CAIB 3 Ch 3 - Nov 2024 PDF

CAIB 3: Chapter 3 The Commercial Automobile Exposure CAIB 3  CAIB 3 Section 1 Insuring Owned Automobiles Insuring Owned Automobiles - Introduction Key Insurance Types for Automobiles: Owned Automobiles...

CAIB 3: Chapter 3 The Commercial Automobile Exposure CAIB 3  CAIB 3 Section 1 Insuring Owned Automobiles Insuring Owned Automobiles - Introduction Key Insurance Types for Automobiles: Owned Automobiles Non-Owned Automobiles Garage Risks Automobile Insurance in Canada: Variation across provinces Provided by Private Insurers and Government Insurance Plans CAIB 3 Private Insurers - Coverage in Alberta, Ontario, and Atlantic Provinces Private Insurers in Alberta, Ontario, and Atlantic Provinces Standard Policy Forms (S.P.F.s): S.P.F. No.1: Owners Form S.P.F. No. 4: Standard Garage Automobile Policy S.P.F. No. 6: Standard Non-Owned Automobile Policy Standard Endorsement Forms (S.E.F.s) to Modify Coverages Ontario’s Unique Adaptation: Ontario Motorist Protection Plan (OMPP) CAIB 3 Compulsory Government Insurance Plans - British Columbia, Saskatchewan, Manitoba Compulsory Government Insurance Plans: British Columbia, Saskatchewan, Manitoba Coverage upon Vehicle Registration: Third-Party Liability: $200,000 (BC, SK, MB) Accident Benefits: Included in all three provinces Physical Damage: Deductibles vary ($400-$500) Availability of Excess Coverages from Private Insurers Examples of Excess Coverages: Increased Liability Limits Additional Accident Benefits Reduced Physical Damage Deductible CAIB 3 Other Quebec's Unique System: Personal Injury Coverage through Government Plan Property Damage and Non-Quebec Bodily Injury Claims with Private Insurers Quebec Policy Forms (Q.P.F./Q.E.F.) Equivalent to S.P.F./S.E.F. Challenges for Brokers: Navigating Dual Insurance Sources for Clients CAIB 3  Need for Separate Insurance Policies for Commercial Automobiles Special Exposure for Business- Used Automobiles Exclusion of Auto Coverage in General Liability and Property Policies Necessity of Specific Commercial Automobile Policies for: Bodily Injury and Property Damage Liability Accident Benefits Physical Damage Coverage for Owned/Used Automobiles CAIB 3  Purpose of S.P.F. No. 1 Owner's Form Insuring Owned Coverage for Automobiles Owned by Businesses Applicable for Private Passenger, Commercial, and Public Automobiles - S.P.F. No. 1 Automobiles Types of Automobiles Insured: Owner's Form Overview Private Passenger Automobiles Commercial Vehicles Public Automobiles CAIB 3  S.P.F. No. 1 Owner's Form - Commercial and Public Vehicle Regulations and Premium Considerations Regulatory Requirements for Commercial Vehicles: Provincial Regulation - Compliance within the province; higher liability limits Federal Regulation - Minimum $1 million liability for interprovincial transport; $2 million for dangerous goods U.S. Requirements - $750,000 to $5 million for cross-border transport, based on cargo type Premiums for Physical Damage Coverage: Based on Vehicle Value (including trailers) Increased Premiums for Public Vehicles (due to passenger hazard and continuous use) CAIB 3 Summary of Coverages - Overview Commercial Auto Insurance Coverages Similar to Private Vehicle Insurance Core Areas of Coverage Three Primary Coverage Types: Third-Party Liability Accident Benefits Physical Damage Importance of Understanding Each Coverage Area for Brokers CAIB 3 Third-Party Liability Coverage Mandatory Minimum Limit: $200,000 in Common Law Provinces Purpose: Covers Damages for Bodily Injury and Property Damage to Third Parties Importance of Higher Liability Limits: Inadequate minimums may not cover extensive damages S.E.F. No. 44 Family Protection Endorsement for Additional Coverage Public Buses - Required Higher Limits CAIB 3  Compulsory Coverage in Most Provinces (except Newfoundland) Key Benefits: Medical Expenses Accident Rehabilitation Costs Funeral Expenses Benefits Death Benefit Loss of Income Coverage No-Fault Coverage: Benefits are paid regardless of fault Increased Limits Available in Ontario CAIB 3  All Perils Physical Damage Losses: Significant portion of claims payments Collision or Upset Physical Damage Types of Coverage Available: Coverage - Overview and Comprehensive Coverage for High-Value Options Vehicles: Essential for buses, trucks, cranes, etc. Specified Perils Deductibles: Standard in all physical damage policies CAIB 3 Physical Damage - Additional Coverage for Loss of Use Loss of Use by Theft: Standard Coverage for Rental of Substitute Vehicle (Up to 30 Days) S.E.F. No. 20 Loss of Use Endorsement: Extends Coverage for Other Losses Beyond Theft Coverage Options: Rental, Taxi, or Public Transportation Coverage Triggers: Immediately if the vehicle is inoperable Following theft or damage CAIB 3 Excluded Uses of Insured Automobiles Excluded Uses: S.P.F. No. 1 Owner’s Form Restrictions Renting or leasing the insured vehicle to others (unless endorsed) Employee Use Exemption: Use by an employee on employer business, with compensation, does not qualify as renting or leasing Increased Exposure: Rented/leased vehicles pose higher risk, hence excluded from standard coverage CAIB 3 Rented or Leased Automobiles - Lessor's Exposure Lessor's Exposure Types: Short-Term Rentals (30 Days or Less): Common for rental firms (Avis, Hertz, etc.) S.E.F. No. 5c Endorsement: Extends coverage for lessors renting to unspecified lessees for ≤30 days Policy issued in lessor’s name, protecting rental businesses Long-Term Leases (More than 30 Days): Leasing benefits: tax advantages, alternative to purchasing S.E.F. No. 5 Endorsement: Allows lessors to lease to specified lessees; each lessee must have their own S.P.F. No.1 policy Underwriting treats leased vehicles as owned by lessee CAIB 3 Optional Coverages Optional Coverages for Lessors: Protecting Against for Long-Term Lessee Default or Dishonest Acts Leased Automobiles S.P.F. No. 8 - Standard Lessor's Contingent Automobile Policy: Covers lessor if lessee fails to maintain required insurance Insurer pays difference if lessee’s coverage is below lease contract requirements S.E.F. No. 5d - Conversion Coverage Endorsement: Covers losses from lessee’s dishonest acts (e.g., theft, embezzlement) Removes exclusion for losses due to lessee’s misuse under S.P.F. No. 1 Applicable to both short- and long-term leases CAIB 3 Rented or Leased Automobiles - Lessee’s Exposure (Short-Term, Individual) Coverage Options for Individual Lessees: Option 1: Purchase from the Lessor Full range of coverages available if lessee has no personal automobile policy. For lessees with an S.P.F. No. 1 policy, third-party liability and accident benefits extend to rentals, but physical damage must be obtained separately from the lessor. Option 2: S.E.F. No. 27 Endorsement (Legal Liability for Damage to Non-Owned Automobiles) Adds physical damage coverage, eliminating the need to purchase it from the lessor. Important Requirements and Limitations: Rental agreement name must match the S.P.F. No. 1 policyholder. Coverage limited to insured and spouse only. Restricted to private passenger vehicles or similar types; does not cover luxury or commercial vehicles. Standard limit of $30,000; higher limits available for high-value rentals. CAIB 3 Rented or Leased Automobiles - Lessee’s Exposure (Short-Term, Business) Coverage Options for Business Lessees: S.P.F. No. 6 - Standard Non-Owned Automobile Policy Provides third-party liability for business-rented vehicles. Includes Accident Benefits rider in provinces where required. S.E.F. No. 94 Endorsement (Legal Liability for Damage to Hired Automobiles) Covers physical damage to rented vehicles. Must be attached to an S.P.F. No. 6 policy; not available as standalone coverage. Provides coverage for vehicle damage without requiring purchase from the lessor. CAIB 3  Exclusion for Transporting Explosives and Radioactive Materials Exclusion for Carrying Hazardous Materials: Applies to vehicles transporting explosives or radioactive materials Coverage exclusions unless policy endorsed appropriately Relevant Endorsements: S.E.F. No. 4a - Permission to Carry Explosives Endorsement Provides liability coverage for explosives based on explosive/incendiary power May reduce third-party liability limits for this specific exposure Accident Benefits exclusions not permitted in provinces where they are mandatory S.E.F. No. 4b - Permission to Carry Radioactive Material Endorsement Mirrors S.E.F. No. 4a, extending coverage to radioactive materials for research, education, industrial purposes CAIB 3 Exclusion for Vehicles Used for Passenger Transport Exclusion for Passenger Transport for Compensation: No coverage for vehicles used as: Taxicabs Public Omnibus (multi-purpose buses) Livery Services (rented vehicles) Jitneys or Sightseeing Conveyances Any passenger transport for hire Passenger Injury Exposure: Transporting passengers increases liability exposure significantly Additional premium typically required to insure this risk Removing the Exclusion: Coverage can be obtained through relevant endorsement forms (details in Exhibit) CAIB 3  Exceptions to "Passenger for Compensation" Exclusion: Car Pooling: Reciprocal rides are not considered compensated; Analyzing the must avoid payments replacing shared driving. Exclusion : Occasional Cost-Sharing: Infrequent sharing of trip costs for business or events does not require endorsement. Non-Compensated Domestic Staff Transport: Includes transporting temporary or Passenger Transport permanent domestic staff. Client or Customer Transport: Business-related trips involving clients or prospects are not deemed compensated use. Educational Program Transport: Occasional transport for school activities, even with mileage reimbursement, is not considered compensation. CAIB 3  S.E.F. No. 6a - For taxis, ambulances, and employee transport; specific business activities must be listed. Amending the S.E.F. No. 6b - School bus coverage for Exclusion : school-related activities only. Endorsements for Passenger S.E.F. No. 6c & 6f - Public passenger vehicles; 6f combines passenger hazard and Transport road liability limits. Coverage S.E.F. No. 22 - Covers damage to passengers’ property; not needed if covered by other endorsements. CAIB 3  Unique Exposures: Automobiles with attached equipment face dual risks: Automobile Exposure on public roads Job Site Exposure with potential liability for equipment operation Miscellaneous Endorsements for Endorsements to Address These Exposures: Automobiles with S.E.F. No. 30 - Excluding Operation of Attached Machinery: Attached Excludes liability for machinery operation under Third Party Liability (Section A) and Accident Benefits (Section B). Equipment Machinery value still covered under Section C (Physical Damage). Third-party liability and accident benefits often covered by Commercial General Liability (CGL) and workers' compensation, respectively. S.E.F. No. 31 - Non-Owned Equipment Endorsement: Covers third-party liability for using attached equipment owned by others. Optional coverage for physical damage to non-owned attached equipment (e.g., tanks, pumps, meters). CAIB 3 Underwriting Commercial Automobile Insurance - Scheduled Basis and Fleet Basis Overview Scheduled Basis: Individual listing for each vehicle in the policy. Allows different coverages per vehicle based on needs. Fleet Basis: Applicable to businesses with multiple vehicles (typically 4+). Offers rate advantages for covering multiple vehicles under a single policy. Note: Pleasure-use vehicles in fleets may sometimes be cheaper when insured individually under S.P.F. No. 1. CAIB 3 Fleet Policy Issuing Methods - Scheduled and Blanket Basis Scheduled Automobiles: Each vehicle is listed with details like make, type, serial number, coverages, and premiums. Changes (additions, deletions, substitutions) must be reported to the insurer. Blanket Basis (S.E.F. No. 21b): Covers all owned or leased vehicles under one policy without individual listings. Insured provides a complete schedule of vehicles at policy inception and updates monthly for any changes. Advance premium charged, with annual adjustment based on actual vehicle usage. CAIB 3 Monthly Reporting and Retrospective Rating for Fleets Monthly Reporting Basis (S.E.F. No. 21a): Ideal for businesses with variable vehicle usage (e.g., seasonal businesses or trucking). Premiums based on reported usage (e.g., receipts or mileage). Monthly reports submitted to adjust premiums accordingly. Retrospective Rating: Premiums set within a pre-agreed minimum and maximum range, adjusted based on loss ratio. Encourages effective loss prevention and safety programs. Final premium reflects actual risk management and claim experience. CAIB 3 Checkpoint Challenge  CAIB 3 Section 2 Insuring Other Business Automobile Exposures Purpose and Scope of S.P.F. No. 6 Standard Non-Owned Automobile Policy Purpose of S.P.F. No. 6: Provides third-party liability coverage for businesses using non- owned vehicles. Essential for businesses with employees or contractors who use personal vehicles for work. Scope: Applies to all Canadian jurisdictions except Quebec (provincial differences may apply). Covers liability exposure from the use or operation of vehicles not owned or licensed by the insured. Ontario Note: Coverage terms are similar to those in the S.P.F. No. 1 Owner’s Form. Insuring Agreement and Policy Setup Options Insuring Agreement: Covers third-party liability for any non-owned or unlicensed vehicle used by the business. Protects business owners from liability claims due to employee vehicle use for business purposes. Policy Setup Options: Standalone Policy: Can be issued independently for businesses with significant non-owned vehicle use. Endorsement to CGL Policy: Most commonly added to the Commercial General Liability (CGL) policy for streamlined coverage. Offers comprehensive liability protection by integrating non-owned vehicle exposure with general liability.  Automobiles Covered - Owned vs. Non-Owned Owned Automobiles: Non-Owned Automobiles: Required to be insured under S.P.F. No. 1 Includes vehicles not owned but used in Owner’s Form (or provincial equivalent). business activities. Vehicles licensed in the business's name Key Non-Owned Types: are considered owned and cannot claim Employee-Owned Vehicles: Used for non-owned status in liability cases. incidental business tasks. Hired Automobiles: Short-term rentals or long-term leases, used in the insured’s business. Contracted Vehicles: Operated under business control but owned by a third party.  Non-Owned Automobiles - Employee-Owned and Hired Automobiles Employee-Owned Vehicles: Used for incidental business purposes (e.g., errands, mail, bank deposits). Liability for employer: Common Law: Employers are liable for employee actions during work duties. Increased Exposure: Regular business use with employer reimbursement heightens liability risk.  Hired Automobiles: Non-Owned Definition: Vehicles rented or leased for business use. Physical Damage Coverage: Automobiles - S.E.F. No. 94 Legal Liability for Damage to Hired Automobiles: Cost-effective coverage for physical damage liability. Hired Applies only if the business is legally liable for the damage. Coverage Flexibility: Automobiles No restrictions on the type or number of vehicles hired at any time. Non-Owned Automobiles - Contracted Vehicles Contracted Vehicles: Definition: Vehicles used in the business but owned and controlled by a third party. Business Use Without Ownership: Used for specific business needs (e.g., long-haul trucking, moving services). Liability Considerations: Third-party owner maintains control, but business gains operational use for specific tasks. Contract terms should clearly outline liability responsibilities to avoid exposure. Persons Covered under the Non-Owned Automobile Policy Who is Covered: Who is Not Covered: Important Restriction: Named Insured: The Individuals driving vehicles Coverage applies only to business or individual owned, partly owned, or business use of non-owned named in the policy. licensed in the name of: automobiles; personal use The insured. is excluded. Partners, Officers, and Employees: Covered when The covered employee or driving a non-owned vehicle additional insured person. for business purposes. Anyone residing in the same household as the insured or additional insured.  Miscellaneous Endorsements - Reducing Premiums on S.P.F. No. 6 Policy Endorsements to Restrict Blanket Coverage Additional Premium-Saving Endorsement: (Reduces Premiums): S.E.F. No. 90 - Limits coverage to vehicles S.E.F. No. 98 - Excludes coverage for vehicles operated only by partners, officers, and personally driven by individuals with employees. unacceptable driving histories. S.E.F. No. 91 - Limits coverage to named individuals. S.E.F. No. 92 - Restricts coverage to hired vehicles and vehicles under contract. S.E.F. No. 93 - Limits coverage to vehicles owned by named individuals. S.E.F. No. 99 - Excludes long-term leased vehicles from coverage.  S.P.F. No. 4 Standard Garage Automobile Policy - Types of Garage Risks Purpose of S.P.F. No. 4: Types of Garage Risks: Additional Considerations: Incidental garage risks may apply to non-garage businesses (e.g., welding Covers businesses involved in selling, Automobile Dealers shops). repairing, or servicing automobiles. Repair Garages Legal liability for customer vehicles Provides liability protection for Service Stations on the premises can be insured under vehicles in the care of garage-related the S.P.F. No. 4 policy. businesses. Storage Garages Parking Lots Garage Risks Excluded by Other Liability Policies Limitations of Commercial General Liability (CGL) Policy for Garage Risks: Exclusion of Automobile Liability: No coverage for bodily injury or property damage arising from ownership, use, or operation of any automobile by or on behalf of the insured. Exclusion of Personal Property Coverage: No coverage for damage to customer vehicles in the insured's care, custody, or control (e.g., for repair, service, or storage). Solution: S.P.F. No. 4 Standard Garage Automobile Policy: Specifically designed to cover automobile exposures unique to garage operations, providing essential protection for liabilities excluded from the CGL policy. Analyzing Policy Coverages - S.P.F. No. 4 Standard Garage Automobile Policy Insuring Agreements in S.P.F. No. 4: Section A - Third Party Liability: Covers liability for bodily injury or property damage to third parties. Section B - Accident Benefits: Provides benefits for injuries sustained in an accident. Section C - Loss of or Damage to Owned Automobile: Covers damage to vehicles owned by the insured business. Section D - Uninsured Motorist Coverage: Protection against damages caused by uninsured motorists. Section E - Legal Liability for Damage to a Customer's Automobile: Covers customer vehicles in the care, custody, or control of the insured. Comparison with S.P.F. No. 1 Owner’s Form: Sections A - D mirror similar coverages in the S.P.F. No. 1 policy for owned vehicles, with Section E specifically tailored to garage risks.  Third Party Liability Coverage: Covers bodily injury and property damage from the operation of: Owned Automobiles: Section A - Includes vehicles licensed to the business for both business and pleasure use (e.g., company cars, tow trucks, service loaners). Third Party Coverage applies to the insured and those with the insured’s permission. Liability (S.P.F. Exclusion: Coverage does not extend to individuals who frequently use the vehicle unless they are active partners or full-time employees, except when used for business purposes. No. 4 Standard Non-Owned Automobiles: Garage Customer Vehicles: Covers liability while moving or test-driving customer vehicles on Automobile premises, during diagnostics, repair testing, or pick-up/delivery. Other Non-Owned Vehicles: Policy) Covers liability arising from the use of other non-owned vehicles involved in business operations.  Key Exclusions in S.P.F. No. 4 Standard Garage Automobile Policy Property Inside Vehicles: No coverage for property carried in or on a vehicle owned or driven by an insured. Alternative Coverage: Available under Insuring Agreement E (Legal Liability for Customer Vehicles). Customer’s Property Inside Vehicles: Excludes coverage for personal property within a customer’s vehicle if: Located in the insured’s vehicle. In the customer’s vehicle while driven by an insured. Damage to Customer Vehicles by Insureds: Excludes liability for damages to customer vehicles when operated by the insured. Rating Third-Party Liability - Owned Automobiles Owned Automobiles - Rating Basis: Determined by payroll or staff units (full-time and part-time combined). Dealer plates required in rating for any business selling automobiles. Service Vehicles: Service loaners, tow trucks, and employee- owned vehicles often need coverage under S.P.F. No. 1. Some insurers may allow these under S.P.F. No. 4. Additional Factors: Insurer requirements may vary; certain vehicles could be rated separately for liability purposes.  Rating Third-Party Liability - Customer Automobiles Customer Automobiles - Rating Basis: Based on vehicle type, value, and payroll or staff units. Additional Underwriting Factors: Info required on vehicle pick-up, delivery practices, and road testing. Exclusions for Personal Property: No coverage for damage to customer personal property in vehicles driven by insureds. Additional Coverage Endorsements - S.E.F. No. 44 Family Protection Endorsement Purpose of S.E.F. No. 44: Offers added protection for the named insured and other insured persons in cases of injury or death. Coverage Scope: Provides benefits when the insured has a claim against an underinsured or uninsured motorist. Covers the gap between the liability limits on the garage policy and the limits of the at-fault motorist. Importance for Garage Risks: Essential for businesses with significant liability exposure due to frequent interactions with customer and non-owned vehicles. Ensures adequate protection for insured parties when facing claims that exceed the at-fault motorist’s coverage. Section B - Accident Benefits Coverage Overview Accident Benefits Coverage: Paid regardless of fault. Applies to a range of eligible persons: Eligible Individuals: Pedestrians, insured’s spouse, dependent relatives, employees, partners, and any person occupying an owned, non-owned, or customer vehicle. Provincial Requirements: Accident Benefits are mandatory for licensed vehicles across Canada, except Newfoundland. In provinces with government insurance (BC, Saskatchewan, Manitoba), benefits are automatically included in the standard policy. Provincial Specifics for Accident Benefits Coverage Government-Provided Accident Benefits: BC, Saskatchewan, and Manitoba include benefits in licensed vehicle coverage. Government benefits generally meet or exceed coverage provided by the garage policy (exception: Saskatchewan where additional coverage may be beneficial). Brokers should periodically verify and discuss changes in government-provided benefits with clients. Optional Garage Policy Benefits: In provinces without government plans, Accident Benefits are added through the Standard Garage Automobile Policy.  Accident Benefits Coverage Details Common Accident Benefits Coverage Components: Medical, Rehabilitation, and Funeral Expenses: Assists with medical costs, rehabilitation, and funeral expenses. Death Benefits: Financial compensation to beneficiaries in the event of death. Loss of Income Payments: Covers lost income due to inability to work following an accident. Variation by Province: Benefits and amounts can vary by province. Brokers should verify provincial specifics and ensure clients are aware of the exact benefits provided. Checkpoint Challenge Case Study - Optima, Inc. (Automobile Dealership) Business Overview: Sells over 1,200 new and used vehicles annually. Maintains a large inventory of approximately 400 vehicles for customer selection. Employee Vehicle Use: Sales staff are provided with new dealership-licensed vehicles to drive. Customer Vehicle Storage: Vehicles awaiting repair stored outdoors in a designated lot area. Vehicles indoors overnight if work is incomplete. Quality Control: Technicians test-drive every vehicle post-repair before returning to customers.  Section C - Loss or Damage to Owned Automobiles Overview Purpose of Coverage: Physical damage coverage essential for dealership- owned vehicles, service loaners, and tow trucks. Applies to both licensed and unlicensed vehicles owned by the business. Scope of Coverage: Coverage options available for all owned vehicles or specific ones as chosen by the insured. S.E.F. No. 80 Endorsement: Used when only specific owned vehicles require coverage, listing them individually. Coverage Options and Deductibles for Owned Automobiles Four Coverage Options: Subsection 1 - Collision or Upset Subsection 2 - Comprehensive Subsection 3 - Specified Perils Subsection 4 - Specified Perils Excluding Theft Deductible Application: Standard deductible: Minimum of $250 per vehicle for collision. Occurrence-Based Deductible: For other physical damages (e.g., hailstorm affecting all vehicles has one deductible). No Deductible: For total loss due to fire, lightning, or entire vehicle theft. Rating of Physical Damage Coverages - Overview Collision or Upset (Subsection 1): Premium based on insured’s total payroll. Subsections 2, 3, and 4 (Comprehensive and Specified Perils): Premiums vary by the insurance limit selected, considering the dealership’s maximum exposure to physical damage. Coverage Options for Optima, Inc.: Monthly Average Basis Co-Insurance Basis Monthly Average Basis - Reporting and Penalties Coverage set based on maximum expected inventory Monthly value. Average Basis: Provisional Premium: Upfront premium with required monthly inventory reports. Penalties for Missed Reports: Liability limited to last filed report. First-Time Miss: Liability capped at 75% of policy limit. Missed Subsequent Misses: Liability capped at 75% of insured Reporting: amount. Co-Insurance Basis and Additional Endorsements Co-Insurance Basis: Insured must purchase coverage for at least 80% of the actual cash value of all owned vehicles. Under-Insurance Penalty: Applied if the insured amount is below 80%, except when damage is limited to a single vehicle. S.E.F. No. 73 Excluding Financed Automobile Endorsement: Excludes coverage for vehicles insured elsewhere (e.g., under a floor plan). Ensures coverage only applies to vehicles directly insured by Optima, Inc.  Exclusions Specific to Garage Risks - S.P.F. No. 4 Standard Garage Automobile Policy Conversion and Embezzlement Exclusion: No coverage for loss caused by conversion, embezzlement, or theft by a person in lawful possession (e.g., via lease or finance agreement). Solution: Separate endorsement available for leased vehicle loss due to dishonesty. Voluntary Parting with Ownership: Excludes losses from voluntary transfer of ownership due to fraud or trickery. Solution: Dealer’s False Pretence coverage can be added to the property policy. Open Lot Theft Exclusion: No coverage for partial theft from open lots (e.g., stolen hubcaps), except for entire vehicle theft. Solution: S.E.F. No. 74 Open Lot Pilferage Endorsement can be added to cover pilferage losses. Section D - Uninsured Motorist Coverage Overview Purpose of Uninsured Motorist Coverage: Protects against injury or death in accidents involving uninsured or unidentified vehicles (e.g., hit- and-run). Required as many provinces see annual incidents with uninsured or unknown drivers. Provincial Support Funds: Provinces like BC, Saskatchewan, Manitoba, and Ontario operate government-run funds for such claims. Other provinces use industry-managed funds; Alberta, the Northwest Territories, Yukon, and many U.S. states lack such funds. Payment Limits and Conditions Payment Limits: Coverage capped at minimum statutory limits of the accident’s jurisdiction. Canada Example: $200,000 minimum in all provinces. U.S. Example: Alabama and Connecticut minimums set at $50,000 for combined bodily injury and property damage. Liability Requirement: Payment only applies if the uninsured party would have been legally liable for the accident.  Coverage Availability Across Provinces Automatic Coverage in Government Insurance Provinces: BC, Saskatchewan, Manitoba, and Ontario include Uninsured Motorist Coverage within their Accident Benefits plans. Separate purchase under S.P.F. No. 4 policy generally not needed in these provinces. Automatic Coverage in Other Provinces: Most other provinces include Uninsured Motorist Coverage as a separate policy feature at no cost. Reclassification: Some provinces now classify this as liability coverage, separate from Accident Benefits.  Optima, Inc. as a Bailee for Hire: When customers leave vehicles for service or repair, Optima assumes a Bailee Role and bailee role. Duty of Care: Legally obligated to exercise ordinary care, comparable to Responsibility that of a prudent owner. Examples of Expected Care: Locking vehicles left on the lot overnight. Ensuring careful handling and safety during test drives or repairs.  Coverage Scope and Situational Examples Section E - Legal Liability for Damage: Protects against liability claims for physical damage to customer vehicles in Optima’s care, custody, or control. Covered Situations: Parked on Lot or Inside Garage: Vehicles waiting for servicing. During Servicing or Test Drives: Includes all actions while the vehicle is being worked on or evaluated. Towing: Covers liability during hook-up or while towing customer vehicles. Legal Liability Requirement for Payment Under Policy Payment Requires Legal Liability: Coverage responds only if Optima, Inc. is found legally liable for damage. If Optima meets or exceeds the standard duty of care, it may avoid liability. Example - Theft Scenario: Optima can avoid liability for a stolen vehicle if: All doors and windows were locked. Doors had deadbolts. Keys were secured in a locked, out-of-sight cabinet. Legal Liability Example - Negligence Leading to Liability  Coverage Options - Collision or Upset Collision or Upset Coverage: Covers losses from collisions or upsets while moving customer vehicles. Common exposure for Optima, Inc., as employees regularly move and test-drive vehicles. Determining Coverage Limits: Optima must estimate the maximum exposure, considering high-value vehicles ($15,000–$75,000). Reduced exposure when vehicles remain on-site, where potential loss may be lower (e.g., $5,000–$10,000). Deductible Applies: Deductible applies per collision or upset loss.  Coverage Options - Specified Perils (Excluding Open Lot Pilferage) Specified Perils Coverage: Covers risks like fire, theft, and explosion. Excludes perils unlikely to result in liability, such as lightning, hail, and civil commotion. Higher Liability Risk Perils: Fire, theft, and explosion have higher likelihood of claims. No Deductible: No deductible applies to losses under Specified Perils coverage. Key Exclusions in Section E - Customer Automobile Coverage Theft from Open Lot Exclusion: No coverage for theft from open or unroofed spaces owned or controlled by the insured, except for theft of entire vehicles. Amendment Option: S.E.F. No. 75 Open Lot Pilferage Endorsement can extend coverage for partial theft from open lots. Contents Exclusion: Coverage is limited to the vehicle and its equipment; contents within the vehicle or trailer are excluded. Implication: Important for garage operators to implement policies that limit liability for personal property left in customer vehicles. Rating Considerations for Customer Automobile Coverage Selecting Coverage Limits: Optima must choose an amount that covers potential loss for all customer vehicles in its care in a single occurrence. Recommended to base limits on the highest or total value of all customer vehicles present on the lot and in the garage. Specifying Maximum Customer Vehicles: Policy requires Optima to state the maximum number of customer vehicles on-site at any time. Co-Insurance Penalty: Applied if loss occurs and more vehicles are on-site than the specified maximum, potentially reducing claim payout.  S.E.F. No. 77 Legal Liability for Comprehensive Damage to Customers' Automobiles: Replaces Specified Perils with comprehensive coverage for "loss from any peril other than collision or upset." Includes open lot pilferage, beneficial for garages storing vehicles Other outdoors. Deductible Consideration: Individual losses under the deductible Endorsements (e.g., $200 hubcap theft with a $250 deductible) are not covered, but multiple losses in one event are covered. Excludes collision or upset; maintain Subsection 1 for these risks. for Garage Waiver of Legal Liability Endorsement: Risks Waives the need for legal liability proof before claim payment for losses under Specified Perils or S.E.F. No. 77. Goodwill Benefit: Speeds compensation to maintain customer satisfaction by avoiding delays in liability determination. Coverage Limit Note: Often limited to $10,000 per vehicle, though higher limits may be negotiated with additional premiums. Miscellaneous Endorsements - S.E.F. No. 71 & S.E.F. No. 76 S.E.F. No. 71 - Excluding Owned Automobiles: Removes coverage for any automobile owned, hired, or leased by the insured if insured elsewhere (e.g., under S.P.F. No.1 Owner's Form). Benefit: Reduces premium costs for the garage policy. S.E.F. No. 76 - Additional Insured Endorsement (Broad Form): Removes restrictions on pleasure use by non- employees, allowing coverage if vehicles are provided for regular use by non-partners or non-employees. Useful for garage businesses that provide vehicles for frequent non-business use.  Coverage Customization: Coverage Garage risks vary greatly, so coverage selection should reflect specific needs. Example: Optima, Inc. needs full S.P.F. No. 4 coverage, while a basic service station Flexibility and may require fewer coverages. Statutory Conditions: Statutory Required in all automobile insurance policies and influenced by provincial legislation. Conditions Brokers should have a working knowledge of Statutory Conditions for their province to ensure compliance. Checkpoint Challenge Questions?