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Autos, Crimes, and Racing…Really, Auto Insurance is NOT a Commodity

Author: Bill Wilson
A participant in the Yahoo Group RiskList described a commercial auto policy she had seen that provided $1M in CSL liability coverage. However, the policy had a limiting endorsement that included a step-down provision that read, "...amounts that are above the minimum limits [15/30/5 in her state] shall not apply to the operation, maintenance, or use of a covered vehicle in a crime or racing...."
Other participants raised important issues such as whether the limitation applied (mens rea) only to the insured accused of a crime or to all insureds as a result of any insured being accused of the crime. For example, what if an employee killed someone while driving under the influence? What if, in a routine stop, a passenger was found to have illegal drugs and the insured driver was charged with transporting narcotics? This exclusion, as is often the case, had no requirement of a CONVICTION in the limitation cited. Presumably an allegation by law enforcement or supposition by the adjuster is enough.
Some fellow insurance nerds and I were reviewing a national insurer’s personal auto policy yesterday that included an exclusion very similar to the one cited in the RiskList exchange except that it doesn't even require felony status:
Bodily injury or property damage caused by, or reasonably expected to result from, a criminal act or omission of any insured person. This exclusion applies regardless of whether that insured person is actually charged with, or convicted of, a crime. This exclusion will apply only to the damages that are in excess of the minimum limits of liability coverage required by the financial responsibility law of the state of Florida and does not apply to moving traffic violations.
Note, first, that the insured doesn’t even have to be CHARGED with a crime…apparently if the adjuster THINKS a crime has resulted in BI or PD, the exclusion is triggered. Also, minimum limits are still paid. That might be because the law in that state requires at least minimum limits, but a version of the insurer’s policy in another state might preclude ALL coverage.
In this policy, the exclusion does not apply to moving traffic violations. Presumably that means the exclusion is not triggered simply by speeding or running a stop sign. Years ago, I was cited for parking illegally on the grass in the park at my son’s baseball game. In my state, that is a criminal offense. If a kid was injured playing on my car or running after a fly ball into my car, does the exclusion apply because my citation does not involve a moving violation? In the example below, that wouldn’t be an issue because it’s not a felony crime and I’m not sure the auto would be “used” at the time of loss.
The racing exclusion was very broad. In ISO’s personal auto policy, the “racing” exclusion only applies to an organized event inside a facility designed for racing:
We do not provide Liability Coverage for the ownership, maintenance or use of:
 4.  Any vehicle, located inside a facility designed for racing, for the purpose of:
      a. Competing in; or
      b. Practicing or preparing for;
      any prearranged or organized racing or speed contest.
In other words, impromptu street racing is covered. There are other non-ISO auto policies that simply exclude "racing" or otherwise exclude far more than the ISO policy.
In ISO’s business auto policy, there is no requirement that the racing take place inside a racing facility but there is still a requirement that the race be “organized” (whatever that means). The BAP exclusion apples to:
Covered “autos” while used in any professional or organized racing or demolition contest or stunting activity, or while practicing for such contest or activity. This insurance also does not apply while that covered “auto” is being prepared for such a contest or activity.
Many years ago, as a high school kid, I was challenged to a drag race on Post Road in Nashville, me in my 1960 PINK Rambler Ambassador and he in his jet black 50-coats-of-lacquer Ford Mustang. We placed two spotters at a crossroad to block any traffic that came along and a girl dropped her hankie to start the race. Was that race “organized”? If we ran off the road and killed three people, an adjuster might take the position that we were involved in an organized racing activity, which would preclude coverage under ISO’s business auto policy (and MANY non-ISO personal policies), but not their personal auto policy.
So, what's the point of this discussion and why was this article originally featured in the VU newsletter as a Sales/Marketing article?
Non-ISO auto policies are FULL of stuff like this. Yet, if you believe what some TV ads proclaim, insurers pretty much all sell the “SAME COVERAGE, Better Value” and most of the recent “studies” indicate that auto insurance is a commodity. The closest thing to a commodity in the insurance industry would probably be an NFIP flood policy or an NCCI workers comp policy, yet look at the spectrum of varying interpretations of exactly the same policy language.
Insurance is NOT a commodity and any insurer positioning their insurance products as such (where the only material difference is price) is more interested in their bottom line than in seeing that their customers are protected from potentially catastrophic lawsuits. And, because there are so many auto policies on the road with huge coverage gaps like this, regulators should question their missions to protect insurance buyers and the general public.  

 Last Updated:  June 30, 2014
Note:  The views expressed in this article (and all VU articles) are solely those of the author and do not necessarily reflect the views of IIABA and the association has taken no position on these issues.
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