Family Member Autos…A Hidden E&O Exposure

One of the most often overlooked (and potentially catastrophic) coverage gaps in the Personal Auto Policy involves autos owned and separately insured by resident family members. This exposure most likely exists in MANY of your personal lines accounts. Here’s the problem and what to do about it.

Typical scenario: You insure the All-American family, let’s say the Bundys. Al and Peggy are married with children. Al and Peggy own a car. Their daughter, Kelly, is 19 and living at home. She has her own car and insurance (or so you think). Bud, their son, is 17 and has no car of his own.

It’s Al’s bowling night, so he takes the family car. Bud, to the shock of everyone, gets a date that night and works a deal to borrow Kelly’s car. He has an at-fault accident that seriously injures the occupants of another vehicle.

Now the Bundys get two more shocks. Kelly discovers that she did not pay her renewal bill, so her insurance lapsed; no coverage for her or Bud. Al turns the claim in to his insurance company and it is denied. The adjuster cites Liability Exclusion B.3. in the company’s ISO PP 00 01 Personal Auto Policy:

B. We do not provide Liability Coverage for the ownership,
maintenance or use of:

3. Any vehicle, other than “your covered auto”, which is:

a. Owned by any “family member”; or
b. Furnished or available for the regular use of any “family
member”.

However, this Exclusion (B.3.) does not apply to you while you are maintaining or “occupying” any vehicle which is:

a. Owned by a “family member”; or
b. Furnished or available for the regular use of a “family
member”.

The bottom line is that, under Al’s policy, there is NO COVERAGE for anyone other than him and Peggy for the use of another family member’s auto.

If you insure families who have resident family members (children or other relatives) with their own vehicles and insurance, keep in mind that the operators of those vehicles are covered only by the policies on those vehicles (with excess coverage under a policy, if any, on which they are a named insured or resident spouse).

In the example above, Bud is insured under Al and Peggy’s policy while operating the next-door neighbor’s auto, but NOT while operating his sister Kelly’s car! And, isn’t it quite possible that a young person like Kelly might fail to renew her coverage? At best, you can probably only count on having minimum limits available…with no contribution by the parents’ policy.

In this scenario, the only thing you could do is forbid Bud to drive Kelly’s car (good luck) or insist that Kelly carry auto/umbrella limits equal to Al and Peggy (yeah, sure). But, seriously folks, there is no ISO endorsement to add coverage to the parents’ policy for this exposure You either have to avoid it or make sure that the other family member is properly insured.