Death and Insurance (Not Taxes): Part Two

The homeowners policy and personal auto policy each address death and insurance protection in different ways. In part one of this two-part series, we reviewed how the homeowners policy responds. In this article, we will address the personal auto policy.

Unlike the homeowners policy, the personal auto policy (PAP) does not have a condition specifically labeled “Death.” The PAP’s response following death of named insureds is found within the Transfer Of Your Interest In This Policy section.

As is common to nearly every insurance policy, this section’s policy language does not allow the insured to assign coverage provided by the policy to any other party without the insurance carrier’s express written consent (which they generally do NOT give).

But there is a “however” within this provision conditioned on the death of the named insured. These “however” conditions are:

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If the surviving spouse is not already a named insured and he or she resides in the household, they assume the status as a named insured even if the named insured is not changed on the policy.

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The deceased named insured’s legal representative is granted named-insured-level status for liability coverage–even if they are not named on the policy. Note: The policy states that coverage for the legal representative is limited to only their legal liability for the maintenance or use of the covered auto.

An important caveat in the language states that these insured status extensions expire when the policy expires. If the insurance carrier is unwilling to renew coverage, other options must be employed.

Likely the insurance carrier will rewrite the policy in the name of the surviving spouse if the person is still alive and all underwriting guidelines are met. However, securing coverage for the “legal representative” may be a bit trickier.

Covering the Legal Representative

ISO rules state that a PAP is designed to cover vehicles owned by the insured. Until the title is legally changed, the legal representative is not the owner of the car. Underwriting guidelines may dissuade or prevent the insurance carrier from writing a PAP for a vehicle still titled in the name of the deceased insureds–even if it is in possession of the legal representative.

Depending on the state and how the vehicle is titled (in one or more names), 60 or more days may be required before the title is or can be transferred. This time period may be adversely affected by the time required to appoint the appropriate legal representative.

Once the legal representative is appointed, the process for changing the title is hampered by estate and regulatory rules and laws. Keep in mind, simply passing the vehicle to another person in a Will or Trust does not legally change the ownership according to many if not most state vehicle laws. The title must be changed. Ninety (90) days is not an unreasonable timeline to complete this process.

If the policy expires before the title and thus ownership has been transferred to another party (either an heir or a purchaser), where does the legal representative get coverage? Will or can the insurance carrier allow the legal representative to list the unowned vehicle on their own PAP?

A coverage gap may exist for the use of the vehicle because:

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The deceased’s insurance carrier likely may be unwilling to provide the coverage in the name of the deceased or the legal representative; and/or

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The legal representative’s insurance carrier may not provide coverage because ownership has not been transferred.

Permitted Users?

Regardless of the issues with the title and ownership, where is coverage found before a legal representative has been appointed? Is anyone covered?

Status as a permitted user is dependent upon the ability of someone to give permission to use the vehicle. If all named insureds are deceased and no legal representative has been appointed, can anyone–even the eventual legal representative–be “granted” permission to use the vehicle and qualify as a permitted user?

Until someone has recognized authority over the vehicle, permission to use the vehicle cannot be granted.

Let’s use my wife’s parents as an example. As mentioned in part one, both of her parents died in quick succession. If we assume that both insureds died and no legal representative had yet been appointed, would anyone be allowed to drive the vehicle? Would there be coverage from the deceased insured’s PAP?

Ultimately the answer to this “permitted user” question may depend on the facts of the claim. Let’s look at two examples–both assuming that no legal representative has yet been appointed.

Facts of the Loss: Before a legal representative is appointed, I take the car to the dealer to have it serviced and inspected. Would the deceased insured’s PAP extend coverage to me if I am involved in an at-fault accident? Or would I have to depend on my PAP?

Potential Carrier Response: There is a reasonable argument that the carrier will view this use as necessary and consider me a presumptive permitted user because such use is essentially beneficial for or to the deceased insureds’ estate.

Facts of the Loss: Before a legal representative is appointed, my wife and I decide we need to get away for a few days following the funeral and we use the deceased insured’s vehicle for that vacation. Would the carrier consider us permitted users?

Potential Carrier Response: In this case, we would not have been benefitting the deceased in any way–this was wholly personal. How would the policy respond following an at-fault accident? Denial of coverage is not an unreasonable conclusion in this example.

Unfortunately, the answers above are not definitive; in fact, there may be no definitive answer. Much conjecture and opinion may be spewed, but until there is a claim and all the facts are known, pinpointing any answer regarding permitted user status before the appointment of a legal representative is difficult if not impossible. Maybe the best answer is to not use the vehicle until the proper legal representative is appointed.

Once the legal representative is appointed, then another person could be granted permitted user status. Once my wife was appointed the legal representative, she was able to give me permission to take the vehicle to the dealership for service and inspection or for us to take it on a short vacation.

Resident Family Members

If there are resident family members insured by the PAP, although they may not be named in the policy, they may still be covered until the policy period ends. At that time, alternative coverage plans must be made.

PAP Conclusion

PAP coverage gaps, or at the very least coverage questions, appear to exist following the death of the named insureds. Insurance carriers may have underwriting guidelines and procedures to help work through these potential gaps and time delays.

Conclusion

Don’t ignore the insurance implications created by the death of named insureds. While the policies may adequately address short-term issues, long-term issues generally require alternative plans.

Arguments and fights over estate assets can exacerbate the probate process and increase the time necessary to close the estate. Real estate markets and the consumer market in general may delay disbursement and disposal of estate assets–including real property.

Even Trusts require proper management from an insurance perspective.

Although no one wants to think about death, it is inevitable–and we must be prepared to address the insurance aspects beyond just life insurance. Property and liability exposures continue after death.

Boggs, CPCU, ARM, ALCM, LPCS, AAI, APA, CWCA, CRIS, AINS, is president of Boggs Risk & Insurance Consulting (BRIC). He has authored over 2,000 insurance and risk management-related articles and written 15 insurance and risk management books. His professional background includes work as a risk management consultant, loss control representative, insurance producer, claims manager, journalist and columnist, quality assurance specialist, and insurance coverage product manager.