OPTIONAL COVERAGES OFFERED WITH PERSONAL AUTO POLICY

JANUARY 2014 INDEX

OPTIONAL COVERAGES OFFERED WITH PERSONAL AUTO POLICY

BY ALAN PLAFKER, President & CEO
MEMBER BROKERAGE SERVICE LLC
A MELROSE CREDIT UNION SERVICE ORGANIZATION

Lately, the issue of personal auto supplementary uninsured motorist coverage has been in the news in New York. Some people want to require that SUM (Supplementary Uninsured Motorist) coverage matches insureds' bodily injury coverage and then allow insureds to opt down in coverage if they choose. Others who support an opt-in approach, state that the option is there: if the insureds want to choose it, they can. This got me thinking about some of the optional coverages that are offered with the personal auto policy.

SUM coverage

Again, the SUM coverage (although state specific) is one of those coverages. As a reminder, SUM insurance may be used in cases where a negligent driver does not carry enough insurance to provide adequate monetary compensation for the damages he or she has caused. SUM insurance may only be used when the full amount available under the negligent driver's policy is exceeded, and only pays any difference between the amount of SUM coverage an insured has and the amount paid by the other driver's insurance.

Medical expenses coverage

Medical expenses coverage is the one coverage that will give you the greatest “bang for their buck.” Medical expenses coverage typically is one of the least expensive coverage options. Coverage generally is available in several levels; e.g., $1,000, $5,000, $10,000, $25,000, $50,000 or $100,000.

Medical expenses cover an insured or anyone who may get hurt when using the insured's vehicle regardless of who is at fault. It also will afford coverage if the insured or other family members are hurt in someone else's car.

The medical expenses coverage on an insured's policy also acts as excess coverage if the person who is insured doesn't have medical expense coverage or if the insured doesn't have enough. Typically, medical expense coverage will cover an insured for the following expenses: visits to the doctor; X-rays; ambulance fees; professional nursing services; and surgical costs.

Rental car coverage

Let's look at rental car coverage, specifically a vehicle that is rented as a luxury, e.g., vacation, and not as a necessity, e.g., due to an accident. If an insured rents a vehicle because he or she is out of town and needs transportation, a personal auto policy does not consider this a substitute vehicle because the insured's primary vehicle is not out of commission due to the following: breakdown; repair; servicing; loss; or destruction.

Also, the personal auto policy does not cover the actual expense to rent the vehicle. It is important to note that this coverage is different from an optional limits transportation coverage that covers a vehicle when it is in the garage due to a covered loss.

When an insured rents a car, the personal auto policy affords liability coverage for the use of any auto not excluded, and there is no exclusion for a vehicle rented within the coverage territory on a short term basis, so the policy would provide liability coverage. Now, what about physical damage? In New York, which is different than other states, the policy must be endorsed with the Rental Vehicle Coverage endorsement which will provide coverage for damage to the vehicle rented.

Outside of New York, insureds would have to purchase the Loss Damage Waiver from the rental agency if they want to be covered for physical damage. When an insured does not purchase the LDW and the rented vehicle is stolen, damaged by accident, vandalized or damaged weather (hail), the customer would be responsible to the rental company for the full cost of repair, plus any administrative charges and, in some states the cost of loss of rental since the vehicle is under repair and not available for rental.

Conclusion - These are a few of the optional coverages available on the personal auto policy. There are quite a few more, some are state specific and others are approved for use in all states. It is important when dealing with cross-state exposures to verify any optional coverage that may be available outside of the normal writing area.

SUMMARY

Auto policy

Surviving named insured - When one named insured dies, the surviving named insured continues to benefit from all coverages in the policy. However, the time limitation discussed later under the "Coverage termination" subheading may have an impact on continued coverage.

Surviving spouse - A surviving spouse who is not a named insured gets promoted to named insured status upon the death of the named insured as long as the spouse is resident in the same household.

Legal representative - A legal representative also gets promoted to named insured status, but with qualifications on the type of vehicle that is covered and the purpose for which it is used.

First, the legal representative is covered only for "your covered auto," which includes all scheduled vehicles, a newly acquired vehicle, an owned trailer and a temporary substitute auto or trailer, however, a temporary substitute will not be covered under Part D—Coverage for Damage to Your Auto. Consequently, the legal representative is not an insured for nonowned vehicles that are not temporary substitutes.
Second, in order to be covered as an insured, the legal representative must maintain or use "your covered auto" only with respect to his or her legal responsibilities. Personal use voids all coverage for the legal representative.

Permissive users - It could be argued that permissive users of "your covered auto" continue to be insured after the named insured dies because persons who have a reasonable belief that they are entitled to use the vehicle are covered under the terms of the policy. Nevertheless, once the policy is assigned to the legal representative, which may occur immediately when that person is the executor of a will, permissive use only extends to persons carrying out the duties of the representative’s administration of the estate.

Anyone using the vehicle for personal reasons must rely on their own insurance policy for liability coverage. If the vehicle is furnished or regularly available to someone, then that
person should endorse his or her personal auto policy with the Extended Nonowned Coverage for Named Individual (PP 03 06) endorsement. Unfortunately, there does not appear to be an easy solution to the voidance of physical damage coverage on the deceased's auto when used outside the scope of the representative's legal duties.

Coverage termination - In the event of the death of a named insured, the "transfer" provision of the auto policy extends coverage only until the end of the policy period; unlike the homeowners policy, which has no time limitation. Because of the outline configuration in this provision, it appears the time limit will apply even if another named insured survives the deceased named insured.

On the positive side, in Connecticut, New Jersey, New Hampshire and New York, an insurer may not cancel the policy before the end of the policy term simply because the named insured has died. However, it will become necessary to re-apply for coverage on the vehicle(s) at the end of the policy term.

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

Alan Plafker

President of Member Brokerage Service LLC, A Melrose Credit Union Service Organization
Licensed Insurance Broker
President and Member of the Board of Directors, PIANY, Professional Insurance Agents Association of New York
Active Member of CIBGNY, Council of Insurance Brokers of Greater New York
Treasurer, New York Independent Livery Driver Benefit Fund Board of Directors

His agency insures thousands of policies for Taxi Limousine Commission insurance as well as many policies for all types of personal and commercial insurance. He can be reached in his Briarwood, Queens office at 718-523-1300 X1082, or www.MemberBrokerage.com.