By Irene Morrill, CPCU, CIC, ARM, CRM, LIA, CRIS, CPIW — VP of Technical Affairs, MAIA
Yet again there seems to be a major misunderstanding of how the waiver of deductible endorsement is supposed to work. The way that some insurance professionals(?) are interpreting this endorsement astounds and depresses me … so … let’s take a look.
The endorsement language is the same whether attached to the Massachusetts Personal Auto Policy or the Business Auto Policy. The personal lines endorsement number is MPY-0016-S and the business auto endorsement number is MM 99 17.
What’s the purpose?
Collision and Limited Collision coverages are sold subject to a deductible. Limited Collision can be purchased back to “0” deductible and, if purchased, should be. Collision coverage under personal or commercial lines can be sold with the waiver of deductible and probably should be, assuming the adjuster understands how it is supposed to work.
The purpose of purchasing Limited Collision Coverage or the Waiver of Deductible is to make the insured completely whole WITHOUT insurance carrier subrogation in situations where the insured is entitled to recover in court and can identify the at-fault party.
There are just a few states in the country that have created waiver of deductible endorsements to protect the “victim” consumer.
Doesn’t the company try to recover this money and return it to the insured?
In most (if not all) states, if the carrier’s client is not at fault then the insurance carrier will activate their “subrogation” clause and go after the guilty party. It is MAP General Provision 5 Our Right to Be Repaid that tells us that when the company pays us, they receive our legal rights against the guilty party.
SO, if you don’t buy the Waiver of Deductible and the company pays the loss minus the deductible, when they subrogate, they will return all or a portion of the deductible to their client. When they subrogate the client might or might not recover the entire deductible amount, depending on how much the carrier recovers and how much it costs to recover. Under the MAP General Provision 5 Our Right to Be Repaid it states:
If we then recover more than we paid, we will pay that person the excess, less his or her proportionate share of the costs of recovery, including reasonable attorney’s fee.
The same language is included in the BAP when attaching the MA amendatory endorsement MM 99 11.
When purchasing the waiver of deductible option, the client doesn’t have to wait for this long, sometimes slow and arduous, subrogation process. They don’t have to worry whether they will get 100% of their deductible back or not. All they must do is pay for the endorsement and meet one of the (4) criteria listed on the endorsement.
When Will the Waiver of Deductible Endorsement Respond?
The Endorsement reads:
The deductible amount shown on the Coverage Selections Page for Collision (Part 7) does not apply to any auto to which this endorsement applies as shown on the Coverage Selections Page if:
- The auto was legally parked when struck by another auto owned by an identified person.
- The auto was struck in the rear by another auto moving in the same direction and owned by an identified person.
- The operator of the other auto was convicted of any of the following violations:
- Operating under the influence of alcohol, marijuana, or a narcotic drug.
- Driving the wrong way on a one-way street.
- Operating at an excessive rate of speed.
- Any similar violation of any similar law of another state in which the accident occurs. However, we will not pay if the operator of the auto covered under this Part was also convicted of one of the above violations.
- You are entitled to recover in court against an identified person for some reason other than those listed above.
So, if your insured’s auto is legally parked and struck by an IDENTIFIED auto, then the deductible is waived.
Whenever your insured’s auto is struck in the rear by an IDENTIFIED auto that is moving in the same direction, then your insured’s deductible will be waived
If your insured is struck by another auto and that operator was convicted of certain moving violations such as DUI, driving wrong way on one-way, operating at excessive speed and YOUR INSURED WAS NOT convicted of the same infractions, then your insured’s deductible would be waived
And last, but by no means least (in fact probably the situation activating the WOD the most) is when your client is entitled to recover in court from an IDENTIFIED PERSON for ANY OTHER REASON. This pretty much means your insured is 50% or less at fault in the motor vehicle accident. In MA if one is 50% or less at fault in an accident, then one has a legal right to recover from the other party and one is NOT surcharged. Happy day!
The Waiver of Deductible ONLY comes into play when there is a “multi-car” accident AND either the owner of the other vehicle or the person driving is IDENTIFIED.
The first three situations are pretty self-explanatory: hit in rear; hit while parked; hit by someone convicted of certain moving violations. The fourth category is not as specific but essentially applies whenever your insured is not at fault and has identified the other party.
The fourth category involves our “fault” system. In Massachusetts we “surcharge” people when they are 51% or more at fault. When the insured is 50% or less at fault, s/he has a right of recovery to the extent that s/he is not at fault. This issue is why purchasing collision with the waiver of deductible is so important. Your insured can be 50% at fault yet recover 100% of damages if s/he bought Collision coverage with the Waiver of Deductible. The Waiver of Deductible endorsement allows 100% immediate recovery WITHOUT having to WAIT for the insurance company’s subrogation department. Heck, it the company never recovers… who cares?
Limited Collision Coverage is similar.
If your insured bought Limited Collision with “0” or no deductible and was 50% or less at fault in an accident with an identified person then s/he would be paid “in full” by the company. Limited Collision Coverage comes into play when the four situations listed above apply: hit in rear; hit while parked; hit by someone convicted of specified moving violation; or entitled to recover in court. Limited Collision Coverage is ONLY activated when your insured is 50% or less at fault AND has identified either the vehicle owner or the vehicle driver depending on the circumstance.
What I don’t understand is, WHY the company says they have to “recover first” …
THAT IS NOT TRUE!!! Whether your company can recover a DIME is NOT your insured’s concern. NOWHERE on the endorsement does it say … hey, we get to wait to see if the company gets theirs first!
With Part 7 Collision coverage, we are just talking about the deductible, but with Part 8 Limited Collision we are talking the whole ball of wax!
Lately some claims adjusters have been “holding the deductible” until subrogation. That is NOT fair! In fact, could it be considered an unfair claims practice if the insured has purchased the waiver of deductible? My response is: Either surcharge the insured …or pay the stupid deductible…there is NO THIRD CHOICE of waiting for subrogation if this endorsement is purchased.
Why did the insured pay the premium for the waiver of deductible? They paid it so they would NOT HAVE TO WAIT until the company subrogated the loss. If either the other party’s insurance had lapsed or the “identified person” had no coverage, then waiting for subrogation and reimbursement of the company could be a forever thing!
The waiver of deductible is “UP-FRONT” money. The client pays the premium for the waiver of their deductible, and the insurance carrier pays the insured’s deductible in those four situations – whether or not the carrier chooses to subrogate!
Purchasing limited collision in a poor economy makes sense…
There are those people who let their insurance lapse, but still drive. If your client doesn’t feel that the car is worth the Part 7 Collision premium and they are good drivers, then perhaps Part 8 Limited Collision with “0” deductible is the way to go. As long as they can identify the vehicle owner when struck in the rear or while parked or identify the driver when they are legally entitled to recover in court, then they get paid in full, whether or not their company recovers a dime in subrogation.
Some things in life irritate me to no end and the fact that some companies won’t fork over the deductible money or limited collision payment UP-FRONT when they are supposed to is one of my pet peeves.
Unfortunately, some national and international insurance companies have purchased Massachusetts-based insurance companies and obviously have new and INCORRECT adjustment rules. Also, some national insurance companies have entered the Massachusetts competitive auto market and sell the MAP and MAP endorsements but obviously don’t understand them.
I truly believe the client should make a formal complaint with the Division of Insurance, and if that doesn’t get them paid immediately, then contact a lawyer about a 93A Unfair Claims Practices claim.
Ahhhhhhhh, I feel better now. Have a great rest of the summer and don’t forget our annual convention …
Please remember that part of MAIA service is answering questions and providing information. Please feel free to email me when you have a coverage question, problem or issue. Perhaps I can help – at firstname.lastname@example.org
This article has been developed expressly for the members of MAIA.
Reprint by other than members without the express permission of the author is not permitted.