Car Accident Liability Coverage

Brien Roche

Auto liability insurance coverage protects you in the event that someone else alleges that you were at fault for a crash.  By “you”, I mean either you as the insured or anyone who was driving your auto with your consent.  Under state law anyone who is a “permissive user” is covered.  Liability coverage is the only form of coverage in Virginia that comes close to being required.  You can choose to pay an uninsured motorist fee, in which event you may go without liability coverage.  Virginia does have a minimum coverage requirement if you buy insurance.

The insurer will pay up to the limits of the policy in the event that you are found to be at fault for a crash.  The insurer will also provide a lawyer to defend you.  The attorney is one that they choose. For more info on other forms of UM coverage, UM settlements and insurance in general see the links highlighted.
See Va Code 8.01-417 for he obligation of a carrier to disclose policy limits pre-suit.

Car Accident Liability Coverage-Rules of Interpretation

Some general rules of interpretation in regards to insurance policies are:

• If two opposite interpretations are possible, then the policy is ambiguous.  Ambiguity works against the carrier.
• If a statute relating to coverage is designed to benefit the insured or claimant, then it will be interpreted liberally to provide coverage.

Specific Inquiries As To Car Accident Liability Coverage

In the following paragraphs I’ll try to lay down some specific rules as to coverage with exceptions that may apply.  The injured party or the plaintiff will be referred to simply by the letter “P”.  The at-fault motorist or the defendant will be referred to simply by the letter “D”.

1. Are You Dealing With An Accident?

In general only accidents are covered.  That means that intentional acts are not covered.  Punitive damages may be covered if there is any ambiguity in the policy as to what damages means.  USAA v. Webb, 235 Va. 655 (1988)

2. Is the Vehicle an Owned Vehicle?

The term “owned auto” is precisely defined.  An owned auto includes a trailer, a replacement or newly acquired auto for 30 days after purchase or a temporary substitute auto.  A rental car is a temporary substitute if your covered auto is out of commission due to breakdown, repair, servicing, loss or destruction.  If however the rental car is simply being used for vacation purposes, then it is a non-owned auto.  Imagine that you own two vehicles insured by two separate companies or the same company.  You are driving vehicle #2 and are involved in a crash that is your fault.  You are entitled to liability coverage under vehicle #2 but not under vehicle #1, since vehicle #1 is not a covered auto under the policy issued for vehicle #2.

Coverage Follows The Car

The traditional rule in terms of liability coverage is that the coverage follows the vehicle.  What that means is that the coverage is literally stuck to the car.  That is the foundation of liability coverage in regards to automobiles.  The coverage on the vehicle is always going to be primary.

There are three exceptions to this rule that coverage follows the vehicle:

A. Permissive use may create circumstances where coverage doesn’t follow the vehicle;

B. Garage policies as stated below;

C. Rental cars. For instance if you do not buy coverage from the rental agency, then your coverage is primary for liability;

3. Car Accident Liability Coverage-Is The Driver Insured?

A. Look at the Declaration.  That declaration is a statement by the insured as to what they have asked for, what they have represented to the carrier and what the carrier has given them.

B. The Named Insured. The named insured is covered.  That includes family members.

C. Listed Driver. Also covered are non-resident relatives who are listed as being drivers.  That listed driver must have a reasonable belief that he is entitled to use the vehicle.  If that is the case, then that driver has coverage while driving a covered auto and also a non-owned auto.

Permissive Users

D. In addition permissive users are covered. Permissive use means permission where the user has a reasonable belief that he is entitled to use the vehicle. In general no permission means no coverage.  A key element of coverage for non-owned vehicles is permissive use.

Consider an example. Father tells daughter that she is absolutely barred from driving the family car.  In spite of that daughter takes the keys and crashes the car.  Daughter is a family member while driving a covered automobile and is covered even though she does not have permission and does not even believe that she has permission.

Change the facts a bit and suppose that dad gives permission to daughter to drive the vehicle but says that there can be no alcohol consumption by anyone while driving the vehicle.  Boyfriend starts driving the vehicle after consuming alcohol.  Boyfriend had been granted permission by daughter to drive.  Under the omnibus clause any restriction on permissive use is invalid.  As such the “no drinking” bar is not a bar to coverage.

E. Agency. The driver may be on-duty or otherwise acting as an agent or employee for someone else. If that is the case, then agency may invoke coverage. For example if defendant is on his way to work and he is deemed to be on-duty while he is on his way to work, then whatever auto coverage the employer has, the employee likewise may have. If there is no coverage, then at least there is vicarious liability of the employer.

4. If the Vehicle is Non-owned, That May Lead To Wealth Of Coverage

The term “non-owned auto” is important.  The basic criteria for a non-owned auto are:

• It is not owned by the driver;
• The driver has other auto coverage;
• Its use at the time of the incident is casual and infrequent.  Casual and infrequent has been found to mean as much as 10 different uses during a 2 month period State Farm Mutual Automobile Insurance Co. v. Smith, 206 Va. 280 (1965).  It is assumed that relatives living in the same household will be using each other’s vehicles on a regular basis.  Such usage means the vehicle is not “non-owned” unless the driver is the named insured using the vehicle owned by a family member.  In that instance the “non-owned” status applies to that named insured.
• The vehicle must not be a temporary substitute vehicle;
• The non-owned auto is a private passenger auto or trailer;
• The use is with permission of the owner;
• The use is within the scope of that permission.

Expanding Coverage

The purpose of this definition is to expand coverage.  Under this definition the concept of non-owned auto is expanded.

For instance father owns a vehicle with $1 Million policy on it.  He borrows his son’s car which has a $25,000 policy on it.  Father is involved in a crash and injures P.  Son’s car in this case is not a non-owned auto because it is loaned to father by a relative.  It was assumed that when the term “non-owned” was defined that relatives living in the same household would be using each other’s vehicles on a regular basis.  Since this usage is regular, this does not qualify as “non-owned”.

This however does not apply to the named insured using a vehicle owned by a family member. That is, the named insured is saved from this exclusion, meaning that coverage applies whether the use is frequent or not frequent.

a. Temporary Substitute Vehicle

A temporary substitute vehicle is one not owned by the named insured which is used temporarily as a substitute while the covered auto is in the shop. This may include a rental or loaner.  The purpose of this expanded definition is to expand the coverage.

A rental car can be either a temporary substitute or a non-owned auto.  It’s  a temporary substitute if your covered auto is out of commission due to breakdown, repair, servicing, loss or destruction.  If however you’re simply on vacation then it becomes a non-owned auto.

In regards to rental cars, there frequently arises the issue of permissive use.  Typically in a rental agreement one or two people are identified as being the authorized user(s).  If the renter gives permission to a third party to drive the vehicle, you may have several consequences:

•  If the user resides with his parents, then the rental car may be deemed to be non-owned and all the user need prove is that he had a reasonable belief he had permission.  If so, then he has coverage under the parent’s policy since the rental car is non-owned.
• The lack of authorized permission does not void the coverage for the passengers in spite of what the rental contract says i.e., they may have UM/UIM coverage.

b. Garage Policies

Here coverage does not follow the vehicle.  The primary coverage is with the user.  If the user has no coverage, then the garage policy kicks in.  This only applies to liability coverage.  For instance UIM coverage would be available to the user.  This same principle applies in regards auto dealers’ loaner cars and test drive cars.  If the user has coverage then that coverage is primary.  If the user does not have coverage, then the minimum statutory limits applicable to the loaner/test car would apply.

c. Look at Who the Driver Lives with for Excess Coverage Based upon Family Member Coverage

Sometimes you have to literally follow the driver home.  By following the driver home, you may find additional coverage.  If the driver was driving a non-owned vehicle, then he may be insured under the policies issued to the relatives who live in that home with him.

Examples

For instance assume that you are a traveling salesman.  Your employer furnishes a vehicle for you on a regular basis.  You are involved in a crash that causes injury and you’re at fault.  Your personal auto policy does not apply in that case.

Take another example, you own a vehicle insured through Carrier #1.  Your son and daughter live with you.  Your daughter is driving the son’s car which is insured by Carrier #2.  The daughter does not own a vehicle.  She is involved in a crash for which she is at fault.  She is covered under the son’s policy but not under your policy since she was driving a vehicle owned by a family member and she is not a named insured.  The only named insured is you for liability purposes.
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Change that example a bit and assume that you are driving your son’s vehicle.  Since you are the named insured, the exclusion does not apply to you and therefore you have coverage under both your son’s policy which covers his vehicle and your policy which covers your vehicle. If the situation was reversed and your son was driving your vehicle, the outcome would be the same since he is a named insured under his policy.

Change the facts again and imagine that daughter borrows a friend’s car on a regular basis.  Daughter is then involved in a crash that is her fault.  Daughter cannot obtain coverage under dad’s policy or under brother’s separate policy since the vehicle is not “non-owned”.  That is, it is provided to her for regular use.

5. Car Accident Liability Coverage-Is there Negligent Entrustment?

In a negligent entrustment claim you may have double or perhaps even triple coverage.  If there is not only a named insured but also a spouse who negligently entrusted the vehicle, then they may each be entitled to the policy limits insuring the covered auto.  If the entrusted car is non-owned or a temporary substitute under the driver’s policy, then that policy may also provide excess coverage.

6. Car Accident Liability Coverage-Scope of Coverage

A. What State Law Controls

Policies that are issued out of state are controlled by the law of that state.  If that state has minimum coverage that is less than Virginia, then the vehicle may be deemed to be uninsured for purposes of Virginia’s uninsured motorist statute.  Sometimes those policies have provisions in them where the coverage automatically increases to the minimum required by that state.  If that is the case, then you need to look at that policy.  You need to also look at the case of Reliance v. Darden, 217 Va. 694 (1977).  In that case, even though the out-of-state policy had a provision for increasing limits in mandatory insurance states that did not apply in Virginia since Virginia is not a mandatory insurance state.

B. Single/Split Limits

Liability coverage may come in the form of either single limit or split limit policies.  A single-limit policy simply means that a fixed amount is defined on the Declaration page.  The Declaration page is the face page of the policy.  That single limit may be $500,000.  That means that the carrier will pay no more than that amount to either one claimant or multiple claimants.  However if your policy is a split limit policy, then that means that on the Declaration page the limits may be defined as being $100,000/$300,000.  What that means is that you have $100,000 coverage for each claimant or a total of $300,000 for multiple claimants.

C. Multiple Defendants

An interesting question exists where you have vicarious liability.  Suppose your claim is against a driver and also the driver’s employer.  In that case you may have two (2) defendants.  The omnibus statute says that where you have one accident but more than one defendant covered by the policy then you may recover the per-person limit against each defendant.  You are subject however to the per-occurrence limit of the policy.  Does this mean that where you have a policy that is 100/300 and you have a driver and the driver’s employer liable that you can recover $100,000 against each?  Arguably you can.

D.  Interest and Costs

The family auto policy in Virginia defines damages as including pre-judgment interest. If however the pre-judgment interest puts the amount to be paid over the limits, then that amount over the limits need not be paid. Dairyland Insurance Co. v. Douthat, 248 Va. 627, 449 S.E.2d 799.  That applies for both liability and UM coverage.

Liability carriers do have to pay costs.  See Nationwide Insurance v. Finley, 215 Va. 700, 214 S.E.2d 129.  UM carriers do not have to pay costs.

7. Car Accident Liability Coverage-Who Pays?

A. Other Insurance

The term “other insurance” in a policy must be looked at closely.  It defines how each insurance company will pay if a person is covered by more than one policy.  These other policies may be excess and their coverage may be pro-rated among the carriers.  For instance if you borrow a neighbor’s car which has limits of $25,000, you own two cars, each with $25,000 coverage issued by separate carriers.  You hurt P in a crash.  Your total coverage is $75,000.  If the judgment entered against you however is for $50,000, then the coverage on the car you were driving must be fully paid, but the coverage on your two vehicles will be pro-rated i.e., each will pay 1/2 of their limits.

This becomes especially important when you’re dealing with a temporary substitute or a non-owned auto. Typically those forms of coverage are excess. That coverage is going to be pro-rated among the different carriers.

8. Finding Coverage

There is a company by the name of ML Research Group located in Tempe, AZ that holds itself out as a specialty research firm with a focus on supplying a wide range of insurance information to attorneys.  Their website is https://mlresearchgroup.com.  They may be a potential resource to use.

Call, or contact us for a free consult. Also for more info on liability insurance see the Wikipedia pages.