Come hurricane season along the coastal areas of the United States the same situation plays out time and time again. A client who is covered by a personal auto policy (PAP) or business auto policy (BAP) replaces a car or acquires an additional car calls his agent or company to add the car to the policy. The agent contacts the company and is told, “I’m sorry, there is a storm in the box and we are shut down; we won’t make the change.” The client is, rightfully so, concerned that his car will be damaged by the approaching hurricane and asks the agent what to do. The agent says simply, “There’s nothing we can do, just hope nothing happens.”
There is some good news to share here and that good news is that the vehicle is automatically covered by the policy, even with a storm “in the box.” This is true as long as the policyholder complies with the notice requirements in the PAP. Under the BAP the issue has a slightly different twist but in most cases there is automatic coverage there too. Regardless of what the company says, if the car is damaged by the storm the policy responds, again as long as the policyholder gives the proper notice.
This discussion centers on the 1998 and 2005 version of the Insurance Services Office (ISO) PAP. Forms for non-ISO based companies should be consulted. The PAP speaks of coverage for a “newly acquired auto” which can be either a replacement auto or an additional auto. The policy defines a “newly acquired auto” as follows:
K. "Newly acquired auto":
1. "Newly acquired auto" means any of the following types of vehicles you become the owner of during the policy period:
a. A private passenger auto; or
b. A pickup or van, for which no other insurance policy provides coverage, that:
(1) Has a Gross Vehicle Weight Rating of 10,000 lbs. or less; and
(2) Is not used for the delivery or transportation of goods and materials unless such use is:
(a) Incidental to your "business" of installing, maintaining or repairing furnishings or equipment; or
(b) For farming or ranching.
If the insured acquires an additional vehicle or replaces an existing vehicle then it becomes a “newly acquired auto” as long as it’s a vehicle of the type shown above. ( Editor’s note: Some larger pickup trucks exceed 10,000 pounds GVW and thus there would be no coverage at all for an additional or replacement vehicle in these cases, even ignoring the “storm in the box” scenario.)
The 1998 and 2005 versions of the Insurance Services Office (ISO) PAP have the following wording:
2. Coverage for a "newly acquired auto" is provided as described below. If you ask us to insure a "newly acquired auto" after a specified time period described below has elapsed, any coverage we provide for a "newly acquired auto" will begin at the time you request the coverage.
b. Collision Coverage for a "newly acquired auto" begins on the date you become the owner. However, for this coverage to apply, you must ask us to insure it within:
(1) 14 days after you become the owner if the Declarations indicate that Collision Coverage applies to at least one auto. In this case, the "newly acquired auto" will have the broadest coverage we now provide for any auto shown in the Declarations.
(2) Four days after you become the owner if the Declarations do not indicate that Collision Coverage applies to at least one auto. If you comply with the 4 day requirement and a loss occurred before you asked us to insure the "newly acquired auto", a Collision deductible of $500 will apply.
(For the sake of brevity, only collision coverage is discussed here; coverage for “other than collision” is provided in the same manner.)
Note that the policy states that collision coverage (as well as “other than collision”) begins on the date the insured becomes the owner of the auto. This automatic coverage applies as long as the insured asks the company to insure the auto within 14 days if at least one automobile on the policy has physical damage coverage. If no automobile on the policy has physical damage coverage then the insured must ask the company to insure the automobile within four (4) days. The coverage provided for a “newly acquired auto” is the broadest of any automobile on the policy. If no automobile has physical damage coverage then such coverage is automatically provided with $500 deductibles. Several examples will illustrate how coverage applies:
Example #1:
Bill has a PAP with two cars, both of which have physical damage deductibles at $500 deductibles. He obtains an additional Chevy Impala on July 1 st and a storm hits the box on July 3 rd. He calls the company, requesting coverage, on July 6 th. Since Bill met the 14-day requirement his policy provides automatic physical damage effective on July 1 st.
Example #2:
Bill has a PAP with two cars. One has physical damage deductibles at $500 deductibles while the other (a 1985 Ford) has no physical damage coverage. On July 1 st he replaces the 1985 Ford with a brand new Corvette. A storm hits the box on July 3 rd, and Bill calls the company on July 6 th to make the policy change, requesting physical damage coverage be added. Since Bill met the 14-day requirement his policy provides automatic physical damage coverage on the new Corvette effective on July 1 st.
Example #3: Bill has a PAP with two older cars, neither of which has physical damage coverage. He trades in one of the cars on July 1 st, obtaining a new Corvette. A storm hits the box on July 2 nd. Bill calls the company on July 4 th to make the change request, and asks for physical damage coverage. Since Bill met the four-day notification requirement he has coverage effective July 1 st at $500 deductibles…even if the carrier says, “We won’t add the car.”
Example #4:
Bill has a PAP covering two cars, both of which carry collision and other-than-collision coverage. On July 1 st he replaces one of the cars with a new Corvette. A storm hits the box on July 3 rd. Bill does not contact the company until July 18 th to request coverage. Since he missed the 14-day notification requirement coverage begins on July 18 th, even if there is a storm in the box at that point.
It’s important to note that the reference to 14 or four days does not address how long coverage applies. The reference to a specific number of days addresses how long the insured has to notify the company. If Bill obtained an additional auto on July 1 st, and notified the insurer within 14 days then coverage continues indefinitely, or at least until the policy is cancelled or non-renewed. It’s incorrect to state that coverage applies for 14 days if the insured notifies the insurer. The correct statement is, “The insured has 14 days to notify the insurer of the newly acquired auto. In this case, coverage is in effect until the policy is no longer in force.” (In cases of no physical damage coverage on the policy the 14-days becomes four-days.)
While not directly related to a storm scenario, this automatic coverage principle also applies in situations where the insured obtains a vehicle that is on a “restricted list” of an insurer. For example, ABC Insurance Company has underwriting guidelines which state they will not write a Corvette. When the insured trades in a Ford Taurus for a Corvette there is automatic coverage for all coverages under the PAP as long as the 14-day notice (or four-day in cases of no physical damage coverage provided on the policy) requirement is complied with. The insurer has no basis to refuse to add the Corvette to the policy. In fact, under Florida law (F.S. 627.728) the insurer can’t cancel this type risk; they may only non-renew it.
The bottom line is the PAP provides automatic coverage for newly acquired autos as long as the insured meets the notice requirement in the policy. The insurer is “on the risk” so to speak and would be best served to add the auto to the policy and collect the premium.
Under the standard ISO BAP the automatic coverage applies in a similar way, but there are a few other issues to address. Those issues are: 1> What coverage symbol is used on the declarations page to indicate physical damage coverage, and 2> Whether or not all owned automobiles are already covered for physical damage coverage.
When physical damage is provided with symbols 2, 3, or 4 there is automatic physical damage coverage for an indefinite period of time for newly acquired autos. Even if there is a storm in the box a newly acquired vehicle or replacement vehicle is covered for physical damage coverage solely due to the fact that it’s an owned auto.
When symbol 7 is used, automatic coverage is provided for 30 days only if all owned autos are provided with physical damage on the BAP. For example, if the insured owned 15 vehicles and only 14 had physical damage coverage then there is no coverage (storm in the box or not) for a newly acquired auto. If all 15 vehicles were already covered for physical damage coverage via symbol 7 then a newly acquired (replacement or additional) vehicle is covered for 30 days.
Standard ISO automobile insurance policies provide amazingly broad coverage for additional and replacement vehicles, even when a storm is in the box and an insurance company is “shut down” for new physical damage coverage. While the company can refuse to write a new risk when a storm is in the box, they can’t expect to say, “We won’t cover that new vehicle” and expect the policy to support such statement.
David Thompson 3/12/06