Variation on a Theme: Another Teen Driver Coverage Gap

A 17-year-old lives with her mom and dad, but her parents have not listed her as a driver on their auto policy. The teen’s grandparents, who reside elsewhere, have given her a car to use on a regular basis—it’s registered and insured in the grandparents’ names but kept at the teenager’s residence.

Q: “The grandparents did not list the teenager as a driver on their policy, either. If she has an accident with her grandparents' car and her parents get pulled into a lawsuit, would the parents' policy respond for liability coverage?”

A: “You do not say whether these are ISO PAPs or proprietary auto policies, so we can only respond on the premise that they’re all ISO forms. If not, then nothing we say may be on point. Also, absent any fraud to the contrary, listing as a driver on an ISO PAP is a rating issue, not a coverage issue. That may not be the case under some non-ISO policies.

So, assuming a 2005 ISO PAP, liability exclusion B.3. in the parents' policy—for vehicles other than owned/declared autos furnished or available for the regular use of their resident daughter—excludes coverage under the parents' policy for any insured. However, the policy makes an exception for the named insured ‘while you are maintaining or occupying’ such vehicles.

If the daughter negligently causes an accident that results in horrific injuries or death to others, you can be assured the parents will absolutely be sued on several possible grounds. And if the accident had nothing to do with the parents maintaining or using the auto at the time of the accident, the parents would have no coverage under their own policy.

If the grandparents have an ISO PAP, the granddaughter should be covered as a permissive user and her parents should be insureds for their vicarious liability only. In other words, the parents could have a high limit PAP and a ‘following form’ excess/umbrella policy with multi-million dollar limits, but not be able to touch their own insurance.

If the grandparents gave this auto to their granddaughter, why don't they transfer the title to the parents and insure it under the parents' PAP (and hopefully umbrella) policies? This would solve the problem.

The Big ‘I’ Virtual University (VU) offers a plethora of information on family auto issues like this. Search the VU for ‘kids cars’ or ‘parental liability’ and you’ll find a number of articles involving various claim scenarios that present catastrophic coverage gaps unless the account has been properly structured.”

Bill Wilson is director of the Big “I” Virtual University.

This question was originally submitted by an agent through the VU’s Ask an Expert Service. Answers to other coverage questions are available on the VU website. If you need help accessing the website, email to request login information.