In one of my first blog posts, I discussed coverage for indirect or consequential damage under homeowners policies. Recently, this question came through the Big I’s Virtual University (I’m paraphrasing for brevity):

“One tire on an insured’s all-wheel drive vehicle was damaged in a covered collision loss. The carrier offered to pay for two front tires, with an allowance for betterment. The manufacturer and tire retailers say all four tires should be replaced at the same time. The insured believes that the insurer, having agreed to pay for two tires, must now agree to pay for four new tires, less betterment. Who is correct?”

The ISO Personal Auto Policy (PAP) says that the insurer “will pay for direct and accidental loss….” The ISO Business Auto Policy (BAP) has similar language. Both cover only DIRECT damage. In this case, only one tire was directly damaged, so there should be no coverage for the consequential loss via manufacturer-suggested replacement of the undamaged tires. The policy does not cover compliance with manufacturer recommendations. Unfortunately, unlike the “pair or set” clause in the ISO HO forms discussed in my prior article, there is no similar coverage in ISO’s auto policies.

However, the carrier has already gone on record as saying it would pay for a second tire, though the logic of this offer is unclear. Is it possible that they have established a precedent that could extend to all four tires, depending on the rationale for replacing the second tire? What do you think? Feel free to express your opinion in the Comments section below.

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Bill Wilson

Founder at InsuranceCommentary.com
One of the premier insurance educators in America on form, coverage, and technical issues; Founder and director of the Big “I” Virtual University; Retired Assoc. VP of Education and Research from Independent Insurance Agents & Brokers of America. Reprint Request Information