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Thread: Understanding the Physical Damage portion of your commercial auto policy.

  1. #1
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    Default Understanding the Physical Damage portion of your commercial auto policy.

    I wanted to take a moment to discuss Physical Damage coverage and your Commercial Auto Insurance policy. While the Physical Damage portion of insurance does not require a lot of effort to properly cover exposures, it is wise that the owner of a policy understands how the coverage will respond in the event of a claim to cover a loss. I am bringing this topic up because recently a customer suffered a total loss of a vehicle that was not assigned an accurate Stated Value at the time the risk questionnaire was completed and resulted in the vehicle being underinsured by roughly $20,000.

    There are three ways that automobiles may be covered for physical damage. These being Actual cash Value (A.C.V.); Stated Amount; Agreed Value.

    The insurance policies that most operators own in this industry, that include Physical Damage coverage for all or scheduled vehicles in their fleet, insure them on a Stated Amount basis. When the Stated Amount portion of the insurance policy is read, the owner of the policy will find that the Stated Value given is not necessarily the amount that they will receive at the time of loss. The policy says that the most the insurance company will pay in any one loss is the least of the following:

    The Actual Cash Value of the vehicle
    The cost to repair the vehicle
    The Stated Amount shown in the policy

    An insurance broker that works in the public livery industry is fairly aware of the accurate values of vehicles and will usually consult the insured as to why we feel as though the value may not be accurate whether it is to far North or South of the true value.

    Why is this important? It is important to have an accurate value for two reasons. The first being that should the value given to a certain vehicle exceed its A.C.V., the insurance company will charge a premium relative to the cost given although the amount of insurance provided is not what is being charged for. The only harm in this situation is that the premium paid is greater than what is necessary. For example, let’s assume that an operator is paying a 5% rate for their Physical Damage portion. They have a vehicle with an A.C.V. of $20,000, yet they assign a $30,000 Stated Value to that vehicle. The premium charged will be $1,500 rather than $1,000 had a more accurate value been assigned to that vehicle.

    When a vehicle is undervalued, it is harmful to the insured because now they will not be indemnified properly for their loss. For example, if a vehicle has a Stated Value of $20,000 and the A.C.V. is $25,000, then the insured has now suffered a $5,000 loss for a difference in premium of only $250 at a 5% Phys Dam rate. Where it gets really bad for a person that has undervalued a vehicle is when the policy also has a co-insurance clause in regards to Physical Damage coverage. If a vehicle is not given an accurate value that does not meet minimum co-insurance requirements, the insured is going to suffer a penalty at the time of loss adjustment for not insuring to value. For an extreme example, if an insured gives a value that is 50% of the A.C.V. of the vehicle, at the time of loss, because the insured only insured 50% of the property to value, the insurance company is only required to pay for 50% of the total loss, less the deductible.

    The customer mentioned above had a vehicle undervalued by $20,000, however, because the loss was a Comprehensive claim (you can read this thread for a description of claims and the weight they carry: http://www.limousinesonline.com/show...andalism-Claim), was not penalized due to the co-insurance clause because the insurance company decided not to. However, had the loss been the result of a liability loss, the carrier very likely would have applied the co-insurance and been within their right to do so.

    If an insurance company insures on an A.C.V. cost-new less depreciation or an Agreed Value basis, then there will be no such issues, however these coverage options are not redily available in the transportation insurance arena.

    For what it is worth, I have only had two customers that were in a position to have the co-insurance applied, and both times they were confident that the value provided was accurate when asked. Luckily, both times the insurance company opted not to apply it because the losses did not involve liability. While they still had a gap between the A.C.V. and what they were compensated, it is still better than had the co-insurance been applied.

  2. #2
    Senior Member Cedar Mill Limousine's Avatar
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    Well written! Posting something close to this in a minute regarding our situation and your help!
    Rich Rottier
    219.808.0976 | richrottier@gmail.com

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    Senior Member Cedar Mill Limousine's Avatar
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    I can't seem to start a new thread: for some reason I can't enter anything on the subject line...weird. Anyways, here was what I was going to post:

    Hey everyone - it has been awhile! So after 6 years of being in business, we were involved in an accident and I wanted to pass on my story. To start out, I just wanted to take a second to emphasize how important it is to hire an insurance broker you trust (that goes for accountant and lawyer also!)!

    At the end of July a girl turned in front of me without even seeing me. The sun was behind me and she was following her friend - she never even looked at me, just turned following her friend. There were not any passengers in the limousine (140" stretched Chrysler). 3 days later her insurance company (SF) called us and told us they were accepting responsibility. 2 more days later (Friday at 2:00 PM), they called to say that the stretch was a total loss and it was worth $16K. I was stunned. I then told him i was not accepting the offer and I would do some research over the weekend. I then mentioned that we still had not heard anything about loss revenue, he says, oh we can take care of that now, you need us to rent you a limousine? This is what I was dealing with.

    To shorten the story, we battled back and forth for 2 more weeks. Their last offer was $21,600 (his comp was the cheapest one for sale that either of us could find and it was a salvaged title - he told me that meant it was better than ours since it had a new motor...). He told me they were done and to accept it or have our lawyer call. I told him he was still $8-$10K off. He said they were done. This was now 3 weeks in.

    I called our broker Phil T. Brun from Keily Hines & Assoc. to fill him in and see if there was anything else we could do. He said he wished I had told him sooner and said to give him a few days and that he was on it. After a week and a half, he had an appraisal arranged and of course it came back exactly where we had thought (and all our comps showed this is where it should be)...$32K. So...after Phil called them (on our behalf) to explain the new findings (and I bet that was a fun call...for Phil!!)...within 3 days we had a settlement for the full amount of its worth. Phil moved mountains.

    As far as loss revenue, we settled on the full amount we asked for, in fact he (a different adjuster) commended us on our organization. Keep good paperwork - it WILL benefit you!

    All in all, I have learned a lot and also have had some core values put in concrete: you do NOT have to take the insurance companies offer if you feel they are not being fair, keep good paperwork, and your outside assistance (Lawyers, Accountants, and insurance brokers) are worth the research to get one that will not only do their job (and be good at it) BUT will ALSO fight for you when that time comes, NOT just fold their cards and say "sorry, your out of luck, just give up". Kudos Mr. Brun - Job Well Done!
    Rich Rottier
    219.808.0976 | richrottier@gmail.com

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    Default Kudos!

    Quote Originally Posted by Cedar Mill Limousine;1155
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    Kudos Mr. Brun - Job Well Done!
    Very nice testimonial!
    Bill Payne
    American Limousine, LLC
    Lake Wylie, SC
    704.576.5309
    Celebrating 9 years of superior service to the Charlotte, NC market. Serving corporate and individual clients with sedans, vans and limousines.

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    Super Moderator gunny's Avatar
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    Quote Originally Posted by Cedar Mill Limousine View Post
    I can't seem to start a new thread: for some reason I can't enter anything on the subject line...weird. Anyways, here was what I was going to post:
    Rich, If you're referencing a new topic that you can't start you should be able to start a new one now. Repairs are starting to be made.
    Airport Limo Service Spring Hill, Brooksville, Citrus County FL
    http://gunnysairportlimo.com/tampa_a...ce_spring_hill

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    Excellent info from Phil, and a great story from Rich! These posts are why it's good to have Phil around on this forum. I highly recommend Phil to be anyone's broker. He truly knows our industry
    Jerry Thomas

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    Senior Member Cedar Mill Limousine's Avatar
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    Quote Originally Posted by gunny View Post
    Rich, If you're referencing a new topic that you can't start you should be able to start a new one now. Repairs are starting to be made.
    Thank you Gunny! I am trying to get on here more often, but just like everything else: 10 minutes turns into an hour and then here I am at 2am and still do not have paperwork done!
    Rich Rottier
    219.808.0976 | richrottier@gmail.com

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