7.1 Part D - Coverage for Damage to Your Auto

Part D: Coverage for Damage to Your Auto

Part D of the ISO Personal Auto Policy (form PP 00 01) provides first-party physical damage coverage. Unlike Part A (Liability), it pays the insured for damage to a covered vehicle regardless of fault. Part D is optional in most states - a lienholder normally requires it, but a driver who owns the car outright may decline it. On the exam, remember that Part D pays the vehicle owner, while Part A pays injured third parties.

Part D contains two distinct coverages, each purchased separately with its own deductible:

• Collision - direct and accidental loss to your covered auto or a non-owned auto resulting from its upset (overturn) or its impact with another vehicle or object.
• Other Than Collision (OTC) - also called comprehensive. It covers all direct and accidental loss not caused by collision. The policy enumerates examples to remove doubt: fire, theft/larceny, explosion, earthquake, windstorm, hail, water, flood, malicious mischief/vandalism, riot, contact with a bird or animal, and breakage of glass.

Glass breakage caused by a collision may, at the insured's option, be treated as collision rather than OTC so a single deductible applies.

Hitting a Deer: The Classic Trap

A frequently tested distinction: striking an animal (e.g., a deer in the road) is Other Than Collision, not collision - even though there is an impact. Swerving to avoid the deer and then striking a tree or guardrail is collision. Memorize this pairing; it appears on nearly every state national exam.

Covered Autos and Limit of Liability

Part D applies to your covered auto and to a non-owned auto (a private passenger auto, pickup, van, or trailer not owned by/furnished to the insured, used with permission). The limit of liability is the lesser of:

1. the Actual Cash Value (ACV) of the stolen or damaged property, or
2. the amount necessary to repair or replace the property with other property of like kind and quality.

The insurer may pay the loss in money or repair/replace the property. An adjustment for depreciation and physical condition is made in determining ACV. There is no coinsurance in the PAP - that concept belongs to property forms, not auto.

Worked ACV and Deductible Example

A covered auto with an ACV of $18,000 is damaged in a collision. The repair estimate is $13,500; the Collision deductible is $500.

• Limit of liability = lesser of ACV ($18,000) or cost to repair ($13,500) = $13,500.
• Insurer pays repair cost minus deductible: $13,500 - $500 = $13,000.

Now suppose the same auto is a total loss (repair $19,000 exceeds ACV). The insurer pays the lesser amount - ACV $18,000 - minus the $500 deductible = $17,500. The car is then a constructive total loss and salvage transfers to the insurer.

Part D Built-In Features

Note that the $20/$600 figures are the standard unendorsed amounts; higher limits require an endorsement. Towing and Labor (PP 03 03) is not automatically included - it must be added.

Two Deductibles, One Accident

Because Collision and OTC are independent coverages, an insured may carry different deductibles for each - commonly a higher OTC option for low-frequency perils. When a single event causes both kinds of damage (rare), each coverage responds under its own deductible. The deductible is subtracted once per occurrence per coverage, not per damaged part. Exam items often test that the deductible applies to the loss payment, never to the limit of liability itself.

Loss Settlement Mechanics

The insurer's options at settlement are to pay in money or to repair or replace the damaged property. If repaired with used or after-market parts, those must be of like kind and quality. For a total loss, the insurer pays ACV and takes title to the salvage. Diminished value (the reduced resale price of a repaired vehicle) is generally not recoverable under the standard PAP unless state law or an endorsement provides otherwise - a frequent distractor on the national exam.

OTC Perils Worth Memorizing

Because OTC is defined as everything that is not collision, the policy lists examples to settle disputes: fire, theft, explosion, earthquake, windstorm, hail, water, flood, vandalism, riot, contact with a bird or animal, and glass breakage. Note that flood and earthquake are covered under auto OTC even though they are excluded on property forms - a frequent cross-line trap. Falling objects and missiles are also OTC. If a stem describes damage that did not arise from upset or impact with a vehicle or object, classify it as OTC.

Total Loss, Salvage, and Diminished Value

On a total loss the insurer pays ACV less the deductible and takes title to the salvage, which it sells to reduce its net cost. The standard PAP does not pay diminished value - the reduced resale price of a properly repaired vehicle - unless state law or an endorsement adds it. Candidates often assume the insurer must restore the car's pre-loss market value; the contract promise is only the lesser of ACV or the cost to repair with like-kind-and-quality parts, which is why diminished-value claims usually fail under the unendorsed PAP.