7.3 Part F General Provisions, Endorsements, and No-Fault Concepts
Key Takeaways
- Part F governs territory (U.S., territories, Puerto Rico, Canada — not Mexico), the policy period, the two-year suit limit, bankruptcy of the insured, and excess coverage for non-owned autos.
- Common PAP endorsements include Towing and Labor, Extended Non-Owned Coverage, Miscellaneous Type Vehicle, Joint Ownership, and Auto Loan/Lease (Gap) coverage.
- No-fault Personal Injury Protection (PIP) pays the insured's own medical, wage-loss, and related expenses regardless of fault and limits the right to sue except for serious-injury thresholds.
- No-fault states use a verbal threshold or a monetary threshold to decide when a tort lawsuit for pain and suffering is permitted.
- Gap coverage pays the difference between a vehicle's depreciated ACV settlement and the outstanding loan or lease balance after a total loss.
Part F: General Provisions
Part F of the PAP (PP 00 01) contains the conditions that apply to the entire contract. Where Parts A through E describe coverages and exclusions, Part F answers where and when the policy operates and how disputes and termination are handled.
Coverage Territory and Policy Period
The PAP applies only to accidents and losses occurring during the policy period and within the coverage territory: the United States, its territories and possessions, Puerto Rico, and Canada — and during transport between their ports. Mexico is NOT in the territory, a frequent exam point. A Nevada insured driving to Tijuana for a weekend needs a separate Mexican auto policy; the PAP does not respond south of the border.
The out-of-state coverage provision automatically adjusts limits up to the higher minimum required by the state the insured is visiting. If a Nevada driver with 25/50/20 liability enters a state with higher compulsory limits, the PAP temporarily rises to meet that state's floor for the visit.
Legal Action, Bankruptcy, and Other Insurance
A suit against the insurer must meet two conditions: the insured must have fully complied with the policy terms, and the suit must be brought within the time the policy or law allows — commonly two years.
Other key provisions:
- Bankruptcy of the insured does not relieve the insurer of its obligations.
- For a non-owned auto, the PAP is excess over any other collectible insurance; for the named insured's owned auto it is primary.
- Two or more auto policies issued by the same insurer pay no more than the highest single limit (anti-stacking).
Termination Provisions
Part F governs cancellation and nonrenewal:
| Termination point | Rule |
|---|---|
| Insured cancels | Any time, on request |
| Insurer cancels (policy <60 days) | Broad right with notice |
| Insurer cancels (policy >60 days / renewal) | Only for nonpayment, license suspension/revocation, or fraud/material misrep |
| Notice for nonpayment | Commonly 10 days |
| Notice for other reasons | Longer (often 20–30 days by state law) |
The named insured may cancel at any time. After the policy has been in effect for a set period (commonly 60 days), the insurer's right to cancel narrows sharply — a heavily tested distinction.
Common PAP Endorsements
The base PAP can be tailored with endorsements the exam expects you to recognize by purpose:
| Endorsement | What it fixes |
|---|---|
| Towing and Labor Costs | Pays a small per-disablement amount (e.g., $75) for towing and on-site labor |
| Extended Non-Owned Coverage | Restores liability for autos furnished or available for regular use (e.g., employer vehicle) |
| Miscellaneous Type Vehicle | Extends the PAP to motorcycles, motor homes, golf carts, dune buggies |
| Joint Ownership Coverage | Adapts the policy when an auto is owned by non-spouse co-owners |
| Auto Loan/Lease (Gap) Coverage | Pays ACV settlement shortfall vs. loan/lease balance after total loss |
Worked gap example. Outstanding loan balance after a total loss: $22,000. Part D ACV settlement after $500 deductible: $17,500. Gap exposure = $22,000 − $17,500 = $4,500 owed to the lender out of pocket without the loan/lease endorsement. This connects directly to ACV depreciation from section 7.1: the older the car at total loss, the wider the gap.
A second numeric example: loan balance $25,500, ACV settlement after deductible $19,000 → $6,500 gap unless the endorsement was purchased.
No-Fault Insurance and PIP
No-fault laws require each driver's own insurer to pay that driver's economic losses — medical bills, lost wages, and related expenses — regardless of who caused the accident, through Personal Injury Protection (PIP). The trade-off is a limited right to sue the other driver for non-economic damages such as pain and suffering.
Nevada is a tort state, not a no-fault state, but the national exam still tests no-fault concepts because they appear on the ISO forms and in cross-border scenarios. Nevada producers writing policies for clients relocating from Michigan or New Jersey need to explain the difference.
Thresholds — When Suit Is Allowed
No-fault states open the courthouse door only when an injury crosses a threshold:
| Threshold type | How it works | Example |
|---|---|---|
| Verbal (descriptive) | Suit allowed only for defined serious injuries | Death, dismemberment, permanent disfigurement, significant disability |
| Monetary (dollar) | Suit allowed once medical bills exceed a stated amount | Bills of $1,200 in a $2,000-threshold state → no tort suit yet |
| Add-on | PIP benefits paid and right to sue unrestricted | Florida-style add-on (concept only) |
| Choice no-fault | Insured elects no-fault or tort at inception | Trades lower premium for narrower sue rights |
Verbal threshold scenario. An insured suffers permanent disfigurement in a verbal-threshold state. The serious-injury threshold is met, so a tort suit for pain and suffering is allowed even though PIP already paid medical and wage benefits.
Monetary threshold scenario. Medical bills total $1,200 in a state with a $2,000 threshold. The threshold is not met, so no tort suit for non-economic damages; PIP pays the economic loss.
PIP benefits typically include reasonable medical expenses, a percentage of lost wages, essential-services (household help) reimbursement, and a death/funeral benefit, each subject to its own sub-limit. Because benefits are first-party, they pay quickly without a liability determination.
Exam trap: PIP pays regardless of fault and is first-party; do not confuse it with Part A liability (third-party) or Part B Medical Payments. PIP typically includes lost wages and essential-services benefits that Med Pay does not, and it may carry a threshold that limits tort suits — Med Pay never restricts the right to sue.
Connecting Part F to the Rest of the PAP
When a Nevada client asks why their totaled car payment is less than what they owe the bank, the answer chain runs through Part D ACV settlement (section 7.1), gap endorsement (this section), and Part E duties (section 7.2) — the insurer will not pay gap amounts until the insured complies with notice, inspection, and proof-of-loss requirements. Territory questions (Canada covered, Mexico not) and anti-stacking rules round out the Part F toolkit tested on the national portion of the combo exam.
An insured's car is a total loss. The Part D ACV settlement after the deductible is $14,000, but the auto loan balance is $19,500. Which PAP feature would pay the $5,500 difference?
A Nevada insured drives into Mexico for a day trip. Is the accident covered under the standard PAP territory?
In a monetary-threshold no-fault state with a $2,000 medical bill threshold, an injured party has incurred $1,500 in medical expenses. May they sue for pain and suffering?
After a policy has been in effect for more than 60 days, the insurer may cancel for which reason?