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Section I – Covered Autos Coverages

F. Physical Damage Coverage

Actual Policy Language

Explanation

F.  Physical Damage Coverage

1. Coverage

a. We will pay for "loss" to a covered "auto" or its equipment under:

1. Coverage

a. The insuring agreement for physical damage limits coverage to "loss" to "covered autos", as these terms are defined.

Covered autos for physical damage coverage, like the liability section, are determined with proper symbol selection (see Covered Autos Defined).

Symbol 27 would require each vehicle to be scheduled in the Declarations, which is generally not practical for auto dealers. Symbol 27 is normally used only for trailer dealers. Symbols 22, 23 or 24 could also be used for trailer dealers.

For auto dealers, symbol 31 would be the only acceptable symbol, providing "blanket" coverage on all vehicles as described in the Item Six of the Declarations.

Coverage on autos under this insuring agreement extends to equipment pertaining to the covered auto, subject to some specific exclusions (see below). This would include items which are attached to the auto (such as camper tops) or which are necessary for its use or maintenance (such as tire jacks and tools) or used exclusively in the auto (such as radios and telephones).

Indirect loss, such as reimbursement for rental expenses for a substitute auto following a direct loss, is not covered.  Coverage is available on endorsement CA 99 23 (Rental Reimbursement Coverage). 

Endorsement CA 99 05 (Business Interruption Coverage) adds business income and extra expense coverage for loss arising out of damage to autos scheduled in the endorsement, with options for a separate limit of insurance on each scheduled item or a single limit for all scheduled items.

(1) Comprehensive Coverage

From any cause except:

(a) The covered "auto's" collision with another object; or

(b) The covered "auto's" overturn.


(2) Specified Causes Of Loss Coverage

Caused by:

(a) Fire, lightning or explosion;

(b) Theft;

(c) Windstorm, hail or earthquake;

(d) Flood;

(e) Mischief or vandalism; or

(f) The sinking, burning, collision or derailment of any conveyance transporting the covered "auto".

(3) Collision Coverage

Caused by:

(a) The covered "auto's" collision with another object; or

(b) The covered "auto's" overturn.

There are three coverage options in the physical damage section:

  • Collision, and
  • Either comprehensive or specified causes of loss.

Endorsement CA 25 04 (Fire, Fire and Theft, and Limited Specified Causes of Loss Coverage for Dealers) can be attached to provide a schedule of other options.

An auto covered with comprehensive and collision has the broadest possible coverage, subject to the specified exclusions. If the loss is not excluded, the only other concerns are valuation of the loss and any applicable deductible.

When comprehensive is purchased, the burden of proof is on the insurance company to apply one of the exclusions in order to deny coverage. With specified causes of loss coverage, the insured must present evidence to prove one of the named causes of loss actually occurred.

If the dealer does not wish to carry collision coverage on all autos, endorsement CA 25 11 (Named Driver Collision Coverage) can be used to limit collision coverage to autos operated or occupied by named individuals, subject to a selected deductible.  

b. Glass Breakage – Hitting A Bird Or Animal – Falling Objects Or Missiles

If you carry Comprehensive Coverage for the damaged covered "auto", we will pay for the following under Comprehensive Coverage:

(1) Glass breakage;

(2) "Loss" caused by hitting a bird or animal; and

(3) "Loss" caused by falling objects or missiles.

However, you have the option of having glass breakage caused by a covered "auto's" collision or overturn considered a "loss" under Collision Coverage.

b. Glass Breakage - Hitting a Bird or Animal - Falling Objects or Missiles

This paragraph is a clarification for certain types of losses, detailing which coverage will apply.

(1) If comprehensive is carried with or without collision, losses caused by glass breakage, collision with a bird or animal, falling objects, or missiles, will be paid under the comprehensive coverage.

(2) If both comprehensive and collision are carried, the insured may choose to cover glass breakage under the collision coverage, in order to avoid the application of two deductibles.

(3) If collision is carried without comprehensive, glass breakage caused by collision, contact with an animal or bird, or damage caused by falling objects or missiles should be paid under the collision coverage. There have been numerous court cases which allowed these types of losses to be covered by collision. The insured has a right to the broadest possible interpretation in these situations. 

2. Coverage Extension – Loss Of Use Expenses

For Hired Auto Physical Damage, we will pay expenses for which an "insured" becomes legally responsible to pay for loss of use of a vehicle rented or hired without a driver, under a written rental contract or agreement. We will pay for loss of use expenses if caused by:

a. Other than collision only if the Declarations indicates that Comprehensive Coverage is provided for any covered "auto";

b. Specified Causes of Loss only if the Declarations indicates that Specified Causes Of Loss Coverage is provided for any covered "auto"; or

c. Collision only if the Declarations indicates that Collision Coverage is provided for any covered "auto".


However, the most we will pay for any expenses for loss of use is $20 per day, to a maximum of $600.

2. Coverage Extension – Hired Auto Physical Damage Only

When Symbol 28 is entered in the physical damage section in Item Two of the Declarations, the insured has purchased Hired Auto Physical Damage coverage and thus triggered this Coverage Extension. This is the only coverage extension in the physical damage section.

This covers the insured’s legal liability for damage to the rented vehicle under the rental agreement, up to $20 per day and a maximum of $600.  This is generally not sufficient – in coverage or amount – to cover this exposure.  See the Business Auto technical report Rental Cars. Optional higher limits can be obtained by attaching endorsement CA 99 90 (Optional Limits – Loss of Use Expenses). 

3. Exclusions

a. We will not pay for "loss" caused by or resulting from any of the following. Such "loss" is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the "loss".

3. Exclusions

a. These exclusions are subject to anti-concurrent causation wording.

(1) Nuclear Hazard

(a) The explosion of any weapon employing atomic fission or fusion; or

(b) Nuclear reaction or radiation, or radioactive contamination, however caused. 

(1) Nuclear

In addition, IL 00 21 Nuclear Energy Liability Exclusion Endorsement Broad Form must be attached to the policy.

(2) War Or Military Action

(a) War, including undeclared or civil war;

(b) Warlike action by a military force, including action in hindering or defending against an actual or expected attack, by any government, sovereign or other authority using military personnel or other agents; or

(c) Insurrection, rebellion, revolution, usurped power or action taken by governmental authority in hindering or defending against any of these. 

(2) War

See also the terrorism endorsements in the Forms and Endorsements section.

b. We will not pay for "loss" to any of the following:

b. Exclusions – Certain Vehicles, Devices and Equipment

(1) Any covered "auto" leased or rented to others unless rented to one of your customers while their "auto" is left with you for service or repair. 

(1) Rented Autos

This tracks with a similar exclusion in the liability section. Dealers who are in the business of renting or leasing autos, other than to customers while their autos are in the shop, must obtain other insurance for those operations. 

(2) Any covered "auto" while used in any professional or organized racing or demolition contest or stunting activity, or while practicing for such contest or activity. We will also not pay for "loss" to any covered "auto" while that covered "auto" is being prepared for such contest or activity. 

(2) Racing Autos

This tracks with a similar exclusion in the liability section. Dealers need a special policy for racing exposures. 

(3) Tapes, records, discs or other similar audio, visual or data electronic devices designed for use with audio, visual or data electronic equipment. 

(3) Electronic Devices

This excludes the media used with electronic equipment.  Endorsement CA 99 30 (Tapes, Records and Discs Coverage) provides a limited buyback for these items.

(4) Any device designed or used to detect speed-measuring equipment, such as radar or laser detectors, and any jamming apparatus intended to elude or disrupt speed-measuring equipment.

(4) "Fuzz Busters"

This refers to so-called "fuzz busters." There is no buyback possibility for these items. 

(5) Any electronic equipment, without regard to whether this equipment is permanently installed, that reproduces, receives or transmits audio, visual or data signals.

(6) Any accessories used with the electronic equipment described in Paragraph (5) above.

(5) and (6) Electronic Equipment and Accessories

This provision excludes coverage for all electronic equipment that reproduces, receives or transmits audio, visual or data signals (such as AM-FM radios, 2-way radios, CB radios, telephones, tape decks, CD players, computers, fax machines, televisions, DVD players, VCRs), and accessories used with such equipment, subject to the exceptions shown in Paragraph 3 below.

There is no endorsement available to provide coverage on equipment that is not subject to the exceptions stated below. 

Exclusions b.(5) and b.(6) do not apply to equipment designed to be operated solely by use of the power from the "auto's" electrical system that, at the time of "loss", is:

(a) Permanently installed in or upon the covered "auto" ;

(b) Removable from a housing unit which is permanently installed in or upon the covered "auto";

(c) An integral part of the same unit housing any electrical equipment described in Paragraphs (a) and (b) above; or

(d) Necessary for the normal operation of the covered "auto" or the monitoring of the covered "auto's" operating system.

Exceptions to the Electronic Equipment Exclusion

These exceptions apply to equipment designed to be operated solely by using power from the auto's electrical system, if one of the following conditions applies:

a. The equipment is permanently installed. However, a $1,000 limit applies to such equipment if it is permanently installed in a housing, opening or other location that is not normally used by the auto manufacturer for the installation of such equipment. See Paragraph 2 of Limit of Insurance.

b. The equipment is removable from a housing unit which is permanently installed. However, a $1,000 limit applies to such equipment. See Paragraph 2 of Limit of Insurance.

c. The equipment is necessary for the normal functioning of the auto or its monitoring system.

See the Business Auto technical report Electronic Equipment for more information.     

c. False Pretense

We will not pay for "loss" to a covered "auto" caused by or resulting from:

(1) Someone causing you to voluntarily part with it by trick or scheme or under false pretenses; or

(2) Your acquiring an "auto" from a seller who did not have legal title.

4. False Pretense

This exclusion can be removed by attaching endorsement CA 25 03 (False Pretense Coverage).

d. We will not pay for:

d. Business Risk Exclusions

(1) Your expected profit, including loss of market value or resale value.

(1) Profit

Just like a property insurance policy that doesn’t cover the sales price of inventory, a physical damage loss to a dealer's auto will be settled on a "cost" basis. If the dealer repairs a damaged vehicle, the loss will be settled without allowance for a profit on the work performed.

(2) "Loss" to any covered "auto" displayed or stored at any location not shown in Item Three of the Declarations if the "loss" occurs more than 45 days after your use of the location begins. 

(2) New Locations

New locations where dealers' autos are displayed or stored should be reported to the carrier within 45 days. Within the 45-day period, the amount of insurance available at a newly-acquired location is subject to the "other location" limit shown in Item Six of the Declarations. 

(3) Under the Collision Coverage, "loss" to any covered "auto" while being driven or transported from the point of purchase or distribution to its destination if such points are more than 50 road miles apart.

(3) Driveaway Collision

This is the so-called "driveaway" exclusion, applicable to collision coverage only. Liability protection would still be provided for these vehicles since this exclusion is not found in the liability section.

This exclusion can be removed by attaching endorsement CA 25 02 (Dealers Driveaway Collision Coverage).

(4) Under the Specified Causes of Loss Coverage, "loss" to any covered "auto" caused by or resulting from the collision or upset of any vehicle transporting it. 

(4) Transportation

Collision coverage is needed for this exposure.

e. We will not pay for "loss" to a covered "auto" due to "diminution in value". 

e. Diminished Value

The Texas Supreme has already ruled that diminution in value is not covered even without this exclusion – see Business Auto technical report Valuation of Auto Losses.

Endorsement CA 01 97 (Texas Changes) endorsement adds an exclusion of loss due to seizure of a covered auto by law enforcement. 

f. Other Exclusions

We will not pay for "loss" due and confined to:

(1) Wear and tear, freezing, mechanical or electrical breakdown.

(2) Blowouts, punctures or other road damage to tires.

This exclusion does not apply to such "loss" resulting from the total theft of a covered "auto".

f. Maintenance Claims

The most common legal interpretation of this exclusion, and the “due and confined to” limitation, allows coverage for ensuing loss caused by an intervening factor which leads to a covered loss. Examples would include a tire blowout which results in a collision, a deteriorated wire which shorts and causes a fire, and a tire blowout caused by a collision.

The exception to the exclusion allows coverage for any of these otherwise excluded perils if the damage occurs after the vehicle has been stolen.

Endorsement CA 01 97 (Texas Changes) adds an exclusion for loss due to seizure of a covered auto under a controlled substance law.

4. Limits Of Insurance 

4. Limits Of Insurance 


a. The most we will pay for:

(1) "Loss" to any one covered "auto" is the lesser of:

(a) The actual cash value of the damaged or stolen property as of the time of "loss"; or

(b) The cost of repairing or replacing the damaged or stolen property with other property of like kind and quality.

(1) Valuation

See Business Auto technical report Valuation of Auto Losses for a complete analysis of this section.

An appraisal process is described in Section IV - Conditions, similar to the appraisal process found in property policies. It is used only when the insurer and insured cannot agree on the value of the claim, and not to determine whether or not coverage applies.

If the insured or insurer wants to limit coverage to a stated amount, use endorsement CA 04 01 (Texas Stated Amount Insurance).

To cover the difference between the actual cash value and the loan or lease balance in the event of total loss of an auto (so-called “gap” coverage), attach endorsement CA 20 71 (Auto Loan/Lease Gap Coverage).

(2) All electronic equipment that reproduces, receives or transmits audio, visual or data signals in any one "loss" is $1,000, if, at the time of "loss", such electronic equipment is:

(a) Permanently installed in or upon the covered "auto" in a housing, opening or other location that is not normally used by the "auto" manufacturer for the installation of such equipment;

(b) Removable from a permanently installed housing unit as described in Paragraph (2)(a) above; or

(c) An integral part of such equipment as described in Paragraphs (2)(a) and (2)(b) above.

(2) $1,000 Limit on Electronic Equipment

The limit of insurance is $1,000 on certain types of electronic equipment that are subject to the exception to the electronic equipment exclusion in Paragragh b.(5) above.

The deductible applies to the amount of loss, not to this limit. For example, if the total loss of such equipment is $2,000 and there is a $250 deductible applicable to the loss, the company is obligated to pay $1,000. 

b. An adjustment for depreciation and physical condition will be made in determining actual cash value in the event of a total "loss".

c. If a repair or replacement results in better than like kind or quality, we will not pay for the amount of the betterment.

These two paragraphs are deleted by endorsement CA 01 97 (Texas Changes).

d. The following provisions also apply:

(1) Regardless of the number of covered "autos" involved in the "loss", the most we will pay for all "loss" at any one location is the amount shown in the Declarations for that location. Regardless of the number of covered "autos" involved in the "loss", the most we will pay for all "loss" in transit is the amount shown in the Declarations for "loss" in transit.

A separate limit must be shown in the declarations for each location and for autos in transit.

(2) Quarterly Or Monthly Reporting Premium Basis

If, on the date of your last report, the actual value of the covered "autos" at the "loss" location exceeds what you last reported, when a "loss" occurs we will pay only a percentage of what we would otherwise be obligated to pay. We will determine this percentage by dividing your total reported value for the involved location by the total actual value at the "loss" location on the date of your last report.

If the first report due is delinquent on the date of "loss", the most we will pay will not exceed 75 percent of the Limit Of Insurance shown in the Declarations for the applicable location. 

Physical damage coverage can be written subject to monthly or quarterly reporting of values. The amount to be reported is the actual value of covered autos as of the last day of the month or quarter. This paragraph establishes a penalty for understating the actual values in the report. The amount of loss payable will be reduced directly in proportion to the extent of underreporting.
Reports are due on the 15th day of the month following the month or quarter for which values are to be reported.

If the first report during the policy period is late, the company is not liable for more than 75% of the limit of liability for each location. 

(3) Nonreporting Premium Basis

If, when "loss" occurs, the total value of your covered "autos" exceeds the Limit Of Insurance shown in the Declarations, we will pay only a percentage of what we would otherwise be obligated to pay. We will determine this percentage by dividing the Limit of Insurance by the total actual value at the "loss" location at the time the "loss" occurred. 

If the physical damage coverage is not subject to monthly or quarterly reporting provisions, the limit of liability shown in the declarations cannot be less than the actual value at each location at the time of the loss. If it is, this subjects the loss adjustment to a 100% coinsurance clause.  The loss will be reduced by the same proportion in which the limit is inadequate.

5. Deductible

For each covered "auto", our obligation to pay for, repair, return or replace damaged or stolen property will be reduced by the applicable deductible shown in the Declarations prior to the application of the Limit Of Insurance shown in the Declarations, provided that:

a. The Comprehensive or Specified Causes of Loss Coverage deductible applies only to "loss" caused by:

(1) Theft or mischief or vandalism; or

(2) All perils.

b. Regardless of the number of covered "autos" damaged or stolen, the per "loss" deductible for Comprehensive or Specified Causes of Loss Coverage shown in the Declarations is the maximum deductible applicable for all "loss" in any one event caused by:

(1) Theft or mischief or vandalism; or

(2) All perils.

5. Deductible

The insured chooses in Item Six whether the deductible applies just to theft, mischief and vandalism, or to all perils.

Endorsement CA 01 97 (Texas Changes) adds a provision to waive the deductible when glass is repaired rather than replaced.