6.2 PAP Medical Payments, PIP, UM/UIM & Physical Damage

6.2 PAP Medical Payments, PIP, UM/UIM & Physical Damage

Quick Answer: The Texas Personal Auto Policy provides robust first-party protections under Parts B, C, and D. Part B offers two distinct medical coverages: optional Medical Payments (MedPay), which pays reasonable medical and funeral costs within 3 years and allows subrogation, versus statutory Personal Injury Protection (PIP) under Texas Insurance Code Chapter 1952 Subchapter D, which must be provided unless a named insured rejects it in writing, with $2,500 per person as the maximum amount the statute requires (TIC § 1952.153). PIP covers 100% of reasonable medical expenses incurred within 3 years plus 80% of lost wages, and insurers are strictly prohibited by law from subrogating PIP payouts. Part C (UM/UIM) covers bodily injury and property damage caused by uninsured, underinsured, or hit-and-run motorists (requiring physical contact in Texas), subject to a statutory $250 property damage deductible. Part D (Physical Damage) provides Collision (impact with an object or upset) and Other Than Collision (Comprehensive) (open perils, including contact with birds or animals, hail, theft, and flood).

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Part B: Medical Payments vs. Texas Personal Injury Protection (PIP)

Adjusters evaluating first-party injury claims in Texas must understand the critical distinctions between standard Medical Payments coverage and statutory Personal Injury Protection.

1. Medical Payments Coverage (Optional Form)

• Coverage Grant: Pays reasonable and necessary medical and funeral expenses caused by an accident and incurred within three years from the date of the accident.
• No-Fault Nature: Benefits are paid regardless of who was legally at fault for the accident.
• Covered Persons:
  1. The named insured and any resident family member while occupying any motor vehicle, or as a pedestrian when struck by a motor vehicle designed for highway use.
  2. Any other person occupying "your covered auto" while operated by an authorized driver.
• Scope of Benefits: Limited strictly to medical, dental, surgical, x-ray, ambulance, prosthetic, and funeral expenses. It does not compensate for lost wages or replacement essential household services.
• Subrogation Rights: The insurer retains full subrogation rights. If the carrier pays $5,000 in MedPay to an injured insured, and the insured later settles with or recovers from the at-fault driver, the insurer may assert a subrogation lien to recoup those medical expenditures.

2. Texas Personal Injury Protection (PIP) — Statutory Mandate

Texas Personal Injury Protection is governed by Texas Insurance Code (TIC) Chapter 1952, Subchapter D (§§ 1952.151–1952.161). PIP is uniquely designed to provide swift, guaranteed financial relief without litigation.

The Mandatory Statutory Offer & Written Rejection Rule

Under TIC § 1952.152(a), an insurer may not deliver or issue an automobile liability policy in Texas unless the insurer provides Personal Injury Protection in or supplemental to the policy. Subsection (b) supplies the only escape hatch: the coverage "does not apply if any insured named in the insurance policy rejects the coverage in writing."

• An oral rejection during a phone quote, or an agent's checkmark without the named insured's signature, does not satisfy § 1952.152(b).
• If the carrier cannot produce a written rejection signed by a named insured, PIP is part of the policy and the carrier must pay covered PIP claims.
• Once rejected, it stays rejected. Section 1952.152(b) also provides that where the named insured rejected PIP on a policy (or on a prior policy issued by the same or an affiliated insurer), the insurer is not required to provide it on a reinstated or renewal policy unless the named insured requests it in writing.
• Read $2,500 as a ceiling, not a floor. TIC § 1952.153 provides that the subchapter "does not require an insurer to provide personal injury protection coverage in an amount that exceeds $2,500 for all benefits, in the aggregate, for each person." $2,500 is therefore the maximum amount the statute compels — the familiar basic limit. Higher PIP limits (commonly $5,000 or $10,000) are sold in Texas, but they are contractual, not statutory.

Statutory PIP Benefits

TIC § 1952.151 defines Personal Injury Protection as policy provisions paying the named insured, members of the insured's household, and any authorized operator or passenger of the named insured's vehicle, including a guest occupant, all reasonable expenses that (1) arise from an accident, (2) are incurred not later than the third anniversary of the date of the accident, and (3) fall into one of three benefit buckets:

1. Medical and Funeral Expenses: All reasonable expenses for necessary medical, surgical, x-ray, or dental services, including prosthetic devices, and necessary ambulance, hospital, professional nursing, or funeral services.
2. Lost Income (Income Producer): Replacement of income lost as a result of the accident. The TDI-promulgated Texas Personal Auto Policy PIP endorsement pays this benefit at 80% of the insured's loss of income; the statute itself states the benefit without a percentage, so on the exam read "80%" as the policy form figure. Under TIC § 1952.154, the insurer may require reasonable medical proof of the injury causing the income loss as a condition of paying it.
3. Essential Household Services: If the injured person is a non-income producer (e.g., homemaker, retired individual, student), PIP reimburses reasonable and necessary expenses incurred for obtaining ordinary and necessary household services the injured person would have performed for the benefit of their household without pay (e.g., childcare, meal preparation, home cleaning).

The Absolute Statutory Bar on Subrogation

Under TIC § 1952.155, an insurer that pays Personal Injury Protection benefits has no right of subrogation and no right of reimbursement against any other person, corporation, or insurer to recover PIP benefits paid.

Critical Exam Rule: If an insured collects $2,500 in PIP benefits from their own carrier, and subsequently recovers a $100,000 bodily injury tort settlement from the at-fault driver's insurance company, the PIP carrier cannot place a lien on the settlement proceeds or demand reimbursement of the $2,500. PIP is absolute first-party indemnity. Contrast this with Medical Payments (Med Pay) coverage, which is not subject to the § 1952.155 bar, and with health insurance and workers' compensation carriers, which routinely assert reimbursement or subrogation interests against the same tort recovery.

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Master Comparison: Medical Payments vs. Texas PIP

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Part C: Uninsured/Underinsured Motorists (UM/UIM) Coverage

Governed by Texas Insurance Code Chapter 1952, Subchapter C (§§ 1952.101–1952.110), UM/UIM protects policyholders when an at-fault motorist lacks adequate liability insurance to satisfy the injured party's legal damages.

Statutory Offer & Written Rejection

Insurers must offer UM/UIM coverage on every motor vehicle liability policy issued in Texas in amounts equal to the policy's Part A liability limits. UM/UIM can be excluded or selected at lower limits only if the named insured rejects it in writing.

Who Qualifies as an "Uninsured Motorist" in Texas?

1. A driver who carries no automobile liability insurance or bond whatsoever.
2. A driver who carries insurance with liability limits that are less than the minimum limits required by the Texas Financial Responsibility Law (e.g., an out-of-state driver carrying 15/30/10).
3. A driver whose insurer is insolvent or denies coverage.
4. An unidentified hit-and-run vehicle.

The Texas Hit-and-Run Physical Contact Rule

To qualify as an uninsured motorist claim involving an unidentified vehicle (hit-and-run) in Texas, TIC § 1952.104 requires actual physical contact between the unidentified motor vehicle and the insured's person or vehicle:

• Direct Impact: An unidentified car sideswipes the insured auto and flees the scene. Covered under UM.
• Chain Reaction: An unidentified car rear-ends Vehicle B, propelling Vehicle B into the insured's vehicle. Physical contact is satisfied through the intermediate vehicle. Covered under UM.
• "Miss-and-Run" (The Phantom Vehicle Exclusion): An insured claims that an unknown car crossed the center line, forcing the insured to swerve off the roadway and crash into a concrete embankment without any physical contact between the two vehicles. Under Texas law, this is not covered under Uninsured Motorist coverage because the statutory physical contact requirement was not met. (The vehicle damage must be handled under Collision coverage, subject to the collision deductible).

Underinsured Motorist (UIM) Coverage

Underinsured Motorist coverage applies when the at-fault tortfeasor carries valid liability insurance, but their policy limits are insufficient to pay the full extent of the injured insured's legally recoverable damages.

• In Texas, UIM functions on an excess basis: the insured may recover the difference between their total allowable damages and the at-fault driver's exhausted liability limits, up to the insured's own UIM policy limit.

UM/UIM Property Damage & The Statutory $250 Deductible

UM/UIM in Texas protects against both Bodily Injury and Property Damage (UMPD). When an insured presents a property damage claim under UM/UIM (e.g., an uninsured driver totals the insured's car):

• Under TIC § 1952.104(c), a mandatory statutory deductible of $250 applies to all UM/UIM property damage claims in Texas.
• If the insured carries both Collision coverage and UM Property Damage coverage, the adjuster coordinates benefits so that the insured pays the lower deductible (usually the $250 UM deductible rather than a $500 or $1,000 collision deductible), and the carrier subrogates against the uninsured tortfeasor.

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Part D: Coverage for Damage to Your Auto (Physical Damage)

Part D is a first-party property coverage that protects the insured's investment in their own vehicle. Coverage is split into two primary coverage options:

1. Collision Coverage

Contractually defined as the upset of your covered auto or its impact with another vehicle or object.

• Examples of Collision Losses:
  • Colliding with another motor vehicle at an intersection.
  • Colliding with a telephone pole, concrete barrier, mailbox, or tree.
  • Driving into a deep pothole that bends the wheel rim and damages the suspension.
  • Rolling over or overturning the vehicle into a drainage ditch (upset).

2. Other Than Collision (OTC / Comprehensive) Coverage

OTC provides open perils property coverage for direct and accidental physical loss to a covered auto, covering any cause of loss not defined as a collision and not specifically excluded. The policy explicitly enumerates several perils as OTC losses to eliminate coverage disputes:

• Missiles or falling objects (e.g., a tree limb falling during a storm);
• Fire or lightning;
• Theft or larceny (including total theft of the auto or stolen catalytic converters);
• Explosion or earthquake;
• Windstorm, hail, water, or flood (including vehicles submerged during a Texas flash flood);
• Malicious mischief or vandalism (e.g., keyed paint or slashed tires);
• Riot or civil commotion;
• Contact with a bird or animal (e.g., striking a white-tailed deer on a Texas highway);
• Breakage of glass (if glass breakage is caused by a collision, the insured may elect to have it adjusted under Collision to combine deductibles).

Exam Trap: Striking an animal (such as a deer, hog, or cow) is always classified under Other Than Collision (Comprehensive), never Collision! Even though the vehicle physically impacts the animal, the contract expressly classifies animal contact under OTC to allow the insured to utilize their typically lower OTC deductible.

Transportation Expenses (Rental Reimbursement)

Standard Part D includes basic Transportation Expenses coverage without requiring a separate deductible, provided the vehicle is insured for Collision or OTC:

• Monetary Limits: Pays up to $20 per day, up to a policy aggregate maximum of $600 (equivalent to 30 days).
• Waiting Periods:
  • In the event of total theft of the auto, coverage begins 48 hours after the theft is reported to the insurer and police.
  • For all other covered Collision or OTC losses, coverage begins 24 hours after the vehicle is withdrawn from service.
• Termination: Coverage terminates as soon as the covered auto is repaired and returned to service, or when the insurer tenders an Actual Cash Value settlement on a total loss.

Core Physical Damage Exclusions

Adjusters must verify that physical damage claims are not barred by standard Part D exclusions:

1. Electronic Equipment: Excludes sound reproduction equipment, radios, CD players, navigation units, or video screens unless the equipment is permanently installed in the vehicle by the manufacturer or dash-opening opening.
2. Custom Furnishings and Equipment: On pickups and vans, excludes custom carpeting, murals, customized grilles, camper shells, and specialized conversion beds unless specifically endorsed (coverage is capped at a standard default limit of $1,500 for non-factory custom equipment unless an endorsement is purchased).
3. Wear and Tear & Mechanical Breakdown: Excludes damage due to rust, gradual deterioration, road damage to tires, freezing of engine coolant, or electrical/mechanical failure.
4. Confiscation: Excludes destruction or confiscation by governmental or civil authorities.

Loss Settlement & Valuation

Under Part D, the insurer's limit of liability is the lesser of:

1. The Actual Cash Value (ACV) of the damaged or stolen property (Replacement Cost minus physical depreciation based on age, mileage, and pre-loss condition); or
2. The amount necessary to repair or replace the property with other parts of like kind and quality (LKQ).

• Betterment / Depreciation: If repairing the vehicle with brand-new parts improves the vehicle's pre-loss condition (e.g., replacing worn tires or an old transmission with brand-new components), the insurer may deduct for betterment.
• Texas Total Loss Threshold: In Texas, an automobile is typically declared a total loss when the projected repair cost plus the estimated salvage value equals or exceeds the vehicle's Actual Cash Value prior to the loss.