3.2 Personal Auto Policy (PAP) Coverage Mechanics

Personal Auto Policy (PAP) Coverage Mechanics

Quick Answer: The ISO Personal Auto Policy (PAP) is divided into multiple coverage parts. Part A covers third-party liability (Bodily Injury and Property Damage). Part B covers first-party Medical Payments. Part C covers Uninsured/Underinsured Motorists. Part D covers physical Damage to Your Auto (Collision and Comprehensive). Adjusters must understand the mechanics of each part to determine coverage appropriately.

The Personal Auto Policy is the bedrock of property and casualty insurance. Almost every individual owns or drives a vehicle, making the PAP the most frequently encountered policy for claims adjusters. The standard ISO PAP is structured into distinct coverage parts, each responding to different types of losses.

Part A: Liability Coverage

Part A is the core of the auto policy and is legally required in almost all states. It pays for bodily injury (BI) and property damage (PD) for which any insured becomes legally responsible because of an auto accident. It also covers the cost of legal defense, which is paid in addition to the policy limits.

Split Limits vs. Single Limits

Liability limits are usually expressed as split limits, formatted as BI per person / BI per accident / PD per accident (e.g., 25/50/25).

For a policy with limits of 25/50/25:

• $25,000 is the maximum paid for Bodily Injury to any one person.
• $50,000 is the maximum paid for Bodily Injury for the entire accident, regardless of how many people are injured.
• $25,000 is the maximum paid for Property Damage to other vehicles or property per accident.

If an insured with 25/50/25 limits causes an accident injuring three people who each have $30,000 in medical bills, the policy will pay a maximum of $25,000 to any one individual, but will cap the total payout for all three at $50,000 (not $75,000). The insured is personally responsible for the remaining balance.

Out-of-State Coverage

The PAP includes an out-of-state coverage provision. If an insured travels to a state with higher minimum liability requirements than their home state, the PAP will automatically broaden its limits to meet the minimum requirements of the state where the accident occurs.

Part B: Medical Payments Coverage

Part B is a first-party, no-fault coverage. It pays reasonable medical and funeral expenses incurred by an insured or passengers in the insured's vehicle due to an auto accident.

Key characteristics of Part B:

• It pays regardless of fault.
• Expenses must be incurred within 3 years of the accident date.
• It covers the named insured and family members while occupying a motor vehicle, or if struck as a pedestrian.
• Limits are applied on a per-person basis (e.g., $5,000 per person).

Part C: Uninsured/Underinsured Motorists Coverage (UM/UIM)

Part C protects the insured when they are injured by a negligent driver who lacks sufficient insurance.

Uninsured Motorist (UM) coverage applies when the at-fault driver:

• Has no liability insurance.
• Has liability limits below the state's financial responsibility minimums.
• Is a hit-and-run driver. (Note: Many states require physical contact between the hit-and-run vehicle and the insured's vehicle to prevent fraudulent claims where a driver causes a single-car accident and blames a "phantom" vehicle).
• Is insured by a company that denies coverage or becomes insolvent.

Underinsured Motorist (UIM) coverage applies when the at-fault driver has insurance, but their limits are insufficient to cover the insured's damages. UIM pays the difference between the at-fault driver's bodily injury limits and the insured's UIM limits.

Part D: Coverage for Damage to Your Auto

Part D provides physical damage coverage for the insured's own covered auto and non-owned autos (like a rental car). This section is typically divided into two distinct coverages, each with its own deductible.

1. Collision

Collision is defined as the upset of the covered auto or its impact with another vehicle or object. Examples include:

• Rear-ending another car.
• Hitting a tree or telephone pole.
• Flipping the vehicle on an icy road.

2. Other Than Collision (Comprehensive)

Other Than Collision, commonly called Comprehensive coverage, protects against almost everything except collision. It operates essentially on an open-perils basis. Common covered perils include:

• Missiles or falling objects (e.g., a tree branch falling on the parked car).
• Fire, theft, or larceny.
• Explosion or earthquake.
• Windstorm, hail, water, or flood.
• Malicious mischief or vandalism.
• Riot or civil commotion.
• Contact with a bird or animal (e.g., hitting a deer is Comprehensive, not Collision).
• Breakage of glass.

Exam Trap: Always remember that hitting an animal is classified under Other Than Collision, not Collision.

Transportation Expenses

Part D automatically includes a limited amount of coverage for transportation expenses (like a rental car) if the covered auto is disabled due to a covered loss. The standard limit is $20 per day up to a maximum of $600. For theft losses, there is a 48-hour waiting period before coverage begins; for other losses, it is a 24-hour waiting period.

Duties After an Accident or Loss (Part E)

Adjusters must verify that the insured has complied with their duties following a loss. If an insured breaches these duties, the insurer may be able to deny coverage. Key duties include:

• Promptly notifying the insurer of the accident.
• Cooperating with the investigation and settlement of the claim.
• Submitting a proof of loss when required.
• Notifying the police promptly if it is a hit-and-run accident or if the vehicle is stolen.
• Protecting the vehicle from further damage (e.g., putting a tarp over a broken window to prevent rain damage).

By systematically applying these coverage parts, claims adjusters can accurately determine what is owed, to whom it is owed, and under which policy provision the payment should be issued.