7.1 Part D Coverage for Damage to Your Auto

Part D: First-Party Physical Damage

Part D — Coverage for Damage to Your Auto of the ISO Personal Auto Policy (PP 00 01) is first-party coverage: it pays to repair or replace your covered auto, regardless of fault. Contrast this with Part A (Liability), which is third-party — it pays for damage you cause to other people's property. On the exam, the single most-tested distinction is: damage to your car = Part D; damage you cause to someone else's car = Part A.

Part D is optional in most states and is the only PAP coverage a lender can require (via a Loss Payable clause). It splits into two perils a buyer selects separately:

The Two Physical-Damage Perils

The PAP defines collision by exception: "Collision means the upset of your covered auto... or its impact with another vehicle or object. Loss caused by the following is considered other than collision: missiles or falling objects; 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; or breakage of glass."

Trap: hitting a deer is OTC (contact with an animal), not collision — even though it feels like an impact. But swerving to avoid a deer and hitting a tree is collision. If glass breaks during a collision, the insured may elect to have it treated as collision so only one deductible applies.

Covered Autos, Deductibles, and the Loss-Settlement Limit

Part D applies to "your covered auto" and to a non-owned auto (a rental or borrowed vehicle) being used by you or a family member. A newly acquired auto is covered, but the rules differ by type: an additional car gets the broadest physical-damage coverage on any owned auto automatically for a limited window (commonly 14 days under recent editions), while a replacement car needs the insured to request Part D within that window to keep it.

Deductibles apply separately to Collision and OTC. Each loss is reduced by its deductible before payment.

The insurer's limit of liability is the lesser of:

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

ACV = Replacement Cost − Depreciation. There is no stated dollar limit on the declarations for Part D — the ACV ceiling controls. This is why a totaled older car pays little even with full coverage.

Worked Numeric: ACV Settlement

A 9-year-old sedan is stolen. Replacement cost of a comparable new model is $32,000. The adjuster applies 55% depreciation for age and mileage, and the policy carries a $500 OTC deductible.

1. ACV = $32,000 × (1 − 0.55) = $32,000 × 0.45 = $14,400
2. Less OTC deductible: $14,400 − $500 = $13,900 paid

Now suppose the repair estimate after a partial theft-recovery is only $9,000. The insurer pays the lesser of ACV-based total ($13,900) and repair cost. Net repair payment = $9,000 − $500 = $8,500.

Key exam point: the deductible is subtracted from the loss amount, not added to the limit. And total-loss settlements use ACV, never the original purchase price or the loan balance.

Transportation Expenses (the "loss of use" sub-coverage)

Part D includes a small Transportation Expenses benefit. Under the unendorsed ISO form it pays a stated daily/aggregate amount (historically $20 per day, $600 maximum, increased on some editions) for:

• temporary transportation (rental/rideshare) when your covered auto is stolen, beginning 48 hours after a theft and ending when the auto is returned or the loss is paid; and
• loss of use expenses you are legally responsible to a rental company for a non-owned auto, when caused by a Part D peril.

Higher rental-reimbursement limits require an endorsement (Transportation Expenses Coverage, PP 03 06). Trap: the 48-hour theft waiting period applies to theft of your own auto — not to OTC losses generally.

Diminishing Deductibles, Betterment, and Total-Loss Triggers

Three adjusting concepts surface on the exam. Betterment: if replacing a worn part with a new one improves the vehicle's condition beyond pre-loss, the insurer may apply a betterment deduction (e.g., new tires on an old car), consistent with the indemnity principle that an insured should be restored, not enriched.

Total-loss trigger: insurers declare a constructive total loss when repair cost plus salvage value meets or exceeds ACV (state "total-loss thresholds" vary, often 70-80% of ACV). At total loss the insurer pays ACV minus deductible and takes the salvage (the wrecked vehicle), which it can sell to offset the claim — an application of the same subrogation/salvage doctrine seen in property insurance.

Stated-amount vs ACV: standard Part D is ACV-based. Collector and classic autos use Agreed Value endorsements so an appreciating car is not capped at depreciated value. Knowing that the unendorsed PAP never uses Agreed Value is a frequent distractor.

Finally, remember the deductible-waiver rule on some editions: a few insurers waive the collision deductible when both autos in a two-car collision are insured by the same company, or for glass-only OTC repairs. These are program features, not part of the base ISO form — so on the exam, treat the standard outcome (deductible applies to each loss separately) as correct unless the question states an endorsement is in force.