Question

Assume that Kirby owns the PAP discussed in this chapter and reproduced in Appendix A on page 379. His policy has the following limits:

Part A = $100,000

Part B = $5,000

Part C = $100,000

Part D = $1,000 deductible for collision; $500 deductible for other than collision

Assume that each of the events described in the following situations occurs separately. The actual cash value of Kirby’s car is $15,000. You are to calculate the amount Kirby’s insurer will pay in total (i.e., net after any deductibles that Kirby must pay).

1. Kirby negligently collides with a farm tractor. The tractor is traveling on the highway to get from one farm to another. Kirby was at fault. The farmer successfully sues for $90,000 in bodily injury damages and $21,000 in property damage to his tractor. The lawyers charge $10,000 to defend Kirby in court.

2. Kirby’s daughter, Suzy, strikes their home and their second car while learning how to drive. She is sixteen years old and has a learner’s permit. Damage to Kirby’s home is $30,000, and damage to each car is $7,500. Both vehicles are insured with the same policy.

3. Kirby runs a stop sign and collides with a parked car, causing $5,000 of damage to each vehicle.

4. While using his car as a delivery vehicle for a local florist, Kirby is struck by an uninsured motorist. He has $15,000 in medical expenses and lost wages. His car is destroyed as the damage amount is $16,000.

5. Kirby lends his auto to Emma. Emma has her own PAP, with coverage identical to Kirby’s. Emma runs over and injures a famous baseball player who recently signed a three-year, $27 million contract. Emma is sued for $32 million.

6. Kirby borrows his neighbor’s car for a week while the neighbor is on vacation. Unfortunately, Kirby did $5,000 damage to the neighbor’s car while he was driving it by hitting a tree.

7. Kirby hits a deer on Door County Highway A. His car is destroyed.

Answer 1

The personal auto policy (PAP) is a standardized design for auto insurance. These policies offer coverage for liability, medical payments, damage to the vehicle and damage from uninsured/underinsured motorists.

Part A - explains the liability coverage

Part B - explains the medical payments coverage

Part C - explains uninsured motorists

Part D - explains the damage to the car

Kirby negligently collides with a farm tractor. The tractor is traveling on the highway to get from one farm to another. Kirby was at fault. The farmer successfully sues for $90,000 in bodily injury damages and $21,000 in property damage to his tractor. The lawyers charge $10,000 to defend Kirby in court.

Kirby will pay the limit coverage in Part A $100,000+$10,000 ( legal cost) - The total damage cover will be $90,000+21,000 = $111,000 (leaving $11,000 uncovered).

Kirby’s daughter, Suzy, strikes their home and their second car while learning how to drive. She is sixteen years old and has a learner’s permit. Damage to Kirby’s home is $30,000, and damage to each car is $7,500. Both vehicles are insured with the same policy.

If the insurer daughter has a learner permit, it's a good idea to notify the insurer to include her in the policy. As a learner driver, they may be covered on your auto policy because they are using your vehicle with your permission. Once they get their driver's license, you'll likely need to add them as a listed operator on your policy.

The Kirby liability coverage will pay the Home damage of $30,000 - the exception being if it is a rented house.

Vehicle damage will be covered - $7500+7,500 = $15,000-1000 = $14,000

since the vehicles are insured with the same policy one deductible will apply.

Kirby runs a stop sign and collides with a parked car, causing $5,000 of damage to each vehicle.

Damage is covered under the policy - $5,000-1,000(deduction) = $4,000

While using his car as a delivery vehicle for a local florist, Kirby is struck by an uninsured motorist. He has $15,000 in medical expenses and lost wages. His car is destroyed as the damage amount is $16,000.

Kirby will be getting either of the below options -

Option 1 - Gets the total of $15,000 of medical expenses

Option 2 - Loss settled will be -

$15,000+16,000-1,000 = $30,000

Kirby lends his auto to Emma. Emma has her own PAP, with coverage identical to Kirby’s. Emma runs over and injures a famous baseball player who recently signed a three-year, $27 million contract. Emma is sued for $32 million.

Kirby will be getting the damages done to his auto (if any) and he will be responsible for any of the injury caused to the famous baseball player for lending his auto to a reckless driver. Since the limit is exhausted the bankruptcy may follow the suit.

Kirby borrows his neighbor’s car for a week while the neighbor is on vacation. Unfortunately, Kirby did $5,000 damage to the neighbor’s car while he was driving it by hitting a tree.

Falls under the Part D of other collision -

If Kirby neighbor is insured then he will be getting - $5000-500 = $4,500

If not he has to pay the damages caused $5,000 to his neighbor.

Kirby hits a deer on Door County Highway A. His car is destroyed.

Actual value of Kirby car is $15,000

less deductible 500

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$14,500

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