Chapter 7 – Loss or Damage to the Insured Automobile
Introduction
· This section indemnifies the insured against direct and accidental loss of or damage to the auto and its equipment
· Its equipment generally excludes anything that is not permanently attached unless it is specifically designed for use w/ the auto (spare tire, car jack)
· Physical damage coverage is optional but lienholders insist that vehicles be insured at least against fire, theft and collision losses
· Selection of coverage:
o Specified perils
o Comprehensive
o Collision or upset
o All perils
Coverages
A. Specified perils
· Specifies the perils or causes of loss insured against
· Specified perils are:
o Fire
o Theft or attempted theft
o Lightning
o Windstorm, hail or rising water
o Earthquake
o Explosion
o Riot or civil disturbance
o Falling or forced landing of aircraft or of parts thereof
o The stranding, sinking, burning, derailment or collision of any conveyance in or upon which a described auto is being carried on land or water
· Glass breakage is not covered
B. Comprehensive
· Protects against all perils except collision or upset
· Perils include but are not limited to:
o Perils listed under specified perils
o Falling or flying objects
o Missiles
o Vandalism
C. Collision or upset
· Indemnifies the insured for damage to the vehicle caused by collision w/ another object or by upset
· Another object includes a trailer and the surface of the ground and any object on or in the ground
· If the object is an animal, most insurers pay under comprehensive
D. All perils
· The broadest coverage – combines the perils under collision and comprehensive
· Includes loss/damage caused if a person residing w/ the insured steals a described auto or if an employee who drives or uses, services or repairs a described auto steals it
Exclusions
· Unless they result from a peril which is covered, there is no coverage for loss/damage:
o To tires
o Consisting of, or caused by mechanical fracture or breakdown of any part of the auto or
o Consisting of, or caused by rusting corrosion, ear and tear, freezing, or explosion w/in the engine
· The policy does not cover loss/damage
o Resulting from a dishonest claim of o/ship, illegal disposal, or theft by anyone who has legal possession of it under a written agreement (mortgage, conditional sale, lease, etc) – a person does not return a rental vehicle**
o Resulting from a change in o/ship that is agreed to even if that change was brought by trickery or fraud**
o Caused by radioactive contamination
o To contents of auto and trailer other than their equipment
o In excess of $25 for recorded material and equipment for use w/ a playing or recording unit. Recorded material and equipment not contained w/in or attached to the playing or recording unit are not covered
· There is no coverage for loss/damage caused out of illegal use:
o Driving under influence of intoxicating substances
o Convicted of an offense under the criminal code
o Race or speed test or for illegal activity
o Not authorized by law
o Another person w/ your permission operates auto under any of these conditions
· Thefts covered by All perils only:
o Loss/damage caused when a person who lives in the h/h steals the auto**
o Loss/damage caused when an employee steals the auto. Applies any time, not just during working hours**
** the 4 types of thefts
Deductible clause
· Coverages under this section 7 of the policy are written subject to deductibles
· Each occurrence giving rise to a claim is subject to a deductible except in the case of fire or lightning
· Deductibles are useful tools in keeping down premium costs. Since all expenses will eventually be reflected in premiums, deductibles are effective in reducing claims costs
Additional benefits (agreements of insurer)
Payment of charges
· Will pay general average, salvage, and fire department charges and any Canadian or US
· General average charges may arise when the auto is being transported by water and goods must be jettisoned to save the ship – the loss would be shared equally by all parties involved and the policy responds on behalf of the insured
· Salvage means any expense involved in recovering property to prevent loss from an insured peril
· Fire departments charge for their services and the policy would respond to such costs
· The policy responds to pay for customs duties levied when the auto suffers a loss in the USA
Foregoing right to recovery (subrogation waived)
· The insurance act give to the insurer a right of subrogation against the person who is responsible for a loss
· The additional benefit clause waives that right when someone is using the auto with the insured’s permission
· The insurer will keep the right to recover payment if:
o The person has the auto in connection w/ the business of selling, repairing, maintaining, servicing, storing or parking auto or
o The person violates any condition of the policy or operates it in the circumstances related earlier in the exclusions
Temporary substitute automobiles
· Temporary substitute auto – an auto not owned by the insured or anyone living in the same dwelling premises. It replaces a described auto due to its breakdown, theft, repair, servicing, sale or destruction
· The policy provides coverage for damages to the temporary substitute auto. There must be blame or a contractual obligation attached to the insured otherwise there will be no payment under the terms of this coverage
· If the owner of the substitute auto has it insured, that policy will be primary. If it does not have physical coverage, then coverage will come from your policy
· If the deductible on that policy is larger than the one on the insured’s policy, the insurer will pay the difference
Loss of use due to theft
· There must be coverage purchased under a subsection of section 7 which includes protection against loss by theft
· Theft of the entire auto must have occurred
· Coverage is confined to the reimbursement of the actual outlay for rental of a similar substitute auto, the hiring of taxis or for public transportation
· Reasonable expenses will be reimbursed to a total amount of $900
· The period of reimbursement does not being until 72 hrs after the police or the insurer has been notified
· The reimbursement period ends when:
o The stolen vehicle is replaced
o If the vehicle is recovered when the necessary repairs are completed
o Upon such earlier date as the insurer makes or tenders settlement for the loss/damage
Sample Review Questions - Automobile Insurance (Part 1)
1. Under physical damage auto coverage, the insurer agrees to indemnify the insured against direct and accidental loss of or damage to the auto and its equipment. Its equipment excludes anything that is not permanently attached unless it is specifically designed for use w/ the auto.
2. The 4 subsections under section 7 are:
a. Specified perils
b. Comprehensive
c. Collision or upset
d. All perils
3. Comprehensive protects an insured auto against all perils other than collision or upset. Perils include: perils listed under specified perils, falling or flying objects, missiles, and vandalism.
Collision indemnifies the insured for damage caused by collision w/ another object or by upset. “Another object” includes a trailer and the surface of the ground and any object on or in the ground. In the event the object is an animal, most insurers pay these claims under the Comprehensive coverage.
4. Specified perils are:
- fire
- theft or attempted theft
- lightning
- windstorm, hail or rising water
- earthquake
- explosion
- riot or civil disturbance
- falling or forced landing of aircraft or of parts thereof
- the stranding, sinking, burning, derailment, or collision of any conveyance in or upon which a described auto is being carried on land or water
5. A deductible does not apply with fire or lightning claims.
6. Damage to tires is covered if it is destroyed in a collision and there is collision or upset coverage.
7. Collision damage would be covered under subsections Collision or upset and/or All Perils.
8. Damage caused by a flock of seagulls flying directly into the windshield would be covered under Comprehensive.
9. Auto broken into, which items are covered:
a. Spare tire – covered
b. Musical instruments which were in the trunk – not covered
c. The insured’s raincoat – not covered
d. Both side view mirrors – covered
e. The bumper jack belonging to insured’s auto - covered
10. Which of the following are covered under All Perils:
a. Tire ruined as a result of a blowout – not covered
b. Person unknown scratch the side of the auto – covered
c. Rioters slash the insured tires, among others – covered
d. Tape recorder mounted on the auto dashboard damaged by fire – covered
e. Damage to vehicle as the result of an upset – covered
f. Box of tapes concealed under front seat stolen – not covered
11. If you sell your car to a person and the cheque comes back nsf, you report your car stolen – the policy will not cover the loss. There is no coverage from theft resulting from a change in o/ship that is agreed to, even if that change was brought about by trickery or fraud.
12. The additional benefits under section 7 are:
- Payment of charges
1. General average charges
2. Salvage charges
3. Fire department charges
4. Custom duties
- Foregoing right to recover
- Temporary substitute
- Loss of use due to theft
13. In the additional benefits, the insurer agrees to waive subrogation w/ respect to physical damage:
a. Anyone who has care, custody, or control of the auto for repair purposes – no
b. Anyone who is driving the auto w/ the insured’s consent – yes
c. A parking garage that is storing the auto – no
d. Anyone other than the insured who breached any condition of the policy – no
e. A neighbour who is driving the vehicle w/ the insured’s consent – yes
14. Salvage charges – any expense involved in recovering property to prevent loss from an insured peril.
15. General average charges may occur when the auto is being transported by water if a shipper of goods must jettison cargo to save the ship.
16. Charges from customs duties may occur when the auto suffers a loss in the USA necessitating repairs being made and replacement parts purchased there or if the vehicle is wrecked in the USA USA and US
17. A temporary substitute – an auto not owned by the insured or anyone living in the same dwelling premises. It is a vehicle which replaces a described auto due to its breakdown, theft, repairing, servicing, sale, or destruction.
18. If you borrow your son’s auto while yours is in for repairs it would not qualify as a temporary substitute if your son lives w/ you.
19. When you rent a car, the rental company usually has it insured w/ physical damage coverage. The rental policy will be primary.
20. The temporary substitute automobile coverage is not a direct form of coverage. It is a legal liability coverage – there must be blame or a contractual obligation attached to the insured.
21. If the owner of a temporary substitute auto has a deductible of $300 and you have a $500 deductible and there is a $1000 loss, your policy would pay nothing.
22. Perils that the temporary substitute covers are any damage the insured is legally liable for.
23. An insured must purchase All Perils, Comprehensive, or Specified Perils coverage in order to be reimbursed in the case of the theft of the entire vehicle.
24. The limit for the loss of use due to theft is $900.
25. Expenses that may be recovered when the entire vehicle is stolen are the actual outlay for rental, the hiring of taxis, or public transportation. The insured’s responsibilities include reporting the loss to the police or the insurer.
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