Next week, I’m doing a webinar with the legendary Chris Amrhein on ISO’s new 2018 Personal Auto Policy (PAP). About half of the webcast will be devoted to dozens of new changes, but the other half will focus on continuing coverage issues with the ISO and other PAPs in the marketplace. One of those issues is street racing.
Last year, the LA Times published an article about the rise in deadly street racing incidents. And, of course, we have the glamorization of street racing courtesy of “The Fast and The Furious” movie and video game franchises. So, for us, the question is, “Does AN auto policy cover street racing?”
I purposely capitalized “AN” because, as I’ve written many times before, when I was involved in the Big “I” Virtual University “Ask an Expert” service, questions about auto insurance coverage often began with “Does ‘AN’ auto policy cover….” You cannot generalize about insurance coverages. Insurance, even/especially auto insurance is NOT a commodity. Coverage depends on the specific wording of each individual insurance contract. This article provides a real-life vivid illustration of this point, one Chris and I will discuss in next week’s webinar.
In one claim submitted to the VU “Ask an Expert” service, a business owner had insured a personally-owned auto normally driven by his son on his business’s ISO business auto policy (BAP). Why? It was cheaper. I wrote a series of articles for the VU several years ago that included many examples of writing personally-owned autos on BAPs and business-owned autos on PAPs. In every instance, the reason was price. It didn’t matter that the coverage form was the wrong one for the exposure…someone was able to save a few dollars while putting their assets and income at risk for an uncovered claim. That’s what you get when you view “car insurance” as a commodity differentiated solely by price.
In the instant case above, the son was street racing when he lost control of the car and wrecked, killing his passenger. In the resulting lawsuit, the insurer denied the claim, citing the “racing” exclusion. This is the racing exclusion in the current ISO PAP:
“Any vehicle, located inside a facility designed for racing, for the purpose of…Competing in; or…Practicing or preparing for…any prearranged or organized racing or speed contest.”
Note that the ISO PAP exclusion is triggered only while the vehicle is located inside a racing facility, not while racing on a street. However, since the son’s car was insured on the ISO BAP, this exclusion applied:
“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.”
Note that the language in the BAP exclusion is different from that in the PAP. It does not condition the exclusion on the auto being inside a racing facility. Therefore, street racing MIGHT be excluded. I say “might” because it still requires that the activity be “professional or organized.” In this particular case, the street racing was spontaneous and not organized. Despite the initial carrier denial, we were able to get them to reverse that position by pointing out that language in the exclusion. (If someone bought auto insurance online from a direct sales insurer, would they get the same advocacy and claim denial reversal this customer got from his agent?)
As you can see, the difference in language in these “racing” exclusions can potentially mean the difference between a covered claim with unlimited defense coverage and a denial. In this case, the customer had high limits in the form of the PAP and an excess policy but those limits wouldn’t matter much if there was no coverage.
And it gets worse….
Recently I did some seminars in North Carolina where they have a bureau-mandated auto policy. This is the racing exclusion in that policy:
“Any vehicle while participating in any prearranged, organized, or spontaneous…racing contest, speed contest, demolition, stunt activity….”
Note that this non-ISO PAP language does not condition the racing exclusion on being inside a racing facility or on an organized racing activity. In other words, a non-ISO PAP with this language would have resulted in the claim against the business owner’s son being excluded and the family being out potentially millions of dollars.
Insurance is NOT a commodity.
Just three days ago, my mother-in-law asked me to look at her Nationwide auto policy. I noticed the same “spontaneous” language in that policy’s racing exclusion. Not that my 84-year-old mother-in-law does a lot of street racing, but some individuals or families might include insureds who could become involved in some testosterone-fueled street racing. This illustrates the importance of underwriting in identifying likely loss exposures and matching them with the appropriate insurance policy. This, in addition to claims advocacy, is another value an independent insurance agent brings to the table.
P.S. ISO is revising their racing exclusion in their new 2018 PAP. To find out what that change is, consider signing up for next week’s webinar that I’m doing with Chris Amrhein. For more information, click here TODAY and scroll down the page.
Insurance is NOT a commodity.
Spread the word:
“There is hardly anything in the world that some man cannot make a little worse and sell a little cheaper, and the people who consider price only are this man’s lawful prey.” – John Ruskin
Photo by Alexandre Prévot
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