In general, two factors govern eligibility for a Personal Auto Policy: (1) the person(s) seeking insurance, and (2) the type(s) of vehicle(s) to be covered. However, certain exceptions may be permissible, either by endorsement and/or company consent.
Note: In the actual policy annotations, this area will be used to display the actual policy language.
Eligibility will normally be derived from: (1) the manual rules of ISO, (2) regulatory or statutory requirements, (3) company deviations or proprietary programs, or (4) company underwriting guidelines.
Rating and/or Statistical Organizations
Insurance Services Office, Inc. (ISO), based in New York, is an advisory, not-for-profit statistical and rating organization that administers the most widely subscribed to Personal Auto Program in the country. ISO is responsible for establishing Personal Auto rates, rules and forms in most jurisdictions in the country.
As mentioned earlier, ISO does not "officially" operate in several states. And, virtually all other states have restrictive or broadening rules or coverages mandated by statutes or insurance department regulations that necessitate state-specific rules or endorsements. Since statutes change annually, it is essential that agents stay current on laws that may be at variance with policy rules or coverages.
Company Deviations or Proprietary Programs
Not all insurance companies subscribe to ISO for their PAP programs — in fact, subscribing companies account for a minority of the personal auto market. Of those companies, some may have filed "deviations" from ISO rates, rules or forms that result in a broadening or restriction in coverage, and others may have filed their own endorsements. A significant number of companies offer their own proprietary programs on either a "nonstandard," "standard," or "preferred" basis. In many cases, however, the coverages provided are by-and-large comparable to the ISO forms, with a few "bells and whistles" added. However, in some instances, the ISO forms are usually actually provide broader coverage than nonstandard policies.
Company Underwriting Guidelines
A final eligibility consideration involves company underwriting guidelines. A personal auto prospect may otherwise be eligible according to ISO or the company's manual rules, but there may be certain conditions or circumstances applicable to that particular risk that may cause an underwriter to decline the account.
The person may have a poor driving record, as indicated by a motor vehicle report (MVR) or CLUE report (see below), or a credit report may indicated financial problems that could result in nonpayment of premium or even present a moral hazard that could lead to intentional or fraudulent losses. Increasingly, where permitted by regulators, companies are relying on credit scores as a significant part of the underwriting process.
In other cases, the vehicle may be considered uninsurable due to vehicle type (e.g., motorcycle or motor home), performance characteristics, age or condition, be garaged or operated in a high risk area, etc.
In an effort to control losses and fraud, carriers are using an information service called the Comprehensive Loss Underwriting Exchange (CLUE) that provides extremely detailed information on all claims associated with an insured and/or vehicle. A Tillinghast study found that between 75-100% of all claims reported by CLUE reports were not disclosed on the insurance application. You can order a free CLUE report at www.personalreports.lexisnexis.com.
With regard to "insurability", the company can usually choose whomever it wants as a client (although consumers in several states are entitled to purchase coverage from their insurer of choice if they qualify as a "good driver").
As indicated previously, the first general governing rule of eligibility applies to persons seeking policy issuance. The ISO Personal Auto Manual addresses issues of insurable persons, vehicles, ownership, etc.
The following vehicle owners are eligible without endorsement:
In addition, the PP 03 34 01 05 —Joint Ownership Coverage may be used to insure persons jointly owning a vehicle if they are:
Relatives other than husband or wife (even if not co-residents), or
Resident individuals (even if unrelated).
Finally, as an exception to the ownership requirements above, endorsement PP 03 22 01 05 — Named Non-Owner Coverage may be used to insure a:
Note that, in each case above, eligibility applies only to "persons"— the Personal Auto Program is not designed to provide coverage for the exposures of corporations, partnerships, or other legal entities. Some companies may offer coverage by using their own endorsement.
One exception is made in that a motor vehicle may be eligible if owned by a farm family co-partnership or corporation (effectively considered to be owned by two or more relatives who are residents of the same household) if the vehicle: (1) is principally garaged on a farm or ranch (and used exclusively in that occupation or used only to drive to or from work), and (2) otherwise meets the vehicle eligibility requirements outlined in the manual.
As noted above, eligibility is contingent upon "ownership"— however, the ISO Personal Auto Manual extends eligibility for vehicles "leased under contract for a continuous period of at least six months." The manual refers to leased "private passenger autos"— this term, as used in the manual, incorporates eligible pickup trucks and vans. However, the Definitions section of the policy, while perhaps not intending to, implies that this ownership exception applies only to "private passenger type autos"— refer to that section for further details. Otherwise, the manual does not define "ownership" because this is a legal issue that will vary from state to state, depending on statutory criteria or case law.
For example, here is a sampling of court cases that have examined this issue.
Ownership—Title vs. Delivery of Vehicle
An insured purchased a vehicle in July, took possession on August 20, and had an accident on September 10—the court ruled that coverage applied. In the Definition of "your covered auto", the policy usually provides 30 days coverage for acquired vehicles. The court stated that, "The acquisition of the ownership of a new car may be found to have occurred at various stages, depending on the facts and circumstances of the case. However, delivery of the vehicle to the buyer is generally the controlling factor, although obtaining the title certificate may also be significant, if it occurs prior to delivery." (Dixie Insurance Company v. Detamore, Florida Court of Appeals, 1987)
Ownership—Title vs. Delivery of Vehicle
One court has ruled that documents of title are not necessarily controlling relative to the issue of ownership—ownership was deemed to be effective when the prior owner relinquished possession to the insured and the insured accepted delivery (Stover v. Tennessee Farmers Insurance Company, Tennessee Court of Appeals, 1990)
In another case, the same court concurred that the recording of title is not necessarily conclusive to ownership—citing a specific statute, the court concluded that registration of a vehicle is prima facie evidence of ownership (Provident General Insurance Company v. Houts, Tennessee Court of Appeals, 1990) [Note: Contrast with Dixie Ins. Co. v. Detamore above.]
A couple purchased a vehicle from a dealership, but it was stolen off the lot after they paid for it in full but before they picked it up. Their insurer denied coverage for the theft because they had not accepted physical delivery of the vehicle, however the court ruled that they were the owners of the vehicle (Brown v. State Farm Fire & Casualty Company, Washington Court of Appeals, 1992)
Ownership—Exclusive Rights of Possession
A minor purchased a car without his parents' permission and was involved in a serious accident 30 minutes after leaving the used car lot. The parents' insurer sought a declaratory judgment to release it from any obligation to defend the claim since the vehicle was excluded by the policy as being undeclared and owned by a family member—the minor defended on the basis that he could not own the car because he was underage. The court ruled for the insurer because the minor possessed all of the generally accepted attributes of ownership—exclusive right to use, enjoy and control the vehicle since the dealer had been paid and was in no position to interfere with these rights (Aetna C&S Company v. Duncan, Pennsylvania Court of Appeals, 1992)
The Personal Auto Manual permits coverage for three broad categories of autos: (1) private passenger autos, pickup trucks and vans, (2) trailers, and, (3) by endorsement, certain miscellaneous types of vehicles. Coverage must be written on a specified auto (as opposed to fleet) basis. Eligible vehicle classes are listed below and discussed later in this section.
In addition, the following vehicles may be covered by endorsement if permitted by the company:
Private Passenger Autos
The manual defines a "private passenger auto" to be a "...four wheel motor vehicle, other than a truck type, owned or leased under contract for a continuous period of at least six months"— the Personal Auto Policy itself does not provide a specific definition. Policy coverage is extremely broad — for example, in general, "full" coverage is provided for the personal or business use of any owned or nonowned private passenger auto.
Pickup Trucks & Vans
These terms are not defined in either the manual or the policy. However, the manual does place restrictions on the type and use of such vehicles. Specifically, a pickup truck or van is eligible if it:
Is owned by an individual or by a husband and wife who are residents of the same household, and
Has a Gross Vehicle Weight (GVW) of less than 10,000 lbs, and
Is not used for the delivery and transportation of goods or materials unless such use is: (1) incidental to the insured's business of installing, maintaining or repairing furnishings or equipment, or (2) for farming and ranching.
Except as noted above and in the "Use" discussion below, a pickup truck or van is eligible if used in a business except that those used in the business of the U.S. Government by a government employee are eligible only if coverage is limited in accordance with endorsement PP 03 01 08 86 — Federal Employees Using Autos in Government Business. Some companies exclude certain governmental uses (e.g., rural mail carriers) to avoid subrogation actions by the government under the Federal Tort Claims Act and may be unwilling to remove the exclusion.
Although pickup trucks and vans used in business were made eligible for a Personal Auto Policy in the 1989 program revision, serious coverage gaps were left in the policy for the business use of nonowned pickup trucks or vans. These gaps are serious and may necessitate the use of endorsement PP 03 06 01 05 — Extended Non-Owned Coverage - Vehicles Furnished or Available for Regular Use (although this endorsement does not address the entire problem).
According to manual rule, owned trailers designed for use with a private passenger auto, pickup, panel truck (a term usually considered synonymous with "van"), or van are covered for all but physical damage coverage without being declared on the policy—exceptions are made for trailers: (1) used for business purposes with other vehicles, (2) when no auto is owned by the insured, and (3) for medical payments, when the trailer is located for use as a residence or premises. Coverage is clarified in the Definitions section of the Personal Auto Policy.
Coverage for motor homes, motorcycles, all-terrain vehicles (ATV's), dune buggies, golf carts, snowmobiles, or other similar type vehicles must be provided by endorsement (if permitted by the company).
The manual defines a "motor home" to be "...a self-propelled motor vehicle with a living area that is an integral part of the vehicle chassis, or a pickup with a permanently attached camper body. The living area or camper body must consist of facilities for cooking and sleeping."
The manual also defines a "golf cart" to be "...a three or four wheel motor vehicle with limited speed capabilities designed to carry golfers and their equipment around a golf course."
The Personal Auto Policy provides a number of exclusions for use in certain business situations, racing events, etc. that will be discussed in depth later. From an eligibility standpoint, however, the Personal Auto Manual limits policy issuance under certain circumstances.
In addition to the limitations for use of pickup trucks and vans, vehicles owned by family farm partnerships or corporations, and so forth, the manual specifically limits eligibility to vehicles: (1) not used as a public or livery conveyance for passengers (see also coverage part exclusions), and (2) not rented to others (although manual rule provides a method for rating motor homes rented to others).
The Personal Auto Policy includes a somewhat nebulous definition of "business". The Personal Auto Manual defines "business use" to mean that "...the use of the auto is required by or customarily involved in the duties of the applicant or any other person customarily operating the auto, in an occupation, profession or business, other than going to or from the principal place of occupation, profession or business."
Manual Rules vs. Policy Coverages
Keep in mind, though, that the manual definition of "business use" is often immaterial to questions of coverage in the policy for business use. The insured does not have a copy of the manual, only the contract itself.
Agents should never confuse manual rules with policy coverages. What a manual says with regard to eligibility, rating, coverage intent, etc. usually has nothing to do with whether or not a loss is covered. The policy represents the contract between the insured and insurer and it is the policy, not the manual, that governs whether or not a claim is covered.
A Kentucky insured replaced an existing insured vehicle with a Corvette. When the company was notified, they refused to include physical damage coverage, stating that their underwriting manual did not permit the provision of collision coverage on sports cars and, in fact, did not even have a rate to apply. As discussed in the Definitions section, the policy indicates that coverage applies to an acquired private passenger auto if "...you ask us to insure it within 30 days after you become the owner" — it does not say coverage is afforded if "...you ask us to insure it within 30 days after you become the owner AND we agree to do so."
To support this premise, in the case of Virginia Surety Company v. Knoxville Transit Lines (1955), the Tennessee Court of Appeals ruled that, "Before a manual can be looked to in determining the rights and liabilities of the parties it must first have been referred to in the body of the policies by plain and clear language and properly made a part thereof." As a result, in-force coverage is governed by the contract and not the eligibility rules or manual procedures, nor the "intent" of the insurer.
For an example of more information on this issue, check out "What is an "Auto" in the ISO Personal Auto Policy?"