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14.5 Review and Practice

  1. What is considered a loss under the liability in the PAP?
  2. What arguments are used in favor of and in opposition to the no-fault system?
  3. What persons are insured for medical payment under the PAP? Who gets paid in case of a loss?
  4. The Helsings (who have a PAP) are involved in an automobile accident that was not their fault on their way home from a dinner party. Although they are unharmed, their car is disabled. The police recommend that they leave the car by the side of the road and take a taxi home. When the Helsings return to the scene of the accident, they find that their car has been stripped down to the chassis. The Helsings submit a claim to their insurance agent for the entire loss. Are the Helsings covered under the PAP? Explain. What if the Helsings had not contacted the police and leaving the car was their own idea?
  5. Chris Malmud says, “Buying uninsured motorists coverage is an awkward substitute for life and health insurance. Besides that, it protects you only in certain situations. I’d rather spend my money on more and better life and health insurance.” Do you agree? Why or why not?
  6. Barney has a PAP with liability limits of 25/50/15 and collision coverage with a $200 deductible. While pulling his boat and trailer—which are not listed in the policy’s declarations—to the lake, he loses control, sideswipes the car he is passing with his trailer, and then rams a farmer’s tree with his car. The losses are as follows:

    Barney (medical expenses) $1,300
    Barney’s girlfriend (medical expenses) $2,450
    Driver of other car
    Lost income $10,000
    Medical expenses $13,500
    Mental anguish $20,000
    Passenger of other car
    Lost income $5,500
    Medical expenses $3,400
    Barney’s car $4,000
    Barney’s boat $800
    Barney’s trailer $500
    Farmer’s tree $300
    Other driver’s Mercedes $29,800

    Using the PAP in Chapter 25 "Appendix B", explain what will and will not be paid by Barney’s insurance contract, and why.

  7. If you permit a friend to drive your car, does he or she have protection under your policy? How will losses be shared if your friend has a PAP on his or her own auto and negligently causes an accident while driving your car?
  8. While attending classes at her college, Lisa parks her Corvette on the street and locks it. When she returns, it is gone. She reports its loss to her insurer and notifies the police immediately. Because she must commute to school and to work, she rents a car for $180 per week, or $28 per day for any part of a week. Twenty-three days after her car disappeared, it is recovered. It has been driven over 12,000 miles, its right rear fender has been destroyed in an accident, and the interior has been vandalized. The low estimate for repair of the exterior and interior damage is $23,000. The actual cash value of her car is $16,000. Lisa has a PAP with other-than-collision coverage and a $200 deductible. Explain her coverage to her, noting what she can expect to recover from her insurer, and why.
  9. Assume your car was rear-ended by another motorist, incurring property damages of $10,000 and bodily injury of $50,000. Further assume that the other driver is found liable for the full amount of your loss, but he carries liability insurance of 10/20/10, which meets the financial responsibility law requirement. Unfortunately, he has no assets or ability to pay. How much can you get from his insurance? What can you do to collect the full amount? Is there coverage you could have bought?
  10. Allissa owns a home worth $500,000 and a car worth $35,000. Currently, the liability limits of her personal auto policy are 200/400/100. Does she have enough automobile liability insurance? Explain what her coverage levels mean and what could happen if she was responsible for a car accident that exceeded these limits.