7.3 Part F General Provisions, Endorsements, and No-Fault Concepts
Key Takeaways
- Part F - General Provisions includes the policy territory, the two-year suit limitation, bankruptcy, changes, and the out-of-state coverage clause.
- Common PAP endorsements include towing/labor, extended non-owned, named non-owner, miscellaneous-type vehicle, and loan/lease gap.
- No-fault systems pay each driver's injuries through PIP regardless of fault and restrict the right to sue.
- PIP is broader than Part B Medical Payments because it adds lost wages and essential (replacement) services.
- Verbal thresholds use defined serious-injury categories; monetary thresholds use a dollar figure of medical bills.
Part F - General Provisions
Part F holds the housekeeping conditions that govern the whole Personal Auto Policy:
| Provision | What it does |
|---|---|
| Bankruptcy | Insolvency of the insured does not relieve the insurer of its obligations |
| Changes | The policy can be changed only by written endorsement issued by the insurer |
| Fraud / concealment | Coverage is void if the insured makes fraudulent statements about a loss |
| Legal action against us | No suit against the insurer unless duties are met; many states impose a suit limitation (commonly two years) |
| Our right to recover (subrogation) | The insurer steps into the insured's rights after paying a loss |
| Policy period and territory | Covers the United States, its territories, Canada, and autos shipped between those ports |
| Termination | Cancellation and nonrenewal rules (state law often overrides) |
| Two or more auto policies | If two PAPs apply, the insurer pays only its pro-rata share |
Exam alert: the PAP policy territory does NOT include Mexico. A separate Mexican auto policy is needed to drive across the border.
The Out of State provision is also tested: when an insured drives into a state with higher compulsory liability limits or a compulsory no-fault law, the PAP automatically adjusts to provide at least those required minimums. This keeps the insured legal everywhere within the territory without buying a new policy at each state line.
Common PAP Endorsements
Endorsements modify the base PP 00 01 form to add or restrict coverage:
| Endorsement | Purpose |
|---|---|
| Towing and Labor Costs (PP 03 03) | Pays roadside towing and on-site labor up to a small per-disablement limit |
| Extended Non-Owned Coverage (PP 03 06) | Liability for a vehicle furnished or available for regular use (e.g., a company car) |
| Named Non-Owner (PP 03 22) | Liability/medical for a person who does not own an auto but drives others' cars |
| Miscellaneous-Type Vehicle (PP 03 23) | Extends the PAP to motorcycles, motor homes, ATVs, golf carts |
| Loan/Lease Gap (PP 03 35) | Pays the shortfall when loan balance exceeds ACV after a total loss |
Gap worked example: the insured owes $25,000 on the loan; the car's ACV at total loss is $20,000. Standard Part D pays only the $20,000 ACV, leaving a $5,000 gap. The loan/lease gap endorsement pays that remaining $5,000.
No-Fault Concepts and PIP
In the traditional tort (liability) system, the injured party must prove the other driver was at fault and collect from that driver's insurer - slow and litigation-heavy. A no-fault system flips this: each driver's own insurer pays that driver's injury costs regardless of fault, and in exchange the law restricts the right to sue for pain and suffering.
Personal Injury Protection (PIP) is the engine of no-fault and is broader than Part B - Medical Payments:
| PIP benefit | Part B Medical Payments |
|---|---|
| Medical expenses | Medical expenses only |
| Lost wages (often ~80%) | Not covered |
| Essential (replacement) services | Not covered |
| Death / survivor and funeral benefits | Sometimes funeral only |
Tort Thresholds
In a true no-fault state, the insured may still sue for pain and suffering only after crossing a threshold:
- Verbal threshold: the injury must fit a defined serious-injury category - death, significant disfigurement, bone fracture, permanent injury, or permanent loss of a body function.
- Monetary threshold: medical bills must exceed a stated dollar figure (e.g., $2,500) before a pain-and-suffering suit is allowed.
Exam trap: add-on / choice states offer PIP-style benefits but do not restrict the right to sue - they are not true no-fault states.
The policy-language link to remember: a true no-fault state requires the PAP to carry mandatory PIP, and the Out of State provision in Part F forces the policy to add that PIP automatically when the insured drives into such a state. That ties Part F's territory logic back to the no-fault rules - a connection candidates frequently miss on the national exam.
How a No-Fault Claim Flows
- The accident occurs and injuries result.
- Each injured insured files a PIP claim with their own insurer, regardless of who caused the crash.
- The insurer pays medical bills, a percentage of lost wages, and essential services up to the PIP limit.
- The injured party may sue the at-fault driver for pain and suffering only if the tort threshold is crossed.
PIP limits vary widely by state - from about $3,000 (Utah) to $50,000 (New York) to unlimited lifetime medical (Michigan's traditional plan). Because PIP is the engine of no-fault, it is mandatory in true no-fault states, whereas Part B Medical Payments is optional everywhere.
Exam alert: PIP pays the insured and passengers regardless of fault; subrogation between insurers then sorts out who ultimately bears the cost. Do not confuse PIP with liability - PIP is first-party injury coverage.
Part F General Provisions
Part F of the PAP contains the housekeeping rules the exam tests:
| Provision | Effect |
|---|---|
| Policy Period & Territory | Covers the U.S., its territories/possessions, Canada — not Mexico |
| Fraud | Material misrepresentation or concealment voids coverage |
| Legal Action Against Us | Insured must comply with policy terms before suing the insurer |
| Two or More Auto Policies | The insurer pays only its pro-rata share if more than one PAP applies |
| Termination | Cancellation/nonrenewal notice rules; the insurer's right to nonrenew |
| Transfer (Assignment) | The policy cannot be assigned without the insurer's consent (except on death) |
No-Fault Systems Compared
No-fault states limit the right to sue in exchange for prompt first-party PIP benefits. Two threshold types control when an injured person can still sue for pain and suffering:
- Monetary (verbal exception) threshold — medical bills must exceed a dollar amount before a tort suit is allowed.
- Verbal threshold — suit is allowed only for serious injury as defined (death, dismemberment, significant disfigurement, permanent injury).
Idaho is a tort (at-fault) state, not a no-fault state, so PIP is not mandatory here — the at-fault driver's liability coverage pays, and an injured party may sue without crossing a no-fault threshold. PIP limits elsewhere range from about $3,000 (Utah) to unlimited lifetime medical (Michigan's traditional plan), illustrating how widely no-fault designs vary. Distinguishing tort from no-fault, and PIP (first-party, no-fault) from liability (third-party, fault-based), is the recurring point in this topic.
An insured totals a financed car with an ACV of $18,000 but still owes $23,000 on the loan. Which endorsement pays the $5,000 difference?
How does Personal Injury Protection (PIP) differ from Part B Medical Payments coverage?