Our insured has a commercial auto policy that covers the physical damage done to the owner/insured's vehicles. The owner had maintenance completed on a vehicle one day and the following week, after traveling only 300 miles, the engine seized. The vehicle was inspected and it was discovered that the engine had no oil. Does this fit the definition of a loss and would the wear and tear exclusion apply?

Ohio Subscriber

This is definitely a loss since it meets the definition of "loss" under the business auto policy (BAP). A loss under the BAP means direct and accidental loss or damage and that is what happened here. The engine seizing up is definitely direct physical damage to the covered auto and it is accidental from the insured's viewpoint.

As for the wear and tear exclusion, that exclusion, like any exclusion, has to be read narrowly and in favor of the insured if there is any ambiguity or reasonable differing interpretations. The wear and tear exclusion is meant to apply to damage done over a period of time due to lack of maintenance by the insured, or just the natural deterioration that any product that is constantly used suffers. For example, if the insured never changed the oil or never checked the oil level and damage resulted, that would be wear and tear. And as part of that wear and tear exclusion, the mechanical breakdown exclusion applies to an inherent defect in the car that causes damage, or damage that occurs just as a result of constant use. These exclusions are basically meant to prevent the insured from using his insurance policy as a maintenance policy, that is, to prevent the insured from having his insurance policy pay for mechanical failures that eventually affect every car.

Also, the wear and tear and mechanical breakdown exclusions apply unless caused by other loss that is covered. In this instance, there was technically wear and tear and a mechanical breakdown, but it was actually caused by loss of oil. This loss of oil was through no intention of the insured and that loss caused the engine seizure—a comprehensive cause of loss.

You may want to consider a subrogation claim. If the insured had maintenance done on the vehicle, perhaps that was the cause of the loss of oil—a plug not properly put in place, a hole inadvertently punched into the oil pan? Of course, that implies that the insured did not do his own maintenance work. If the insured did his own maintenance work and left the plug loose or punched a hole in the oil pan, there is no right of subrogation, of course, but there still would be coverage for this loss under the BAP. This was still an accident and the wear and tear exclusion and mechanical breakdown exclusion do not apply to an accidental maintenance failure.

This premium content is locked for FC&S Coverage Interpretation Subscribers

Enjoy unlimited access to the trusted solution for successful interpretation and analyses of complex insurance policies.

  • Quality content from industry experts with over 60 years insurance experience, combined
  • Customizable alerts of changes in relevant policies and trends
  • Search and navigate Q&As to find answers to your specific questions
  • Filter by article, discussion, analysis and more to find the exact information you’re looking for
  • Continually updated to bring you the latest reports, trending topics, and coverage analysis