7.3 Part F - General Provisions, Endorsements, and No-Fault Concepts
Key Takeaways
- Part F holds policy-wide conditions: bankruptcy does not relieve the insurer, changes require written endorsement, fraud voids coverage, and subrogation lets the insurer recover after paying.
- The PAP coverage territory is the U.S., its territories/possessions, Puerto Rico, and Canada - NOT Mexico.
- Match the gap to the endorsement: PP 03 23 (loss payee), PP 13 01 (miscellaneous-type vehicle), PP 03 06 (towing/labor), and ridesharing endorsements.
- No-fault/PIP pays the insured's own medical and wage losses regardless of fault but excludes vehicle damage and pain-and-suffering; monetary or verbal thresholds limit the right to sue.
- PIP wage-loss benefits are capped (a percentage of gross subject to a dollar ceiling); the cap controls when the percentage figure exceeds it.
Part F - General Provisions
Part F of PP 00 01 contains the policy-wide conditions that apply to all coverage parts. These are the "housekeeping" rules the exam frames as conditions questions:
- Bankruptcy of the insured does not relieve the insurer of its obligations.
- Changes to the policy are made only by written endorsement; if the insurer broadens coverage during the policy period without extra premium, the broadening applies automatically.
- Fraud / concealment / misrepresentation voids coverage for an insured who engages in it.
- Legal action against the insurer is barred unless the insured has fully complied with the policy terms.
- Our right to recover payment (subrogation): after paying a loss, the insurer succeeds to the insured's right to recover from the responsible party; the insured must do nothing to impair that right (no signing-away of rights before a loss).
Termination and Territory
Part F also governs policy period and territory and termination:
| Provision | Rule |
|---|---|
| Coverage territory | United States, its territories/possessions, Puerto Rico, and Canada - not Mexico (a Mexico endorsement or separate policy is needed) |
| Cancellation by insured | May cancel at any time by returning the policy or giving notice |
| Cancellation by insurer (new policy, <60 days) | Generally 10 days' notice for nonpayment; broad cancellation rights in the first 60 days |
| Cancellation by insurer (in force >60 days) | Limited to nonpayment, suspended/revoked license, or material misrepresentation; typically 10 days (nonpay) or 20+ days (other), per state law |
| Nonrenewal | Insurer must give advance written notice (commonly 20-30 days) |
Note the Mexico trap: a U.S. PAP does not extend south of the border. Two named insureds (spouses) may each cancel; the first named insured typically receives cancellation/nonrenewal notices.
Common PAP Endorsements
Endorsements modify the base PP 00 01. High-yield ISO endorsements:
- PP 03 23 - Loss Payable / Additional Insured (Lessor): names the lienholder/lessor as loss payee for Part D.
- PP 13 01 - Miscellaneous Type Vehicle: extends PAP-style coverage to motorhomes, motorcycles, ATVs, golf carts, dune buggies.
- PP 03 06 - Towing and Labor Costs: adds roadside towing/labor reimbursement.
- PP 23 40 (or insurer equivalent) - Ridesharing / Transportation Network: restores coverage during rideshare periods.
- Extended Non-Owned / Named Non-Owner: covers a person who does not own an auto but drives others' cars (e.g., a SR-22 driver).
- Customizing / Custom Equipment: raises the sub-limit for permanently installed custom parts and electronics.
The exam often asks which endorsement fixes a stated gap - match the gap (motorcycle, rideshare, lienholder, towing) to the correct form.
No-Fault and PIP Concepts
In the traditional tort (liability) system, an injured party must prove the other driver was at fault and then collect from that driver's liability insurer. A no-fault system flips this: each driver's own insurer pays that driver's medical bills and lost wages through Personal Injury Protection (PIP), regardless of fault, to reduce litigation.
PIP is broader than Part B MedPay - it typically pays medical expenses, a portion of lost wages, essential-services/replacement-services costs, and funeral expenses. PIP generally does not pay for vehicle damage or pain and suffering.
Thresholds limit the right to sue in tort:
- Monetary (dollar) threshold: the insured may sue only if medical bills exceed a stated dollar amount.
- Verbal (descriptive) threshold: the insured may sue only for serious injury as defined (e.g., death, dismemberment, significant disfigurement, permanent injury) - regardless of cost.
No-Fault Variations and a Worked Wage Example
No-fault states fall into categories the exam tests:
- Pure / true no-fault: each party recovers only from their own insurer; tort suits sharply restricted.
- Modified no-fault: suits allowed once a monetary or verbal threshold is met (most no-fault states).
- Add-on (choice) states: PIP-type benefits are available, but the right to sue is not restricted - benefits are "added on" to the tort system.
Michigan's July 2020 reform ended unlimited mandatory PIP medical, letting drivers choose tiered medical limits (e.g., $50,000, $250,000, $500,000, or unlimited).
Worked numeric (PIP wage loss): A policy provides PIP wage-loss at 80% of gross income, capped at $2,000/month for up to 3 years. An insured earning $3,000/month gross is disabled for 2 months.
- 80% x $3,000 = $2,400/month, but the $2,000 cap applies.
- Benefit = $2,000 x 2 months = $4,000 in wage-loss PIP.
Stacking, Other-Insurance, and Subrogation Interplay
Two final Part F mechanics round out the unit. Other Insurance clauses determine how the PAP responds when more than one policy applies. On an owned auto, the PAP is primary; on a non-owned auto, the PAP is typically excess over any other collectible insurance. When two policies are both primary or both excess, each pays its pro-rata share based on its limit relative to total available limits.
Worked numeric (pro-rata): Two equally primary policies cover a $30,000 loss - Policy A limit $100,000, Policy B limit $50,000. Total limits = $150,000.
- Policy A pays $100,000/$150,000 x $30,000 = $20,000.
- Policy B pays $50,000/$150,000 x $30,000 = $10,000.
Stacking lets an insured combine UM/PIP limits across multiple vehicles or policies; many states permit it unless the policy contains a valid anti-stacking clause. After the insurer pays a Part D loss caused by a third party, subrogation lets it recover from that party (or their insurer) and refund the insured's deductible pro-rata - a recovery the insured must not impair by signing a release before the loss.
An insured drives the covered auto on a vacation. In which of the following locations would the unendorsed Personal Auto Policy's coverage territory NOT apply?
A PIP policy pays wage loss at 80% of gross income, capped at $2,000 per month. An insured earning $3,000/month gross is disabled for 2 months. What PIP wage-loss benefit is paid?