Direct Loss under Personal Auto Policy

April 11, 2011

Our insured is involved in an accident. The accident damages two of the 4 tires on the vehicle. The manufacturer has advised that all 4 tires need to be replaced so that they are all the same size or with in specs of being the same size due to all wheel drive. The company has offered to pay for the two tires that are damaged and if the tread depth has to be reduced on the two new tires to match the two existing tires, there are services available to do so and those costs would also be covered. The insureds are demanding a new set of tires. They claim the cost of two undamaged tires is a direct cost to them, so they feel it is a direct part of this loss even though the two tires were not damaged in the loss event. What is the opinion of FC&S?

Connecticut Subscriber

The insured has an interesting definition of “direct” loss, but we don't agree. The dictionary definition of “direct” means stemming immediately from a source, proceeding from one point to another without deviation or interruption, natural and straightforward, characterized by close causal relationship—all things that mean to us that the physical damage must be actually caused by the accident. Since the other two tires were not directly damaged by the accident and in fact were not actually damaged, the insuring agreement does not apply to them. The replacement of the two nondamaged tires would be a consequential loss (and in fact not a loss at all but a consequential cost) and that is not what the PAP covers under the physical damage insuring agreement.

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