Policy Issues: "Modern love" part deux: Gap in the PAP

Gosh, was it just a mere 2 months ago we were discussing “modern love” and its effects on personal lines coverage issues in these very pages? Is it only me who thinks that “April Fool” goes amazingly well with “Modern Love”–or any love, for that matter? Combine Rick Nelson’s “Fools Rush In” with Paul Anka’s “Puppy Love” and you get the idea. However, there also is great wisdom in the old saying that “everyone loves the puppy, but nobody wants to raise the dog.” Cynical? Perhaps. But then again, more than a few puppy lovers perceive the weary truth in the Johnny Cash lyrics: “We got married in a fever/hotter than a pepper sprout/We’ve been talking ’bout Jackson/ever since the fire went out.” When the fire goes out, those standard insurance policy provisions can turn to ashes right along with the relationship. And agents who fall asleep at the switch in adjusting coverages to the new realities could find their E&O risks, like the former relationship, summed up by the Moody Blues: “Shot to pieces, when will I learn?” Here are the real-life facts from a question sent my way by old friend and alert reader Tim Gaffney after reading the February article: “Mom is remarried. She claims her 19-year-old son as a dependent and his legal residence is her home. Son actually spends majority of time residing 125 miles away at college. In summer he resides with his dad, where he also holds a summer job. Son is listed as a driver on Mom’s and new husband’s PAP, which is written with high-liability limits. They also have a personal umbrella. Son has a car he drives full time, which is titled to Dad, so son also is listed on Dad’s PAP, which is written with liability limits at the state minimum.” In a Paul Anka world, this would be a slam dunk, because Mom and Dad would still be married and son would happily live with them, no doubt spending many of his summer weekends at home lying under the Ford T-bird, draining the old oil into a hole in the back yard. But the PAP that fits like a glove in that Paul Anka world develops a few rips and tears facing Tim’s all-too-common modern love scenario. And as any electrician will tell you, even a slight rip in a protective glove can prove fatal if it allows bare skin to touch a live wire. So while the potential coverage gap in the PAP may not seem extreme, in our electrical example let Mom’s potential liability be the skin she thought was adequately protected, let the live wire appropriately be her son while driving Dad’s car, and note the “slight rip” in the ISO PAP, and you can see how potential disaster looms. Here is the paragraph from the ISO standard PAP, Part A liability, that is the cause of this potential gap: “B. We do not provide Liability Coverage for the ownership, maintenance or use of: 3. Any vehicle, other than “your covered auto,” which is: a. Owned by any “family member;” or b. 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: a. Owned by a “family member;” or b. Furnished or available for the regular use of a “family member.” And from the definitions section of the policy, we find: F. “Family member” means a person related to you by blood, marriage or adoption who is a resident of your household. This includes a ward or foster child. Son doesn’t own the car, but is there any doubt a full-time vehicle is “furnished or available for his regular use”? So Mom’s PAP is going to provide absolutely no protection while son is using that car. To clean up what I have seen other insurance information sources imply, let’s be clear on that–Mom’s PAP limits will not be excess or pro-rata–nothing, nada, zip. And as for the umbrella, you can double check the wording just in case it doesn’t have that exclusion or “follow-form” the underlying PAP, but you’ll likely find it does. Note that for auto liability arising from anything other than from son using that car, her PAP protection for herself, her spouse and son will be fine. That’s why I call it a “potential” gap–although, because that is the son’s primary auto, it’s a significant one. So let’s say Mom is now aware that, for any liability arising from son’s “maintenance or use” of that car, neither Mom nor new husband can access those high limits of protection under their PAP. If you think she is feeling some pain now, we are about to pour salt into that open wound. If there were to be such a need for liability protection, guess where Mom is going to discover her only salvation lies? Only those who vowed at the time of a divorce “at least I’m now free of that clown” can truly appreciate the irony: The only limits that will apply in such a scenario for anyone will be Dad’s minimum limits. Can you imagine the potential explosion when Mom finds that at the precise moment of shock and pain inflicted by her son causing injury to others, her entire protection from a potentially disastrous blow to her future financial security is once again firmly in the control of “that clown,” who, by carrying minimum limits, no doubt totally reconfirms at least one of her original reasons for kicking him to the curb? Personally, I recommend that when the time comes to disclose that information, you e-mail it to her–from South America. Some may ask if the provision applies to the son because he spends most of his time away from home: Is he still a “family member” under Mom’s PAP? If there is an argument to be made for coverage under the unendorsed PAP, that is it–but I think it will lose. It is common in these days of “modern love” for children to spend varying lengths of time in the home or homes of separated/divorced parents, and courts everywhere have been amazingly consistent in finding the dependent child to be a “resident” of each of the multiple households. Typically the case turns on whether the child has established a permanent home elsewhere, with no intent to return to his parents’ residence except for occasional visits or holidays. Unless the child has done so–and in this case, the son clearly has not–both Mom’s and Dad’s policies will treat him as a “family member.” How to solve this? Check with your PAP and umbrella carriers for possibilities. This is far too common a situation to be ignored. But with our policy forms stuck in the Anka era, perhaps non-insurance alternatives are better answers. One such option would be for Dad to title the car to son (I doubt Dad will want to title it to Mom, which also would work), declare it on Mom’s policy, and now he is driving a “your covered auto” under Mom’s PAP. You now reverse the previous situation and lose Dad’s coverage, but at the given limits, that is the lesser evil. Oh, if only Paul had stayed on the beach blanket with Annette. Our personal lines coverages would still fit like those long white gloves all good girls wore to the prom. But for better or worse, as Mr. Dylan sang, “the times they are a- changing.” I just wish our personal lines insurance would do the same. Chris Amrhein is an insurance educator and speaker with more than 30 years in the industry. He is also chief fun officer of www.insuranceisfun.com and author of “Yes, Virginia, There is Insurance.” Contact Amrhein at [email protected].