The Personal Auto Policy (PAP)

Structure, Eligible Vehicles, and Covered Persons

The Personal Auto Policy (PAP) is the standard contract insuring private vehicles. It is organized into four lettered coverage parts plus a Duties After an Accident section. You must know what each part does and which losses fall where.

Eligible vehicles are private passenger autos, pickups, and vans owned or leased by an individual (or spouse) and used for personal purposes. Vehicles used as a public livery (taxi, ride-share for hire) or owned by a business generally are not eligible and need commercial auto coverage.

The definition of a covered person changes by coverage part, but generally includes:

• The named insured and resident family members (related by blood, marriage, or adoption and living in the household).
• Any person using the covered auto with the named insured's reasonable permission.
• For liability, organizations legally responsible for the covered person's acts.

Newly acquired autos receive automatic coverage for a limited period if the insurer is notified within the policy's stated window.

The PAP also covers a temporary substitute vehicle (a rental used while the insured's covered auto is being repaired) and a non-owned auto the insured borrows. Trailers owned by the insured are covered for liability. Knowing the difference between an owned auto (listed on the declarations), a newly acquired auto, and a non-owned auto is frequently tested, because each is treated slightly differently for physical-damage coverage.

Part A Liability and How Limits Read

Part A - Liability is the heart of the PAP. It pays damages a covered person is legally liable for due to bodily injury (BI) or property damage (PD) arising out of auto use - this is third-party coverage protecting others, not the insured's own car or injuries.

Limits can be written two ways:

• Split limits - three separate numbers, e.g., 100/300/50:
  • $100,000 BI per person
  • $300,000 BI per accident (all injured people combined)
  • $50,000 PD per accident
• Combined single limit (CSL) - one pooled amount (e.g., $300,000) for all BI and PD in an accident, offering more flexibility.

Texas financial-responsibility minimums are 30/60/25 - $30,000 BI per person, $60,000 BI per accident, $25,000 PD per accident.

Part A also pays supplementary payments in addition to the limit: defense costs, bail bonds up to a stated amount, the cost of an appeal bond, post-judgment interest, and up to a small daily amount for lost wages while attending a trial at the insurer's request.

Because these supplementary payments are outside the limit, a single accident can cost the insurer more than the stated liability number. Note that split limits protect each injured party only up to the per-person figure - even a single catastrophically injured claimant cannot collect more than the per-person BI limit, no matter how high the per-accident limit is. The per-accident number only caps the total when two or more people are hurt. This is the most common split-limit calculation error on the exam.

Parts B, C, and D

Part B - Medical Payments pays reasonable medical and funeral expenses for the named insured and family members injured in an auto accident, and for passengers in the covered auto, regardless of fault. It is a small first-party benefit (often $1,000-$10,000 per person) that pays quickly.

Part C - Uninsured/Underinsured Motorists (UM/UIM) protects covered persons when the at-fault driver has no insurance (UM) or not enough insurance (UIM), or in a hit-and-run. UM/UIM steps into the shoes of the missing liability coverage so the innocent insured is still made whole for BI - and, where written, PD.

Part D - Coverage for Damage to Your Auto is first-party physical damage protection for the insured's own vehicle. It has two perils:

Hitting a deer is comprehensive (other-than-collision), not collision - a classic exam distinction. Each coverage applies its deductible before the insurer pays, and Part D pays the lesser of the actual cash value or the cost to repair/replace.

Key Exclusions and a Worked Example

The PAP excludes losses that belong elsewhere or that the policy is not designed to cover. Common exclusions include:

• Intentional injury or damage caused by the insured.
• Using a vehicle as a public or livery conveyance (taxi/ride-share for hire); personal carpooling is fine.
• Vehicles used in the business of selling, repairing, or parking autos (the garage/dealer exposure).
• Damage to property owned or being transported by the insured (PD liability does not cover your own cargo).
• Use of a vehicle without a reasonable belief of permission.
• Radar detectors and certain custom electronic equipment may be limited.

Worked Example: Maria carries 100/300/50 with a $500 collision deductible and a $200 comprehensive deductible. She runs a stop sign and injures two pedestrians ($120,000 and $90,000 in BI) and damages a storefront ($40,000 PD). Part A pays each injured person up to $100,000, but only $100,000 of Maria's $120,000 share is covered (capped by the per-person limit); the second person's $90,000 is fully paid; total BI of $190,000 is within the $300,000 per-accident cap. PD of $40,000 is within the $50,000 PD limit. Her own car suffers $6,000 collision damage; after the $500 deductible, Part D pays $5,500. A week later a hailstorm dents the roof: that is comprehensive, so the $200 deductible applies.