PMU Motor Insurance and Business Law Case Study Questions

1Objectives
Why do you think there is a need for motor insurance?
Why motor insurance in most countries is compulsory?
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Content
I. Personal Auto Insurance.
II. Main types of coverages;
1- Liability coverage.
2 Collision coverage.
3 Comprehensive coverage.
4Personal injury protection coverage (PIP).
5- Uninsured and underinsured coverage.
6- Full coverage.
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Objectives
At the end of this chapter, you should be able to:
1. Understand all coverages in personal auto.
2. Understand how the liability coverage compensates other people for any losses that the
insured or the other drivers named in your policy, might cause.
3. Why do we need for motor insurance?
4. Why motor insurance in most countries is compulsory?
5. Understand how the Medical expenses coverage pays for any physical injures that the
insured or his passengers sustain, while in the vehicle.
6. Understand the difference between the Uninsured/ Underinsured motorist.
7. Understand the scope of cover provided by motor insurance products.
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II- Main types of coverages
What is covered?
There are many types of coverages for auto insurance policies. But, in general we can
speak about (6) six types of main insurance coverages: (Most auto insurance policies
include these standard benefit types)
1- Liability insurance coverage (bodily injury and property damage).
2- Collision coverage.
3 Comprehensive coverage.
4Personal injury protection (PIP): (Non-fault insurance).
5- Uninsured and underinsured coverage.
6- Full coverage.
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1- Liability coverage
Liability coverage is a mandatory coverage and the minimum coverage required by law, and
covers injuries or damages caused to other people or their property (the third party) and
includes two types :
a- Bodily Injury Liability: covers physical injury to any one in the other vehicles involved in an
accident, that the insured is at fault. (it will pay medical expenses, funeral expenses, and
possibly lost wages and damages for pain and suffering).
Bodily Injury – driver or car owner is held legally responsible for injuries suffered by
another person.
Bodily Injury Liability: This coverage applies to injuries that the policyholder and family
members listed on the policy cause to someone else. These individuals are also covered
when driving other peoples’ cars with permission. As motorists in serious accidents may be
sued for large amounts.
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b- Property Damage Liability: Covers any property damage caused by the insured to a third
person when the insured is at fault. (other auto or other property to the third party;
damage to a fence-garage door, or other real property…etc).
Property Damage – driver or car owner is held legally responsible for damaging another’s
property.
❖ Liability coverage pays for the policyholder’s legal responsibility to others for bodily
injury or property damage.
❖ Liability coverage doesn’t cover any bodily injury or property damage for the
policyholder himself or his family.
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– liability insurance is the basic cover that meets legal motor insurance requirements under the
law:
– Bodily injury or death to any person, which is recognized by the law as third party, including
total or partial disability, whether permanent or temporary.
– Material damages inflicted on a third party outside the vehicle.
– Claimants’ legal costs and expenses.
– The legal fees for defending any proceedings in a court of law.
– The legal fees for representation at any inquest or fatal inquiry in respect of any death.
– It covers the insured against the legal costs and damages that a third party incurs owing to an
accident with the insured’s vehicle, it pays to repair the third party’s car damages, and legal
fees in defending your claim against damages.
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Liability Coverage
Why should you care?
• Liability coverage is the most important part of the Personal Auto Insurance (PAP).
• Liability coverage protects an insured against a suit or a claim arising out of the
ownership or operation of a covered vehicle.
• The coverage is usually written in split limits, where the amounts of insurance for bodily
injury liability and property damage liability are stated separately.
Liability coverage: compensates other people for any losses caused by the insured or the
other drivers named in the insured policy.
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Liability coverage: doesn’t cover the insured damages, but it protects the insured
financially in regard with others.
Importance of Liability coverage: Without this coverage, if the insured makes an accident
in which he is at fault, he will pay third party’s bodily injuries and property damage out of
his pocket.
NOTE:
Liability coverage doesn’t cover any bodily injury or property damage for the insured
himself or his family.
Liability insurance is the minimum amount of insurance required by law.
Does not cover losses suffered by the insured or property damage to that driver’s car if the
caused the accident.
Must have at least the state minimum for liability insurance.
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Coverage limits
• According to the Saudi insurance market system, in the event of an accident occurring and
resulting in the payment of indemnity in accordance with the provisions of this policy, the
maximum limit of the insurer’s liability for one event and during the lifetime of the policy
for physical damage, expenses and material damages shall not exceed together a total sum
of SAR 10,000,000 (ten million Saudi riyals) as a maximum liability limit for coverage.
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Liability coverage applies to:
– The named insured and any resident family member.
– Any person using the named insured’s covered auto.
– Any person or organization legally responsible for any insured’s use of a covered auto on
behalf of that person or organization.
– Any person or organization legally responsible for the named insured’s or family members’
use of any auto or trailer (other than a covered auto or one owned by the person or
organization).
• The insurer also agrees to provide defense and pay all legal defense costs for claims covered
by the policy.
• The policy also allows for certain supplementary payments including:
• The cost of a bail bond. (bail expenses).
• Premiums on appeals bonds.
•14 Loss of earnings ($200/day).
– Interest accruing after a judgment .
– Other reasonable expenses.
Liability Coverage
• Exclusions to the coverage include:
– Intentional injury or damage.
– Property owned or transported by the insured
– Property rented, used, or in the insured’s care.
– Bodily injury to an employee.
– Vehicles used in the auto business.
– Vehicles with fewer than four wheels.
– Vehicle furnished, rented, for the insured’s regular use.
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Liability Coverage
• If an accident occurs in another state, and the financial responsibility
law in that state has higher liability limits than shown in the
declarations, the PAP automatically provides the higher limits.
• If more than one liability policy covers a loss:
– The insurer pays its pro rata share of the loss for an owned vehicle.
– The insurance coverage is excess over any other insurance for a
nonowned vehicle.
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Primary and Excess Insurance
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• An insurer (Insurance company) may not deny liability for indemnity towards a third
party because the insured (the driver or the person) responsible for the accident has
committed any violation, whether before or after the accident, or has not complied with
the provisions hereof, without prejudice to the insurer’s right of recovery against the
insured, the driver or the person responsible for the accident after indemnifying the third
party if the recovery is justified.
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TYPES OF MOTOR INSURANCE
POLICIES
(OPTIONAL COVERAGES)
1
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• Coverages for damage to the insured vehicle.
This coverage is for direct and accidental loss to the covered
automobile.
Includes
₋ Collision coverage.
₋ Comprehensive coverage.
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2- Collision coverage
Collision means physical damage to the insured vehicle caused by an
impact with another vehicle or object.
Collision coverage – pays for damage to the insured vehicle caused by the
insured striking something, (a vehicle, a pole or tree).
– It covers any property damage sustained by the insured’s personal auto,
due to the insured’s fault.
It is applied when:
• The insured is involved in an accident with another car (and he is at fault).
• The insured hits an object such as a tree, a fence,…etc.
It doesn’t cover : Damages due to theft or vandalism.
– Damages that are paid by from another driver’s policy, if the other
driver is at fault.
 It is an optional coverage that helps to repair or replace the insured car
(up to the actual cash value and minus the deductible).
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Why it is important to have of collision coverage?
If the vehicle owner, makes an accident in which he is at fault, Without collision
coverage, he would have to pay for his property damages out of his pocket.
• Under the coverage for damage to the insured auto, the insurer agrees to
pay for any direct and accidental loss to a covered auto.
• A collision is defined as the trouble of the insured auto or nonowned auto
or its impact with another vehicle or object.
• Collision losses are paid regardless of fault.
• Temporary transportation expenses, for train, bus, taxi expenses, these
expenses must be the result of a covered loss.
• Coverage is subject to a daily and total limit.
• Includes charges from a rental car company for loss of daily rental.
• Coverage for towing and labor costs can be added by an endorsement.
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• For a total loss, the insurer pays the actual cash value of the insured auto
minus the deductible.
• For a partial loss, the policy pays only the amount necessary to repair
or replace the damaged property of like kind and quality.
– Either party can demand an evaluation of the loss.
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• Exclusions to the collision coverage include:
– Damage from wear and tear (is the
damage or change that is caused to something when
it is being used normally), freezing, electrical
breakdown.
– Radioactive contamination or war.
– Certain electronic equipment.
– Tapes, records, and disks.
– Government destruction or confiscation.
– Trailer, camper body, or motor home.
-7 Racing vehicle.
and mechanical or
3- Comprehensive coverage
Comprehensive coverage: Covers third party plus a some of named perils
that might cause physical damage to insured vehicle.
It covers any property damage to the insured’s vehicle caused by any incident
other than a crash or a collision.
 It falls generally under “acts of God or nature,” or things that are typically
out of your control when driving.
• It may include vandalism, storms, theft…etc.
• It is an optional coverage that helps to repair or replace the insured car (up
to the actual cash value and minus the deductible).
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• Comprehensive coverage pays the cost of repair of the insured
vehicle less any deductible. Losses caused by the following:
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Missiles or falling objects;
Fire;
Theft or larceny;
Explosion or earthquake;
Windstorm;
Hail, water or flood;
Malicious mischief or vandalism;
Riot or civil commotion;
Contact with a bird or animal; or
Breakage of glass.
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Note:
Comprehensive and collision coverage are related but are often written
separately in the auto insurance policy.
Both coverages require the insured to bear a deductible before insurance
payments are made.
How can a deductible work ?
• If the insured is at fault in a car accident, the first portion of the vehicle
repairs are covered by his deductible.
 Everything above that amount (and below the actual cash value of the
car) is to be paid by the insurer.
• The deductible is generally applied per accident.
• The insured can select a high or a low deductible.
 The higher deductible, the lower premium.
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Example:
So, if a collision causes 5,000 SR of damage to the insured car, and
he has a 500 SR collision coverage deductible.
 The insured will bear the first 500 SR, then the insurer will pay
4,500 SR. (Assuming his car’s worth more than 5,000 SR).
But, if his bill is 490 SR, the insured would cover it all ( then the
insurer will pay nothing).
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Collision
&
• Required if the insured
finance his car.
• Covers the cost to repair the
insured car if the insured is
at fault in an accident.
• Don’t need this insurance if
the cost (premium &
deductible) exceeds the
value of the car.
Comprehensive
• Comprehensive covers the
costs to repair the insured
vehicle for damage that might
occur from:
Natural disasters, theft, fire,
animal hitting the vehicle,
falling object, glass coverage.
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4- Personal injury protection coverage (PIP): Called also (non fault
insurance).
It is a type of coverage that pays for the insured and the insured’s passengers
medical expenses and other expenses (E.g., Lost incomes, funeral expenses),
due to a car accident.
• This coverage is optional. It is given regardless of who is at fault.
• It doesn’t cover:
– Vehicle theft;
– Damage to other people property;
– Medical expenses that exceed the insured’s coverage limits.
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Note:
Medical payment coverage is different from PIP coverage. It gives less
coverage than PIP (it gives only strict medical expenses).
It is also applied regardless of who is at fault.
Importance of PIP and medical payment coverage:
If the insured causes an accident, and doesn’t have PIP or medical payment
coverage, he will have to pay out of pocket all medical expenses.
https://www.allstate.com/tr/car-insurance/medical-paymentscoverage.aspx
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Medical Payment, Personal Injury, and No-Fault
• Medical payment covers
the insured and his
Passengers if the insured was
at fault in an accident.
•
No-Fault allows
policyholders to submit a
claim to their insurance
company for reimbursement,
• Personal Injury covers
lost wages if the insured
can’t work as the result of an
accident.
instead of waiting to see who’s
fault it is.
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5- Uninsured and underinsured motorist
A- Uninsured motorist gives coverage for the insured, when an
accident is caused by an at fault driver who does not have liability
insurance, or in the case of a hit-and-run.
B- Under-insured motorist (UIM) gives coverage for the insured, when
an accident is caused by an at fault driver, who does not have
enough liability coverage to pay fully injuries and damages.
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Uninsured/ Underinsured motorist coverage
pays benefits to the insured if the insured car is hit by another driver
who has no insurance or too little insurance to pay for the full
amount of your injuries or property damage.
If you have Uninsured/Underinsured Motorist coverage, any bodily
injury you or an occupant of the insured vehicle suffers due to an
accident caused by another driver is covered under this policy. Hit-
and-run drivers may be classified as uninsured motorists.
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What do uninsured and underinsured motorist cover?
They pay, up to the policy limit for:
– Bodily injuries: (Medical expenses, lost wages…etc.).
– Property damages: (Damages to the vehicle, to the insured
property such as the insured’s house or fence).
Uninsured Motorist Coverage: Bodily injury and property damage.
Underinsured Motorist Coverage: Bodily injury only.
https://www.youtube.com/watch?v=-Zr63hTicTU
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What are the conditions of uninsured and underinsured motorist
coverage?
1- The accident must be caused by the other car driver, and the other
driver must be at fault.
2- The other car driver either has no insurance, or not enough coverage
or he hit-and-run from the scene.
Situations where we need it:
₋ Hit-and-run accidents (unidentified driver).
₋ Accident with an uninsured driver.
₋ Accident with someone with insufficient insurance to cover the losses.
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For example :
Jeffrey has an uninsured motorist’s coverage limit of RS 25,000, and
Ashley has an uninsured motorist’s coverage limit of RS 50,000. If
Jeffrey is injured by an uninsured driver while occupying Ashley’s
car and has bodily injuries of RS 60,000, Ashley’s insurer is primary
and pays RS 50,000. Jeffrey’s insurer pays the remaining RS 10,000
as excess insurance.
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Case study.
– Assume that Kristen adds underinsured motorists’ coverage to her
policy in the amount of RS 100,000. She is injured by a negligent
driver who has liability limits of RS 25,000 which satisfy the state’s
minimum required bodily injury limits. If her bodily injury damages
are RS 100,000. What is the amount she gets from the negligent driver and
the she gets from her insurer?
Solution
She would receive only RS 25,000 from the negligent driver’s insurer,
because that amount is the driver’s applicable limit of liability.
However, she would receive another RS 75,000 from her insurer
under her underinsured motorist’s coverage.
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6- Full coverage
• Full coverage is not a legal concept, but a marketing concept.
• There is no policy that gives really a full coverage.
• The term of full coverage contains different types of coverage.
• Typically, full coverage includes:
– Liability coverage;
– Comprehensive coverage and;
– Collision coverage.
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• Full coverage may not include many optional types of coverage:
Examples:
– Uninsured and Underinsured Motorist coverage;
– Gap insurance coverage: Pays the difference between the actual
cash value of a vehicle and the amount owed to buy new vehicle.
– Gap insurance is an optional car insurance coverage that helps pay off
your auto loan if your car is stolen and you owe more than the car’s
depreciated value.
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No-Fault Insurance
• No-fault insurance varies widely among the states, but they can
generally be classified into 4 basic types: pure no-fault, modified nofault, add-on, and choice no-fault.
1 A pure no-fault plan would disallow any lawsuits in connection with
an accident. Instead, the injured parties would be required to collect
from their own insurers.
2 A modified no-fault plan allows the injured party to sue only if the
amount of damage exceeds the monetary limit (threshold). Any
amounts for less than that must be collected from the injured
parties own insurer.
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3 An add-on plan is not considered a true no-fault plan because it
allows the parties to sue, including for pain-and-suffering. Injured
parties still collect from their ownership insurance companies but
they also have the right to sue the negligent driver.
4 Choice no-fault plans allow the insured to choose between the nofault coverage and pay lower premiums or to pay higher premiums
for the right to sue.
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Cancellation
• A policy Cancellations may be requested by either the insured or
the insurer.
• The insurer may cancel a policy if:
– The insured fails to pay the premium,
– Loses his or her driver’s license,
– Files too many claims, or
– Misrepresents information during the application process.
• Nonrenewal: if an insurer decides to discontinue coverage, the insured must
be given notice at least 20 days before the end of the policy period.
• Automatic termination: a policy is automatically terminated if the
insured decline’s (late) the insurer’s offer to renew .
http://businessinsure.about.com/od/propertyinsurance/g/Cancellation-Condition.htm
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• The insured may cancel a policy at any time and for variety of
reasons, such as after selling a car or finding a cheaper policy
(Lower price).
• To cancel the policy, the insurer must notify the insured (in
writing). And he might be due a refund for the remaining calendar
period for which he’s paid premium.
• So, the insurer can not cancel the policy at any time.
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