Loaned Trailers and Liability Coverage

We have a customer who has four trailers listed on a PAP with physical damage coverage. We don't offer liability coverage on the PAP for trailers as the trailer gets protection from the towing unit. Iowa is an owners liability state. The customer loans the trailers out to friends and he was wondering how he would be protected if sued by a third party injured while a friend caused it by using a trailer owned by the customer? The policy says in the first sentence “In return for payment of the premium and subject to all terms of the policy, we agree with you as follows:” Since no premium is charged we feel no coverage for liability exists.

Example: I loan my trailer to someone. My trailer is defective; it has worn tires, a defective hitch, and no safety chain. During the use of my trailer it becomes detached from the borrower's power unit, causing an accident with several fatalities. The driver of the pickup and I are named in the lawsuit. Judgment is rendered against both the driver and me. Driver has only minimum limits. Per the interpretation provided by claims management, I would not have any coverage provided by my PP Auto policy for the following reasons:

1) Since the trailer is not listed on the policy with a premium charge for liability no coverage is provided other than when the unit is attached to a power unit (car or truck) listed on the PP Auto dec page.

Please review Definition J.3. within the PP Auto policy which states that any owned trailer is a covered auto. Also please review the insuring agreements for liability coverage and physical damage. Under liability there is no statement that the losses arising out of auto accidents must involve a unit listed on the declarations. Under Part D Coverage For Damage to Your Auto it is clearly stated that coverage is only provided if the Declarations indicates such.

If you take a look at the policies Trailer definition you will see that the only units limited to coverage solely while towed by a private passenger auto pickup or van are farm wagons or farm implements. If other trailers were to be limited as such the policy would specifically state that all trailers had to meet this while being towed requirement.

Currently we do not have the ability to insure units that meet the trailer definition under a PP Auto policy. I assume this is because doing so is not required, coverage is already provided for these units.

The customer has his pickup that pulls the trailers listed in his business name and carries a CAP on it. He was thinking of putting the trailers on that policy as non-owned and putting himself on as additional insured. Do you agree that the PAP provides liability coverage automatically and if so, what limits?

Iowa Subscriber

The PAP does provide liability coverage, up to the limits of the policy, for the trailers. You are correct in that in order for physical damage coverage to apply, the vehicle must be listed on the declarations and a premium paid. The liability coverage does not read that way. The insured is covered for injury or damage for which any insured is legally liable. The definition of insured in that section includes any person using “your covered auto”. The definition of “your covered auto” includes any trailer you own. Note that it's any trailer the insured owns, not any trailer attached to an insured auto. You are correct again in that only farm wagons or implements are considered trailers while being towed by an insured vehicle.

So, if the insured is found legally liable by the courts, the PAP provides liability coverage to the insured when as in your example the trailer was loaned to a friend and an accident occurred.

 

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