5.1 Personal Auto Policy: Liability & Medical Payments

Personal Auto Policy: Liability & Medical Payments

The Personal Auto Policy (PAP), standardly drafted by the Insurance Services Office (ISO), is the benchmark insurance contract designed for personal passenger vehicles, pickup trucks, and vans. For South Carolina claims adjusters, understanding the statutory mandates, limit structures, defense obligations, and coverage triggers under Part A (Liability) and Part B (Medical Payments) is essential to proper loss evaluation and policy interpretation.

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Structure of the Personal Auto Policy

The standard ISO Personal Auto Policy is organized into six distinct sections (Parts A through F), preceded by a Declarations Page and an Agreement section:

1. Part A — Liability Coverage: Protects the insured against financial loss when legally liable for bodily injury or property damage to third parties.
2. Part B — Medical Payments Coverage: Pays reasonable and necessary medical and funeral expenses for the insured and passengers without regard to legal fault.
3. Part C — Uninsured Motorists Coverage: Protects the insured when injured by a driver who lacks liability insurance or is an unidentified hit-and-run operator.
4. Part D — Coverage for Damage to Your Auto: Provides first-party physical damage protection (Collision and Other-Than-Collision/Comprehensive).
5. Part E — Duties After an Accident or Loss: Outlines the obligations of the insured following an accident, including prompt notification and submission of proof of loss.
6. Part F — General Provisions: Establishes policy territory, cancellation rights, nonrenewal rules, subrogation rights, and structural contract terms.

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Part A: Liability Coverage Mechanics

Part A Liability Coverage is the foundational third-party coverage of the Personal Auto Policy. Under the Insuring Agreement, the insurer agrees to pay damages for Bodily Injury (BI) or Property Damage (PD) for which any insured becomes legally responsible because of an auto accident. The insurer also promises to settle or defend any claim or lawsuit asking for covered damages.

Who Is an Insured Under Part A?

The policy defines an "insured" under Part A broadly across four categories:

• The Named Insured and Family Members: The person listed on the Declarations page and any resident relative, for the ownership, maintenance, or use of any auto or trailer.
• Permissive Users: Any person using "your covered auto" with express or implied permission from the named insured or family member.
• Vicariously Liable Entities: Any person or organization legally responsible for the acts or omissions of a named insured or family member using any auto.
• Organized Use Entities: Any person or organization vicariously liable for the acts of any person using "your covered auto."

Primary Exclusions Under Part A

Liability coverage excludes specific high-risk or intentional scenarios:

• Intentional bodily injury or property damage caused by the insured.
• Property owned by, transported by, or in the care, custody, or control of the insured.
• Bodily injury to an employee occurring during the course of employment (covered under Workers' Compensation).
• Public or livery conveyance (carrying passengers or goods for a fee, including ride-share pre-arranged trips, unless endorsed).
• Use of a vehicle without reasonable belief that the driver is entitled to do so.
• Motorized vehicles with fewer than four wheels or designed for off-road use.
• Business use of commercial-type vehicles (trucks or vans) beyond standard farming, ranching, or delivery.

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Split Limits vs. Combined Single Limits (CSL)

Auto liability limits specify the maximum amount the insurer will pay for a single accident. Policies express liability caps using either Split Limits or a Combined Single Limit (CSL).

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South Carolina Statutory Minimum Limits (25/50/25)

Under South Carolina Code Title 56, Chapter 10 (Motor Vehicle Financial Responsibility Act), every vehicle registered in South Carolina must maintain minimum liability coverage of 25/50/25:

• $25,000 Bodily Injury liability limit for each person injured in an accident.
• $50,000 Total Bodily Injury liability limit for two or more persons injured in a single accident.
• $25,000 Property Damage liability limit for property damaged in a single accident.

Claims Calculation Scenario: Applying 25/50/25 Limits

To understand how split limits cap payouts, consider a negligent South Carolina driver holding statutory minimum 25/50/25 limits who causes an accident resulting in three injured third parties and severe property damage:

• Claimant 1 BI Claim: $30,000
• Claimant 2 BI Claim: $25,000
• Claimant 3 BI Claim: $10,000
• Claimant 4 PD Claim (Vehicle): $35,000

Adjuster Breakdown of Policy Payouts:

1. Claimant 1 BI: The per-person cap is $25,000. The policy pays $25,000 (leaving Claimant 1 with $5,000 uncompensated by insurance).
2. Claimant 2 BI: The per-person cap is $25,000. However, the total per-accident BI pool is capped at $50,000. Paying Claimant 1 exhausted $25,000, leaving exactly $25,000 remaining in the per-accident BI limit. The policy pays $25,000.
3. Claimant 3 BI: The $50,000 per-accident aggregate BI limit is now completely exhausted ($25,000 + $25,000 = $50,000). The policy pays $0 for Claimant 3.
4. Claimant 4 PD: The per-accident property damage limit is $25,000. The policy pays $25,000 for property damage (leaving $10,000 uncompensated).
5. Total Insurer Payout: $75,000 ($50,000 BI + $25,000 PD). The negligent insured remains personally liable for the excess $20,000 in damages.

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Supplementary Payments Under Part A

In addition to the limits of liability, Part A provides Supplementary Payments. These payments are paid in addition to (outside of) policy limits, meaning they do not erode the insured's $25,000/$50,000/$25,000 liability limits.

Supplementary Payments include:

• Defense Costs: Legal fees, court costs, and attorney representation retained by the insurer to defend the insured. The insurer's duty to defend ends only when the applicable limit of liability has been exhausted through settlement or judgment.
• Bail Bonds: Up to $250 for the cost of bail bonds required of an insured because of an accident, including related traffic law violations.
• Release of Attachment Bonds: Premiums on appeal bonds and bonds to release attachments in suits defended by the insurer.
• Post-Judgment Interest: Interest accruing after a judgment is entered in a suit defended by the insurer, paid until the insurer offers or pays its share of the judgment.
• Loss of Earnings: Up to $200 per day for the insured's loss of earnings because of attendance at hearings, depositions, or trials at the insurer's request.
• Other Expenses: Reasonable expenses incurred at the insurer's request.

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Part B: Medical Payments Coverage

Part B Medical Payments Coverage is a first-party, no-fault coverage designed to provide prompt reimbursement for medical bills and funeral costs arising from an auto accident.

Key Features of Medical Payments

• No-Fault Trigger: Benefits are paid regardless of who caused the accident.
• Time Limit: Pays for reasonable and necessary medical, surgical, X-ray, dental, hospital, nursing, prosthetic, and funeral services rendered within 3 years from the date of the accident.
• Per-Person Limit: Limits apply separately to each injured person per accident (e.g., $1,000, $5,000, or $10,000 per person).

Covered Persons Under Part B

Part B protects two distinct categories of individuals:

1. Named Insured and Family Members:
   • While occupying any motor vehicle designed for use on public roads.
   • As a pedestrian when struck by a motor vehicle designed for highway use.
2. Other Passengers: Any other person while occupying "your covered auto."

Primary vs. Secondary (Excess) Rules

Medical Payments coverage follows the ownership of the vehicle:

• Owned Vehicle: Policy coverage on the owned vehicle is primary.
• Non-Owned Vehicle: Coverage under the driver's policy for a non-owned vehicle is secondary (excess) over any primary insurance on the vehicle being driven.