7.3 Part F General Provisions, Endorsements, and No-Fault Concepts
Key Takeaways
- Part F holds policy-wide rules: territory (US/Canada/Puerto Rico, not Mexico), fraud/concealment, subrogation, pro rata sharing of two same-kind policies, and termination limits.
- After the first 60 days, the insurer may cancel only for nonpayment, license suspension/revocation, or material misrepresentation.
- Tested endorsements include Miscellaneous Type Vehicle (PP 03 23), Extended Non-Owned (PP 03 06), Towing & Labor (PP 03 03), Extended Transportation (PP 03 02), and Auto Loan/Lease GAP (PP 03 35).
- GAP coverage pays the difference between the ACV settlement and a larger loan/lease balance on a total loss.
- No-fault means your own insurer pays your injuries regardless of fault via PIP (medical, ~80% lost wages, essential services, survivor/funeral), with the right to sue restricted by a monetary or verbal threshold.
Part F - General Provisions
Part F holds the policy-wide rules that govern the entire PAP regardless of which coverage part responds. Tested provisions:
| Provision | Rule |
|---|---|
| Policy period and territory | Coverage applies in the U.S., its territories/possessions, Puerto Rico, and Canada (NOT Mexico without an endorsement) |
| Changes | Terms change only by written endorsement; if the insurer broadens coverage during the term at no charge, the broadening applies automatically |
| Fraud / concealment | No coverage for any insured who makes fraudulent statements or engages in fraudulent conduct connected to a loss |
| Legal action against the insurer | The insured must first comply with all policy terms; suit on liability is allowed only after the obligation is finally determined |
| Our right to recover (subrogation) | After paying a loss, the insurer succeeds to the insured's recovery rights; the insured must not impair them |
| Bankruptcy of the insured | Does not relieve the insurer of its obligations |
| Two or more auto policies | If two policies of the same kind apply, the insurer pays only its pro rata share by limits |
| Termination | Cancellation and nonrenewal rules, including required notice |
Termination Detail
During the first 60 days of a new policy, the insurer may cancel for almost any reason. After 60 days (or on a renewal policy), cancellation is limited to nonpayment of premium, license suspension/revocation of an insured/regular driver, or material misrepresentation. Most states require 10 days' notice for nonpayment and longer (commonly 20-30 days) for other reasons - state law on the back end controls the exact figure.
Common PAP Endorsements
Endorsements tailor the standard form. Know the purpose of each tested ISO endorsement:
| Endorsement | Effect |
|---|---|
| Miscellaneous Type Vehicle (PP 03 23) | Extends PAP coverage to motorcycles, motor homes, golf carts, and other vehicles otherwise excluded |
| Extended Non-Owned Coverage (PP 03 06) | Liability for an insured who regularly uses a non-owned vehicle (e.g., a furnished company car) - fills the "regular use" gap |
| Towing and Labor Costs (PP 03 03) | Adds roadside towing and on-site labor reimbursement |
| Extended Transportation Expenses (PP 03 02) | Raises the $20/day, $600 rental allowance to higher limits |
| Joint Ownership Coverage (PP 03 34) | Lets unrelated individuals (or a relative who is not a spouse/resident) jointly own a covered auto |
| Customizing Equipment | Insures aftermarket equipment in pickups/vans above the standard sublimit |
| Auto Loan/Lease (GAP) (PP 03 35) | Pays the difference between the ACV and the larger loan/lease balance on a total loss |
Worked Numeric - GAP
A leased car is totaled. The lease payoff is $26,000, but the car's ACV is $20,500 with a $500 Collision deductible. Standard Part D pays $20,500 - $500 = $20,000, leaving the lessee owing $6,000. The Auto Loan/Lease (GAP) endorsement covers that $6,000 difference (subject to its own terms), so the lessee owes nothing out of pocket beyond the deductible.
No-Fault Concepts and PIP
Under 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 - 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. Faster, guaranteed injury payments in return for limited lawsuits is the core trade-off.
| Feature | No-fault system |
|---|---|
| Who pays your injuries | Your own insurer via PIP |
| Fault needed first | No |
| Payment speed | Fast |
| Right to sue | Restricted by a threshold |
Personal Injury Protection (PIP)
PIP is the engine of a no-fault system and is broader than Part B Medical Payments. It typically pays medical expenses, lost wages (often about 80% of income subject to a monthly cap), essential/replacement services (housekeeping, childcare), survivor/death benefits, and funeral expenses.
Thresholds
To sue beyond PIP, an injured person must pierce a threshold:
- Monetary (verbal-dollar) threshold - medical bills must exceed a stated dollar amount (e.g., $2,000) before a lawsuit for pain and suffering is allowed.
- Verbal threshold - the injury must meet a described severity (death, dismemberment, significant disfigurement, or permanent injury), regardless of dollar amount.
Choice (add-on) no-fault states let the insured pick between a no-fault and a full-tort option. Add-on PIP states provide PIP benefits but do not restrict the right to sue. State law - covered in the state-specific portion - sets the mandatory limits and threshold; the national exam tests the concept and the medical/wage/services benefit structure.
Coordinating PIP with Other Coverage
Because PIP, Part B Medical Payments, and health insurance can all touch the same medical bill, no-fault statutes set a priority of payment and bar double recovery. PIP is usually primary for an injured insured's own auto-accident medical costs; Med Pay or health coverage then fills gaps up to the actual expense. The exam tests that the insured cannot collect the same dollar of loss twice and that no-fault benefits are paid before any tort question is even reached.
Remember the trade: faster guaranteed first-party injury payments are exchanged for a limited right to sue. PIP never pays for vehicle damage - that remains a Part D (physical damage) matter - and it never pays the at-fault driver's liability, which is Part A.
A leased vehicle is totaled. The lease payoff is $26,000; the ACV is $20,500 with a $500 Collision deductible. Standard Part D pays $20,000. Which endorsement covers the remaining $6,000 gap?
Which statement best describes Personal Injury Protection (PIP) in a true no-fault state?