If you continue to subscribe to this blog in the coming weeks, months and hopefully years, you’re probably going to get tired of me writing about this issue. If you subscribed to the Big “I” Virtual University newsletter for the past 17 years, I KNOW you’re tired of hearing about this issue. But, it involves such a potentially catastrophic coverage gap in most personal auto policies, that I feel compelled to continue to bring this to the attention of as many people as possible, including agents, underwriters and consumers.
Specifically, this is the liability exclusion (B.3.) I’m referring to in the ISO PAP:
Any vehicle, other than “your covered auto”, which is:
- Owned by any “family member”; or
- 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:
- Owned by a “family member”; or
- Furnished or available for the regular use of a “family member”.
Versions of this exclusion exist in pretty much every personal auto policy I’ve reviewed, in some cases being even more restrictive. First of all, there are MANY scenarios where this exclusion can preclude coverage for multi-million dollar claims or suits. The example in this post came today from an online insurance discussion board where a consumer asked:
“I have 4 vehicles and 3 drivers. I want to have the 3 drivers and 2 vehicles on one policy and 2 drivers (exclude 1 driver) and the other 2 vehicles on another policy. Can that be done? One driver will not be driving 2 of the vehicles at all and will not have access to them. He is our child and will be away in college. He will have access to the other 2 vehicles though. No ticket issues, just trying to save money.”
The question is convoluted but basically the situation is a husband and wife who have a son going off to college. Apparently the husband and wife each drive an auto (Auto 1 and Auto 2, respectively) and the son is taking two autos to college (Auto 3 and Auto 4) and allegedly will not be driving either of the parents’ vehicles (thus the driver exclusion mentioned above is attached to their PAP). We do not know how the son’s vehicles are titled, something that could impact the coverage observations below.
Let’s assume that the son is still considered a “family member” in the household, as most courts have held. Let’s further assume, for the sake of discussion, that the parents will insure their Auto 1 and Auto 2 on Policy A with high limits, excluding their son who allegedly “will not have access to them,” and they will insure Auto 3 and Auto 4 at college on Policy B covering mom, dad and son.
Let’s say the son has an at-fault accident at college in Auto 3 (Policy B) that results in death and permanent disability to people in another vehicle (in fact, it doesn’t matter who has the accident…if the son let a friend drive who had the accident resulting in a lawsuit against the family members). He is sued and his parents are sued for several million dollars. They submit the claims/suits to both insurers. The son’s Policy B covers all of them since the driver exclusion naming the son does not apply to Policy B, only Policy A. However, Policy B is written at minimum limits.
Policy A with the high limits (and maybe even a “following form” excess policy) does not cover the son because he is excluded under the driver exclusion endorsement attached to the parents’ Policy A. In addition – and this is the really, really bad news – neither parent is covered by their own policy (Policy A) because of exclusion B.3. above. Under Policy A, the son’s auto is excluded under both the first a. and b. above since it is owned by or available to the son, and the second a. and b. exception doesn’t apply because neither parent was maintaining or occupying the auto at the time of the accident. [Note: If the parents own Auto 3 and Auto 4, both autos would be excluded anyway under the parents’ Policy A under Exclusion B.2.a. (not discussed in this article), so the “furnished or available” issue in Exclusion B.3. would be moot.]
The moral of this story is that it is usually a good idea to cover all resident family members under one personal auto policy. If that’s not possible, it’s best to make sure that all policies are comparable terms and limits…and even that’s not foolproof because a scenario is possible where someone would have no coverage under their own policy because of exclusion B.3. and also be an excluded driver under another policy.
If your agency is a Big “I” member, you can access several other articles on this issue at their Virtual University, most of which are even less complicated than this one. Once you login to the VU, search using terms like “kids kars” and “parental liability.”
Special Thanks to Mike Edwards, CPCU, AAI and David Thompson, CPCU, AAI, API, CRIS for critiquing this article and suggesting editorial changes to, believe it or not, make it less confusing.
Photo by burnbless