7.2 Exclusions and Part E - Duties After an Accident

Part D Exclusions

The PAP lists exclusions that remove physical damage coverage even though Collision or OTC was purchased. These appear repeatedly on exams because they define the boundary of first-party auto coverage.

Key Part D exclusions include:

1. Public or livery conveyance - using the auto to carry persons or property for a fee (e.g., taxi, ridesharing without an endorsement). Share-the-expense carpools are not excluded.
2. Wear and tear, freezing, mechanical or electrical breakdown, and road damage to tires - unless the loss results from a covered theft.
3. Radar/laser detectors, custom equipment, and electronic equipment not permanently installed (subject to a small built-in limit and an endorsement for more).
4. Government destruction or confiscation, war, nuclear hazard, and radioactive contamination.
5. Loss to a non-owned auto used without a reasonable belief of permission.
6. Loss to vehicles designed for use off public roads (some exceptions for certain trailers).

The Diminishing-Deductible and Betterment Traps

When older parts are replaced with new ones, some states' insurers apply betterment (depreciation) to certain components like tires and batteries; the insured pays the difference. The PAP itself does not promise to upgrade a vehicle - it pays the lesser of ACV or repair. Watch for questions implying the insurer must pay full new-part cost; that is incorrect when depreciation applies to the specific part.

Part E: Duties After an Accident or Loss

Part E lists the conditions the insured must satisfy to trigger the insurer's obligation to pay. Failure to comply may void coverage for that claim. Part E applies to all coverages in the policy, not just physical damage.

General duties of any person seeking coverage:

• Cooperate with the insurer in the investigation, settlement, or defense of any claim or suit.
• Promptly send copies of any notices, summons, or legal papers received.
• Submit to physical exams by physicians the insurer selects, as often as reasonably required (for injury claims).
• Authorize the insurer to obtain medical and other records.
• Submit a proof of loss when required.

Additional duties for Other Than Collision (theft) losses and physical damage claims:

The insurer may invoke the Appraisal condition when it and the insured disagree on the amount of loss; each selects a competent appraiser, and the two appraisers select an umpire. Appraisal resolves amount, not coverage.

Notice and Cooperation Trap

A common exam scenario: an insured repairs a vehicle before reporting the loss, defeating the insurer's right to inspect. Another: the insured ignores a lawsuit summons. In both cases the insurer may deny the claim or reduce its obligation, because the duties in Part E are conditions precedent to coverage. Prompt notice and preservation of the insurer's inspection rights are mandatory.

How Appraisal Works

When the insurer and insured disagree on the amount of a physical-damage loss, either may demand appraisal in writing. Each party hires and pays its own competent appraiser; the two appraisers jointly select an umpire (a court appoints one if they cannot agree). A decision agreed to by any two of the three sets the amount of loss. Each party splits the umpire's fee equally. Crucially, demanding appraisal does not waive any of the insurer's rights, and it never decides whether the loss is covered - only its dollar value.

Subrogation and No-Benefit-to-Bailee

After paying a physical damage claim, the insurer acquires the insured's right of recovery against the responsible party (subrogation), and the insured must do nothing to impair that right. The PAP also states that coverage provides no benefit to any carrier, repair shop, or other bailee for hire holding the auto - so a body shop cannot claim the insurance proceeds for itself. These conditions protect the insurer's recovery and prevent windfalls to third parties.

Livery and Rideshare Exposure

The public or livery conveyance exclusion is increasingly tested because of ride-share apps. Carrying passengers for a fee voids Part D unless a rideshare endorsement is added; a genuine share-the-expense carpool is not livery and stays covered. When a stem mentions driving for a transportation network company, look for the rideshare endorsement - without it, both physical damage and liability can be excluded during the for-hire period.

Conditions Precedent in Action

Part E duties are conditions precedent, meaning the insurer's obligation does not arise until they are met. The classic denials are repairing before inspection (defeating the right to appraise the damage), ignoring a summons (impairing the defense), and refusing a requested examination under oath or physical exam. The insured must also notify police of a theft and preserve the vehicle from further loss. Pair these duties with the no-benefit-to-bailee clause - a repair shop holding the car cannot claim the proceeds - and the subrogation condition that bars the insured from impairing the insurer's recovery against an at-fault party.