The Borrowed Sedan and the Third Vehicle
Greg's personal auto policy lists a 2016 sedan with liability limits of 100/300/50, a $500 collision deductible, a $250 other-than-collision deductible, and uninsured motorist coverage. His 22-year-old son Tyler lives at home and is a listed driver. Tyler's friend Marcus, who lives in another state, has his own PAP with 25/50/25 limits, borrows the sedan for a weekend and runs a red light, injuring a pedestrian who is later awarded $180,000. Separately, on July 1 Greg buys a used pickup as a third vehicle - an addition to the policy, not a replacement. He first calls his agent on July 22. On July 24 Tyler is driving the pickup when $9,000 of hail damage occurs. The pickup has no physical damage coverage on the declarations page.
1. In what order do the two policies respond to the pedestrian's $180,000 judgment, and how much of it is actually paid?
Read the worked answer
The car's own policy is primary; the driver's own policy is excess.
- Marcus is a permissive user of a covered auto, so he is an insured under Greg's policy. That policy provides the primary liability coverage for the sedan.
- Marcus's own PAP covers him in a non-owned auto, but that coverage is written as excess over any other collectible insurance. His low 25/50/25 limits do not become primary just because he was driving.
The math:
- Greg's policy pays its per-person limit of $100,000.
- Marcus's policy then pays as excess, but only up to its $25,000 per-person limit, so $25,000.
- Total paid: $125,000. The remaining $55,000 is uninsured and Marcus is personally exposed - and Greg and Tyler may be drawn in if the suit also pleads negligent entrustment.
Takeaway: the injured party's recovery was set by the host vehicle's limits, and the guest driver's thin limits only added a small slice. A permissive-user loss is a good reason to review liability limits on the vehicle, not the driver.
2. Is the $9,000 hail damage to the pickup covered? Walk through the newly acquired auto provision and the dates.
Read the worked answer
No - the pickup had no physical damage coverage on July 24.
- The pickup was an addition, not a replacement of a listed vehicle. The newly acquired auto provision gives automatic coverage for an addition for only 14 days.
- Within that window, physical damage coverage applies only if the insured asks for it - it is not automatic the way liability is. Greg's call came on July 22, day 22, eight days past the deadline.
- Hail is an other-than-collision peril, and no other-than-collision coverage was ever added, so the loss falls outside the policy entirely.
Collateral points:
- Automatic liability for the pickup also expired on July 15. Had Tyler caused an at-fault accident on July 10, Greg's policy would have responded; after July 15 it would not.
- If Greg had called by July 15 and requested physical damage, the coverage would have applied from the July 1 acquisition date, and the hail claim would have been paid less the $250 deductible.
- The right advice: report any additional vehicle the day it is acquired, and confirm the request in writing.
3. Months later Tyler drives Marcus's car in Marcus's home state and causes an accident. Does Greg's policy respond, and on what basis?
Read the worked answer
Yes, but only as excess.
- Tyler is a family member and therefore an insured under Greg's PAP. The policy covers an insured's use of a non-owned auto, so driving a friend's car does not void coverage.
- Coverage for a non-owned auto is excess over any other collectible insurance - Marcus's own policy on the car pays first, and Greg's policy responds only after those limits are exhausted.
- The policy's coverage territory includes the United States, its territories and possessions, Puerto Rico and Canada, so an out-of-state trip raises no territorial issue.
Judgment points:
- Because Greg's coverage is excess, the claim will be shaped by Marcus's limits; if Marcus carries state-minimum limits, the exposure lands back on Tyler and Greg.
- The result would change if Tyler had regular use of Marcus's car - regular use of a non-owned auto is excluded, so a borrowed car driven once a week for months is a very different answer than a weekend loan.