying the coverage intent of its policy forms. In this case, a longer policy is a necessary evil because earlier policy formats in which key provisions applied to several coverage parts became increasingly vulnerable to misinterpretation. To enhance clarity, the 2005 edition of the PAP adds wording to several exclusions and definitions. In particular, the changes apply to the exclusions for coverage of sound reproducing equipment and the definition of newly acquired autos.

Part A - Liability Coverage pays for damages for bodily injury or property damage for which the insured becomes legally liable because of an accident. Besides payment for bodily injury and property damage, the policy considers damages to include prejudgment interest and defense costs. This section also provides supplemental protection including the cost of bail bonds, loss of earnings and other reasonable expenses. The maximum daily coverage for loss of earnings was substantially increased and is now a more realistic amount. Part A excludes coverage for intentional acts, damage to property owned or controlled by the insured, bodily injury occurring in the course of work and several other situations.

Part B - Medical Payments Coverage pays for reasonable expenses incurred for necessary medical treatment and/or funeral services required as the result of bodily injury. The bodily injury must involve an insured and be due to a covered accident. A different definition of insured applies to this part. Coverage is provided to an eligible insured as either a vehicle occupant or a pedestrian. Coverage under Part B also extends to passengers in a covered auto.

The exclusions are for losses involving vehicles with fewer than four wheels, vehicles used as a residence, a public or livery conveyance, and vehicles owned by or available for the regular use of any insured. Also excluded are losses occurring during employment, while operating a vehicle without permission, involving an insured's business and several other situations. The Limit of Liability section explains that the limit shown in the policy declarations is not affected by the number of insured persons, claims made, vehicles or premiums shown in the declarations, or the number of vehicles involved in a given accident. It also states that duplicate payments will not be made under the same policy. The duplication wording is used in several areas of the Personal Auto Policy.

Part C - Uninsured Motorists Coverage. This section's insuring agreement promises to pay for bodily injury suffered by an insured that arises out of the negligent party's ownership, operation or maintenance of an uninsured motor vehicle. This coverage part defines four situations under which a vehicle is considered to be uninsured.

However, the policy does not consider a vehicle to be an "uninsured motor vehicle" if the vehicle is owned by or is regularly available to any insured, if it is operated by a self-insurer, if it is owned by any governmental unit or agency, or if it is operated on rails or crawler treads. The Personal Auto Policy also does not grant uninsured status to an off-road vehicle involved in an accident while off the road or a vehicle that is used as a residence.

The Part C exclusions deny coverage for bodily injury suffered by an insured while occupying or if struck by a vehicle he or she owns (or has regular access to). Coverage is also barred for bodily injury where any insured makes an unauthorized settlement. Coverage does not apply to operators using an insured vehicle without permission, nor does coverage exist in situations that are subject to either a workers compensation or a disability benefits law. Finally, there is no coverage for punitive or exemplary damages.