When a married named insured on a personal auto policy dies, the coverage and rights of the policy usually transfer automatically to the spouse. But what about an unmarried named insured? Who has rights on this policy? Is the common practice use of the car by family members covered? If not, what strategies should be adopted to avoid uninsured losses?
Benjamin S., age 25 with a clean driving record, lost his grandmother, Maria (a widow), in October. The executor of Maria's estate, Ben's dad David, took possession of Maria's car with the intent to eventually sell it off as part of her estate. Temporarily, also in October, David gave Ben permission to drive the car to and from work. In November, Ben caused an accident and was sued by the other driver. Maria's auto policy was paid to the December 12 renewal date. Were David and Benjamin covered by Maria's personal auto policy through ABC Insurance Company?
Not according to the adjuster. The adjuster denied the claim based on language in ABC's and most personal auto insurance policies that, in the case of the death of the policyholder, coverage is provided for just two people: (1) the surviving spouse (Maria was a widow); and (2) Maria's legal representative, her son David. But, coverage only applied to the representative's legal responsibilities to maintain and use Maria's vehicle. Coverage does not apply to any other driver nor for anyone's personal use, including David's!
David had no authority under the policy to loan the car to anyone, including his son Ben. And driving the car to and from work is not "maintaining or using" the car for "legal responsibility" purposes. Thus, the adjuster denied the claim. Neither the driver, Ben, nor his use was covered under Maria's auto policy.
Most personal auto policies have one other restriction. Coverage will only be provided until "the end of the policy period." There is no minimum number of days. So, in this case study, if Maria died on December 11, all coverage would cease at the end of that day (i.e., 12:01 a.m. on December 12). This hardly seems reasonable.
"Legal responsibility to maintain and use" refers to coverage to drive the car to repair shops, oil changes, tire dealers, etc. A legal representative using the car for personal use is not permitted. Nor does the policy allow the legal representative to let others drive the car.
The personal auto policy contains overly restrictive coverage limitations that aren't consistent with what happens in the real world. In practice, when someone dies, it's common for surviving family members to use the deceased's car for personal use until the car is sold as part of the estate resolution. Not only does the deceased's insurer not cover such use, but even the personal auto policies of family members won't either! Non-owned auto coverage specifically excludes vehicles "furnished or available for your regular use." Those policies also exclude your legal liability for damage you cause to the deceased's car under the "care, custody, and control" exclusion.
Following a death with no surviving spouse, the following need coverage for the ownership of the deceased's vehicle until it is sold: the deceased's estate, the legal representative of the estate, and any possible drivers. If the vehicle is new enough to need collision and comprehensive coverage, the ownership interest of the estate needs to be protected for vehicle damage or theft as well.
If you are the agent for the deceased and want to broaden the coverage for the legal representative of the deceased, here is what I recommend that you do to amend the deceased's policy so coverage will be provided. Change the named insured on the deceased's policy at death to the deceased's estate (as the owner) and to the legal representative of that estate jointly. Use the legal representative's mailing address for the policy. That way, the legal representative can use the vehicle personally and, as co-named insured, can grant permissive use to others to use the vehicle. The estate is protected as both the owner of the vehicle for liability as well as for collision and comp losses. This change also ensures that the coverage won't end at the next renewal date.
If you are not the agent for the deceased but are the agent for someone who has regular access to or use of the vehicle—either the legal representative or a different operator—add an "extended non-owned" endorsement to their personal auto policy (PAP), voiding the regular use exclusion. Also, this would provide the necessary underlying insurance for follow form umbrella coverage.
If the car is given to a family member who will be inheriting the car after probate, such as the son or grandson, and if you are the agent already insuring this individual, you can add the deceased's vehicle to your client's auto policy and add the estate of the deceased as both an additional insured for liability and loss payee for physical damage (similarly to how you would insure a leased car). And once the title transfers to your client, you can remove the additional interest endorsements.
Several coverage restrictions under the deceased's personal auto policy
Permitted use limited only to legal representative's "legal responsibility to maintain or use" the vehicle. No personal use. No authority to allow others to use. Even the permitted use ends at the next renewal date (which can be as little as 24 hours).
Change the named insured on the deceased's personal auto policy jointly, naming the estate of the deceased and the legal representative.
Use the legal representative's mailing address so bills are received and paid. This protects both parties for liability. It eliminates the very limited use restriction. It provides collision and comprehensive coverage for the estate's survivorship interests. It gives the legal representative, as the co-named insured, the right to grant permissive use to others. It eliminates the problem of coverage ending at the next renewal date.
The "regular use" exclusion in the personal auto policy of the legal representative or any any other operators, thus eliminating all coverage for use of the deceased's car.
The risk of the legal representative or other operator getting sued for more than the deceased liability limits (i.e., the need for excess coverage, which is excluded by the operator's regular use exclusion under their PAP).
Add the "extended non-owned" endorsement to the operator's personal auto policy.
Or buy a named non-owner policy if the operator has no other vehicles and no personal auto policy. Making either of these changes will trigger follow form umbrella coverage, if any.
When the vehicle is given, in advance of probate, to a family member named in the deceased's will to inherit the vehicle.
Follow the recommendations of Risk #2 above. Or, insure the vehicle personally in the name of the heir.
Add the deceased's estate as an additional insured for liability coverage and loss payee for physical damage coverage until the title is officially transferred to the heir.
The key to personal risk management is first and foremost to know the coverage pitfalls well enough to be able to identify where someone may be exposed to an uninsured loss under their insurance program. In this particular case, knowing the coverage pitfalls facing the survivors of the deceased's personal auto policy is key to developing a strategy to circumvent those limitations so there will be coverage.
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