CHAPTER 4 - Automotive Insurance PDF

CHAPTER 4-A Automotive: Personal Auto and Business Auto The personal auto policy (PAP) is an insurance policy for the owners of private passenger vehicles. The policy combines physical damage insurance on the automobile with liability insurance for claims from use of the auto. The PAP contains several parts, each describing specific coverage as follows: Part A – Liability Coverage; Part B – Medical Payments Coverage; Part C – Uninsured Motorist Coverage; Part D – Coverage for Damage to Your Auto; Part E – Duties After an Accident or Loss; and Part F – General Provisions. Most of the PAP parts contain the insuring agreement, exclusions, and limits of liability sections. The ownership or operation of an auto involves three types of potential loss, and PAP must provide protection for these losses under diverse circumstances: 1. Legal liability (for injuries and/or property damage to others); 2. Injury to the insured or members of the insured's family; and 3. Damage to or loss of the auto itself. 1. Definitions The Definitions section of the personal auto policy (also known as a PAP) is located on the first page of the policy and defines various terms used throughout the policy. Some of the more important terms are listed below. Bodily injury means bodily harm, sickness or disease, including death that results from the injury. Property damage means physical injury, destruction or loss of use of tangible property. The terms you and your used throughout the personal auto policy (PAP) refer to The named insured shown in the Declarations; and The spouse of the named insured, if a resident of the same household. If the spouse ceases to be a resident of the same household during the policy period or prior to the inception of the policy, the spouse will only be considered under the definition of you and your until the earlier of: o The end of 90 days following the spouse's change of residency; o The effective date of another policy listing the spouse as a named insured; or o The end of the policy period. A family member is a person related by blood, marriage, or adoption who is a resident of the household. This includes ward or foster children. Your covered auto includes Any vehicle shown in the declarations; A newly acquired auto; Any trailer owned; or Any auto or trailer not owned by the insured but used as a temporary substitute for a vehicle described above which is out of normal use because of its breakdown, repair, servicing, loss or destruction. Know that any person qualifies as an insured while using a covered auto, as defined in Part A - Liability Coverage section of a personal auto policy. A trailer means a vehicle designed to be pulled by a private passenger auto, pickup or van, or farm wagons and implements while towed by any of the above vehicle types. A newly acquired auto is any of the following types of vehicles that are acquired by the insured during the policy period: A private passenger auto; A pickup or van, for which no other insurance policy provides coverage, that: o Has a gross vehicle weight of less than 10,000 lbs. (GVW is the maximum recommended weight including the vehicle, fuel and fluids, passengers, and all cargo); o Is not used for the delivery or transportation of goods and materials unless such use is incidental to a business of installing, maintaining, or repairing furnishings or equipment; or o Is not used for farming or ranching. Collision is the upset or impact of a covered vehicle or nonowned auto with another vehicle or object. Other-than-collision (previously called comprehensive) includes losses caused by the following: Missiles or falling objects; Fire; Theft or larceny; Explosion or earthquake; Windstorm; Hail, water, or flood; Vandalism or malicious mischief; Riot or civil commotion; Contact with birds or animals; and Breakage of glass. Note that other-than-collision is a property insurance coverage. Occupying means in, upon, getting in, on, out of, or off a vehicle. Transportation network platform (TNP) means an online-enabled application or digital network used to connect passengers with drivers using vehicles for the purpose of providing prearranged transportation services for compensation. Coverage for a newly acquired auto is provided as follows: For liability, medical payments, and uninsured motorist coverages, a newly acquired auto will have the broadest coverage offered on any vehicle shown on the declarations. However, for this coverage to apply, the named insured must notify the insurer within 14 days after becoming the vehicle owner. Collision Coverage and/or Other Than Collision Coverage for a newly acquired autobegins on the date the insured becomes the owner. For this coverage to apply, the insured must ask the company to insure the vehicle within: 14 days of becoming the owner if the Declarations indicates that Collision and/or Other Than Collision Coverage applies to at least one auto. In this case, the newly acquired auto will have the broadest coverage now provided for any auto shown in the Declarations. 4 days of becoming the owner if the Declarations does NOT indicate that Collision and/or Other Than Collision Coverage applies to at least one auto. If the named insured complies with the 4-day requirement and a loss occurred before the insured asked to insure the newly acquired auto, a $500 deductible will apply. 2. Types of Auto Owned Owned autos are those eligible vehicles titled by the insured or acquired during the policy period. Nonowned Nonowned autos are any private passenger auto, pickup, van, or trailer operated by or in the custody of the named insured or a family member, but that are not titled by or furnished for the regular use of the insured. Hired Hired autos include those that are leased, hired, rented, or borrowed from someone other than an employee or partner. The classes hired automobile and nonowned automobile are mutually exclusive, and the distinction between the two often is misunderstood. Hired automobiles include those that are leased, hired, rented, or borrowed, excluding autos that are owned by employees. Autos leased, hired, rented, or borrowed from employees are considered nonowned automobiles. Thus, the distinction between a hired and nonowned auto does not depend on whether payment is made for the use of the auto, but rather on whether it is owned by an employee. (This somewhat artificial distinction exists primarily for the purpose of rating and premium determination.) Temporary Substitute The personal auto policy provides coverage for any auto or trailer not owned by an insured while used as a temporary substitute for any other vehicle described in the policy that is out of normal use because of breakdown, repair, servicing, loss, or destruction. 3. Part A: Liability Insuring Agreement Liability coverage protects the insured against loss arising from legal liability when an automobile that the insured owns, operates, or maintains is involved in an accident. Under liability coverage, the policy will pay for the following: Bodily injury and property damage due to an accident for which the insured is legally responsible; Defense costs as long as the policy covers a particular loss (these costs are paid in addition to the policy limits); and Costs for settling or defending the insured as deemed appropriate (these costs end when the limits of insurance are exhausted). Who is an Insured An insured is the person named in an insurance policy that is protected under the contract and to whom the insurer pays benefits or provides services. Under Part A – Liability, the insured is defined as: The insured or any family member for the ownership, maintenance, or use of any auto or trailer; Any person using an insured's covered auto with permission; For an insured's covered auto, any person, or organization (this is only with respect to legal responsibility for acts or omissions of a person for whom coverage is afforded under liability); and For any auto or trailer other than the insured's covered auto, any other person, or organization, but only with respect to legal responsibility for acts or omissions of the insured or a family member for whom coverage is afforded under liability. This provision applies if the person or organization does not own or hire the auto or trailer. Supplementary Payments Under the supplementary payments provision, the insurer promises to pay certain other costs on behalf of an insured: Up to $250 for the cost of bail bonds required of the insured because of a covered loss; Premiums on appeal bonds and bonds to release attachments in suits covered under the policy; Interest on a judgment after the judgment has been entered; and Up to $200 per day for loss of earnings for assisting in legal proceedings (e.g., attendance at hearings or trials); and Other reasonable expenses incurred at the request of the insurer. Amounts payable under the supplementary payments provision are payable in addition to the liability limit. Exclusions The following exclusions apply to the liability coverage provided for certain persons and vehicles in the PAP: Intentional injury or damage; Damage to property owned or being transported by a covered person; Damage to property rented, used, or in the care of a covered person, except a home or private garage; Bodily injury to an employee during the course of employment, except domestic employees not required to be covered by workers compensation; Use of a vehicle as a public or livery conveyance, except carpools or vehicles used for volunteer or charitable purposes; Use of a vehicle by an insurer who is logged into a transportation network platform as a driver, whether or not a passenger is occupying the vehicle; Damage caused by any person while engaged in the business of selling, repairing, servicing, storing, or parking vehicles designed for use mainly on public highways (note that this exclusion does not apply to the ownership, maintenance or use of your covered auto by the insured, any family member, or any partner, agent or employee of the insured or any family member); Use of commercial-type vehicles in any business; Persons using a covered auto without permission; Persons insured under a nuclear energy policy, including persons that would have been insured except for the exhaustion of the policy limits; The ownership, maintenance, or use of: o Any motorized vehicle with fewer than 4 wheels; o Any vehicle designed mainly for use off public roads; o Any other vehicle owned or available for regular use by the insured, other than a covered auto; o Any vehicle owned by or furnished for regular use by a family member, other than a covered auto; the named insured is covered while maintaining or occupying such a vehicle; o Any vehicle located inside a racing facility for the purpose of racing or speed contest, or driver skill training; and o Used or designed for flight. Limits of Liability Under a personal auto policy, the insured may choose between 2 types of liability limits: split and combined single. Split limit coverage uses 3 dollar amounts. In the event of an automobile accident, these numbers specify the maximum amount the policy will pay for Bodily injury for each person involved; Bodily injury for the entire accident (regardless of the total number of persons involved); and Property damage. Note: split limits are always expressed in this order. For example, policy limits expressed as 25/50/25 would provide $25,000 coverage for bodily injury per person, with a maximum of $50,000 for all bodily injuries, and $25,000 property damage coverage per accident. By contrast, combined single coverage uses one dollar amount, indicating the maximum coverage for all losses – regardless of the number of people involved or the amount of property damaged. When the policy is used to satisfy any financial responsibility requirements, the policy will comply with the law to the extent required. Out-of-State Coverage If a covered auto is involved in an auto accident that occurs in any state or Canadian province other than the one in which the auto is principally garaged, the out-of-state coverage will apply, and the insurer will interpret the policy for that accident as follows: If the state or province has a financial responsibility law specifying limits of liability higher than the limits shown in the Declarations, the insured's policy will provide the higher specified limits; or If the state or province has a compulsory insurance requiring a nonresident to maintain insurance whenever the vehicle is used in that state, the insured's policy will provide at least the required minimum amounts and types of coverage. Note, however, that no one is entitled to duplicate payments for the same loss. Each state establishes the minimum liability limits for its policies; therefore, the limits do not change when a vehicle travels from state to state, and remain the same regardless of the state the vehicle is in. However, in the event the insured is in an accident, in order to be insured at the required minimum limits for the state the accident occurs in, the limits adjust to the minimum limits for that state, and where necessary, add other coverage. Other Insurance The liability section also includes the other insurance clause, which states that if there is other insurance available to pay for a covered loss, the insurer will only pay its share of the loss. The insurer's share is the proportion that the limit of insurance bears to the total of all available limits. For nonowned vehicles, the insurance will be considered excess over any other collectible insurance. 4. Part B: Medical Payments Insuring Agreement Medical payments coverage pays reasonable expenses associated with necessary medical and funeral expenses caused by an accident and sustained by an insured. Expenses and services must be rendered within 3 years of the accident. Who is an Insured Insured is defined under Part B – Medical Payments as The named insured ("you") or any family member while occupying a motor vehicle designed for public road use, or any trailer; The named insured or family member as a pedestrian if struck by a motor vehicle designed for public road use, or any trailer; and Any other person while occupying a covered auto. Exclusions The following exclusions apply to the medical payments coverage. The insurer will not provide medical payments coverage for any insured for bodily injury sustained in the following situations: While occupying any of the following vehicles: o With fewer than 4 wheels; o Used as a public livery, including being logged into a transportation network platform (this exclusion does not apply to a share-the-expense carpool or while the covered auto is being used for volunteer or charitable purposes); o Used as a residence or premises; o Used without permission; o Used in the business of an insured (except for a private passenger auto, pickup or van, or trailer); or o Located inside a facility designed for racing, and for the purpose of participating, competing, practicing, or preparing for any prearranged or organized racing or speed contest, or driver skill training or driver skill event; While occupying, or when struck by, any vehicle (other than the covered auto) that is owned or regularly furnished for use by the insured or the insured's family member; While occupying, or when struck by, any vehicle designed or used for flight; In the course of employment if workers compensation benefits are required. In addition, losses caused by a nuclear weapon, war, insurrection, rebellion or revolution, or by nuclear reaction, radiation, or radioactive contamination are also excluded. Limits of Liability and Other Insurance The amount of coverage depends on the policy and applies on a per-person basis for bodily injury sustained in an accident covered by the policy, regardless of fault. Medical payments coverage works similar to personal injury protection (PIP) coverage. For example, the insured's policy has a medical payment coverage limit of $10,000. The insured and the passenger were injured in an accident; one person had $12,000 in injuries, and the other $10,000. Part B will pay each person $10,000, up to the limit of coverage. Any payments that also are available under liability or uninsured motorists coverage will reduce the amount payable under this coverage. The other insurance clause also is shown in the medical payments section of the policy that is identical to the provision found in the liability coverage section. 5. Part C: Uninsured and Underinsured Motorists Insuring Agreement Uninsured motorist (UM) coverage provides the insured with money for bodily injuries that the insured would be legally entitled to recover from the owner or operator of a vehicle that does not carry the required liability insurance coverage. A vehicle that does not carry the required insurance is defined in this section of the PAP as an uninsured vehicle. Although some definitions may vary according to state law, uninsured motorist coverage generally defines 4 categories of uninsured motor vehicles, including any land motor vehicle or trailer for which, at the time of the accident 1. There is no liability bond or insurance for the vehicle; 2. The bond or insurance is less than that required by the financial responsibility laws of the state in which the accident occurred; 3. The accident was a hit-and-run accident, and the driver cannot be identified; and 4. The bonding company or insurance company denies coverage or is insolvent. Uninsured motor vehicle does not include any vehicle or equipment Owned or available for regular use by the insured or a family member; Owned by a self-insurer unless the self-insurer becomes insolvent; Owned by a government agency; Operated on rails or crawler treads; Designed mainly for use off public roads (and while not on public roads); or While used as a residence or premises. Who is an Insured Insured is defined under Part C: Uninsured/Underinsured Motorist as The named insured and family members; Any other person while occupying a covered vehicle; and Any person entitled to recover damages because of injuries to one of the above. Underinsured Motorist Underinsured motorists (UIM) coverage helps an insured with bodily injury damage caused by another motorist when that motorist has insufficient coverage. UIM coverage will pay the difference between the at-fault driver's policy limit and the total cost of the damage they caused, up to the limit specified in the policy. Total cost of the damage – At-fault driver's policy limit = Insured's UIM coverage For example, Bob has a PAP with bodily injury limits of 25/50. Bob causes a car accident in which Zoe is injured. Zoe's bodily injury damages come to $65,000. Bob's bodily injury coverage will only pay for $25,000 of Zoe's damages, leaving her with $40,000 to pay. Here are 2 ways underinsured motorists coverage could respond, depending on Zoe's limits: 1. If Zoe's underinsured motorist limits are 100/150, her UIM coverage will pay the remaining $40,000 of BI damages: $65,000 damage - $25,000 (Bob's per person limit) = $40,000 (covered by Zoe's UIM) 2. If Zoe's limits are 30/50, her UIM coverage will only pay another $30,000 of the $40,000 in BI damages. The remaining $10,000 would not be covered by insurance: $65,000 damage - $25,000 (Bob's per person limit) = $40,000 (balance) $40,000 - $30,000 (Zoe's UIM limit) = $10,000 (Zoe's out of pocket) The definition of "underinsured" and how UIM coverage works varies by state. Make sure to check the Laws section for your state. 6. Part D: Coverage for Damage to Your Auto Coverage for Damage to Your Auto, commonly called physical damage coverage, includes both collision and other than collision coverage (previously referred to as comprehensive). Only when a premium is shown on the Declarations next to these coverages does coverage apply. Insuring Agreement The insuring agreement states that the insurer will pay for direct and accidental loss to a covered or nonowned auto, including equipment, minus any applicable deductible shown on the Declarations. If loss to more than one covered auto or nonowned auto results from the same collision, only the highest applicable deductible will apply. The personal auto policy defines nonowned autos as any private passenger auto, pickup, van, or trailer which is operated by or in the custody of, but is not owned or furnished for the regular use of the named insured or a family member. Transportation Expenses Transportation expenses will be paid if the loss is caused by collision or other-than-collision, as long as the corresponding coverage is indicated in the Declarations. Coverage will apply to a covered auto and a nonowned auto. The policy will usually pay up to $20 per day up to a maximum of $600 (may vary by state) for transportation expenses incurred by the insured due to a covered loss. Expense payments begin after a 24-hour waiting period for reasons other than theft. In the event of theft of a covered vehicle, expenses are covered beginning 48 hoursafter the theft. Transportation expenses are not subject to deductible, and are limited to the period of time reasonable required to repair or replace the covered auto. Rental Reimbursement Expense The Rental Reimbursement endorsement is only available if the policy includes Other Than Collision coverage. This endorsement will reimburse the insured for rental charges incurred because the covered auto is out of use due to a covered loss. Exclusions The exclusions listed below apply to the physical damage coverage section for losses or damages to or caused by any of the following: While the vehicle is being used as a public livery, excluding carpools; Wear and tear, freezing, mechanical or electrical breakdown, and road damage to tires (does not apply if the damage resulted from the total theft of the covered vehicle); Radioactive contamination, nuclear weapons, war, insurrection, rebellion, or revolution; To electronic equipment designed for reproduction of sound, including radios, stereos, tape decks, and compact disc players and accessories (unless permanently installed equipment and its accessories); To any other electronic equipment that receives or transmits audio, visual or data signals, including citizen band radios, radar detection equipment, telephones, two-way mobile radios, scanning monitor receivers, television monitor receivers, video cassette recorders, audio cassette recorders, and personal computers and accessories (does not include equipment that is permanently installed in the dash or console of the vehicle); Confiscation or destruction by governmental or civil authorities; To a camper body or trailer not shown in the declarations (does not apply to newly acquired camper bodies or trailers acquired during the policy period or insured by request within 14 days of ownership); To any custom furnishings or equipment in or on any pickup or van, including special carpeting and insulation, furniture, bars, facilities for cooking or sleeping, height- extending roofs, custom murals, paintings, or other decals; To any nonowned vehicles under the following circumstances: o Used without permission; o Being maintained or used by any person while engaged in the business of selling, repairing, storing, servicing, or parking vehicles; o Rented by any insured if the rental company is prevented from recovering loss or loss of use from the insured because of the rental agreement or state law; or To any auto located in a racing facility for the purpose of competing, practicing, or preparing for any organized racing or speed contest; and Loss of personal effects. Limits of Liability The limit of liability is the lesser of The actual cash value of the vehicle at the time of the loss (which includes an adjustment for depreciation and physical condition); or The amount necessary to repair or replace the vehicle. Losses to nonowned autos will be covered the same as the broadest coverage available for any covered auto, except nonowned trailers are limited to $1,500. Electronic equipment that is permanently installed in a location not normally used by the auto manufacturer is covered up to $1,000. Other Provisions The physical damage section of the PAP also includes 4 other provisions. These provisions are similar to the conditions discussed for other property coverages, and include the following: 1. Payment of Loss — The insurer has the option of paying money, repairing or replacing the damaged or stolen property. In addition, if stolen property is recovered, the insurer may return the property to the insured, paying for any damage, or they may keep all or part of the property at an agreed or appraised amount. 2. No Benefit to Bailee — The insurance will not directly or indirectly benefit any carrier or bailee for hire (For example, if an insured's vehicle is in the care of a service station for repairs, and the vehicle is damaged while in their care, the service station will not receive any benefits from the insurance policy on the vehicle.) This provision is intended to provide insurance compensation to the victim of the loss (the insured), rather than paying it to the bailee. 3. Other Sources of Recovery — If other insurance is applicable, the insurer will pay on a proportional basis. Coverage for any covered nonowned auto is excess of any other collectible source which includes insurance and any other source of recovery available to the owner of the nonowned auto. 4. Appraisal — If the insured and the insurer cannot agree on a settlement, either party can demand appraisal. Each party will then select and pay for its own appraiser. The appraisers, in turn, will jointly select a third appraiser, called an umpire. The decision reached by at least 2 of the appraisers will be binding on both parties. 7. Part E: Duties after an Accident or Loss Part E – Duties after an Accident or Loss outlines the duties required of any person seeking damages under the policy following a loss or accident. This PAP coverage part does not include any subsections. If the insured fails to comply with this section of the policy, resulting in harm to the insurer, the insurer is relieved of its duty to provide coverage. These duties are similar to those already discussed for other types of insurance, and include Prompt notification of loss; Cooperating with the insurer; Forwarding any legal papers received; Submitting to a physical exam, examination under oath when requested, and recorded statements; Allowing the insurer access to medical records; Submitting a proof of loss; Notifying the police of a hit-and-run accident or if a vehicle is stolen; Protecting the property from further loss; and Allowing the insurer to inspect and appraise the damaged property. 8. Part F: General Provisions Part F – General Provisions in the personal auto policy form describes the conditions that apply to all coverage parts in addition to the conditions that apply to the individual coverages. These conditions, which are similar to some already discussed, are as follows: Bankruptcy — Bankruptcy of the insured does not relieve the insurer of its obligations under the policy. Policy changes — The terms and conditions may not be changed or waived except by endorsement to the policy issued by the insurance company. Fraud — The insurer will not provide coverage for any insured that has made a fraudulent statement or engaged in fraudulent conduct as it pertains to any loss or accident. Legal action against the insurer — No one may bring any legal action against the insurer until all policy provisions have been complied with. Insurer right to recover payment (subrogation) — Subrogation rights apply to all coverages except physical damage coverage if the damage is caused by a person using the auto with a reasonable belief that they were entitled to do so. Policy period and territory — The policy territory is defined as the United States, its territories and possessions (such as Puerto Rico or Guam), or Canada. Termination — This provision specifies the rights and duties of the insured and insurer to cancel or nonrenew coverage. If a law in the state the policy was issued in requires a different period for notice or any special procedures other than those listed below, the policy will comply with the state provisions. In most states*, the insurer is required to provide 10 days' notice if for nonpayment of premium or if the policy is canceled within the first 60 days of initial coverage, and 20 days' notice for all other reasons. If the policy has been in force for more than 60 days, the insurer can only cancel because of nonpayment of premium, if an insured driver's license has been suspended or revoked, or if the policy was obtained through material misrepresentation. If the insurer decides to nonrenew coverage, the insurer must provide at least 20 days' notice before the renewal date. If the insured obtains other insurance on a covered auto, the policy will terminate on the effective date of the new policy. Transfer of insured's interest in the policy (assignment) — The insured cannot transfer their rights or interest in the policy without the written consent of the insurer. If the named insured dies, coverage will be provided for the surviving spouse or legal representative of the insured, but only until the end of the policy period. Two or more auto policies — If the insurer has issued 2 or more policies that will respond to the same loss, the insurer's liability will be the highest applicable limit of insurance under one policy. *Make sure to carefully review your state's requirements for policy termination and notices if applicable. 9. Business Auto The business auto coverage form is divided into the following sections: 1. Section I – Covered Auto; 2. Section II – Liability Coverage; 3. Section III – Physical Damage Coverage; 4. Section IV – Business Auto Conditions; and 5. Section V – Definitions. Each section is further broken down to describe specific perils that are covered and excluded from coverages, and limits of insurance as they apply to different types of coverage. Section I - Covered Autos Section I of the business auto coverage form describes the auto designation symbols that define the type of vehicles insured for specific coverages. The symbols are entered next to the appropriate coverage on the declarations. The following auto symbols are used with the business auto coverage form: AUTO SYMBOLS USED WITH BUSINESS AUTO COVERAGE FORM Any auto, including owned, leased, hired, or borrowed autos (used only for liability 1= coverage) 2= Owned autos only 3= Owned private passenger autos only 4= Owned autos, other than private passenger autos only 5= Owned autos subject to no-fault 6= Owned autos subject to a compulsory uninsured motorists law 7= Specifically described autos only Hired autos only (leased, hired, rented or borrowed other than from employees, partners or 8= members of an LLC) Nonowned autos only (autos that are not leased, hired, rented or borrowed. Coverage is 9= included for autos owned by employees, partners and members, if an LLC, if used in the insured's business or personal affairs) Mobile equipment subject to compulsory, financial responsibility, or other motor vehicle 19= insurance law only It is important to note that the commercial auto policy does not use the your covered auto definition like the personal auto policy. The covered auto symbols are a critical component of the form as they describe the vehicles that are granted coverage. Commercial Auto Policy example: The policy will cover liability for autos that fall into categories 7, 8, or 9. However, the policy will cover auto medical payments only for autos that fall into category 7. An attached Vehicle Schedule will list the year, make, model, and other specifics about a particular vehicle. Newly Acquired Autos: If symbols 1, 2, 3, 4, 5 or 6 are shown for any of the coverages, the policy will also apply to any additional autos of the same type that the insured acquires during the policy period. However, if symbol 7 is used, coverage for newly acquired vehicles applies if the insurer already covers all autos owned by the insured or if the newly acquired vehicle is replacing a previously owned auto that had that coverage. The insured must inform the insurer that coverage is requested within 30 days of acquiring the vehicle. Certain Trailers, Mobile Equipment, and Temporary Substitutes: If liability coverage is provided, certain types of other vehicles are also covered for liability. These other vehicles include Trailers with a load capacity of 2,000 pounds or less designed primarily for travel on public roads; Mobile equipment while being carried or towed by a covered auto; and Any auto not owned by the insured, with the permission of its owner as a temporary substitute while a covered auto is out of service due to breakdown, repair, servicing, loss or destruction. Section II - Liability Coverage Section II – Liability Coverage states that the policy will pay for bodily injury or property damage to third parties caused by an accident resulting from the insured's ownership, maintenance, or use of any covered auto. The liability section also covers pollution expenses resulting from an accident caused by the ownership, maintenance, or use of a covered auto that results in bodily injury or property damage. Who is an Insured The following are considered an insured under Section II of the business auto coverage form: The person or organization named in the Declarations for any covered auto; Anyone else while using a covered auto with the insured's permission, except the following: o Owners of the auto (from whom an insured hires or borrows an auto other than a trailer); o Someone using a covered auto who is in the business of selling, repairing, servicing, parking, or storing autos unless the business is owned by the insured; o Anyone, other than employees, partners, lessees, or borrowers, while moving property from a covered auto; o Employees and partners for autos they own; and Anyone liable for an insured's conduct is also considered an insured, but only to the extent of the insured's liability. Coverage Extensions In addition, the liability section provides certain coverage extensions. The insurer will pay the following supplementary payments in addition to the limit of insurance for bodily injury or property damage: All expenses the insurer incurs; Up to $2,000 for bail bonds; The cost of bonds to release attachments; Reasonable expenses incurred by the insured at the insurer's request, including up to $250 per day for time off work; Costs taxed against the insured in any suit; and Accrued interest on any judgment. A second coverage extension provides out-of-state coverage when a vehicle is being driven in a state it is not licensed in. This extension provides increased liability protection to meet the financial responsibility requirements of another state. It does not apply to carriers of property or people. This extension will also provide minimum amounts of other coverage, such as no-fault, if required. Exclusions The liability coverage exclusions are listed in this section of the policy form. The coverage does not apply to Expected or intended injury or damage; Contractual liability other than an insured contract; Obligations under any Workers Compensation, disability benefits, unemployment or similar law; Employee indemnification and employer's liability; Bodily injury to any fellow employee of the insured caused by a fellow employee's employment; Property damage or covered pollution cost or expense involving property owned or transported by an insured, or in the insured's care, custody or control; Bodily injury or property damage resulting from the handling of property before or after it has been moved; Movement of property by mechanical device unless the device is a hand truck or is attached to the covered auto; Bodily injury or property damage caused by the operation of mobile equipment or machinery or equipment attached to or part of a vehicle that would be defined as mobile equipment if it were not subject to compulsory or financial responsibility laws; Losses resulting from completed operations (work after it has been completed and is no longer in the hands of the insured); Losses due to pollution that occurs from operating a covered auto, while pollutants are being transported, loaded or unloaded from a covered auto. However, there is coverage when the pollution is from an object other than a covered auto, in which the loss is caused by a covered auto; War; Racing, demolition or stunts, including preparing for such activities; and Unmanned aircraft. Limits of Insurance The last section under Section II – Liability Coverage concerns the limits of insurance. The limit of liability for bodily injury and property damage can be expressed either as a single limit or as split limits. A single limit defines the total amount the insurer will pay for all bodily injury and/or property damage, including any covered pollution expenses, resulting from a single accident. Section III - Physical Damage Coverage Coverage Physical damage coverages available to the insured include the following: Comprehensive coverage pays for loss or damage to a covered auto by any cause other than collision or overturn; Specified causes of loss coverage will pay for loss to a covered auto if caused by fire, lightning, explosion, theft, mischief or vandalism, windstorm, hail, earthquake, or the sinking, burning, collision or derailment of any conveyance transporting the covered auto; Collision coverage pays for losses to a covered auto that result from collision with another object or overturn; Towing coverage, where the insurer will pay for labor costs incurred because of a disabled auto, at the place of the disablement up to the towing limit of insurance shown in the Declarations. Coverage is only provided for passenger-type autos; and Glass Breakage — Hitting a Bird or Animal — Falling Objects or Missiles — coverage for glass breakage, a loss caused by hitting a bird or animal or falling objects or missiles. The insured also has the option of collecting for glass breakage under collision coverage if the loss results from collision with an object or overturn of the vehicle. The physical damage section includes coverage extensions for the following: Transportation expenses that would pay for substitute transportation, up to $20 a day for a maximum of $600, after the theft of a covered auto (private passenger type). The covered auto must be insured for comprehensive or specified causes of loss in order for this extension to apply. This coverage included a 48-hour waiting period that lasts until the vehicle is returned or the insurer pays for the loss; and Loss of use expenses — The insurer will pay expenses for which an insured becomes legally liable for loss of use of a vehicle rented or hired without a driver under a written rental contract. If the coverage is purchased, this coverage extension will pay for loss of use of the damaged vehicle up to $20 per day to a maximum of $600. Exclusions The exclusions found in the physical damage section of the business auto coverage form are as follows: Nuclear hazard; War and military action; Racing, demolition, or stunt activities; Wear and tear, freezing, mechanical breakdown, or tire damage (unless caused by another covered loss); and Loss to sound equipment, such as audio-visual devices, radar detection equipment, and any other electronic equipment and accessories. However, permanently installed equipment designed solely for the reproduction of sound (such as a tape deck) is covered. Limits of Insurance The physical damage limit of insurance is the lesser of The actual cash value of the covered auto at the time of the loss; or The cost of repairing or replacing the damaged or stolen property with other similar property. The maximum paid for loss of audio, video, and data electronic equipment is $1,000for equipment permanently installed in the vehicle, or removable from a permanently installed housing unit. The deductible provision states that the amount of any loss will be reduced by the amount of the deductible shown in the declarations. Comprehensive and Specified Causes of Loss coverage deductibles apply to losses caused by theft or mischief or vandalism, or all perils. Regardless of the number of covered autos damaged or stolen, the deductible for losses incurred in any one event cannot exceed five times the highest deductible applicable to any one auto. Section IV - Conditions The following conditions apply in business auto policies: Appraisal for physical damage coverage; Duties in the event of an accident claim, suit, or loss; Legal action against the insurer; Loss payment — physical damage coverage. The insurer has the option to: o Pay for the repair or replacement of damaged property; o Return the stolen property and pay for any necessary repairs; or o Take all or any part of the damaged property at an agreed or appraised value. Transfer of rights of recovery against others to insurer (subrogation); Bankruptcy; Concealment, misrepresentation, or fraud; Liberalization; No benefit to bailee – physical damage coverage; Other insurance if more than one policy applies to a loss, the CA policy will respond in the following ways: o Primary insurance — owned auto, a trailer attached to an owned auto, when Hired Auto Physical damage is selected and if liability is assumed in an insured contract; o Excess insurance — for use of nonowned autos and when an owned trailer is attached to a nonowned auto; Premium audit; Policy period, coverage territory (U.S., its territories and possessions, Puerto Rico, and Canada, or anywhere in the world if the covered auto is a private passenger auto leased, hired, rented, or borrowed without a driver for a period of no more than 30 days. Any suit must be based on the merits of the legal system within the USA and its territories and possessions, Puerto Rico, and Canada. Coverage also exists when a covered auto is being transported between places); and Two or more coverage forms or policies — if more than one policy applies to a loss and is issued by the same insurer or affiliate, only the highest limit of liability will apply unless the policy was issued specifically to apply as an excess policy. Auto Dealers and Garagekeeper Coverage Forms Businesses that sell, service, repair, park or store vehicles are not eligible for coverage under the other ISO forms, so specialized coverage is needed. The Garage Coverage Form contains the same basic coverage found in the Business Auto Coverage Form with unique coverages developed to meet these special needs. Types of risks that are eligible for coverage under the Garage Coverage Form include the following: Franchised and nonfranchised auto dealers; Truck, truck-tractor and commercial trailer dealers; Motorcycle, recreational vehicle and mobile home dealers; Automotive repair shops; Service stations; Car washes; and Storage garages and public parking facilities. The Garage Coverage form is split into 6 sections. Pay special attention to Section II – Liability as it splits into two categories for Garage Operations. Garage operations will either be for covered autos or other than covered autos. The garage policy, as it pertains to covered autos, is similar to the business auto coverage form. The part of the policy that pertains to other than covered autos protects the garage operation from liability exposures not arising from the ownership, use and maintenance of autos. The following are garage form sections: 1. Section I – Covered Autos; 2. Section II – Liability; 3. Section III – Garagekeepers Liability; 4. Section IV – Physical Damage Coverage; 5. Section V – Garage Conditions; and 6. Section VI – Definitions. Section I - Covered Autos This section defines the covered auto designation symbols. Although some descriptions are similar to the Business Auto Coverage Form, the numerical symbols are different, and some additional descriptions are added that apply specifically to garage operations. The following are the auto designation symbols found in the Garage Coverage Form. AUTO DESIGNATION SYMBOLS FOUND IN GARAGE COVERAGE FORM 21= Any auto 22= Owned autos only 23= Owned private passenger autos only 24= Owned autos other than private passenger autos only 25= Owned autos subject to no-fault 26= Owned autos subject to a compulsory uninsured motorists law 27= Specifically described autos Hired autos only (leased, hired, rented, or borrowed by the insured, but not autos owned by 28= employees, partners or members of an LLC) Nonowned autos used in your garage business (for vehicles not owned, leased, hired, rented 29= or borrowed by the insured also applies to vehicles owned by employees, partners and members of an LLC) Autos left with you for service, repair, storage, or safekeeping (used to provide 30= garagekeepers coverage for customers or employees and members of their household who pay for services) 31= Dealer's autos (physical damage coverage) Newly Acquired Autos: If symbols 21, 22, 23, 24, 25, or 26 are entered for any of the coverages on the declarations, the coverage will also apply to any additional autos of the same type the insured acquires for the remainder of the policy period. However, if symbol 27 is used, coverage for newly acquired vehicles is limited to 30 days and only if all owned autos are covered unless the vehicle is a replacement for a covered vehicle. Certain Trailers and Temporary Substitutes: If liability coverage is provided, certain types of other vehicles are also covered for liability. These other vehicles include Trailers with a load capacity of 2,000 pounds or less; and Temporary substitute vehicles used while a covered auto is out of service due to breakdown, repair, servicing, loss or destruction. Section II - Liability Coverage Section II — Liability Coverage is divided into 2 parts: 1. Garage Operations — Other than Covered Autos; and 2. Garage Operations — Covered Autos. As with other liability coverages, bodily injury or property damage must be the result of an accident and the insured must be legally liable for the loss in order for coverage to apply. In addition, Garage Operations — Other than Covered Autos requires that the loss or damage must be a direct result from the insured's garage operations, whereas Garage Operations — Covered Autos provides the insured with protection from losses resulting from the ownership, maintenance, or use of covered autos. Pollution expenses are also covered under the liability coverage section. Who is an insured is also defined in the liability section of the Garage Coverage Form. The persons insured differ according to whether the loss results from a covered auto exposure or from the garage operations. For covered auto exposures, insured means 1. Any person or organization qualifying as an insured in the "Who Is an Insured" provision of the applicable coverage; 2. Individuals who operate a covered auto with the insured's permission; 3. Any person liable for the conduct of the insured; or 4. An employee of the insured using a nonowned covered auto in the insured's business or personal affairs. Owners (including employees and their families) of vehicles the insured borrows are not considered insured's under the policy. If the business insured is a dealership, customers are only covered for liability up to any financial responsibility law. If the customer has primary insurance that is less than the financial responsibility law, the policy will cover the excess of any loss up to the limit required by the law. Otherwise, there is no coverage for customers as their primary insurance will handle the claim. Dealerships who wish to provide full liability coverage to their customers, despite any other valid and collectable insurance, can do so by paying an additional premium. For garage operations (other than covered autos), insured means The individual or organization named in the declarations; or Partners, employees, directors, officers and shareholders while acting within the scope of their duties. The coverage extensions provide the identical supplemental payments and out-of-state coverage extension provided in the Business Auto Coverage Form. The contractual, workers compensation, racing, fellow employee, war, and distribution of materials in violation exclusions found in the Business Auto Coverage Form are identical to the liability exclusions found in the Garage Coverage Form. The exclusions for handling of property, operations, completed operations, and movement of property by mechanical device are not found in the Garage Coverage Form. There are, however, some liability exclusions in the Garage Coverage Form that are different from the ones in the Business Auto Coverage Form, and other exclusions that are found only in the Garage Coverage Form. These differences are discussed below. Expected or Intended Injury — There is an exception to this exclusion when the bodily injury or property damage results from the use of reasonable force to protect persons or property. Employee Indemnification and Employer's Liability — This exclusion is broader in that it also excludes bodily injury that results out of employment-related practices, such as discrimination, termination, harassment, etc. Care, Custody or Control — This exclusion is expanded to also exclude property rented, occupied, loaned or held for sale by the insured. Leased Autos — This exclusion is not found in the Business Auto Coverage Form and excludes autos leased or rented to others. However, autos rented to customers while their autos are being serviced are covered. Pollution Exclusion Applicable to Garage Operations — Other than Covered Autos — There is no coverage for loss or expenses incurred because of discharge, dispersal, seepage or escape of pollutants at locations owned or used by the insured, or for contaminants transported, handled, stored, disposed of, or processed as waste by the insured or the insured's contractor. However, there is coverage for heat, smoke or fumes that result from a hostile fire. Pollution Exclusion Applicable to Garage Operations – Covered Autos — This exclusion is similar to pollution exclusion found in the Business Auto Coverage Form. Watercraft or Aircraft — There is no liability coverage for watercraft or aircraft, except watercraft ashore on the insured's garage premises. Defective Products — There is no liability coverage for property damage to the insured's products caused by an existing defect in the product. The policy defines product as goods or services the insured made or sold in the garage business, including providing or failure to provide warnings or instructions. Work Performed — No liability coverage is provided for property damage to work done by the insured if the damage results from the work or the parts or materials used. Work performed is defined as work that someone performs for the insured, including providing or failure to provide warnings or instructions. Loss of Use — The Garage Coverage Form defines property damage to include loss of use. However, there are circumstances in which loss of use is not covered. Loss of use does not cover property that is not physically damaged because of delays or failure to perform according to the terms of a contract or agreement, or any defect, deficiency, inadequacy or dangerous condition in the product or work performed. Loss of use resulting from sudden and accidental damage caused by a defect or deficiency after the insured's product or work performed has been put to its intended use is covered. Products Recall — There is no coverage for any loss or expense incurred as the result of the insured's product being withdrawn or recalled. The limit of insurance applicable to liability coverage includes an aggregate limit of insurance that applies to Garage Operations — Other than Covered Autos. This is the total that will be paid for all covered losses during the policy term. In addition, there is a per accident limit that is the most the insurer will pay for a single loss (there is no distinction between bodily injury or property damage losses). The limit of liability insurance applicable to Garage Operations — Covered Autos is also stated as a per accident limit, but it is not subject to an annual aggregate. The Garage Liability Coverage includes a deductible provision not found in the Business Auto Coverage Form. This deductible applies to completed operations. A $100 deductible applies for property damage to autos because of work done by the insured business. Section III - Garage keepers Garage keepers coverage covers damage for which the insured is liable to customer's auto left in the insured's care, custody and control for service, repairs, parking or storage (which would normally be excluded unless this coverage was purchased). This section is triggered by symbol 30. A customer's auto is defined as a land motor vehicle, trailer or semitrailer lawfully in the possession of the insured with or without the owner's consent. The vehicle must be held in the insured's custody for service, repair, storage or safekeeping. It also includes autos owned by the insured's employees, or their family members, if they are paying for services performed. The causes of loss that may be covered are as follows: Comprehensive — all loss to customer's autos except collision or overturn; Specified Causes of Loss — loss to a customer's auto due to fire, lightning, explosion, theft, mischief or vandalism; and Collision — loss to a customer's auto caused by hitting an object or overturn. The insurer has a right and duty to defend the insured against the insured seeking damages unless the insurance does not apply. The insurer can investigate and settle the claims as they deem appropriate. The duty to defend ends when the limits of insurance are exhausted. Unless noted otherwise on the Declarations, the garagekeepers coverage is triggered only when the insured is legally liability for the damages. This is called the Legal Liability (or Standard) coverage option. If the insured would prefer the coverage be triggered without regards to liability, then a Direct Coverage Option must be activated in the declarations page and the additional premium paid. Under the Garage Coverage form, Liability Coverage is primary for any liability assumed under an insured contract. For any covered auto the insured doesn't own, the insurance provided by this coverage form is excess over any other collectible insurance. Coverage Extensions for Garage keepers insurance are the same as some of those in the Business Auto Policy: All expenses incurred by insurer; Cost of bonds to release attachments in suits against insured defended by insurer; Reasonable expenses incurred by insured at insurer's request, including $250 a day for time off from work; Costs taxed against insured in suits against insured defended by insurer; and Interest on full amount of judgment accrued after entry of judgment in suits against insured defended by insurer. Garage keepers insurance has the following exclusions: Contractual obligations — Liability resulting from an agreement in which the insured accepted responsibility for loss; Theft — Theft or conversion by the insured, employees, or shareholders; Defective parts — Defective parts or materials; Faulty work — Faulty work done by or for the insured; and Loss to any of the following: o Tape decks or other sound reproducing equipment unless permanently installed; o Tapes, records, or other sound reproducing devices; o Sound receiving equipment, citizens' band radios, 2-way mobile radios, telephone, scanning monitor receiver, and accessories for such equipment, including antennas, unless permanently installed where the manufacturer would normally install a radio; and o Equipment used for radar detection. Section IV - Physical Damage Section IV — Physical Damage Coverage for non-dealers is identical to the Business Auto Physical Damage coverage. However, the Garage Coverage form also provides coverage for auto dealerships, which covers autos being held for sale or in transit. As with other Commercial Auto coverage forms, the Garage Coverage form has its own policy declarations. Depending on the type of risk insured, one of the following supplemental schedules must also be attached to the policy: The Auto Dealers Supplemental Schedule contains specific information concerning the classes of vehicle operators (employees who regularly drive or are furnished vehicles), coverage for customer's liability or damage to customer's vehicles, and physical damage coverage on insured vehicles. The supplemental schedule also indicates whether coverage is written on a reporting form basis and whether liability coverage for pick-up and delivery of automobiles is insured. The Non-Dealers and Trailer Dealers Supplemental Schedule contains information on the insured's payroll, garage keepers coverage (damage to customer's vehicles), hired and nonowned vehicle coverage, owned vehicle coverage, and reporting form information. Physical damage coverage applies to the insured's own vehicles, such as tow trucks, or vehicles held for sale. Autos held for sale are covered when auto designation symbol 31 is shown on the Declarations page. The physical damage coverage for comprehensive, specified causes of loss, and collision is the same as that found in the Business Auto Coverage Form. The specified causes of loss are not as limited as the coverage provided under Garage keepers. The glass breakage provision found in the Garage Coverage Form is the same as that found in the Business Auto Coverage Form. Also, the loss of use coverage extension which is the same as the provision found in the Business Auto Coverage Form. However, this provision applies only to vehicles hired or rented without a driver. (Review the glass breakage and transportation coverage of the Business Auto Coverage Form.) The limits of insurance provision of the physical damage coverage states that the insurer will pay the lesser of the actual cash value or the cost to repair or replace a covered auto. This is the same as the provision found in the Business Auto Coverage Form. However, an additional provision, unique to the Garage Coverage Form, applies only to auto dealerships. If the business shown in the declarations is an auto dealership, a maximum limit of insurance is shown for each covered location. This maximum limit only applies to comprehensive and specified causes of loss coverage. There is also a maximum limit if insurance shown for loss in transit, regardless of the number of vehicles actually involved in the loss. Because a dealer's inventory of autos varies, the Garage Coverage Form also includes a reporting form provision that allows the amount insured at each location to fluctuate. The insured is required to make quarterly or monthly reports itemizing the values at each location. The insured's premium is based on these itemized amounts. If, at the time of loss, it is determined that the actual values are more than those reported by the insured in their last report, the insured will pay part of the loss based on the amount that the last reported values bear to the actual values at the time of loss. For example, the insured's last report indicated values of $300,000, but the actual value at the time of the loss was $400,000. A loss of $24,000 occurs. The insured would have to pay $6,000 of the loss. The insurance company would only pay $18,000 of the loss ($300,000/$400,000 = 3/4 x $24,000 = $18,000). If the dealer's inventory is relatively stable throughout the year, a reporting form may not be necessary, in which case the non-reporting form can be used in which a stated limit of insurance will be shown per location. As with the reporting form, if the actual values exceed the values shown in the policy at the time of a loss, the insurer will only pay the proportion of the loss the policy limits bear to the actual values. The deductible provision in the physical damage coverage section states that the amount of any loss or damage will be reduced by the deductible amount shown in the Declarations. The deductible for comprehensive or specified causes of loss only applies to losses caused by theft, vandalism or mischief. There is also a per loss deductible for auto dealers comprehensive or specified causes of loss that apply to these types of losses. If the business is shown as a non- dealer, the deductible for comprehensive does not apply to losses caused by fire or lightning. Some of the exclusions for Garage Physical Damage coverage are the same as those found in the Business Auto Physical Damage coverage section. These exclusions include loss or damage as the result of nuclear hazard; war or military action; wear and tear; freezing; mechanical or electrical breakdown; and blowout, punctures or other road damage to tires. In addition, the following exclusions are either slightly different from those found in the Business Auto Coverage Form or apply only to the Garage Coverage Form: Auto Leased or Rented to Others — There is no coverage for autos leased to others, except to customers of the insured who have left their vehicle with the insured for service or repair. False Pretense — No coverage is provided if the insured voluntarily parts with a covered auto because of someone's trick, scheme or false pretense, or for any loss the insured may suffer from acquiring a vehicle from a seller who did not have legal title. This exclusion is frequently called the Trick and Device exclusion. False Pretense Coverage may be added by endorsement. Expected Profits — This exclusion applies only to dealer risks, and excludes expected profits. In other words, a dealership will only be reimbursed on a wholesale basis for loss or damage to a vehicle they expected to sell, not based on the profit the dealer expected to receive if the vehicle was sold. Other Locations — This exclusion applies only to auto dealers and excludes coverage for loss or damage to a covered auto which is at a location not shown on the Declarations, if the loss occurred more than 45 days after the insured started using the new location. Transporting Autos — This exclusion applies only to auto dealers and excludes coverage for loss to autos while being driven or transported from the point of purchase to the final destination if the distance is more than 50 miles. In addition, there is no coverage for loss or damage to a covered auto if caused by collision or upset of the vehicle transporting it. Coverage for this exclusion can be bought back for an additional premium. Section V - Garage Conditions The Garage Conditions are identical to those found in the Business Auto Coverage Form, except for the Policy Period, Coverage Territory condition. In the Business Auto Coverage Form this condition states that accidents and losses occurring during the policy period and within the coverage territory are covered. However, in the Garage Coverage Form, the wording is slightly different and refers to bodily injury and property damage that occur within the coverage territory. This is to clarify liability associated with garage operations-other than covered autos. The garage form does refer to covered pollution cost or expenses when due to accidents. Because the garage form offers product liability coverage, the language is amended to afford the insured coverage for losses associated with their products that are sold for use in the coverage territory. The original suit must also be brought in one of the places listed in the coverage territory. Section VI - Definitions The Definitions section is technically the last section of the Garage Coverage form, but it is helpful to know these terms prior to reviewing each section below, so the definitions are presented first in this course. Most of the definitions used in the garage form are similar to the business auto coverage form, so make sure to review the definitions as needed. Some of the definitions unique to the garage form are as follows: Garage operations are defined as the ownership, maintenance or use of locations for garage business, including adjoining roads and other accesses. It also includes the ownership, maintenance or use of covered autos and all necessary or incidental operations. Products — goods or products made or sold by the insured in the garage business. It also includes the failure to provide warnings or instructions. Work performed by the insured — includes work that someone performed on the insured's behalf, and the providing of or failure to provide warnings or instructions. Mobile Equipment Under the business auto coverage form, mobile equipment is covered for liability insurance when being carried or towed by a covered auto. If a land vehicle that fits the definition of mobile equipment, but because of where or how it is being used becomes subject to compulsory insurance as if it were an auto, an insured could potentially have a coverage problem. For example, a bulldozer is required to have compulsory insurance because to get from one part of a job site to another, it must drive on a public road. If the insured has a Symbol 7 (Specified Auto) listed on the Declarations, that bulldozer would need to be included on the insured's vehicle schedule to be covered for liability. If it is not listed, a solution would be to use this endorsement. The bulldozer would be specifically described in the endorsement and granted coverage. Covered autos liability coverage does not apply to bodily injury, property damage, or covered pollution cost or expense resulting from the operation of any machinery or equipment that is on, attached to, or part of any of the covered autos. Individual Insured and Drive Other Car (DOC) Individual Named Insured and Drive Other Car (DOC) insurance broadens the definition of covered auto to include nonowned vehicles the insured person operates. The Individual Named Insured endorsement extends both liability and physical damage insurance on a nonowned vehicle driven by the insured. This endorsement also protects the insured when driving a different vehicle not listed on a personal or commercial auto policy. Drive other car (DOC) insurance is an endorsement on a commercial auto policy to cover employees who use company-owned vehicles. This endorsement allows the business to expand their existing commercial auto coverage to include nonowned vehicles that their employees usually executives and their family members) may rent or lease. The commercial auto policy would cover an employee using a company owned vehicle without an endorsement needed. The commercial auto policy would also cover anyone else using the company vehicle with permission. However, the DOC endorsement is needed when the employee does not have their own personal auto policy, so they would not be covered if driving a vehicle that is not owned by the company (if an employee leases, rents, or borrows a separate vehicle for personal use). To protect employees against these risks, a company can use its commercial auto insurance policy to offer broadened coverage with a drive other car endorsement that's added to the company's auto insurance. This coverage may also be referred to as nonowned vehicle coverage. CHAPTER 4-B Commercial General Liability Businesses need general liability insurance to cover their exposure to liability losses that can result from their business operations. Commercial General Liability (CGL) coverage policies come in 2 forms: occurrence and claims-made. The essential difference between the two forms is how the coverage is triggered, which will be explained later in this section. The latest ISO CGL Coverage Form is divided into 6 sections as follows: 1. Section I coverages: - Coverage A – Bodily Injury and Property Damage; - Coverage B – Personal and Advertising Injury; and - Coverage C – Medical Payments; 2. Section II – Who is an Insured; 3. Section III – Limits of Insurance; 4. Section IV – Commercial General Liability Conditions; 5. Section V – Extended Reporting Periods; and 6. Section VI – Definitions. Note that the earlier versions of the ISO forms differentiate between occurrence forms and claims-made forms. The Extended Reporting Period section is only available in claims-made forms. 1. Definitions Definitions is the last section in the CGL form, but it is important for you to understand these terms as you are reading about CGL coverages, so the definitions are presented next. The following are terms and definitions as they apply to commercial general liability insurance: Occurrence — an accident, including continuous or repeated exposure to the same harmful conditions. Coverage exists for covered occurrences during the policy period, and after the policy period if due to the same circumstances that occurred during the policy period. An occurrence must also take place within the coverage territory, as defined in the policy. Bodily Injury is defined as bodily injury, sickness, or disease sustained by a person to include resulting death from any of these at any time. Property Damage — physical injury to tangible property to include loss of use. Also included is the loss of use of property that is not physically injured. Electronic data is not tangible property. Personal and advertising injury means injury, including consequential bodily injury, arising from these offenses: Copyright, trade secret or slogan infringement used in an insured's advertisement; False arrest, detention or imprisonment; Wrongful or unlawful eviction, entry or invasion of privacy by a landlord, owner, lessor or someone on their behalf; Malicious prosecution; Use of another's advertising idea; Slander or libel in oral or written publication in any manner; or Oral or written publication that violates or invades the privacy of another. Coverage Territory — The territory in which the policy is applicable as follows: The United States, its territories and possessions, Puerto Rico, and Canada; International waters and airspace if the injury or damage occurs during travel to or from the defined coverage territories; and Anywhere in the world if injury or damage results from goods or products manufactured or sold in a coverage territory. Premises and Operations — The premises and operations hazard includes the ownership, maintenance, or use of the insured's premises and all business operations. Products and Completed Operations — bodily injury or property damage occurring away from the insured's premises and arising out of the insured's product (your product) or work (your work). This definition includes a few exceptions to the definition. Products that are still in the physical possession of the insured do not meet the definition. Work that has not been completed and while being transported by the insured is also an exception: Your Work — work or operations performed by the insured or on the insured's behalf. This includes materials, parts or equipment furnished in connection with the work; Your Product — any goods or products, other than real property, manufactured, sold, handled, distributed or disposed of by the insured, others trading in the insured's name, acquired business assets. This includes containers, materials, parts or equipment used in connection with the products. Employee — the term includes a leased worker but not a temporary worker. A leased worker is defined in the policy as a person who performs duties for the insured related to the insured's business and is leased from a labor leasing firm. A temporary employee means a person who is furnished to the insured to substitute for a permanent employee on leave, or to meet seasonal or short-term workload conditions. Mobile equipment — the following are included in the definition: Bulldozers, farm machinery, forklifts and other vehicles, including attached equipment, designed for use off public roads; Vehicles maintained for use solely on or next to the insured premises; Vehicles that travel on crawler treads; Vehicles used primarily to provide mobility to power cranes, shovels, loaders, diggers, drills; and Any other road construction or resurfacing equipment. If a vehicle falls under a compulsory insurance law, financial responsibility law, or motor vehicle insurance law, it will not be considered mobile equipment, even if it otherwise meets the definition. Auto — a land motor vehicle, trailer or semitrailer designed to travel on public roads including attached machinery or equipment. It also includes any other land vehicle that requires compulsory insurance or other financial responsibility where it is licenses or principally garaged. 2. Section I - Coverages Coverage A: Bodily Injury and Property Damage Liability Coverage A – Bodily Injury and Property Damage provides protection for bodily injury and property damage suffered by third parties due to the negligence of the insured and emanating from the insured's premises, operations, product or completed operations that occur within the coverage territory and a time frame described by the policy. The insuring agreement is the insurer's promise to pay on a claim. It outlines the insurer's contractual obligations and is summarized from the ISO form as follows: The insurer will pay those sums that the insured is legally obligated to pay as damages because of bodily injury or property damage to which the insurance applies. The insurer also has the right and duty to defend the insured in a suit against them. This right and duty does not apply if the nature of the suit is not covered by the policy. The insurer, at their discretion, may investigate any occurrence or suit, but will pay no more than the policy limits, and the right and duty to defend ends when the limits of insurance have been exhausted. Exclusions Coverage in liability policies is not determined by perils or causes of loss. Coverage is subject to exclusions. If one or more exclusions apply, then the policy may not respond to any settlements or pay for defense costs. The exclusions for Coverage A – Bodily Injury and Property Damage are as follows: Expected or intentional injury — Losses caused intentionally by the insured are excluded, except if caused by the use of reasonable force to protect persons or property. Contractual liability — Assumption of liability due to contractual agreements is excluded unless in absence of the agreement the insured would be liable, or it was assumed in an insured contract as noted below: o Contracts for lease of premises; o Sidetrack agreement; o Easement or license agreements, except in connection with construction or demolition within 50 feet of a railroad; o Obligation to indemnify a municipality, except in connection with work for a municipality; o Elevator maintenance agreements; and o Liability the insured assumes under any contract that would have been imposed by law even in the absence of the contract. Liquor liability — This exclusion applies to liability arising from causing or contributing to the intoxication of any person, furnishing alcohol to persons under the legal drinking age or persons under the influence of alcohol, and any statute, ordinance or regulation. However, this exclusion only applies to insureds in the business of manufacturing, selling, or serving alcoholic beverages, in which case, there is no liability for alcohol-related injuries. Workers compensation and employers liability — The policy excludes coverage for bodily injury, sickness, disease, or death of any employee while engaged in the employment of the insured. These types of losses are more appropriately insured under workers compensation and employers liability policies. Pollution — Pollution is a catastrophic exposure and one that is excluded for almost any cause under the general liability policy. Aircraft, auto, or watercraft — There is no coverage under the general liability policy for bodily injury or property damage caused by the ownership or use of any aircraft, auto, or watercraft. The exclusion, however, does not apply to: o Nonowned watercraft less than 26 feet long and not being used to transport person or property for fee; o Watercraft while ashore on premises the insured owns or rents; o Parking a nonowned auto on or next to property owned or rented by an insured; o Liability assumed in an insured contract for the ownership, maintenance or use of an aircraft or watercraft; or o Operation of mobile equipment. Mobile equipment — There is no coverage for the transportation of mobile equipment by an auto owned or operated by the insured, or while it is being used in a race or contest. War — Whether declared or not, it is excluded. Damage to property — There is no coverage for damage to property owned, rented by, or loaned to the insured, or property in the insured's care, custody, or control. The insured's product — There is no coverage for damage to the insured's own products. The insured's work — There is no coverage for damage to the insured's work. This exclusion does not apply if the work was performed by a subcontractor for the insured. Impaired property or property not physically injured — Property damage to impaired property or property that has not been physically injured that was caused by a defect or deficiency in the insured's work or product is not covered. There is no coverage for any damage caused by a delay or failure of the insured to perform in accordance with a contract or agreement. Recall of products, work or impaired property — The policy excludes any loss incurred by the insured or others for loss of use, withdrawal, or recall of the insured's product or work. Personal and advertising injury — There is no coverage for bodily injury due to personal and advertising injury. Electronic data — There is no coverage for damages arising out of the loss of, loss of use, damage to, corruption of, inability to access, or inability to manipulate electronic data. Recording and distribution of material in violation of communications laws — Bodily injuries and property damage are excluded if arising directly or indirectly out of any action or omission that violates the Telephone Consumer Protection Act, the CAN- SPAM Act, the Fair Credit Reporting Act, or any other federal, state, or local statute or regulation. Coverage B: Personal Injury and Advertising Injury Coverage B – Personal and Advertising Injury Protection covers specific acts that result in a non-physical injury to a third party due to offenses defined as personal and advertising injuries. Insuring agreement for this coverage is similar to the bodily injury and property damage insuring agreement, but third-party injuries must be as a result of personal and advertising injury, and the offense must be committed within the coverage territory and the policy period described in the declarations. Exclusions The exclusions for Coverage B – Personal and Advertising Injury are the following: Knowing violation of rights of another — There is no coverage for personal or advertising injury if done intentionally and with the knowledge that the act would violate another's rights. Material published with knowledge of falsity — There is no coverage for personal and advertising injury due to the publication of oral or written material that is known to be false. Material published prior to policy period — Injuries that arise out of oral or written material that was published before the inception of the policy are not covered. Criminal acts — If the insured or someone at the insured's direction commits a criminal act, there is no coverage for any resulting damage. Contractual liability — There is no coverage for any liability the insured assumes through a contract or agreement unless, in absence of the agreement, the insured would have been liable for the damages. Breach of contract — No coverage is applicable for any breach of contract unless it is an implied contract to use another's advertising idea. Quality or performance of goods – failure to conform to statements — If the product, goods, or services fail to conform to the advertised quality or performance, there is no coverage. Wrong description of prices — If the advertising material states the wrong price, there is no coverage for the resulting damage. Infringement of copyright, patent, trademark or trade secret — There is no coverage for damage arising from the infringement of copyright, patent, trademark, trade secret or other such intellectual property rights (which does not include the use of another's advertising idea). Insureds in media and Internet-type businesses — There is no coverage for insureds who are in the business of broadcasting, advertising or telecasting, designing or determining content of websites for others, or an Internet search, access, content, or service provider. Electronic chatrooms or bulletin boards — There is no coverage for damage due to electronic chat rooms or bulletin boards hosted, owned, or controlled by the insured. Unauthorized use of another person's name or product — There is no coverage for personal and advertising injury arising out of the unauthorized use of another person's or entity's name or product to mislead the person's or entity's potential customers. Pollution or pollution-related losses; War; and Recording and distribution of material in violation of law — Refer to entry of same name under Coverage A exclusions. Coverage C: Medical Payments Coverage C – Medical Payments provides necessary medical, surgical, ambulance, hospital, professional nursing or funeral expenses for injuries to third parties. This is considered "goodwill" coverage because payments will be paid without regard to the fault or negligence of the insured. Medical expenses must be incurred and reported within 1 year (12 months) of the date of the accident to be covered. Bodily injury must be due to an accident and occur on premises owned or rented by the insured, on ways next to the owned or rented premises, or due to the operations of the insured. The injury must take place during the policy period and within the coverage territory. COVERAGE DESCRIPTION Coverage A BI provides coverage for any injury, sickness, disease or death suffered Bodily Injury (BI) by third parties because of the insured's business activities. and Property PD provides coverage for injury to, destruction of, or loss of use of Damage (PD) property of others due to the insured's business activities. PI covers injuries caused to third parties that result from mental anguish, Coverage B false arrest or imprisonment, wrongful eviction or detention, malicious Personal Injury (PI) prosecution, defamation of character, slander or libel, and invasion of and Advertising privacy. Injury (AI) AI covers injuries that occur if, in the course of advertising, the insured inadvertently libels, slanders, defames or violates the privacy of another. Medical payments coverage provides for necessary medical, surgical, Coverage C ambulance, hospital, professional nursing or funeral expenses for third Medical Payments parties injured because of the insured's business operations, without regard to fault. Exclusions Coverage C – Medical Payments will not pay for bodily injury to or resulting from: Any insured except volunteer workers; Employees or anyone hired by the insured; Tenants of the insured; If benefits must be provided under a workers compensation or similar law; Persons injured while practicing, instructing, or participating in physical games or exercises, sports, or athletic contests; War, insurrection, rebelling, or revolution; or If excluded under Coverage A. Supplemental Payments Supplementary payments are provided for Coverage A – Bodily Injury and Property Damage, and Coverage B – Personal and Advertising Injury. These are the amounts the insurer will pay in addition to the stated policy limits. However, the insurer's duty to defend ceases when the total of all claims paid reaches the aggregate limit. The following are similar to the supplementary payments provided in other types of liability insurance policies: Any expenses incurred by the insurer; Up to $250 for the cost of bail bonds and bonds to release attachments; Reasonable expenses incurred by the insured, including up to $250 a day for loss of income; Court costs taxed against the insured (not including attorney's fees or expenses); Prejudgment interest; and Interest that accrues on any judgment. 3. Section II - Who is an Insured This section of the ISO form describes who is an insured based on the following designations in the Declarations: Individual (sole proprietor) — an individual insured and their spouse, but only in respect to the conduct of a business in which the insured is the sole owner. Partnership or joint venture — a partnership, including joint ventures, is a legal entity in which 2 or more persons agree to share the profits and losses of the business. Under this type of arrangement, the insureds are the named insured, members, partners, and their spouses, but only in respect to the conduct of a business. Limited Liability Company (LLC) — named insured and members for business activities. Managers are also considered insureds for their duties as managers. An organization other than a partnership, joint venture or LLC — named insured, executive officers, directors and stockholders but only for their duties or liabilities as such. Trust — named insured and trustees but only for their duties as trustees. Regardless of legal entity, each of the following is also considered an insured under the policy: The insured's employees and volunteers for acts within the scope of their employment; Any person or agent while acting as the insured's real estate agent (except employees and volunteers); Any person or organization, or legal representatives, having temporary custody of the insured's property if the insured dies; and Newly acquired or formed organizations (other than a partnership, joint venture or limited liability company) for which no other insurance applies for up to 90 days after ownership is acquired or the policy expiration, whichever is earlier. 4. Section III - Limits of Liability This section describes how each limit listed on the Declarations page works in the event of a covered claim. Before this is explained, it may be helpful to visualize the components of a typical CGL Declarations page. CGL POLICY DECLARATIONS Occurrence Limit $1,000,000 Damage to Property Rented to You $ 100,000 Medical Expense Limit $ 10,000 Personal and Advertising Injury Limit $1,000,000 General Aggregate $2,000,000 Products and Completed Operations Aggregate $2,000,000 To understand how the limits of liability work together, it is important to understand the concepts of the aggregate limits. Each of these limits is the maximum available during the policy period. The Limits of Insurance shown in the Declarations is the most the insurer will pay regardless of the number of: Insureds; Claims made or suits brought; or Persons or organizations making claims or bringing suits. Once the general aggregate limits are depleted, the limits of the policy are exhausted, and any supplementary payments will end. Note that there is an occurrence limit for bodily injury and property damage, as well as an occurrence limit for personal and advertising injury. Depending on the type of claim, each limit will be the most the policy will pay. Products and completed operations claims are also subject to the occurrence limit, but draw down a different aggregate. Medical expense payments are a per person limit, but subject to the occurrence limit for one event. There is also a limit for damage to premises rented to the insured because of property damage to any one premises, while rented to the insured, or in the case of damage by fire, while rented to the insured or temporarily occupied by the insured with the owner's permission. 5. Section IV - Conditions The following are conditions commonly found in a commercial general liability policy: Bankruptcy — Bankruptcy of the insured will not relieve the insurer of its obligation under the policy. Insured duties in the event of an occurrence, offense, claim or suit — The following duties are required of the insured in the event of a loss: o Notify the insurer as soon as possible of an occurrence or the possibility of a claim; o Immediately record the specifics of any claim or suit brought, and notify the insurer; o Immediately send the insurer any demands, notices, or summons relating to a suit or claim; o Authorize the insurer to obtain any records or other pertinent information, and assist the insurer in its investigation; o Not make any voluntary payments, assume any obligations, or incur any expenses without the insurer's consent, or it will be at the insured's own cost. Legal action against the insurer — No party has a right to join the insurer as a party in any suit asking for damages against the insured. In addition, no party may sue the insurer until all policy provisions have been met. Other insurance — If other valid and collectible insurance is available to a loss covered under Coverages A and B, the general liability policy will pay as follows: o Primary basis — except as noted in the excess section below, if other insurance is primary, the policy will share depending on how the other insurance shares liability. It can either be in equal shares or pro rata up to the policy limit. o Excess basis — certain types of insurance contracts regardless of the other insurance clause in those policies; any other primary insurance in which the insured has been added as an additional insured. Premium audits — The insurer is allowed to audit the insured's books or records at the end of the policy term to make sure an adequate premium has been collected for the exposure. Representations — By accepting the policy, the insured agrees that the statements shown in the declarations are true and complete, and that the policy was issued based on the representations made by the insured. Separation of insureds — This condition shows how the insurance will apply to each individual insured. The insurance will apply as if the insured named in the suit were the only named insured, and separately to each insured against whom a claim or a suit is brought. This clause, however, does not increase the limit of insurance shown in the declarations. Transfer of rights of recovery against others to the insurer (subrogation) — The insured must transfer to the insurer any rights they possess to recover damages from a negligent third party. The insured may not do anything to impede these rights after the loss. Nonrenewal — The minimum number of days' notice the insurer will provide to the insured in the event the insurer decides not to renew the coverage is usually 30 days, but it may differ according to individual state regulations. Insured's right to claim and occurrence information — The insurer will provide the first named insured information relating to claim and occurrence, as well as any preceding general liability claims-made coverage part issued in the previous 3 years. 6. Occurrence vs. Claims-made As you have already learned, general liability policies come in 2 forms. The most common is the Occurrence form, which was described above. The other form is called the Claims-made form and is used for special situations such as professional liability, product liability, employment- related liability and environmental liability. The claims-made policy is often used in situations where the occurrence could take a long time to manifest itself or be spread out over many years. The form was developed by ISO due to past history of occurrence forms being triggered over a series of years due to the nature of complicated claims and how an occurrence was interpreted by the legal system. The claims-made form has a few unique features that include the following: Retroactive Date — a date is entered on the declarations page to alert the insured that any claim that happens prior to this date will not be covered by the policy. Extended Reporting Period (ERP) — the policy allows the insured a period of time to report a claim and provide coverage even though the policy was cancelled by the insured or the insurer. For example, an attorney decided to retire and no longer wants the insurance policy. It would allow for a period of time to report claims that the insured becomes aware of, even though the policy is no longer in force. The combination of these two time frames allows the insurer to better predict when the policy will respond because the ability of the insured to report a claim, and the amount of time in whi

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