This is the time of year when northern “snowbirds” winter in their southern abodes. As a result, they may want to temporarily discontinue all or some coverage on the autos they garage up north. Or someone my have an auto they’re doing a major rebuild on and want to suspend all or some coverage. In commercial lines, some insureds may want to store certain vehicles for the season and, since they’re limited to sitting on a premises for months, cover the liability under the CGL policy and drop collision under the auto coverage.
ISO has BAP suspension and reinstatement endorsements (CA 02 40 and CA 02 38, respectively. ISO does not have PAP endorsements for this, but many carrier have their own forms. Should these endorsements be used?
You can count on some insureds forgetting to call for reinstatement. You can count on there being an unseasonably warm day when an insured is tempted to take the vehicle out for a spin.
Or, as in one real claim, you can have an insured who decides to do a little work on the vehicle, it catches on fire, burns up the vehicle (and garage/house), and the fire spreads to cause five-figure (or more) damage to the house next door.
Or someone steals the Corvette convertible during the lay-up period, kills someone, and the insured is sued.
NEVER suspend the liability coverage on an auto policy. And what you save by suspending the collision coverage for a few months is peanuts compared to the potential for damage (especially if comp is also suspended).
That’s my story and I’m sticking to it. If you believe there is a compelling reason FOR suspending coverage, your comments can be added below.
Bill Wilson
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Bill, is it even possible to suspend liability coverage in a compulsory insurance state?
Allen, great point. I suspect it depends on the law and the status of the vehicle. From a commercial lines standpoint, the ISO suspension endorsement does permit suspension of the liability coverage. I’m not familiar with the various mandatory/financial responsibility state laws, so perhaps it is permissible as long as the vehicle is not being operated on public roads.
P.S. I asked around if anyone knew off the top of their head about a likely state exception. Chris Boggs, my successor at IIABA, provided this:
Alabama:
Exceptions.
This chapter shall not apply to any of the following vehicles or operators:
(9) Inoperable or stored motor vehicles that are not operated, as defined by rules and regulations of the department and not subject to the provisions of Section 32-7A-7.
This is from a blog I wrote.
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Suspending Auto Insurance – Penny Wise and Pound Foolish
Posted by David Thompson on Sep 19th, 2013 7:25am
I admit that I’ve never had any sympathy for people who want to make the foolish decision (in my view) to suspend coverages on their auto policy, typically when they “go north” for the season and leave a car “down south.” I’ve always taken the position that if you can afford to own multiple cars and multiple homes in multiple states, then you can afford to insure multiple cars and multiple homes. In fact, during my days in the agency we were able to convince our lead auto carrier to discontinue the practice of allowing coverage to be suspended.
An email just a few weeks ago illustrates the danger in suspending coverage on any auto policy. The customer contacted the agency to advise that he had struck a rather large brick mailbox with his car, causing damage to both the mailbox and the car. The agent reminded the customer that he (the customer) had signed a form to suspend coverage several months back. The customer replied with, “I thought I had contacted you to add coverage back on.” The response from the agent was simply, “No sir, you did not do that.” The agent’s email to me said, “He is real lucky that all he hit was a mailbox and not some kid on a bicycle.”
A nearly identical situation happened about a year ago in Monroe County. During a class there, an agent advised me that a customer had requested that all coverage except PIP, property damage liability, and comprehensive be suspended while the customer was north for the season. The customer flew back to Monroe County on the weekend. Needing groceries for the house, the customer drove to the grocery store and, while backing out of a parking space, he hit a parked car. Fortunately, the other car was not occupied and damage to the both vehicles was not severe.
In a more tragic situation, another insured had a pickup truck that had several cracked pistons. He parked it in his yard for several months, used his motorcycle instead, and suspended coverage on the pickup truck. He finally purchased a new engine and got some friends to help him remove the old engine. They looped a chain over a tree limb, connected the chain to the old engine, and used a “come-along” winch to raise the old engine out of the truck. Somehow, the chain came loose and struck one of the friends in the face, causing him to lose an eye. There was no coverage under the PAP because coverage had been suspended and the court agreed with the insurer that the homeowners policy did not apply due to the motor vehicle exclusion.
I did a quick Internet search about suspending auto insurance and, as suspected, I found many articles touting the benefits of suspending. The common theme was, “Save money.” I’d prefer to think of it as, “If you reduce your coverage you can reduce your premium.” Not one article cautioned about the possibility of an accident taking place while coverage had been suspended.
When a customer suspends coverage under an auto policy, does that action present a possible E&O situation against the agency? I think we know that answer! Such being the case, how should requests to suspend coverage be handled by the agency?
The obvious answer and best risk management approach is to advise the customer that it is an agency policy that coverage cannot be suspended. This is the risk management concept of “avoidance.” No doubt, the customer may not like that response, but I equate it to the days when my father would spank me and say, “This is for your own benefit.” (I never understood that until I used the same line with my daughter!) Not suspending coverage reduces the possibility of a denied claim due to suspended coverage to zero.
Suppose, however, that the agency (for some reason) wants to allow a customer to suspend coverage. My speculation is that the line may go something like, “If we don’t do it, we will lose the account.” My “ivory tower” response would go something like, “This is an account that you don’t need anyway.” What is the best course of action here? Three words sum it all up: “Documentation, documentation, documentation.” Certainly, the request to suspend and the request to reinstate should not be taken verbally. Signatures of all named insureds should be required to suspend and to reinstate. The request to suspend should state that the agency has explained the dangers of this action and has recommended against suspending coverage. It should also state that the customer understands that no coverage will be reinstated until all named insureds sign the request to reinstate, the request is sent to the agency, and the request to reinstate is confirmed in writing by the agency.
GREAT analysis, thanks.
Really good article and easy to understand.Not an easy insurance concept to put into writing!