Whom Else Should the Policy Protect?
Persons Using a Covered Auto
The PAP’s liability insuring agreement provides broad coverage to any persons (that is, individuals) using the named insured’s covered auto, although an exclusion later in the policy requires that they do so with a reasonable belief that they are entitled to use the auto. Courts interpret this provision broadly. If a driver has virtually any basis to believe that he or she is entitled to use the vehicle, that person becomes an insured.
Persons or Organizations Vicariously Responsible
“Insured” includes any person or organization for liability arising out of any insured’s use of the “covered auto” on behalf of that person or organization. It broadens the concept of insured to include a wide variety of entities, such as employers and nonprofit organizations.
Example: John Smith is driving his own private passenger auto on an errand for his employer, Boon Farm. He negligently causes an accident, and the injured party sues both John, as an individual, and Boon Farm. In this case, Boon Farm is afforded coverage and defense under John’s PAP.
Other Persons or Organizations
The fourth category extends protection to other persons or organizations for the named insured’s or family member’s use of vehicles other than the covered auto or the organization’s owned vehicles. However, the owner of the nonowned or hired auto is not an insured.
Example: If John drives a coworker’s car to pick up supplies for their employer, coverage extends to the employer under this category. Also, assume John does voluntary work for the Lighthouse for the Blind. Because his own car is in use by another family member, he borrows his friend Paul’s car to pick up some donated goods for this nonprofit organization and, in the process, negligently causes an auto accident. The Lighthouse for the Blind would have coverage under Paul’s PAP in this circumstance. If Paul did not have any auto insurance, John’s policy could afford liability coverage to the Lighthouse for the Blind. But John’s policy does not cover Paul. Paul is expected to have insurance on his own vehicle.
When an auto is financed or leased, the institution through which the auto is financed will require that the buyer purchase physical damage insurance to protect its collateral interest in the auto. The Loss Payable Clause (PP 03 05) endorsement can be used to protect the financial interests of the lienholder or loss payee (e.g., the bank loaning the insured money to procure the automobile). The loss payee identified in the endorsement does not become an insured. However, a physical damage claim will be paid jointly to the named insured and the loss payee shown on the declarations or on this endorsement, to the extent of their respective financial interests.
As respects the interest of the loss payee, the insurance will remain valid if the named insured commits fraudulent acts or omissions unless the loss results from the named insured’s conversion, secretion, or embezzlement of the covered auto. However, the loss payee is protected only to the extent of its insurable interest in the vehicle.
The coverage afforded to the loss payee under this endorsement is “as [its] interest may appear.” In other words, it will only pay the financial institution’s actual loss sustained, even if the value of the vehicle is greater. For example, if the financial institution is owed $5,000 on an automobile, its interest in that vehicle is limited to $5,000. The named insured’s interest, meanwhile, is the actual cash value (ACV) less
the amount owed. As long as the loss payee’s interest is less than the ACV, this provision should not be of concern. Consider, however, what can happen if the loss payee’s interest is greater than the ACV. Perhaps the auto is financed over a period of 5 years, the auto depreciates rapidly the first year, and the insured’s equity grows at a slower rate. For example, a vehicle with a $16,000 ACV is totaled. The remaining balance on the loan is $17,000. The most the insurer will pay is $16,000, leaving the insured
with no car and a $1,000 balance payable to the loss payee. The Auto Loan/Lease Endorsement (PP 0335), also known as “gap coverage,” can be used to address this situation.
The insurer reserves its right to cancel the policy, and this cancellation will terminate the loss payee’s rights. Whenever this happens, the loss payee is entitled to the same advance cancellation warning as the named insured.
As far as the PAP is concerned, a lease is different from a short-term rental. Leased private passenger–type autos, pickups, and vans are considered owned vehicles under the PAP if the lease is under a written agreement and it is for a continuous period of 6 months or longer. The Additional Insured Lessor (PP 0319) endorsement can be added to a PAP to protect the lessor’s interests. As the title implies, this endorsement adds the lessor who owns a described leased vehicle as an additional insured under the
insured’s PAP. The following example illustrates the benefit of this endorsement to the lessor.
Example: John signs a 3-year lease on a new Buick and negligently causes an auto accident. He has a poor driving record, and the injured parties sue not only John but also the lessor for leasing the vehicle to John. This endorsement requires the insurer to provide defense for the lessor as well as for John. Under this endorsement, the insurer pays damages for which the lessor is legally responsible only if the damages arise out of acts or omissions of the named insured or any family member, or any other permitted person except the lessor or its employee using the leased auto. Thus, if the lease is ended and the lessor’s employee is driving the vehicle back from the insured’s premises and causes an accident, the endorsement provides no coverage.
The endorsement specifies that if the insurer terminates the policy, a notice will also be mailed to the lessor. However, the lessor is not responsible for any premium payments.
Company Cars, Regularly Furnished Vehicles, and Claims by Fellow Employees
An exclusion in the unmodified PAP precludes liability and medical payments coverage for vehicles furnished or available for the regular use of the named insured or any family member. In other words, a client whose employer furnishes her with a company car or provides regular access to a pool of company owned vehicles has no coverage under her own PAP when she is using that car. (An exception to the exclusion provides coverage if the named insured is using a vehicle regularly furnished to a family
If a client is in this position, the Extended Non-Owned Coverage—Vehicles Furnished or Available for Regular Use (PP 03 06) endorsement can be added to restore the excluded coverage. The endorsement expands liability and medical payments coverage for exposures arising out of the use of vehicles furnished or available for regular use of the named individual by deleting certain exclusions and stipulating the specific coverage being bought back. This endorsement is often used for an insured who has a company car, since that car is furnished or available for the insured’s regular use.
The endorsement schedule specifies that this coverage is applicable only to the individual listed in the schedule and not to any other persons. It also includes an option (activated by checking a box) to extend coverage to the named individual, their spouse, and any family members. Such additional coverage, however, applies only to vehicles furnished or available for the regular use of the named individual to prevent coverage for any unidentified loss exposure. There is a separate premium charge for liability and
medical payments coverage. A premium shown beside one of these coverages activates that particular protection.
A key advantage of adding this additional liability protection pertains to lawsuits arising out of accidents in which a fellow employee is injured while the insured is driving a vehicle furnished by their employer.
The courts are increasingly permitting employees to recover damages from fellow employees whose negligent driving caused their bodily injury (BI).
Example: If John negligently caused an accident while driving his company-owned car on a business trip with a fellow employee, John would have liability protection under his own PAP with the PP 03 06 endorsement attached if the fellow employee sued him in connection with the accident.
Unmarried Couples and Other Joint Owners
An unendorsed PAP does not recognize the joint ownership of vehicles except for vehicles owned by a married couple residing in the same household. Adding the Joint Ownership Coverage (PP 03 34) endorsement permits coverage for joint owners in nontraditional households or nonresident relatives.
Example: Bob Smith and Nancy Jones, who live together but are not legally married, decide to pool their resources and purchase a car. They are not spouses, but they do live in the same household as roommates. They can insure the jointly owned car with a PAP with the PP 03 34 endorsement.
Example: John Smith and his brother Bob decide to jointly purchase an antique car. The car is titled in both of their names. Because they qualify as nonresident relatives, the insurance on this car can be written on one policy to protect both of their interests by adding this endorsement.
Other examples include unmarried couples, grandparents purchasing cars for their grandchildren, parents purchasing cars for children who are part-time residents of their household due to divorces or custody arrangements, and a parent and child who jointly own a car but maintain separate residences When this endorsement is attached to the PAP, the eligibility rules in the ISO Personal Vehicle Manual permit a policy to be written in the names of two or more individuals who jointly own an auto and reside in the same household who are not spouses, or who are nonresident relatives. The endorsement then modifies the policy’s definition of “you” and “your” to include resident spouses and “nonresident relatives” who jointly own an eligible vehicle. The endorsement defines “non-resident relatives” as meaning “two or more persons related by blood, marriage, or adoption who reside in separate households.” This includes a ward or foster child.
The jointly owned vehicles need to be specifically described on the endorsement schedule, and coverage is available for liability, medical payments, UM, collision, and other-than-collision coverages. The endorsement excludes any loss from jointly owned vehicles that are not specifically described in the schedule.
The endorsement excludes liability coverage for the ownership, maintenance, or use of any vehicle, except for the covered auto, by any (a) nonresident relative or (b) family member of a nonresident relative. There is a buy-back option in the endorsement schedule for this nonowned auto liability exposure.
This endorsement is not required when a PAP is used to cover a motor vehicle owned by a farm family copartnership or a farm family corporation owned by two or more relatives who are residents of the same household and principally garaged on the farm or ranch.
The Trust Endorsement (PP 13 03) is needed for situations in which the title to an automobile is held solely in the name of the trust. A trust is a legal agreement in which a property interest held by one person is for the benefit of another and is often recommended by estate planners for advantageous income tax purposes. The endorsement amends the definitions section by stating that a private passenger auto,
pickup, or van is considered to be owned by a person if the title is transferred to the trust designated in the endorsement schedule. This is similar to the approach used with leased vehicles. If the policy is canceled or nonrenewed, the notice shall also be mailed to the trustee listed in the endorsement schedule. The endorsement requires prompt notification to the insured if there are any changes in the trust’s name,
address, or trustees; termination of the trust; or the death or disability of the trust’s trustee or grantor (or settlor). The insurer is entitled to be provided with copies of trust documents as often as it reasonably requests.
Additional Household Residents
The relatively new Additional Resident of Your Household (PP 33 37) endorsement, introduced in 2018, is intended to meet changing household structures that may include domestic partners, significant others, live-in nannies, or roommates who do not own the named insured’s vehicle but may have access to it.
With this endorsement, a designated person who resides in the named insured’s household has the same coverage that they would have if the person were a true “family member” who is related to the named insured by blood, marriage, or adoption.
The named insured agrees to notify the insurer within 30 days of any change in that person’s residency.
The Pet Injury Coverage (CP 33 31) endorsement, also introduced in 2018, does not exactly add coverage for additional persons. However, we decided to mention it anyway since some people consider their pets to be family members. This endorsement provides coverage without a deductible for veterinary and other expenses incurred because of BI or death to the covered pet (a dog or cat owned by the named insured or
a family member).
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