PP 03 08─COVERAGE FOR DAMAGE TO YOUR AUTO (MAXIMUM LIMIT OF LIABILITY)

(September 2024)

Some vehicles could fall through a physical damage “valuation” gap if not for the PP 03 08–Coverage For Damage To Your Auto endorsement.

The Schedule

The form contains a schedule that includes spaces for vehicle descriptions, limits of insurance (for both Collision and Other Than Collision), and the premium for Collision and Other than Collision.

Coverage Analysis

There is a direct relationship between a vehicle’s cost new, symbol and age and the premium charged for providing that vehicle with collision and other than collision protection. The more expensive the car, the higher its symbol and later the model year, the more it costs for physical damage coverage. However, depreciation (the adverse effects of age and wear/tear) acts to decrease the value and the coverage cost for a typical car.

The pattern of reduced value is appropriate for most cars, but what happens with vehicles that, for various reasons, maintain or even experience an appreciation in value? Under an unendorsed PAP, any value appreciation or stability may be ignored. Auto rates include an assumption that a covered car will steadily decrease in value. A car that does not depreciate is not correctly rated under an unendorsed PAP.

The PP 03 08–Coverage For Damage To Your Auto endorsement was designed to handle an insurer’s extra exposure to settling losses to vehicles that have been maintained in mint condition or have some extraordinary character that keeps them from depreciating.

The PP 03 08, rather than depending on the typical rating information, may use a designated value upon which both coverage and rating are based. Thus, the covered auto is protected on a stated value basis. Unfortunately, the term “stated value” created a troubling amount of confusion. Many people misunderstood the term to mean guaranteed coverage. However, like most insurance limits, the designated amount generally represented the maximum amount of available coverage that might be paid in event of a total loss or theft of the covered auto (subject to any deductible).

This confusion may explain why use of the term “stated value” has become rare.

The PP 03 08 modifies the PAP to provide coverage in these circumstances by replacing the policy’s Limit of Liability section under Part D - Coverage For Damage To Your Auto.

Related Article: ISO Personal Auto Policy Analysis

Limit of Liability

The insurance limit for the collision and other than collision coverages is generally independently established. Popular sources may include publications that track certain vehicle values, mechanics, new or used auto dealerships, expert appraisers, and collectors. Again, whatever the value, that amount represents the maximum available for payment for a vehicle that is stolen or destroyed. The form settles a loss based upon whatever amount is less: the ACV, cost to repair or replace, or the limit of liability. The limit of liability acts as a cap to protect the insurer. It would be used if, for some reason, the value of the damaged or lost property has appreciated substantially.

Example: Mel Sheensurface has a ’06 limited edition sedan that he has kept in excellent condition. He asks his agent to add the PP 03 08– Coverage For Damage To Your Auto Endorsement to his policy. Paula Splainsitwell, his agent, states that, rather than basing his premium charge according to the book value of his car ($6,500), the premium is based on the car’s current, limited edition value of $13,900. A year later, Mel’s car is stolen. Mel receives a check for $13,900. He is happy with the payment until he finds out that the car has an established value of over $16,000.

The Form Does Not Cover

The endorsement does not have any separate exclusions. The PP 03 08 merely conforms to whatever exclusions apply under the PAP.

The Approach – Stated Value

This form provides coverage on a stated value basis. A particular concern for the insured (and the agent involved in securing the coverage) is to be aware of the need to regularly update coverage to be certain that the listed limit provides adequate coverage. Remember that the value entered is the maximum settlement, not the guaranteed settlement. Further, the endorsement’s coverage should be reviewed regularly and adjusted to best reflect the covered property’s value.

Rating

Generally, a flat rate (per hundred or thousand dollars of value) applies to the collision and the other than collision damage. The amount of coverage and premium charges appears in the form’s schedule. The actual charges vary by company.