Part D: Coverage for Damage to Your Auto for American Electric Power Employees

What Is It?

You are a car owner, or are about to be one. Your car is a valuable investment, and protecting it is a priority. A new automobile may be second only to your home as the single largest investment you make. You probably want to purchase collision or comprehensive coverage to protect the value of your car. Your personal auto policy (PAP) can provide coverage for damage to your auto. Physical damage protection comes in two forms:

• Collision damage, which pays for damage to your car because of a collision with another vehicle or object
• Other-than-collision damage (comprehensive) coverage, which pays for losses due to theft, fire, glass breakage, and falling tree limbs, for example

You can buy either or both of these coverages for each car you insure. Your need will depend on the value of the car. For more valuable cars, we recommend our American Electric Power clients opt for damage protection insurance

Caution: Provisions of your car loan agreement may even require you to purchase a minimum amount of damage protection insurance.

Damage protection is located in Part D of your PAP and contains the following sections: the Insuring Agreement, Transportation Expenses, Exclusions, Limit of Liability, Payment of Loss, No Benefit to Bailee, Other Sources of Recovery, and Appraisal.

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The Insuring Agreement

In General

We also understand that as American Electric Power employees and retirees, who may not be versed in insurance agreements, they can seem daunting. We are here to help break it down in a simple, easy-to-understand way. The insuring agreement is the most important part of each section of your PAP. It sets out the circumstances under which the insurer will pay benefits to you, or on your behalf, for physical damage to your auto. It also defines some terms commonly used in damage coverage.

The insuring agreement states that the insurance company will 'pay for direct and accidental loss to 'your covered auto,' or any 'non-owned auto,' including its equipment, minus any applicable deductible.' The insuring agreement covers any type of damage to your car that is not excluded. If a collision damages more than one of your 'covered autos,' the highest applicable deductible will apply. 'Your covered auto' is a vehicle listed on the Declarations Page of your PAP. Collision coverage may be broader than you think. Even if you're driving and have an accident in a car you don't own, your PAP will provide the same coverage as any of your 'covered autos.' Typically, these 'non-owned autos' include borrowed cars and temporary substitute vehicles.

Caution:  There are many limitations to this seemingly broad coverage in the sections on exclusions, limit of liability, and other sources of recovery.

'Collision' Versus 'Other-Than-Collision' (Comprehensive) Coverage

Our American Electric Power clients have also expressed their confusion with the distinction between 'collision' and 'other-than-collision' coverage. Here is a simple explanation of the difference. Your policy defines 'collision' as the upset of 'your covered auto,' or a 'non-owned auto,' or its impact with another vehicle or object. Collision coverage applies to situations you think of as a crash. Comprehensive coverage includes all other physical damage that is not covered under collision. Your PAP lists some specific losses to illustrate the point. This list is not exhaustive. Comprehensive coverage includes damage from missiles, falling objects, fire, theft, explosion, earthquake, windstorm, hail, water, flood, malicious mischief, vandalism, riot, civil commotion, contact with a bird or animal, and breakage of glass.

Comprehensive is very broad and may cover many other losses. If your car breaks through ice and falls into a lake, for example, the damage would be covered by your comprehensive insurance. Auto policies are usually written with higher deductibles for collision than for comprehensive damages. This difference is due in part to the perception that drivers usually have more control over avoiding other vehicles and stationary objects than they do over avoiding such things as floods or wild animals. The difference also takes into account that car-crash/collision-type damages are typically more costly than those covered under comprehensive.

What Is A Deductible?

A deductible is an amount of money that you are required to pay before your insurance takes over. Deductibles are used to eliminate small claims and the administrative expenses of adjusting them. Deductibles can be in any dollar amount but are generally $100, $250, $500, or $1,000.

Example(s):  If you have a $500 deductible for collision damage and get into an accident that causes $2,500 in damage to your car, you have to pay the first $500 and the insurance company will pay the remaining $2,000.

You may be asking yourself: 'Why would I want to pay any deductible?' That's a good question. The reason people choose to have deductibles is to lower the premiums on their coverage. Deductibles allow you to purchase insurance that you might not otherwise be able to afford. From the insurer's point of view, if you agree to pay the first $500 of a collision claim, the insurance company can charge you a lesser premium than if it had to pay the entire amount. The higher the deductible you choose, the less expensive the premium.

Transportation Expenses

In General

Many of our American Electric Power clients ask if insurance can offer any help after a crash incapacitates their covered vehicle. Your PAP provides you with reimbursement for transportation expenses when you are unable to use 'your covered auto' because of a covered collision or comprehensive loss. Transportation expenses are not specifically defined in your PAP but are generally considered to include the cost of public transportation and, in some cases, the cost of a rental vehicle.

The transportation expenses are generally limited to $15 per day, up to a maximum of $450. Like other sections of your PAP, coverage applies only if the Declarations Page indicates that transportation expenses apply to the damaged vehicle. Generally, the insurance company will pay for transportation expenses incurred from the time the auto has been unusable for 24 hours until the time the auto is repaired or replaced. In the case of theft, the insurer will pay expenses incurred from 48 hours after the theft, until the vehicle is returned or when the insurer pays for the loss subject to the maximum of $450.

Exclusions

In General

We urge all of our American Electric Power clients to pay close attention to the exclusions section of your insurance agreement. The exclusions section of your insurance policy specifically sets out the limitations and restrictions on the coverage provided in the insuring agreement. These exclusions are similar to those found in the other sections of your PAP. Because of the broad range of damages potentially covered under comprehensive insurance, it is necessary for the insurer to specifically exclude certain losses it does not intend to cover.

Business Use

Your PAP is not intended to provide collision or comprehensive coverage for the following business uses:

• When you are occupying 'your covered auto' as a public or livery conveyance (i.e., transporting people or goods for a fee)
• Any loss to any 'non-owned auto' being used by any person while employed or otherwise engaged in the business of selling, repairing, servicing, storing, or parking vehicles designed for use on public highways, including road testing and delivery
• Loss to any 'non-owned auto' being used by any person while employed or engaged in any business not previously described. This exception does not apply to 'non-owned vehicles' that are private passenger autos.

Example(s):  Pat works at Pizza Store delivering pizzas. She has a PAP with collision coverage. She borrows her friend Jaime's car to deliver pizzas. She is involved in a collision accident. Result: Although Jaime's car is being used for a business use, the exception does not apply because Jaime's car is a private passenger auto. The damage to Jaime's car will be covered by Pat's insurance minus any applicable deductible.

The bottom line is that if you want to use your vehicle as a taxi or for any other business purpose, coverage is better provided through a commercial policy designed for it.

Wear And Tear

Damage to your auto will not be covered when it is the result of normal wear and tear, freezing, mechanical or electrical breakdown or failure, or road damage to tires. Cars normally wear out. Damages from wear and tear are difficult to determine and measure. The damage protection section of your PAP is meant to cover physical damage to your car, not mechanical failures.

Catastrophic Exposure

Although it's unlikely to happen, we like to remind our American Electric Power clients how catastrophic events are handled by insurers. Generally, auto insurers do not cover catastrophic disasters. Some specific catastrophic exposures are excluded from collision or comprehensive coverage. They are:

• Radioactive contamination
• Discharge of a nuclear weapon (even if accidental)
• War (declared or undeclared)
• Civil war
• Insurrection
• Rebellion or revolution

This section is designed to protect the auto insurer in case of a single catastrophic event that could result in numerous losses.

Certain Electronic Equipment

Your physical damage coverage does not cover electronic equipment that is not permanently attached to or installed in, your car. Your policy lists a number of devices that are specifically excluded. These include personal radios and stereos, tape decks, citizens' band radios, and telephones. The intention of the collision/comprehensive coverage is to cover equipment that is part of your car and to exclude portable electronic equipment that is not.

Tip:  Most insurance companies will allow you to purchase additional insurance to cover these types of items, or they may be covered under your  homeowner's policy.

Governmental Confiscation

Collision or comprehensive coverage will not pay for a total loss caused by the destruction or confiscation of your auto by the government. There is a notable exception to this rule. If you took out a loan for a car later confiscated or destroyed, your insurer will pay the bank the amount due on the loan, up to the value of the car.

Campers and Trailers Not Listed on the Declarations Page

Many of our American Electric Power clients own campers and trailers and have asked how they will be handled in their insurance agreement. Any campers or trailers you own that are not listed on the Declarations Page are excluded from auto damage coverage. These types of vehicles are included under your liability and medical payments coverage, so why are they excluded here? As opposed to your liability and medical payments coverage, collision and comprehensive premiums are based on the valuation of the vehicles you list on the policy. It's essential for the insurer to know which vehicles they are insuring to price auto damage insurance appropriately.

This exclusion does not apply to a camper or trailer that you acquire during the policy period and ask the insurance company to insure within 30 days after you become the owner. The policy also excludes coverage to any awnings, cabanas, or tents that might be used in connection with a camper or trailer. These items can be provided for in a homeowners policy .

Nonpermitted Use

You or any 'family members' are not covered under your auto damage coverage when you use a 'nonowned vehicle' without a reasonable belief that that you are entitled to do so. 'Family members' are those relatives who live in your home.

Example(s):  You own a PAP with collision coverage on your auto. Your son lives at home with you. One night he secretly takes your neighbor's car for a joyride and has an accident. Result: No coverage is provided under your collision coverage because your son knew that he was not entitled to drive the neighbor's car.

Radar Detectors

Radar detectors are specifically excluded from your physical damage coverage. This is because they are electronic items not permanently installed in your auto and because they are often used to assist you in driving at speeds faster than the legal limit. Insurers are simply not going to protect your equipment if it potentially increases the risk of loss to them.

Custom Furnishings in a Pickup or Van

We have received questions from a couple of American Electric Power clients asking how their customized vans will be insured. Custom furnishings or equipment in your van or pickup are excluded under physical damage coverage. This exclusion includes items such as furniture, stoves, beds, and decals or graphics. Customizations are excluded because they present additional and unusual risks to the insurer. Insurers' price rates cover the typical car, not your customized van with a satellite dish and 38-inch projection TV set. Most insurance companies allow you to purchase additional insurance to cover customizations.

Racing

Your auto is not covered under physical damage insurance when it is being used for the purpose of competing in, practicing for, or preparing for any prearranged or organized racing or speed contest. A personal auto insurance policy is not designed to cover the increased risks involved in a racing situation, whether legitimate or not. Special policies are available to cover specialty vehicles such as race cars.

Certain Rental Vehicles

Rental vehicles are generally covered as 'nonowned autos' under the insuring agreement, but if state law or the rental agreement prohibit the rental company from recovering a loss on its rental vehicle, the insurer will not pay for the loss.

Limit of Liability

In General

There are limits to the amount of money payable for any loss under your PAP. In the other sections of your PAP, liability limits are expressed as dollar amounts. In collision and comprehensive coverage, it's computed differently. The insurance company has the choice of how to reimburse you for your loss. It has two options:

• Pay the actual cash value of the stolen or damaged property
• Repair or replace the damaged property with other property of like kind and quality

Caution:  When determining the actual cash value of the loss, the insurer has the right to make adjustments for depreciation and the physical condition of the property.

Payment of Loss

A common question we receive from American Electric Power employees and retirees is how the loss will be settled by the insurance company The insurance company has the right to settle the loss by paying the cash value of the property, repairing the property, or replacing the property. If the loss is stolen property, the insurance company may also return it to you or the address shown in your policy. However, it also may choose to keep part or all of any recovered stolen property at an agreed or appraised value.

When deciding how to pay your claim, the insurance company will compare how much it would cost to repair your vehicle against how much the vehicle is worth. If the cost of repairing the vehicle exceeds the cash value of the vehicle, the car is considered 'totaled,' and the insurer will pay the cash value of the car minus any depreciation.

Example(s):  Hal has collision coverage on his old car. Hal crashes the car and does $3,000 in damage. The car has a cash value of  $250. Based on the value of the car ($250), it would not be in the insurer's best interest to pay for the repairs to the car ($3,000).  In this case, Hal's car is considered totaled by the insurance company. The insurance company pays Hal $250 (minus $50 depreciation for the badly painted emblem on the hood).

No Benefit to Bailee

A common situation that our American Electric Power clients ask about is the scenario in which damage to their auto occurs while the auto is possessed by a service. The insurance shall not directly or indirectly benefit any carrier or other bailee for hire. A bailee is a person or entity that assumes possession of goods owned by another. Examples of bailees are valet parking services and moving companies.

When goods are damaged while in possession of a bailee, the bailee is legally responsible. If the damaged property is covered under your insurance policy, you may file a claim to collect on it. The bailee, however, is still liable for the damage even after you have collected from the insurance company. To keep the bailee from benefiting from your insurance, the insurer will attempt to collect this amount directly from the bailee.

Other Sources of Recovery

In General

When you're in a car accident, more than one auto insurance policy may be in effect. The other sources of recovery section limit your insurer's liability when there is a separate policy that might also cover the loss.

Generally, your PAP will pay its share of the loss. That share is the proportion that your policy's limit of liability bears to the total amount of all applicable limits. The second part of this clause limits liability even further. When your insurer is providing physical damage coverage for a 'non-owned auto,' it will make payment only if the primary coverage on the vehicle is insufficient.

Example(s):  Hal has collision coverage under his PAP. Hal borrows Liz's car and has an accident. The accident causes $1,500 in damages to Liz's car. Liz does not have collision coverage on her car. Result: Hal's collision coverage will pay for the damage caused to Liz's car minus any deductible Hal has. If Liz had collision coverage, Hal's insurer would not have paid.

Appraisal

In General

Many of our American Electric Power clients have experienced disagreements with the insurer about the amount of loss incurred in an incident. Like arbitration in the uninsured motorist section of your policy, an appraisal provides a means of settling disputes between you and your insurer. If you and your insurer disagree on the amount of the loss, either of you may demand an appraisal. Each side selects its own appraiser. The two chosen appraisers then select an umpire. The umpire will work with both appraisers to reach a final settlement agreement. If the appraisers cannot agree, they submit their differences to the umpire.

The umpire may take one side or the other or suggest an alternative method of settlement. The appraisal is final and binding when the umpire and one of the parties agree on the cash value of the loss. You are responsible for the costs of the appraiser you hire and for half of the costs of the selected umpire. Given these costs, a decision to have a loss appraised will depend on the value of the disputed claim. Smaller claims are unlikely to warrant the extra expenses of appraisal.