12.3 PAP Physical Damage (Collision & OTC) & Duties

12.3 PAP Physical Damage (Collision & OTC) & Duties

Part D (Coverage for Damage to Your Auto) provides first-party property protection for physical loss to the policyholder's covered vehicles and non-owned autos. For a claims adjuster, properly classifying losses between Collision and Other Than Collision, calculating transportation expense benefits, applying exclusions, and enforcing post-loss duties under Part E and Part F are fundamental operational competencies.

1. Part D: Collision vs. Other Than Collision (OTC / Comprehensive)

Part D is an indemnification agreement paying for direct and accidental physical loss to "your covered auto" or any "non-owned auto" (including its equipment), minus the applicable deductible. Part D is divided into two separate coverages:

┌─────────────────────────────────────────────────────────────────────────┐
│            PART D: COVERAGE FOR DAMAGE TO YOUR AUTO                     │
├────────────────────────────────────┬────────────────────────────────────┤
│  1. COLLISION COVERAGE             │  2. OTHER THAN COLLISION (OTC)     │
├────────────────────────────────────┼────────────────────────────────────┤
│ - Upset (Rollover) of vehicle      │ - Missiles or falling objects      │
│ - Impact with another vehicle      │ - Fire, lightning, or explosion    │
│ - Impact with stationary object    │ - Theft or larceny                 │
│   (guardrail, tree, pole, pothole) │ - Windstorm, hail, water, or flood │
│                                    │ - Malicious mischief or vandalism  │
│                                    │ - Riot or civil commotion          │
│                                    │ - Contact with bird or animal      │
│                                    │ - Breakage of glass                │
└────────────────────────────────────┴────────────────────────────────────┘

Collision Defined

Collision is contractually defined as the upset (overturn or rollover) of "your covered auto" or a "non-owned auto," or its impact with another vehicle or object (such as a telephone pole, guardrail, building, curb, or highway pothole).

Other Than Collision (OTC / Comprehensive) Defined

Other Than Collision (OTC) is an open-perils property coverage insuring against all direct and accidental physical damage except collision and specific excluded perils. The policy provides an explicit list of causes of loss that are legally classified as OTC (never collision):

1. Missiles or falling objects (e.g., a rock falling from a gravel truck or a falling tree branch);
2. Fire, lightning, or explosion;
3. Theft or larceny;
4. Windstorm, hail, water, earthquake, or flood;
5. Malicious mischief or vandalism (VMM);
6. Riot or civil commotion;
7. Contact with a bird or animal (e.g., striking a deer, dog, or turkey on the highway);
8. Breakage of glass (Note: If glass breakage is caused directly by a collision, the insured may elect to have the glass damage settled under Collision coverage to avoid paying two separate deductibles).

Critical Collision vs. OTC Claims Scenarios

2. Transportation Expenses & Total Loss Valuation in North Carolina

Transportation Expenses (Part D Supplementary Coverage)

If the insured carries Part D coverage (Collision or OTC), the PAP automatically provides coverage for temporary transportation expenses (such as rental car charges, taxi fares, rideshare costs, or public transit passes) without requiring a separate deductible:

• Benefit Limit: Up to $20 per day, to a maximum aggregate limit of $600 (30 days at $20/day).
• Waiting Periods (Time Deductibles):
  • 48-Hour Waiting Period for Total Theft: Coverage begins 48 hours after the theft is reported to the police and the insurer, and continues until the vehicle is recovered and returned or the total loss claim is paid.
  • 24-Hour Waiting Period for Other Perils: For collision or other OTC losses (fire, vandalism, animal strike), coverage begins 24 hours after the vehicle is withdrawn from use due to the loss.

┌─────────────────────────────────────────────────────────────────────────┐
│               TRANSPORTATION EXPENSES BENEFIT MATRIX                    │
├──────────────────────────┬──────────────────────────────────────────────┤
│ Daily / Aggregate Limit  │ $20 per day / $600 Maximum                   │
├──────────────────────────┼──────────────────────────────────────────────┤
│ Total Theft Peril        │ 48-Hour Waiting Period (after police report) │
├──────────────────────────┼──────────────────────────────────────────────┤
│ All Other Covered Perils │ 24-Hour Waiting Period                       │
└──────────────────────────┴──────────────────────────────────────────────┘

Total Loss Valuation and Settlement in North Carolina

Under Part D, the insurer's limit of liability for physical damage loss is the lesser of:

1. The Actual Cash Value (ACV) of the damaged or stolen property (Replacement Cost minus physical depreciation); or
2. The amount necessary to repair or replace the property with other property of like kind and quality.

North Carolina Total Loss Statutory Requirements: When an auto is deemed a total loss (where repair costs exceed a statutory percentage of ACV, commonly 75% under NCGS § 20-71.4), the claims settlement must reflect full market actual cash value. Furthermore, in North Carolina, total loss cash settlements must include applicable North Carolina Highway Use Tax (3%) and state title and registration transfer fees to fully indemnify the insured.

3. Part D Exclusions and Limitations

Adjusters must rigorously check Part D claims against standard exclusions:

1. Public or Livery Conveyance: Vehicles used to carry persons or property for a fee (rideshare apps when logged in to accept rides). Normal carpools and share-the-expense arrangements are covered.
2. Wear and Tear, Freezing, Mechanical Breakdown: Normal physical deterioration, rust, engine seizure due to low oil, electrical failure, and road damage to tires (blowouts, punctures) are excluded (unless damage results from other covered theft or vandalism).
3. Electronic Equipment & Media: Radios, sound systems, GPS units, and visual equipment are excluded unless permanently installed in the vehicle by the manufacturer or an aftermarket installer in the opening of the dashboard or console. Tapes, CDs, records, flash drives, and external media are completely excluded.
4. Custom Furnishings & Equipment: Custom carpeting, murals, specialized wheels, bed liners, refrigeration equipment, or camper shells on pickups and vans are excluded unless specifically endorsed (e.g., Coverage for Customizing Equipment Endorsement).
5. Radar & Laser Detectors: Any device designed to detect speed-monitoring radar or laser beams is excluded.
6. Government Confiscation: Destruction or confiscation by civil or governmental authorities.
7. Non-Owned Auto Used Without Reasonable Belief: Driving a non-owned auto without reasonable belief of permission.
8. Racing: Any vehicle participating in or practicing for a prearranged or organized racing contest, speed competition, or stunting activity inside a designated racing facility.

4. Part E: Duties After an Accident or Loss

Part E outlines mandatory contractual duties that the named insured, claimants, and any person seeking coverage must fulfill following a loss. Failure to comply can prejudice the insurer's investigation and jeopardize coverage.

┌─────────────────────────────────────────────────────────────────────────┐
│                     PART E: INSURED POST-LOSS DUTIES                    │
├─────────────────────────────────────────────────────────────────────────┤
│  GENERAL DUTIES (ALL CLAIMS):                                           │
│  - Prompt notification to insurer or agent (Time, place, facts, names)  │
│  - Cooperation in claims investigation, settlement, and defense         │
│  - Promptly forward all legal notices, summonses, and suit papers       │
│  - Submit to physical examinations by insurer-selected physicians      │
│  - Authorize medical, wage, and financial record disclosures            │
│  - Submit to Examination Under Oath (EUO) and sign sworn proof of loss  │
├─────────────────────────────────────────────────────────────────────────┤
│  SPECIAL DUTIES FOR PART D (PHYSICAL DAMAGE):                           │
│  - Promptly notify POLICE if vehicle is STOLEN or in HIT-AND-RUN        │
│  - Take reasonable steps to PROTECT PROPERTY from further damage        │
│    (Insurer pays reasonable preservation and towing expenses)           │
│  - Permit insurer to INSPECT AND APPRAISE damage BEFORE repair/disposal │
└─────────────────────────────────────────────────────────────────────────┘

5. Part F: General Provisions & North Carolina Statutory Mandates

Part F governs administrative and legal conditions applicable to the entire policy:

1. Policy Period and Territory

The policy applies only to accidents and losses that occur during the policy period shown in the Declarations and within the Policy Territory:

• The United States of America, its territories and possessions (e.g., Guam, Virgin Islands, Puerto Rico);
• Canada; and
• Covered autos being transported between their ports.

The Mexico Warning: Mexico is NOT part of the standard policy territory. Driving into Mexico without a specialized Mexican Auto Insurance policy or endorsement leaves the driver completely uninsured and subject to immediate detention under Mexican legal code.

2. North Carolina Statutory Termination Provisions (Cancellation & Non-Renewal)

Under North Carolina insurance statutes and standard policy provisions, specific notice timelines must be strictly observed:

• Cancellation by Insured: The named insured may cancel the policy at any time by returning the policy or giving advance written notice.
• Cancellation by Insurer:
  • Non-Payment of Premium: Insurer must give at least 15 days advance written notice in North Carolina.
  • New Policy (First 60 Days): Insurer may cancel for any lawful underwriting reason by giving at least 15 days advance notice (or statutory period).
  • After Policy in Effect 60+ Days: Insurer may cancel only for: (1) non-payment of premium; (2) driver's license suspension or revocation of named insured or regular household operator; or (3) material misrepresentation.
• Non-Renewal by Insurer: If the insurer elects not to renew a policy, it must give the named insured at least 60 days advance written notice prior to the policy expiration date in North Carolina.

3. Subrogation, Assignment, and Two or More Policies

• Subrogation (Transfer of Rights of Recovery): If the insurer pays a loss, it assumes the insured's legal rights to recover against any negligent third-party tortfeasor. The insured must not do anything after a loss to prejudice the insurer's subrogation rights.
• Assignment: The policy cannot be assigned or transferred to another party without the insurer's written consent (except upon the death of the named insured, where coverage transfers automatically to the surviving resident spouse or legal representative).
• Two or More Auto Policies: If two or more policies issued by the same insurer apply to the same accident, the maximum limit payable is the highest applicable limit under any one policy.