What Is It?
Assume you own a car, and you have a personal auto policy (PAP). Part F contains various provisions that limit and qualify the coverage provided in other sections of your PAP. If the conditions set forth in these provisions are not met, the insurer can deny coverage.
Part F contains additional provisions regarding bankruptcy, changes to your policy, fraud, legal action against the insurer, the insurer's right to recover payment, policy period and territory, termination, transfer of your interest in the policy, and the effect of two or more auto policies.
If you declare bankruptcy or become insolvent, the insurance company is not relieved of its obligations under your policy. Under some indemnification contracts, bankruptcy or insolvency can relieve the insurer of its obligation to pay. Part F makes it clear that such circumstances will not relieve your PAP insurer of its obligation to pay.
Your insurance policy is a contractual agreement between you and your insurer. Therefore, the provisions of your policy cannot be waived or changed without a written endorsement on the policy. Make sure that everything you want covered is in your policy in writing.
Either you or your insurer may want to make changes to your PAP. The insurer may adjust your premium if there is a change in your pertinent information, while you may want to change your policy to cover a new car, to change your address, or to add your 16-year-old son to the policy. These changes may cause your premiums to increase. Any premium increase must be done on a pro rata basis.
Example(s): If your PAP is in effect from October 1 to September 30, and you buy a new Porsche 911 on December 25, the insurance company can increase your premiums from December 25 to September 30.
There are limited instances when changes do not have to be in writing. If the insurance company makes a change that broadens coverage under your policy without an additional premium charge, that change will automatically apply to your policy as of the date the change is implemented in your state.
No coverage is provided if you have made fraudulent statements or have engaged in fraudulent activities in connection with an accident or loss that is covered under your policy.
Legal Action Against Insurer
There are certain prerequisites you must comply with to bring legal action against your insurance company. The first is that you might not be permitted to bring legal action unless you have complied with all the conditions of your policy.
Part E: duties after an Accident or Loss contains certain conditions and duties that must be complied with. These include the duty to pay premiums, to notify the insurer of a claim, and to cooperate with the insurer. If you have not satisfied these duties, you usually cannot bring legal action against your insurer.
Under Part A--Liability Coverage
Part F imposes additional requirements that must also be satisfied if you bring legal action against your insurer to cover you under Part A: Liability Coverage. To bring action under the liability section of your PAP, your insurer must agree in writing that you have an obligation to pay (i.e., you appear to be liable) or that the amount of the obligation has been finally determined by judgment after trial (i.e., you have been found liable).
This simply means that either you have to appear to be liable to another person (in the insurer's eyes) or actually have been found liable after a trial, before your insurer is required to pay a third party under your liability coverage.
Other Persons or Organizations
No other person or organization has any right under your policy to bring your insurance company into any action to determine your liability. You and your insurer are parties to a contract, and the contract alone does not give another person the right to sue the insurance company to determine if you are liable.
Even so, people tend to sue the insurance company along with the party they believe is liable for their damages. This is because if the other party is found liable, the insurance company is ultimately responsible for paying the judgment. It is also related to the fact that the insurance company has to decide whether or not to settle the claim.
Insurer's Right to Recover Payment
When your insurer makes payment to you under your policy, they have the right to recover that payment from the person or party who is liable to you. This is called the right of subrogation. The idea behind subrogation is that the injured party should not be paid twice for his or her injuries. Subrogation is the process whereby the insurer takes over the legal rights you had at the time of the loss. They step into your shoes, so to speak.
Example(s): Hal has collision coverage on his car. He is involved in an accident with Liz, who is at fault. Hal's collision coverage pays him for the damage done to his car. Result: The insurance company has the right of subrogation (i.e., it steps into Hal's shoes), so it has the right to recover damages against Liz in the amount of the money it paid to Hal. Because the insurer has subrogated his claim, Hal has no right to personally recover against Liz for the damage done to his car.
Your policy also requires that you do whatever is necessary to enable the insurance company to exercise its rights and to do nothing that would prejudice them.
Against A Person Using "Your Covered Auto"
For purposes of Part D: Coverage for Damage to Your Auto , the right of subrogation does not apply against a person who is using "your covered auto" with a reasonable belief that he/she is entitled to do so. "Your covered auto" generally means any auto listed on the Declarations Page of your policy.
Example(s): Hal borrows Liz's car with her permission and has an accident. Liz has collision coverage on the car. The insurer pays Liz for the damage Hal caused to it. Result: Liz's insurance company may not subrogate against Hal for the payment it made to Liz because he was using her car with a reasonable belief that he was entitled to do so.
When You Recover Damages from Another Person
The right of subrogation does not change even if you have already recovered damages against another person. If the insurance company makes payment to you under your PAP, and you recover damages from another person, you are required to do the following:
- Hold the proceeds of the recovery in trust for the insurance company
- Reimburse the insurance company to the extent of its payment
The rationale is the same as above--insurance is designed to make you "whole," not as a means for you to gain from your accident.
Policy Period and Territory
The coverage your PAP provides is limited in both time and location. Your policy applies only to accidents and losses that occur during the policy period as shown on the Declarations Page and within the policy territory.
The policy territory generally includes the following:
- The United States of America, its territories, and possessions
- Puerto Rico
Your PAP also applies to "your covered auto" while it is being transported between the ports of the policy territory.
Caution: A common destination not included in your policy territory is Mexico. Once you drive into Mexico, your PAP no longer ncovers you, so you should take steps to obtain separate insurance coverage ahead of time.
Tip: Mexican insurance companies will often write coverage at the border for short trips into Mexico.
Your PAP contains provisions governing how it can be terminated during the policy period, or nonrenewed at the end of the policy period. State law often regulates these provisions, so check with your local jurisdiction for more information.
Either you or your insurance company may cancel your policy during the policy period.
The named insured shown on the Declarations Page may cancel the PAP in either of the following ways:
- Returning the policy to the insurance company
- Giving the insurance company advance written notice of the date cancellation is to take effect
Subject to state law, the insurance company may cancel the policy by mailing notice of cancellation to the named insured shown on the Declarations Page with:
- At least 10 days’ notice:
- If cancellation is for nonpayment of premium
- If notice is mailed during the first 60 days this policy is in effect and this is not a renewal or continuation policy
- At least 20 days’ notice in all other cases
After the policy has been in effect for 60 days or longer, special cancellation provisions apply. The insurer usually may cancel only for one of the following three reasons:
- Nonpayment of premium
- If the policy was obtained through material misrepresentation
- If you, a driver who lives with you, or a driver who customarily uses “your covered auto " has his or her driver's license revoked during the policy period or within a year from the effective policy date if the policy is less than one year (i.e., a six-month policy)
The insurance company may choose not to renew your auto policy at the end of the policy term. They can do so for any reason subject to state law. Insurance companies most commonly don't renew because of an increased risk factor. Your risk factor increases when you have an accident, get a speeding ticket, or add a 16-year-old driver to the policy.
Under standard policy language, the insurer must give you at least 20 days’ notice prior to the end of the policy period of its intention not to renew. Laws regarding policy nonrenewal vary from state to state. See your insurance agent or financial planner for more information.
If the insurance company offers to renew your policy and you do not accept, the policy will automatically terminate at the end of the current policy period. Failure to pay the renewal or continuation premium is the equivalent of not accepting the renewal offer. If you obtain a new insurance policy on "your covered auto," your old policy will automatically terminate on the effective date of your new insurance. This is to prevent duplicate coverage for a loss occurring within the two policy periods.
Example(s): Hal's former policy ends on December 31. Hal purchases a new policy that goes into effect December 15. On December 15, the former policy will automatically terminate, preventing duplicate coverage from December 15 to December 31.
Other Termination Provisions
These provisions govern administrative matters, such as how the insurer must deliver the policy to you, when you're entitled to a refund, and the effective date of cancellation. Many states have enacted their own requirements, and state law takes precedence over the terms of your policy.
Transfer of Your Interest in the Policy
Your insurance policy is personal and may not be assigned or transferred to another person without the written consent of the insurer. When you apply for insurance coverage, you must meet certain standards regarding character, credit, and driving history.
The policy coverage and price are based on your particular information. If you were able to transfer the policy at will, the insurer would have no control over to whom, or under what circumstances, insurance would be provided. This would obviously make underwriting very difficult.
Death of the Policyholder
In the event of your death, your PAP will continue to cover your surviving spouse and the legal representative of your estate. If your spouse lived with you at the time of your death, coverage is continued as if your spouse is the named insured. Coverage is provided for the legal representative of your estate only with respect to the representative's legal responsibility to maintain or use "your covered auto." Coverage for your spouse or legal representative is provided only until the end of the policy period.
Two or More Policies
If you have more than one policy issued by the insurer providing coverage under your PAP, the insurer will generally be liable only up to the highest applicable limit of liability under any one policy. This is designed to prevent you from combining the separate limits, or "stacking" the policies.
Example(s): Hal has a PAP that provides a total liability limit of $100,000 on his car. He has a second PAP through the same company that provides $200,000 of liability coverage for his truck. If the car and the truck are involved in the same accident, the total limit of liability is $200,000. Hal cannot "stack" the two policies to get $300,000 in liability coverage.
This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.
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