How Does Daughter's Car Affect Mom's Auto Insurance?

Question from an IIABNY member: We recently wrote an auto policy for a child of an insured.  The car insured is titled to the parents.  We wrote the policy with Progressive, as they will write a parent and child as Named Insured.  The car is solely driven by the child. The underwriter at the parent’s company is now coming back to us with a concern that the parent (in this case, the mother) is listed as a Named Insured on the policy with the daughter.  The underwriter says “leaving the mother on the policy can come back on their account if a serious incident occurs.”   By “their account”, I assume she means the parent’s policy.   Before I call the underwriter back, I wanted to consult with you.  Am I correct that the car in question would not meet the definition of a “covered auto” under the parent’s policy, since it isn’t listed on their policy?   I’m sure the underwriter is concerned that their policy could be dragged in somehow on a clam for the daughter’s car.  Is this a genuine concern in your opinion?

Answer: If the daughter is under age 18, this could be a valid concern. Otherwise, however, the parents’ company does not have to worry about being dragged into a liability claim involving the child’s use of her car. The ISO Personal Auto Policy’s Definitions section states:

J. "Your covered auto" means: 

1. Any vehicle shown in the Declarations. 
 
2. A "newly acquired auto". 
 
3. Any "trailer" you own.
 
4. Any auto or "trailer" you do not own while used as a temporary substitute for any other vehicle described in this definition which is out of normal use because of its:
 
a. Breakdown; 
b. Repair;
c. Servicing;
d. Loss; or
e. Destruction.

This Provision (J.4.) does not apply to Coverage For Damage To Your Auto.

The Liability section states:

B. We do not provide Liability Coverage for the ownership, maintenance or use of:…

3. Any vehicle, other than "your covered auto", which is:

a. Owned by any "family member"; or
b. Furnished or available for the regular use of any "family member".

However, this Exclusion (B.3.) does not apply to you while you are maintaining or "occupying" any vehicle which is:

a. Owned by a "family member"; or
b. Furnished or available for the regular use of a "family member".

Therefore, because the daughter’s vehicle does not fall within the definition of “your covered auto,” the policy does not cover her vehicle unless the parents are using it, in which case the parents’ policy will apply on an excess basis. 
 
Where the parents’ carrier could get caught is if the daughter bought low liability limits (i.e., the minimum or slightly above) and the parents have an accident while using her car. Example: Assume she bought the minimum limits from Carrier X. The family is having a backyard barbeque and they run out of charcoal. Dad, after consuming a couple bottles of beer, volunteers to run to the supermarket, but his daughter’s car is blocking his car in the driveway. He borrows her car, heads for the store, and clips a bicycle rider, causing significant injuries. Carrier X is on the hook for the first $25,000 in damages (the New York minimum is $25,000 for injury to any one person), and the parents’ policy is responsible for the excess. If the bicyclist is seriously injured, this could be a very large loss for the parents’ carrier.
 
The obvious solution is to have the daughter buy limits at least equal to those of her parents. Of course, cost becomes a consideration with youthful operators. 

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Comments

[Susan Yezzi]

If the daughter is the sole driver of the car and rated as such, why not just retitle the car to her to avoid a potential financially damaging liability situation for the parents?

Let's suppose the daughter had a beer (or two), runs out for charcoal and clips a bicycle rider who sustains very serious injuries. She gets sued along with her parents who are named on the title and policy. The policy has low limits of liability. So, the attorney for the cyclist attempts to collect additionally from the parent's carrier. The carrier denies coverage as they don't cover the vehicle. The cyclist can sue them personally and their house and future earnings can be in jeopardy.

[Tim Dodge]

That sounds like a sensible approach to me. Still, one of the morals of the story is that every policyholder should buy the highest limits he or she can reasonably afford.

[GaryPaulson]

I agree with Susan. If the parents are titled on the car then they are responsible for any damage. Their insurance may not cover the car -- and makes it even more of a liability to the parents.

Many people break the kids off to save money, not realizing the liability they have created.

[Bruce Teague]

The potential for a gap here is disturbing. The parents are "owners of the vehicle" with their daughter. They are also a named insured on a low limit policy covering that vehicle. That would most likely negate the excess coverage provided for the parents by their own PAP, since it is an owned vehicle. The only safe solution is to get off the title and help their daughter pay the premium if they want to. Bruce Teague

[Lydia Negron]

I don't see a problem even if the parent's carrier comes into it ala your last paragraph.

If the dad should borrow the car and he got into an accident, his insurance is excess which is a good thing because if he had used his own car, there wouldn't have been a buffer.

Of course if the daughter had higher limits, the parent's carrier could breathe easier but I, thinking as an underwriter, wouldn't be too concerned.

The problem I have is the one Bruce Teague refers to. Although the parent's carrier may be safe, the parents aren't and hence they should remove their name from the title, if possible.

[Marlene Remein]

I agree with Bruce. If this car is "owned" (by being titled to) the parents, I doubt their policy would be excess. If that was the case, any household of multiple vehicles would/could insure 1 car on a policy with high limits, and purchase another policy for the remaining cars at minimum limits, expecting the high limit policy to come in as excess if needed. This is NOT presently the daughter's car - she is only driving it. Even if registered to her, it's the ownership that is the concern. Nowhere on a policy does it refer to "registered" vehicle - only owned or non-owned.

[Tim Dodge]

Good comments all. Thank you for posting!

[car lease tip]

Am agree with GaryPaulson and Bruce, if the parents are listed in the documentation or use their names in any insurance documentation then they will be definitely responsible.

[auto insurance cheap]

I agree with above comments and I think parents should be nomninee of daughter in the prepration of documentation.