1. INTRODUCTION

There are two major automobile exposures for which individuals seek protection.

 First, people want to be protected against their liability in case they injure someone or damage someone else’s property through the use of their automobile. 

Second, people want protection for damage to their own automobile in case the auto is damaged in an accident or suffers other types of damage, such as fire or theft.

Because the homeowners form specifically excludes auto exposures, they must be covered separately, through a policy called the personal auto policy (PAP). Because the PAP contains property and liability coverage, it is considered a package policy. In this course, we’ll study the 2005 personal auto policy issued by ISO.

2. ORGANIZATION AND ELIGIBILITY

The personal auto policy consists of a declarations page and a policy form. The policy form contains four separate coverages, each with its own insuring agreement, exclusions, and conditions. They are as follows:

■Part A—liability coverage

■Part B—medical payments coverage

■Part C—uninsured motorists coverage

■Part D—coverage for damage to your auto (physical damage)

Many personal auto policies are written to include all of the available coverages, but the insured does not have to purchase each one. Part A—liability coverage may be written alone or with any of the other coverages. Medical payments coverage, Part B, is optional, but it may only be written if the policy includes liability coverage. Part C—uninsured motorists coverage may only be written in conjunction with liability coverage and is subject to other laws that vary from state to state. It is mandatory in some states; in others the insured may reject the coverage in writing. Either or both of the coverages under Part D (collision and other than collision) may be written alone or with liability coverage.

The personal auto policy can be issued to an individual or a married couple residing in the same household.

 3. DEFINITIONS

The definitions section of the personal auto policy defines certain key terms used in the policy. 

These terms help clarify the intent of various coverages and conditions, as you will see throughout this unit.

The policy uses the words you and your to refer to the named insured shown in the declarations and the insured’s spouse. 

The spouse must reside in the same household as the insured. However, if a separation occurs during the policy period or before the effective date of the policy, the spouse is still considered an insured for the least of:

■90 days;

■the effective date of a new policy listing the spouse as a named insured; or

■the end of the policy period.

A family member is any person related to the named insured who is a resident of the insured’s household.

 This includes those related by blood, marriage, or adoption and includes a ward or foster child.

Bodily injury means bodily harm, sickness, or disease, including death, that results from any of these.

Occupying means:

■in a vehicle;

■upon a vehicle; or

■getting into, onto, out of, or off of a vehicle.

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

The named insured’s covered auto includes the following:

■Any vehicle listed in the declarations. Vehicles eligible to be listed include private passenger autos, which are four-wheel motor vehicles and pickup trucks and vans that are under a certain weight and are not used for business purposes. 

(Farming and ranching are not considered businesses.) The vehicles must be owned or leased under a long-term contract of six months or more.

■Any private passenger auto, pickup, or van the named insured acquires during the policy period. 

■Any trailer owned by the named insured. This includes farm wagons or implements while towed by a vehicle listed in the declarations.

■Any auto or trailer not owned by the named insured that is being used as a temporary substitute for a vehicle shown in the declarations that is out of use because of breakdown, repair, servicing, loss, or destruction.

Earlier, we said that newly acquired autos qualify as covered autos. Coverage for newly acquired autos applies as follows.

✓Take Note

For Liability, Medical Payments, and Uninsured Motorists Coverage

If the newly acquired auto replaces one listed in the declarations, the new auto automatically has the broadest coverage provided for any vehicle already listed in the declarations.

If the new auto does not replace one that is already insured, the insured must request coverage within 14 days after acquiring the auto.

✓Take Note

For Physical Damage Coverage

For physical damage coverage, it doesn’t matter if the new auto is a replacement or additional auto.

 If the insured already has at least one vehicle insured for physical damage under the policy, coverage begins on the date the auto is acquired as long as the insured requests coverage within 14 days after acquiring the auto. 

The new auto will then automatically have the broadest coverage provided for any vehicle already listed in the declarations.

If the insured does not already have physical damage coverage on an auto, coverage must be requested within 4 days after acquiring the auto.

 If a loss occurs in the time before the insured requests coverage, a $500 deductible applies.

If an insured requests coverage after any of the reporting periods specified in the policy have elapsed, coverage begins at the time coverage is requested. This is true for additional and replacement autos.

Suppose Jose sells his small pickup truck and buys a new sports car. 

The pickup truck had full coverage under a personal auto policy.

 Because the sports car is a replacement for the pickup, it automatically has liability coverage under the personal auto policy.