Elements of a Personal Automobile Insurance Policy - Part 3: Practice Questions and Solutions

This section of the study guide is intended to provide practice problems and solutions to accompany the pages of Personal Insurance, cited below. Students are encouraged to read these pages before attempting the problems. This study guide is entirely an independent effort by Mr. Stolyarov and is not affiliated with any organization(s) to whose textbooks it refers, nor does it represent such organization(s).

Some of the questions here ask for short written answers based on the reading. This is meant to give the student practice in answering questions of the format that will appear on Exam 5. Students are encouraged to type their own answers first and then to compare these answers with the solutions given here. Please note that the solutions provided here are not necessarily the only possible ones.

Source:
Nyce, Charles, ed. Personal Insurance. (Second Edition). 2008. Chapter 3, pp. 3.28-3.42.

Original Problems and Solutions from The Actuary's Free Study Guide

Problem S5-101-1.

(a) Name the types of expenses payable under the medical payments coverage of a typical personal automobile insurance policy.

(b) An insured is found to be 75% at fault for an accident. The insured also incurs medical expenses of $5000 as a result of the accident. The insured's personal automobile policy offers medical payments coverage up to a limit of $10000 per person for each accident. How much of this insured's medical expenses will the insurer pay for?

(c) Name the two types of persons covered under the medical payments coverage of a typical personal automobile insurance policy.

Solution S5-101-1. This problem is based on the discussion in Personal Insurance, pp. 3.28-3.29.

(a) Expenses typically payable under medical payments coverage include expenses for "medical, surgical, X-ray, dental, and funeral services" (Personal Insurance, p. 3.28).

(b) The insurer will pay for $5000 of the insured's medical expenses, because medical payments coverage applies without regard to fault, and the expenses are less than the limit of liability for this coverage.

(c) The two types of persons covered under the medical payments coverage of a typical personal automobile insurance policy are (1) the named insured and "family members" as defined in the policy and (2) any other person that occupies a covered automobile, during the course of that occupation.

Problem S5-101-2. Name five situations for which medical payments coverage would be excluded under a typical personal automobile insurance policy.

Solution S5-101-2. This problem is based on the discussion in Personal Insurance, pp. 3.29-3.31. The following situations are ones in which coverage would typically be excluded:

1. Motorized vehicles with fewer than 4 wheels;

2. "Public or livery conveyance" - i.e., the use of the insured's vehicle to carry people or property indiscriminately and for a fee;

3. Use of the vehicle as a residence or premises;

4. "Injury during the course of employment" - covered under a workers' compensation policy;

5. "Other vehicles owned by the insured or available for the insured's regular use" - these are vehicles that are not covered vehicles under the policy;

6. Other vehicles owned by family members of the insured or available for those family members' regular use - these are vehicles that are not covered vehicles under the policy;

7. "Vehicles used without reasonable belief of being entitled" to do so;

8. "Vehicles used in the business of an insured" - may be covered under a commercial automobile insurance policy;

9. "Bodily injury from nuclear weapons or war";

10. Nuclear radiation;

11. Injuries sustained while occupying any vehicle used for racing.

Any five of the above suffice as an answer. Other valid answers may also be possible.

Problem S5-101-3. Amenhotep is driving his vehicle with Joe as his passenger. Both are injured in an accident. The cost of treating Amenhotep's injuries is $1,400. The cost of treating Joe's injuries is $12,700. Amenhotep's personal automobile policy has typical medical payments coverage with a limit of $8,000. Joe's personal automobile policy has typical medical payments coverage with a limit of $6,000.

(a) How much will Amenhotep's insurer pay as a result of this accident?

(b) How much will Joe's insurer pay as a result of this accident?

(c) Assume that Amenhotep and Joe were struck by an uninsured motorist and that Joe also has uninsured motorists coverage with a per-person limit of $25,000. How much will Joe be able to recover under this coverage, once the insurer has made all payments under the medical payments coverage?

Solution S5-101-3. This problem is based on the discussion in Personal Insurance, pp. 3.31-3.32.

(a) Because both individuals have typical medical payments coverage, Joe's coverage will be considered excess over Amenhotep's, since Joe was occupying a non-owned vehicle at the time of the accident. Thus, Amenhotep's coverage is primary. Since medical payments limits of liability are per-person, Amenhotep's insurer will pay $1,400 for Amenhotep's expenses, and $8,000 for Joe's expenses - up to its per-person limit for Joe. Thus, Amenhotep's insurer will pay a total of $9,400.

(b) After Amenhotep's insurer pays, there remain expenses of the amount of 12700 - 9400 = $3,300. Since these expenses are less than Joe's per-person medical payments limit, Joe's insurer will pay the entire $3,300.

(c) Joe would recover $0 under uninsured motorists coverage, because a typical personal automobile insurance policy would contain a clause prohibiting duplicate recovery for the same losses that are covered under both medical payments coverage and uninsured motorists coverage.

Problem S5-101-4.

(a) The uninsured motorists coverage of a typical personal automobile policy is designed to pay for injuries caused by which three types of drivers?

(b) Which three types of persons are considered insureds under the uninsured motorists coverage of a typical personal automobile policy?

Solution S5-101-4. This problem is based on the discussion in Personal Insurance, pp. 3.40-3.41.

(a) Uninsured motorists coverage is designed to pay for injuries caused by (1) at-fault uninsured motorists, (2) hit-and-run drivers, and (3) drivers whose insurers are insolvent.

(b) The following three types of persons are considered insureds under the uninsured motorists coverage of a typical personal automobile policy (Personal Insurance, p. 3.41):

1. "The named insured and family members";
2. "Any other person occupying a covered auto";
3. "Any person legally entitled to recover damages because of bodily injury to a person described in 1 or 2".

Problem S5-101-5. Which of the following statements are true regarding the uninsured motorists (UM) coverage of a typical personal automobile insurance policy? More than one statement may be correct.

(a) UM coverage pays only for compensatory damages, not punitive damages.
(b) UM coverage pays only for punitive damages, not compensatory damages.
(c) UM coverage pays for both compensatory and punitive damages.
(d) In some states, the bodily injury damage covered under UM coverage is subject to a small deductible.
(e) UM coverage would still necessarily apply if a hit-and-run driver is later identified and found to be insured, before the insurer offering UM coverage has made a payment on the claim.
(f) If no bodily injury liability policy or bond applies to a vehicle involved in an accident, that vehicle would be considered an "uninsured vehicle" for the purposes of UM coverage.
(g) If an individual is injured by a vehicle to which no insurance applies and which is owned by an uninsured "family member", the injury would be covered under UM coverage.
(h) Injuries caused by a vehicle owned by a governmental entity are typically not covered under UM coverage.

Solution S5-101-5. This problem is based on the discussion in Personal Insurance, pp. 3.40-3.42. The following answers are correct:

(a) UM coverage pays only for compensatory damages, not punitive damages.

(f) If no bodily injury liability policy or bond applies to a vehicle involved in an accident, that vehicle would be considered an "uninsured vehicle" for the purposes of UM coverage.

(h) Injuries caused by a vehicle owned by a governmental entity are typically not covered under UM coverage.

Choices (b) and (c) cannot be correct in choice (a) is correct. Choice (d) is not correct; in some states, UM coverage also covers some property damage, subject, perhaps, to a small deductible. UM coverage for bodily injury is not subject to a deductible. Choice (e) is not correct; the vehicle operated by the hit-and-run driver may not meet the definition of an "uninsured vehicle" if the hit-and-run driver is later found to have sufficient applicable insurance. Choice (g) is not correct; if an individual is injured by a vehicle to which no insurance applies and which is owned by an uninsured "family member", the injury would not be covered under UM coverage.

See other sections of The Actuary's Free Study Guide for Exam 5.