Personal Auto, Insurance Hitchhiking and Mechanical Breakdown
By: Bill Wilson
Everyone thinks they pay too much for insurance—just like we think we pay too much for gas, milk, shoes and just about everything else. Likewise, everyone wants to save money. Sometimes, however, the games played with insurance pricing can get a little out of hand.
Our “Ask an Expert” service recently received the following question from a consumer:
“We have three cars and three drivers, one being a 20 year old male college student. Our agent suggested that we add our 26-year-old daughter to the policy as well to lower the premium (that way the college kid would not be a primary driver). This has been going on for more than three years. Our daughter has not lived with us during this time—she is married and lives in New York.
My question is this: Is it legal to keep her as a primary driver on one of our cars, and how should she be rated? They rate her as unmarried and driving less than miles to school or work, both of which are false! Can we legally keep her on the policy and change her rating to married and driving for pleasure? By the way, she is part owner of the car she is rated on. She paid for it while in college.”
For more details, click here.
Lessor’s Risk: Insurance Hitchhiking
The insured is an incorporated consulting firm. The president personally owns the building and rents it to his firm without a written lease agreement. Is the CG 20 11 sufficient to protect him for the premises liability exposure, and is a loss payee endorsement for his benefit sufficient for his property ownership? He wants to handle things this way, without carrying insurance in his own name. Are there any gaps or problems with this approach?
This practice is often characterized as “hitchhiking” on another’s insurance, and it has all the risks of real hitchhiking. Therefore, the best recommendation is for the owner of the building to get insurance in his own name and not rely solely on the insurance of his tenant. Keep in mind that corporations and humans are distinct and separate targets for lawsuits.
For more specific reasons why “insurance hitchhiking” is dangerous, click here.
Mechanical Breakdown
While driving a truck on a bumpy road, the air filter clips apparently came loose, causing the filter to loosen. Dirt then entered the motor and caused extensive damage. The adjuster denied the claim based on “mechanical breakdown” and “wear and tear.” The motor didn’t just break down or wear out…the rough road was an “outside intervention” that caused the loss. Is this covered or not?
If damage to property is caused exclusively by mechanical breakdown, the loss is clearly not covered. If ensuing loss occurs that is not otherwise excluded, that loss (or portion thereof) is clearly covered.
However, if mechanical breakdown results in additional mechanical breakdown, particularly within the same “system,” coverage is less clear. The consensus is that such subsequent or consequential loss is most likely also excluded if caused by mechanical breakdown. If there are intervening factors, then there could be a basis for coverage if they are not otherwise excluded.
Mechanical breakdown coverage is readily available for commercial property, but not for auto coverages or personal lines property exposures. If someone could figure out how to provide this coverage as an option in auto (personal and commercial) and homeowners policies without picking up general “wear and tear” exposures, it could be a valuable product. The endorsement would have to be craftily written so as to exclude the initial loss, but cover subsequent consequential loss, most likely with a sizeable deductible.
For coverage analysis of five different mechanical breakdown claims, click here.
Bill Wilson (bill.wilson@iiaba.net) is Big “I” director of the Virtual University, an online learning center for agents and brokers.
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