Family Member Autos: A Hidden Exposure

Overlooked and potentially catastrophic.

One of the most overlooked—and potentially catastrophic—coverage gaps in a personal auto policy involves autos owned and separately insured by resident family members. This exposure most likely exists in many homes.

Scenario – Family members not covered as assumed

two cards that have been in an accident, and the hood of the second car is crumpledThis scenario occurs every day.   Al and Peggy Bundy are married with children. Al and Peggy own a car, a 1993 Dodge Dart. Their daughter, Kelly, is 19 and living at home. She has her own car and insurance (or so you think). Bud, their son, is 17 and has no car of his own.

It’s Al’s bowling night, so he takes the family car. Bud, to the shock of everyone, gets a date that night and works a deal to borrow Kelly’s car, a 1985 Ford Pinto. He has an at-fault accident that seriously injures the occupants of another vehicle.

Now the Bundys get two more shocks. Kelly discovers that she did not pay her renewal bill, so her insurance lapsed—leaving no coverage for her or Bud. Al turns the claim in to his insurance company and it is denied. The adjuster cites Liability Exclusion B.3. in the company’s ISO PP 00 01 Personal Auto Policy:

  1. We do not provide Liability Coverage for the ownership, maintenance or use of:
  2. Any vehicle, other than “your covered auto,” which is:
  3. Owned by any “family member;” or
  4. Furnished or available for the regular use of any “family member.”

However, this Exclusion (B.3.) does not apply to you while you are maintaining or “occupying” any vehicle which is:

  1. Owned by a ”family member;” or
  2. Furnished or available for the regular use of a “family member.”

The bottom line is that under Al’s policy, there is no coverage for anyone other than him and Peggy for the use of another family member’s auto.

In the example, Bud is an insured under Al and Peggy’s policy while operating the next door neighbor’s auto, but not while operating his sister Kelly’s car. And, isn’t it quite possible that a young person like Kelly might fail to renew her coverage?

Lesson – Have all drivers listed

It is always important to have insurance follow the car (title) and have all drivers who regularly use the vehicle listed on the policy.  And absolutely if they are residents of the same household.

Want to find out if your auto insurance is adequately covering you?  Call us at (214) 265-1221.