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No Man’s Land: Insuring a Vehicle While the Title Is Being Transferred?

If the seller removes the vehicle from their personal auto policy, will the buyer’s existing policy provide coverage to the new car even if they haven’t added it yet?
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no man’s land: insuring a vehicle while the title is being transferred?

Q: An insured is buying a car and is in the process of acquiring the title. If the seller removes the vehicle from their personal auto policy, will the buyer's existing PAP provide coverage to the new car even if they haven't added it to their policy?

Response 1: If the purchaser of this uninsured vehicle has an in-force policy equivalent to the industry-standard ISO PAP–PP 00 01 01 05, the purchaser will automatically enjoy coverage on that newly-acquired vehicle equivalent to the broadest coverage the policy provides for any auto shown on the policy declarations. 

Essentially, the purchaser would automatically have liability, uninsured motorists coverage, medical payments, collision and other-than-collision on the newly-purchased auto if those coverages exist on at least one auto scheduled on his policy. 

However, there are caveats when it comes to the continuation of physical damage coverage. The ISO PAP includes physical damage coverage on at least one of the autos already insured under the policy, the purchaser of the newly-acquired auto must ask the insurance company to insure it within 14 days after they become the owner for either or both of the physical damage coverages to continue. 

On the other hand, if none of the autos already existing on the policy have physical damage coverages, the purchaser has only four days after they become the owner to ask the insurance company to insure it for physical damage coverages or coverage for the newly-acquired auto ceases.

Note that not all PAPs follow ISO's gold standard PP 00 01 01 05. Insurer philosophies and mottoes like “only pay for what you need" have resulted in some insurers using cut-down policies.

Response 2: Assume no coverage without notifying the buyer's carrier first. There is no telling what the buyer has for insurance—if anything.

Response 3: This is a slippery slope. The recommended practice is to not remove the vehicle from the seller's policy until the title has transferred. Some of this is specific to state regulation. If you signed the title over but the buyer didn't get the transfer completed, the selling party could still be held responsible in some situations as the “owner/registrant" of the vehicle. 

There are a variety of ways that auto policies cover newly acquired vehicles. Some might say within 30 days, but it could be as little as 14 days after becoming the owner. Once again, this may rely on statutes to determine when ownership actually transfers. These situations are subject to interpretation based on individual circumstances. 

If you are looking for a best practice standard in handling these situations, it is best to keep the vehicle on the seller's policy until they know that the title is transferred. I know some sellers insist on going to the Secretary of State office with the buyer to confirm this.

Response 4: I am aware of at least one instance where a serious accident occurred after the buyer took physical control of the vehicle but there was no title transfer or DMV release. Litigation ensued with both the seller's and buyer's insurers arguing about liability and coverage.

If you are asking after the fact, then you need to deal with the facts. If you are thinking hypothetically, then advise the seller that the best time to remove the vehicle from their PAP is after the title has transferred.

Response 5: Many policies do give a specified number of days for coverage to allow the buyer time to make contact and have the info. However, coverage is most often restricted to current cars, so if no currently listed car has physical damage, neither would the newly acquired one. Better never to delete a car from a policy until it is sold.

This question was originally submitted by an agent through the Big “I" Virtual University's (VU) Ask an Expert Service, with responses curated from multiple VU faculty members. Answers to other coverage questions are available on the VU website. If you need help accessing the website, request login information.