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When Can Coverage Be Dropped on a Stolen Car?

Author: VU Faculty
"My customer's car was stolen. He had liability only on the car so there is no coverage. When should he remove the car from his policy?"
What a great question. Unfortunately, we do not have a foolproof answer that would apply in every jurisdiction. We ran this question by the VU faculty and got the observations below. Your best bet is to consult an attorney well versed in local law.
This question has been asked and answered in other forums such as What do I do if my car is stolen? and My Car Was Stolen And In An Accident; What Is My Liability?. In my opinion, your customer should seek the advice of a local attorney who can advise him whether or when it is OK to remove coverage on the car from the policy. 

At what point does his liability end? Only an attorney can determine that, so I wouldn’t do anything until the vehicle is recovered or he gets a legal opinion (from a competent attorney with E&O coverage) that it’s OK to terminate coverage. Here are examples of where a vehicle owner might be held liable for BI or PD caused by car thieves:
Liability of Owner Under Car Key Legislation: 

When the claim is settled and or the title is transferred.

I think that's partly a legal question.
  He might have to deregister the car, or take some other legal action, in order to remove his potential exposure arising from the car. Until then, I would keep coverage in force.

If he’s not replacing the car, you might want to cancel this policy and write a Named Non-Owner Policy.
  He still has a liability exposure if he rents or borrows a vehicle.  I would discuss this with the carrier.

When is an insured no longer liable for injury caused by their car after it’s been stolen?
  That’s a question best answered by an attorney.  In most cases, once the insured reports the vehicle stolen they’re very unlikely to be liable for damage and injury it causes.  If there’s comprehensive coverage, once the loss is settled by the insured signing over their title to the property to the insurer, they’re probably safe then.

If there are other insured vehicles it may solve the problem of no liability insurance. If there are no other insured vehicles there is no coverage on rental cars, insured and family members driving other people's cars, uninsured motorists or medical payments. If the policy is cancelled and a loss arises later from use of the car, could the insured be liable under contributory negligence. Remember, losses must occur during the policy period.  Were the doors or windows left open? Were keys left in the car? Was there any other mitigating circumstance. If the car is found and was the only vehicle covered, where is coverage as the insured drives it home? If coverage is dropped and the car is found, will it be given automatic coverage as a newly acquired vehicle? Not enough information is given to make a suggestion. The insured must be made aware of potential problem with emphasis on what to do if the car is located and driven.

Immediately, with explanation to the insurer that it was stolen.  I’d notify DMV, as well.  Things can be fixed if it is recovered
Last Updated: June 2016
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