7.3 Part F General Provisions, Endorsements, and No-Fault Concepts
Key Takeaways
- Part F applies policy-wide; the PAP territory is the U.S., its territories, Puerto Rico, and Canada - NOT Mexico.
- Cancellation in the first 60 days needs about 10 days notice for nearly any reason; after 60 days only nonpayment, license suspension, or fraud justify cancellation.
- Key endorsements: Miscellaneous Type Vehicle (PP 03 23) for motorcycles/RVs, Towing & Labor (PP 03 03), Extended Non-Owned (PP 03 06), and Loan/Lease Gap.
- No-fault systems have each insurer pay its own insured's injuries via PIP regardless of fault, in exchange for restricted lawsuits.
- PIP is broader than Med Pay - it adds lost wages and essential services; tort thresholds are verbal (severity) or monetary (dollar) gates to suing.
Part F - General Provisions
Part F contains the policy-wide conditions that apply to all coverages of the PAP. The most heavily tested provisions:
| Provision | Rule the exam tests |
|---|---|
| Policy Territory | United States, its territories/possessions, Puerto Rico, and Canada - and during transport between their ports. Mexico is NOT in the territory. |
| Termination - Cancellation | The named insured may cancel anytime; the insurer must give advance written notice. |
| Cancellation notice | First 60 days: insurer may cancel for almost any reason with 10 days notice; after 60 days: cancel only for nonpayment, suspended license, or fraud. |
| Nonpayment notice | Typically 10 days advance written notice. |
| Nonrenewal | Usually 20-30 days advance written notice (varies by state). |
| Bankruptcy of insured | Does not relieve the insurer of its obligations. |
| Two or More Auto Policies | If two PAPs from the same insurer apply, the insurer pays the highest limit (not stacked). |
| Transfer (Assignment) | The insured's interest cannot be transferred without the insurer's written consent (except to a surviving spouse / estate at death). |
Trap: the PAP territory includes Canada and Puerto Rico but NOT Mexico. Driving into Mexico requires a separate Mexican auto policy or a tourist endorsement.
Other-Insurance and Non-Owned Autos
For a non-owned auto, the PAP is excess over any other collectible coverage (such as the owner's policy). For owned autos, coverage on the auto is primary. When two policies cover the same owned auto on a primary basis, each pays its pro-rata share based on limits.
Common PAP Endorsements
| Endorsement | What it does |
|---|---|
| Miscellaneous Type Vehicle (PP 03 23) | Extends PAP to motorcycles, motor homes, golf carts, dune buggies, ATVs |
| Towing and Labor Costs (PP 03 03) | Pays towing and on-site labor up to a stated limit per disablement |
| Extended Non-Owned Coverage (PP 03 06) | Liability for a named individual using a non-owned auto regularly (e.g., a company car) |
| Loan/Lease Gap | Pays the difference between ACV and loan/lease balance at total loss |
| Named Non-Owner (PP 03 22) | For a person who drives but owns no auto |
| Customizing Equipment | Covers added equipment in a van or pickup |
No-Fault Insurance Concepts
In the traditional tort (liability) system, the injured party must prove the other driver was at fault, then collect from that driver's liability insurer - slow and litigation-heavy. A no-fault system reverses 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. The trade-off - faster guaranteed injury payment in return for limited lawsuits - is the central concept.
| Feature | Tort system | No-fault system |
|---|---|---|
| Who pays your injuries | At-fault driver's insurer | Your own insurer (via PIP) |
| Fault proven first | Yes | No |
| Payment speed | Slow | Fast |
| Right to sue | Unrestricted | Restricted by a threshold |
Personal Injury Protection (PIP)
Personal Injury Protection (PIP) is the engine of a no-fault system and is broader than Part B Medical Payments. It typically pays:
| PIP benefit | Detail |
|---|---|
| Medical expenses | Hospital, physician, rehabilitation |
| Lost wages | A percentage of income lost from disability (often ~80%, monthly cap) |
| Essential (replacement) services | Housekeeping, childcare the injured person can no longer perform |
| Death / survivor benefit | Paid to survivors |
| Funeral expenses | Up to a stated amount |
PIP vs. Medical Payments (Part B)
| Feature | PIP | Med Pay (Part B) |
|---|---|---|
| Required in | True no-fault states | Optional everywhere |
| Lost wages | Yes | No |
| Essential services | Yes | No |
| Typical limits | $3,000 - unlimited | $1,000 - $25,000 |
Tort Thresholds
A no-fault driver may step outside the system and sue only when injuries cross a threshold:
- Verbal (descriptive) threshold: suit allowed when injury is serious - death, dismemberment, significant disfigurement, or permanent disability (e.g., New York, Florida, Michigan).
- Monetary (dollar) threshold: suit allowed once medical bills exceed a stated dollar figure (e.g., Massachusetts $2,000, Hawaii, Minnesota).
Worked example: in a $10,000 verbal-threshold state, an insured with $7,000 of medical bills and no permanent injury is paid by PIP but cannot sue the other driver for pain and suffering - the injury does not meet the verbal threshold. The same insured with a permanent disability could sue regardless of the dollar amount.
Add-On and Choice No-Fault Variations
Not every state runs pure no-fault. The exam tests three models:
- Add-on no-fault: the state requires PIP-type first-party benefits but does not restrict the right to sue. The insured collects PIP and may still pursue the at-fault driver fully.
- Choice no-fault: the insured elects at purchase between a no-fault plan (lower premium, restricted suit) and a full-tort plan (higher premium, unrestricted suit). New Jersey and Pennsylvania use a choice approach.
- Pure (true) no-fault: mandatory PIP paired with a tort threshold; this is the classic model in states such as Michigan, Florida, and New York.
Coordination With Med Pay and Health Insurance
In many no-fault states, PIP is the primary payer for auto-accident injuries and the insured's health insurer is secondary. PIP - unlike Med Pay - replaces lost income and pays essential services.
An insured drives her covered auto from Texas into Mexico for vacation and has an accident. How does the PAP policy territory respond?
Which feature distinguishes Personal Injury Protection (PIP) from Part B Medical Payments coverage?