INSURANCE Q & A



Livery (Taxi, Limo, Bus, etc.) passengers

Q: If there were individuals traveling as passengers in a church bus, taxi or limo, and they were injured in a car accident, who would pay for their medical expenses? I believe personal injury protection benefits would be excluded under the personal auto policy in New York. Please confirm.

A: You are partially correct. The personal auto policy will not pay personal injury protection benefits for injury to a passenger if the vehicle has a seating capacity of less than 15 passengers. But for vehicles with a seating capacity of 15 or more passengers the personal auto policy will provide the PIP benefits.

The personal auto policy and the commercial auto policy have PIP endorsement provisions that are mutually consistent with regard to coverage for bus passengers. These provisions are designed to be in compliance with New York’s no-fault law.

Below is the exclusion and exception found in the Insurance Services Office Inc. New York personal injury protection PP 05 87 endorsement on the personal auto policy:

"(c) The named insured or relative while occupying, or while a pedestrian through being struck by, a motor vehicle in New York state, other than the insured motor vehicle, with respect to which the coverage required by the New York Comprehensive Motor Vehicle Insurance Reparations Act is in effect; however, this exclusion does not apply to personal injury sustained in New York State by the named insured or relative while occupying a bus or school bus, as defined in Sections 104 and 142 of the New York Vehicle and Traffic Law, unless that person is the operator, an owner or an employee of the owner or operator, of such bus or school bus."

PIP Coverage for Drunk/Drugged Pedestrian

Q: We have been made aware of a claim against one of our insureds where a pedestrian who tested positive for drug use walked out into the path of a car being driven by our insured. Does the company have to cover medical bills?

A: This claim would have to be reviewed by the company, but there is no obvious reason why the insurer would not have to pay for medical treatment.

No-fault law permits a policy exclusion applicable to a person who "is injured as a result of operating a motor vehicle while in an intoxicated condition or while his ability to operate such vehicle is impaired by the use of a drug..." However, this exclusion does not extend to pedestrians under the influence of a drug.

Other exclusions are permitted for "a person who ... intentionally causes his own injury ... [or] ... is injured while he is committing an act which would constitute a felony..." Whether either of these would apply would need to be determined by the company and would probably go to arbitration and/or court if the insurer would atttempt to use these provisions to deny coverage.

Named Driver Exclusion

Q: Our insured's car was parked and hit by someone from Indiana. The Indiana carrier is denying saying the driver was an excluded individual on the policy. Unfortunately, our client does not have collision coverage on the policy. We thought if someone drives in New York then New York rules apply.

A: Section 311 of the Vehicle and Traffic Law, the Financial Security Act, requires operators of out-of-state vehicles to have an "owner's policy of liability insurance," which means either a policy issued by a New York-authorized insurer, or an unauthorized insurer which has filed a service of process with the New York Department of Motor Vehicles and declared that its policies shall be deemed to comply with the Financial Security Act's requirements.

The requirements of an "owner's policy of liability insurance" are interpreted in Insurance Regulation 35-A, which includes in the definition of "insured," "any other person using the motor vehicle with the permission of the named insured" within the scope of that permission. In other words, New York does not permit named driver exclusions even though Indiana may according to the carrier doing business there.

However, as decided by the Supreme Court, Kings County (Property & Casualty Insurance Co. of Hartford v. Clarke, NYLJ 2/4/05), the driver exclusion would be enforceable if the insurer:

1) was not authorized in New York,

2) did not file a certificate giving proof of financial responsibility under the terms of Vehicle & Traffic Law Section 344, or

3) did not have a policy provision agreeing to interpret the policy with the broader coverage required by the state where the accident occurred.

Falling Object

Q: As a car is driving down the highway behind a truck something flies off the truck. The car can't avoid the object and runs over it causing a puncture in the gas tank. Is this comprehensive (falling object) or collision? Also, does this constitute a chargeable accident?

A: Because it came off the truck and made the accident unavoidable, most insurers would treat this as an “other than collision” loss. The only New York court case I know of on this is Getzoff v. Piedmont Fire Insurance Co. 122 N.Y.S. (2nd) 43, where a stone fell off a truck and rolled under an auto damaging its underside. The court held the loss to be attributable to a falling object.

If the loss is attributable to a falling object such “other than collision” loss would not be chargeable. If the insurer deems the loss a collision it may be chargeable subject to its underwriting rules.

Lawful Auto Rate Discrimination

Q: How can auto insurance companies discriminate and charge different rates for credit, age, gender, etc. “Is that really legal?”

A: There is actuarially justified and “fair” discrimination and there is “unfair” discrimination. Unfair discrimination is prohibited by law.

Everybody knows that youthful operators have greater loss experience, and to the extent actuarially justified, insurers are permitted to charge higher rates for them (legal discrimination).

Sometimes, even though discrimination is actuarially justified, public opinion turns against it which results in prohibition. When I started out in this business insurers discriminated against certain occupations that had greater loss experience. However, most states passed laws to prohibit discrimination against persons based upon a lawful occupation. In time, credit scores may undergo similar prohibition or restriction despite the overwhelming empirical evidence that supports its use.

So, there are two hurdles that need to be overcome in order to make discrimination legal. First, it must be justified in respect to loss experience and second, it must not otherwise be prohibited by law.

Bad Check is Not Payment

Q: A client insured under a commercial package policy was sent a notice of cancellation for nonpayment. The insured then sent the company a check that bounced. The company sent a reinstatement notice to the insured, but sent no second notice of cancellation. The company did not tell us that the check had bounced. At this point the premium has not been paid, and the company says the policy is canceled. Can they cancel the policy without sending a second cancellation notice?

A: Yes. The Insurance Department addressed the effect of tendering a worthless check in OGC Opinion 94-75 (quoted in relevant part):

"You raised the question of whether the premium is remitted if it is postmarked prior to the cancellation date but the check is subsequently dishonored, the premium has not been remitted, regardless of the date it is postmarked.

"Issuance of a reinstatement notice in such a situation, where the check is dishonored subsequent to the issuance of the notice, is moot. Mailing the reinstatement notice does not rescind the cancellation notice if the check is dishonored. A dishonored check is not a premium payment."

Negotiated Claims Settlement

Q: My client was involved in an automobile accident that was the complete fault of the other party. He has received a letter from the adjuster of the other party’s insurer offering a compromise payment claiming they had not received a notice of loss, nor could they contact their insured. Can an insurer make such an offer?

A: Yes, but your client need not accept it. An insurer is entitled to prompt notification of a claim and the cooperation of their insured. Failure to do either could result in a denial of coverage, hence, a denial of claim. The alternative to accepting a compromise offer is to try to sue the third party. However, that will involve retaining a lawyer who would have to locate the responsible party, drag the person through court proceedings without the benefit of insurance protection, and, after a successful decision, find a way to actually
collect the premium. Our best advice is to have your client evaluate the amount of the offer against the challenges of pursuing the responsible party. Your client can always try to negotiate a higher compromise.

Timely Investigation of Auto Claim

Q: Our client is involved in a personal auto claim that has been going on for more than 45 days. The police report states that the other driver left the scene of the accident. The carrier is stating that it hasn't determined the amount of fault. We thought that when drivers leave the scene it is assumed that they were at fault. What is the rule?

A: Even if a driver left the scene, the carrier still should investigate to determine the comparative negligence, if any, by taking statements and gathering the facts. The carrier must report to the claimant on its progress every 60 days, and may take up to six months to make its decision. See Regulation 64 [Section 216.10(f)].

For more information, talk to your insurance professional or the author of this article.

Your Professional Insurance Agent…
We want you to know about the insurance you’re buying.

Alan Plafker is President of Member Brokerage Service LLC, a Melrose Credit Union Service Organization. He is a licensed Insurance Broker and serves as Treasurer on the Board of Directors the PIANY (Professional Insurance Agents Association of NY), serves on the Board of CIBGNY (Council of Insurance Brokers of Greater NY), and was appointed to the New York Independent Livery Driver Benefit Fund Board of Directors. His Agency insures thousands of polices for TLC Insurance as well as many policies for all types of insurance. You can reach him in his Briarwood, Queens office at (718) 523-1300 ext. 1082, or visit the website at: www.MemberBrokerage.com