AUTO INSURANCE 101

PERSONAL AUTO INSURANCE: CALIFORNIA

PERSONAL AUTO POLICY (PAP): In 1977, the Personal Auto Policy was introduced.

CALIFORNIA PROOF OF FINANCIAL RESPONSIBILITY LAW: In California, it is a law that drivers must be able to demonstrate proof of financial responsibility. The proof must be carried in the vehicle and shown when registering the vehicle or when requested by a police officer. The minimum amount of financial responsibility required is: $15,000 for bodily injury to one person; $30,000 for bodily injury to all persons; $5,000 for property damage. These limits apply separately for each accident. There are three ways to prove financial responsibility. 1) Purchase a PAP; 2) Self-insure by depositing $35,000 cash per vehicle with the Department of Motor Vehicle (DMV); 3) Post a bond for $35,000 per vehicle. The most practical is 1) purchase an auto insurance policy.

PREMIUM DETERMINATION BASED ON PROPOSITION 103: As stipulated under Proposition 103, a ballot proposition passed by California voters in 1988, individuals may qualify for a 20% Good Driver Discount based on the following rating factor 1) Driving record*; 2) Annual miles driven; 3) Years of driving experience; 4) Other factors having a "significant relationship to the risk" (e.g. location. etc...). Click here for more information.

* If not involved with any of the following in the past three years: 1) More than one minor violation; 2) Principally at fault in an accident that resulted in bodily injury or death; 3) Conviction for driving with a blood alcohol level of 0.05 or more while under the age of 18; 4) More than one dismissal of a traffic citation

PAP - ELIGIBLE VEHICLES: The PAP has specific limitations regarding vehicles eligible for coverage. Eligible vehicles include a 4-wheel motor vehicle, such as: Any private passenger auto; Any pick-up or van with a gross vehicle weight less than 10,000 lbs. that is not customarily used in any business or occupation other than farming; vehicle owned by an individual or married couple. When the insured car-pools with acquaintances and share the expense of commuting it is covered by PAP.

PAP - EXCLUDED VEHICLES: Vehicle not customarily covered by the PAP include: Vehicle rented to others; Vehicle used to carry passengers for a fee; Motorcycles and other vehicles with fewer than four wheels.

PAP - POLICY FORMAT : The PAP policy format is as follows: Declaration; Definitions, Part A - Liability (mandatory coverage); Part B - Medical Payments (includes coverage for insured); Part C - Uninsured Motorists; Part D; Property Damage to Insured's Auto (Physical Damage); Part E - Duties after an accident or loss; Part F: General Provisions. Click here for sample PAP form.

PART A - LIABILITY COVERAGE: Insuring Agreement: The insurer will pay damages for bodily injury (BI) or property damage (PD) for which any covered person becomes legally responsible because of an auto accident, including any pre-judgment interest awarded against the insured.

Supplementary Payments are paid in addition to the policy liability limits and include the following: $250 maximum for bail bonds; Premiums on appeal bonds or bonds to release attachments; Post judgment interest (prejudgment interest includes as part of the policy's liability limits)' Up to $200/day loss of earnings due to attendance at hearings or trails at the company's request; Other reasonable expenses incurred by the insured at he company's request.

Persons Insured: The following are considered insured's for Liability coverage under the PAP: 1) A resident spouse and any family members residing with the insured for the ownership, maintenance or use of any auto or trailer; 2) Anyone driving the car with permission or a reasonable belief that they are entitled to drive the car; 3) Any organization the driver represents.

Minimum Coverage in Other States : When an insured is traveling in a state whose financial responsibility limits are higher than the policy limits, the limits are automatically increased to meet the state's minimum requirements without increasing the premium.

Liability Exclusions: The following exclusions apply to Liability coverage: 1) Bodily injury or property damage caused intentionally by the insured; 2) damage to property owned by an insured; 3) Damage to property being transported by an insured; 4) Damage to property of others that is used by, rented to, or in the care of an insured; 5) Bodily injury to an insured's employee if Workers Compensation benefits are available to that employee.

Injuries or damages caused while the vehicle is being used as a public or livery conveyance, such as a taxi or limousine: 1) Anyone using the vehicle without permission; 2) Business use of non owned pickup trucks or vans; 3) Vehicles owned by an insured that are not scheduled on the policy; 4) Vehicles owned by others that are furnished or available for the insured's regular use.

Split Limit vs. Single Limit Coverage: The difference between the per accident limit in a split limit policy and a single limit policy is that in a split limit policy the per accident limit applies only to bodily injury and the single limit applies to all claims.

Other Insurance - PAP : The other insurance clause of the PAP states that when there are two or more policies covering an auto, the loss is shared proportionately.

No-Fault States: Certain states have no fault automobile insurance. California does not have a no fault plan. When an insured is driving in a state that requires a no-fault coverage, the PAP provides the minimum no-fault benefits required in that state.

PART B - MEDICAL PAYMENTS: Applies to: 1) Named insured and family members occupying insured vehicle or a non-owned auto; 2) Passengers or any other person driving with permission; 3) Insured or family members is a pedestrian and is hit by an auto; 4) Passengers and other drivers of a covered auto. The Medical Payments coverage limit is applied separately for each person injured in the accident.

PART C - UNINSURED MOTORISTS: Uninsured Motorists Coverage is mandatory for the insured to offer, but optional for the client to accept. The client must sign a waiver if they decide to forgo the coverage.

Uninsured Motorists Insuring Agreement: The policy will pay for bodily injury of the insured and their passengers. The intent is to provide coverage for what an injured person could have collected for bodily injury if the other driver had been insured. Uninsured Motorists coverage is for the insured that buys Liability coverage on his or her own PAP for another driver who did not purchase Liability.

Definition of Uninsured Motorists: An uninsured motorists can include any of the following: 1) Person without insurance; 2) Person's insurer becomes insolvent; 3) A hit and run vehicle.

For Uninsured Motorists coverage to apply:1) The other driver must be liable for the injuries (or property damage, if applicable); 2) The other vehicle must meet the policy definition of uninsured motor vehicle; 3) The owner of the vehicle causing the loss has no Liability insurance policy or bond; 4) The owner of the vehicle causing the loss has purchased Liability insurance, but the insurer denies coverage; 5) The owner of the vehicle causing the loss had purchased Liability insurance, but the insurer is insolvent.

PART D - PHYSICAL DAMAGE consists of two parts, which include Collision coverage and Other Than Collision coverage (OTC). The ISO (Insurance Service Office) uses the newer reference (OTC) while many insurers still use the previous name, Comprehensive coverage. Other Than Collision is also known as Comprehensive coverage.

PAP TERRITORY: The PAP coverage territory only applies to the U.S., Canada, Guam, Puerto Rico, and U.S. possessions. There is no coverage in Mexico, Europe, South America, etc.

MEXICO COVERAGE ENDORSEMENT: This endorsement covers accidents that occur in Mexico within 25 miles of the United States border. It is excess of the Liability coverage purchased through a Mexican insurer and applies only if Mexican coverage has been purchased. It applies only when the insured will be in Mexico for 10 days or less. It only applies to any suit brought by an American citizen. If a Mexican citizen sues, the coverage does not apply.

A resident of the United Sates, when driving in Mexico, should always purchase Mexican insurance. Failure to do so is a criminal offense in Mexico. Violators can be imprisoned and have their vehicle impounded. Click here for more information.

PAP TERMINATION: The insurer must give advance notice before canceling according to the following guidelines [CIC 662, 663]: 1) 10 days - nonpayment; 2) 20 days - any other reason for mid-term cancellation; 3) 30 days - renewal. An auto policy may only be cancelled or non renewal by an insurer for the following reasons: 1) Nonpayment of premium; 2) Fraud of material misrepresentation affecting the policy or the insured; 3) A substantial increase in the hazard insured against; 4) Insured's driver's license or registration is suspended or revoked.

PAP ENDORSEMENTS: The following can be used to modify coverage under a PAP.

1) Miscellaneous Type Vehicle Endorsement (Motorcycle and Recreational Vehicles): This endorsement waives the standard 4-wheel vehicle and/or vehicle weight of less than 10,000 pounds limitation and allows the policy to cover motorcycles, motor homes, dune buggies, or golf carts.

2) Named Nonowner Policy Endorsement: This provides coverage for a person who doesn't own a vehicle, but drives borrowed or rented cars. The available coverages are Liability, Uninsured Motorist, and Medical Payments.

3) Extended Nonowned Coverage for Named Individual Endorsement: This endorsement deletes the exclusions for driving nonowned autos that are finished or available for insured's regular use. It also deletes the business use exclusion that applies to nonowned trucks and vans.

4) Additional Transportation Expenses: This endorsement increases the limits of coverage for Transportation Expenses claims from $20 a day and $600 total to $30 a day and $900 total for vehicle stated in the Declarations.

5) Optional Physical Damage Coverage (Audio, Visual Data Electronic Equipment and Tapes, Records, Discs and Other Media): This endorsement allows coverage under Physical Damage - Part D for equipment normally excluded, including radios, CD players, tape decks not permanently installed, car phones, and CB radios, etc. Audiotapes and CDs are covered up to a $200 value.

6) Towing And Labor Coverage: Covers the cost of towing a disabled vehicle or the cost of labor conducted at the scene of a breakdown.

GAP Coverage: pays the difference between the amount your insurer pays for your totaled car and the amount you owe on your lease or loan.

CALIFORNIA AUTOMOBILE ASSIGNED RISK PLAN (CAAP)

CAARP provides a source of auto Liability, Medical Payments and Uninsured Motorists insurance for vehicle owners and drivers who cannot obtain coverage in the voluntary market. Coverage is available for personal and commercial auto exposures. The plan does not provide any Physical Damage coverage. Click here for more information.

CAARP - Applicant Eligibility: Applicants must have tried and failed to obtain insurance through voluntary markets in the 60 days before their application to CAARP. Applicants who failed to pay auto premiums in the year before applying to the Plan are not eligible as well as applicants who do not have a driver's license are ineligible. Eligibility requirements for CAARP also includes the following: 1) California residents; 2) Nonresidents who own vehicle registered in California; 3) Members of the military stationed in California.

CAARP - Standard Coverages/Limits: CAARP must provide the following minimum limits of coverage: 1) $15,000/$30,000 for Bodily Injury Liability and Uninsured motorists; 2) $5,000 Property damage Liability; 3) $1,000 Medical payments.

CAARP - Procedure: Coverage may be bound by CAARP, but not by an Agent or broker. CAARP will normally bind coverage at 12:01 a.m. on the day following receipt of an application. Any agent or Broker may place business with CAARP. A prospective insured nay apply directly to the plan and need not go through an Agent or broker.

The CALIFORNIA LOW COST AUTOMOBILE INSURANCE PROGRAM (LCA)

LCA is a pilot program designed specifically for Los Angeles County and City and County of San Francisco residents. In October, 1999, Governor Davis signed this legislation into law. The program is meant to provide low cost automobile liability insurance to "good drivers" who resides in either LA County or SF City or County, and can demonstrate financial need. Click here for more information.

Limits: Liability limits are $10,000 for bodily injury or death, per person, $20,000 bodily injury for each accident and $3,000 property damage for each accident. The limits are less than the mandatory limits required in California of $15/30/5. Purchasing these lower limits will satisfy the state's current financial responsibility laws.