Our insured has physical damage coverage under his business auto policy (BAP), as well as uninsured motorists (UM) property damage coverage; the physical damage coverage comes with a $10,000 deductible.

The insured was hit by an uninsured motorist and the damage to the covered auto was $14,000. The BAP insurer paid $4,000 under the auto policy's physical damage coverage due to the $10,000 deductible. Our insured claims the $10,000 should be paid under the uninsured motorists coverage since the damage was done by an uninsured motorist and the insured is legally entitled to recover compensatory damages. The UM insurer is denying the claim because the UM endorsement states that “we will not pay for a loss which is paid or payable under physical damage coverage.”

So, our question is: should the UM coverage pay the $10,000 deductible so the insured is made whole for his loss?

Indiana Subscriber

The answer to this has to be found in the interpretation of the word “loss.” Obviously, the UM insurer is saying that the amount paid ($4,000) is the “loss.” The insured is saying the “loss” is $14,000 since that is the definite amount of physical damage done to the auto. Our view is that the insured is correct.

There is no definition of “loss” on the UM endorsement, and the business auto policy defines “loss” as “direct and accidental loss or damage.” Since the endorsement and the policy don't help in the interpretation, we have to look to the dictionary. There, “loss” is defined as “destruction or ruin, the harm or privation resulting from loss, and (most notably) the amount of an insured's financial detriment by death or damage.”

Clearly, the insured's amount of financial detriment in this loss was $14,000. The fact that the BAP insurer only paid $4,000 was due to the financial and business decisions of the insured and the insurer to add a deductible. Having a deductible on the policy does not turn a $14,000 actual loss into a $4,000 loss — the amount of the actual loss is still $14,000. Therefore, the loss of $14,000 was not paid or payable under the physical damage coverage; only $4,000 was paid or payable and this makes the insured entitled to the $10,000 from his UM coverage.

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