An agent insures both the mother and father of a teenage son. The parents are legally divorced, and both refuse to add the 16-year-old to their respective personal auto policies. The teenager is a licensed driver but does not drive any vehicle on a regular basis.
Q: What is my obligation in this situation? I have separate documentation for each parent that they do not wish to insure the son. Can I disclose to either of them what the other is carrying for insurance? Can I tell them both to grow up and act like adults? Please advise.
Response 1: I saw an unreported teenager in a wealthy family in a similar situation several decades ago. The father drove a business-insured car, and the teenager lived primarily with the him. The mother had a PAP that didn't list the child. The teenager and a friend "borrowed" the father's girlfriend's sports car, ran a red light at considerable speed and T-boned a family car on the passenger side. The impact killed the passenger-seat occupant, a pregnant mother of several small children. The unborn infant was saved. The father and other children suffered additional injuries.
You have a duty to disclose to the insurance company. The parents’ squabble should not delay advising the carriers about the child. And you should also be concerned about the application of personal umbrella coverage—it became very important in the above example.
Response 2: You need to notify both insurers about the situation. Most decent PAPs automatically cover "family members"—if they both have custody, he might qualify as a "family member" under both policies, unless there’s a driver exclusion. Find out what the carriers want to do. If neither parent will pay the additional premium the insurers are entitled to receive, the carriers will likely exclude the son. Depending on the exclusion wording, the parents may find themselves facing a claim or lawsuit with no coverage of their own, until both carriers non-renew them. The son likely should be added to both policies.
Response 3: I think you’ve done all you can do in this situation by documenting the refusal of each to add the child to their respective policy. I would encourage you to follow up with a formal letter to each parent individually, stating they have no coverage for the child under their PAP and reiterating that any related claims would not be covered.
Response 4: Remember—an agent is not the customer’s agent, but rather an agent of the carriers that provide the auto insurance. The agent's knowledge should always be the carrier’s knowledge. Your contractual obligations probably require you to inform both carriers about this situation.
What the customers don't realize is that their policies automatically cover the new driver. The ISO PAP covers the named insured plus any "family member" for the use of any auto, and "family member" includes a person related to the named insured by blood, marriage or adoption who is a resident of the named insured's household. A minor who splits time between his divorced parents' households is a member of both. Therefore, the 16-year-old is insured, whether Mom and Dad like it or not.
I suggest you explain this to each parent and inform them that you plan to notify both carriers. I don't know what the laws are in your state, but my state permits a carrier to retroactively charge additional premium for a youthful operator when it finds out about one. I doubt either parent would be too pleased about a bill for three years' additional premium. Better to let the carriers know now.
The customers may not like this. As an agent, you must decide whether to withhold the information from the carriers to please your customers, or to honor your obligation to the carriers—and possibly lose the customers' business.
Response 5: If you are an agent of the insurance company and you know the child is driving vehicles in each household, you are obligated to report it to the underwriter. Explain that to the clients, and then do it. After that, you can tell both parents to find a new insurance agent and that you will cooperate with the release of the account to the new producer, who should file an agent or broker of record with the insurer.
Response 6: The teenager may already be insured on both policies as a "family member." Alternatively, coverage may be excluded because the carrier is not receiving premium. Either way, this is an exposure the carriers should know about. Ask how they'd like to handle the situation; then, advise the insureds.
Response 7: I sure don't blame you for wanting to place the responsibility for this situation squarely where it belongs! I think your best course of action is to tell them to figure it out themselves, or get an attorney to figure it out for them and advise you—in writing—of the decision. It wouldn't hurt for you to document to both of them that the teen driver is not currently named on any policy.
Response 8: As a resident relative, the child automatically becomes an "insured" under the parent's policy in whose home he resides. If they have equal custody, I believe the child could be considered a resident of both households, but this is up to the courts. Adding the child as a driver is a matter of rating, not coverage. The carrier deserves to charge a rate for the exposure. As an agent for the carrier, you have an obligation to disclose pertinent underwriting information to the carrier, and this is that. I'd be tempted to notify each carrier that the child is now driving and let them take appropriate action with each of their policies to obtain the premium due.
Response 9: Notify both carriers that there is a 16-year-old youthful operator and let them decide what to do for rating purposes. Failure to disclose the 16-year-old to the carriers would be a serious breach of duty on your part. The divorce decree should address responsibility. If not, both parents need to talk to their attorneys and get this figured out. Don’t let yourself get pulled into the middle.
I’d also evaluate how badly you need these two people as clients. Sometimes, we give our marginal customers the phone number of the local State Farm agent.
Response 10: Since they both refuse to add the son to their respective policies, you could have both carriers issue a driver exclusion for the son—that way, they get exactly what they want. That may give you an opening to get the son on at least one policy with a sharing of costs. If they’re adults, that is.
Response 11: You have knowledge of a material fact that you must share with the carriers. Your first and foremost duty is to the company you have a contract with—that's way more important than a couple of auto policies.
Let the underwriters know. They already have a record of the family members, which means they can run a check and find out about the youthful operator independently. Let them take credit for finding the problem.
Response 12: The ISO form covers family members living in the same household. A child from a divorced family is allowed to be a resident of both households. That means both polices offer coverage on a proportionate basis. The problem of driving another vehicle that is currently available on a regular basis is still in effect, but would not apply to family-owned vehicles under the permissive use wording.
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