All About Insurance

ALL ABOUT INSURANCE

WHAT YOU GET AND WHAT YOU DON'T

CHRISTOPHER A. STEELE

WHEN AN individual buys a motorcycle today, he is forced to enter a dark cave and face what seems to be a nemesis sent by those two great fire-breathing monsters called "the Government" and-with a gasp of horror and a cring-"the Insurance Companies!"

Take, for instance, a friend of mine, Wals Eloc, owner of a four-cycle, five-cylinder, 1937 Runstutt motorcycle. Buying insurance for the first time he must now face a sorcerer of sorts—often called an insurance agent—and this wizard, with pen in hand, a sheet or two of paper, and a few magic oaths (such as 15/30/5 Bodilyinjuryandpropertydamageliability; or, Comprehensiveincludingfiretheftsuchandsuchandcollision), brews what he tells Eloc is an insurance policy.

Insurance is seemingly immersed in a pool of dark, syrupy secrets known only to a few. It can be, and very often is, confusing. This “monster” lives in a world of long-winded terms, intermingling coverage (or so it seems at first glance), complexity, and general misunderstanding brought on by all of the above and because insurance, by its very nature, is confusing. Being raised by necessity and nurtured in law it could hardly be otherwise.

Unless we break vehicle insurance down to its component parts it’s almost impossible to understand. So, with the occasional help of my friend Wals Eloc and his 1937 Runstutt, let’s break it down, understand it, and start, finally, realizing what we get and don’t get for our yearly premium.

First, a word of caution. This article, although as concise as possible, is only a guide. The information pertaining to the present liability system holds true for most states, given minor differences. But still, there are differences and that should be understood. To quote Leo Cisper of the Universal Underwriters Insurance Company, “The big problem is that whenever you try to write a letter or some kind of an article about insurance coverage and make any kind of general statement (without describing every state individually) you can never be 100 percent correct. Laws vary from state to state, there are different intervening circumstances and, of course, all of this is evidenced by the extremely

complicated legal wording of an insurance policy.” This article will enable you to understand insurance coverage generally and will provide the means with which to understand your state if you want to delve into the matter just a bit farther; by talking with your insurance agent, for instance.

Insurance is when you pay a loss you can afford (the premium) to someone— insurance companies for the most part-who assumes the risk that you cannot afford resulting from a specific occurrence such as fire, theft or an accident.

The root to comprehending existing insurance and the difference between that and the No-Fault concept, which we will cover later, is.the term “tortliability.”

Tort-liability is an artificial creation of law. That is to say, whereas most other types of insurance cover losses, such as the sinking of a ship in a storm, tort-liability insurance is a result of the realization that humans cause or at least contribute to the cause of accidents. A tort is any civil wrong which usually calls for some sort of compensation, and the individual who performs the wrong is liable, or under legal obligation, for payment of the compensation. In some cases, however, the individual who is liable has bought insurance against such an occurrence, which in turn means someone else (an insurance company) is assuming his financial responsibility or liability; ergo, liability and the existence of insurance companies.

The insurance we buy to protect ourselves against loss resulting from the operation of an automobile or motorcycle is called “vehicle insurance” and can be divided into two principal parts which we will discuss separately to facilitate their understanding.

BODILY INJURY AND PROPERTY DAMAGE LIABILITY

You will, no doubt, notice immediately the now familiar term “liability,” and it’s important that you do, because this segment of your insurance policy deals with the insurance companies assumption or risk in your behalf in the event you are at fault and cause an accident. Accompanying this coverage are several available “limits of liability” which tell you the maximum amounts of risk that the company will assume should you be sued. For instance: $10,000 Bodily Injury per person, with a maximum of $30,000 Bodily Injury per accident, and $5000 Property Damage, usually written as 10/30/5.

One illustration of this particular coverage comes to mind. While motoring across the Midwest on his way to the 1953 running of the Trans-Ethiopian Motorcycle Rallye, Wals Eloc struck and overturned the community dung-wagon, spilling the contents of the wagon into a stream beside the road, breaking the driver’s right leg and left elbow, bruising the assistant driver’s solar plexus, and severely frightening the musk ox that was pulling the all-important commodity.

Eloc was found clearly at fault in the accident and was therefore liable for damages. As it happened, his insurance company paid the drivers of the wagon a certain amount to avoid a court fight, but had the case gone as far as actual litigation his insurance company would have paid up to $15,000 for any one individual’s bodily injuries; up to $30,000 total for the injuries of all the occupants of the vehicle he hit; and up to $5000 for damage to the vehicle or property he hit, in this case the dungwagon, and also for polluting the stream.

Why $15, $30, and $5000? Because Eloc had 15/30/5 Bodily Injury and Property Damage Liability. These were the limits of the policy he had at the time and they apply to one accident at a time, but can be applied concurrently; that is, if Eloc had an accident the next day in addition to the one mentioned above, his policy would provide for that one also up to the limits of his policy.

The same would hold true in the event you had an accident in that you would be held liable for the expenses incurred by the fellow you hit. If he went to the hospital as a result of the accident, along with his wife, a passenger in the car or on the bike at the time, you would be liable, via your insurance company, for the cost of that hospitalization. And if his vehicle sustained $400 worth of damage, it, too, would be paid for by your liability policy up to its specific limits. He could, of course, also sue you for more, but chances are that if he did, your insurance company would attempt to settle out of court by paying him an agreed upon amount, which is what happens in many cases where the claim goes as far, or has a chance of getting as far, as litigation.

Remember, too, that if you had higher limits of coverage (25/50/10 or 50/100/10 are examples) which could be bought at slightly higher premiums, your insurance company would have paid up to those limits instead of the lower limits available.

And to make another point concerning the importance of buying higher limits of liability if you can afford them, I’ll use the words of Riley Johnston, an insurance agent friend of mine, when he told me, “Most liability suits are for $50,000 or $100,000 nowadays. So if you have 15/30/5 limits and the court finds against you for more, guess who pays the balance? You’re right, you do!”

COMPREHENSIVE (INCLUDING FIRE AND THEFT) AND COLLISION

This is the second major portion of a vehicle insurance policy and, whereas the liability portion is required in some states, Comprehensive and Collision never are unless you’re financing your vehicle and the financing institution requires it.

The Comprehensive segment covers your bike should something happen to it that isn’t defined or elaborated on elsewhere in the policy. If it got pelted in a hail storm or was caught in a mud slide, for instance, and the Fire and Theft covers your vehicle if it is stolen or catches fire.

The Collision portion covers your vehicle should you inadvertently collide with such things as a building, guardrail, open manhole, or if you lost control of your bike due to gravel or oil and went down.

Ah, yes, an illustration of collision coverage comes to mind. Five years ago in the spring of ’67, Wals Eloc was motoring through the jungles of New Guinea, as he was wont to do, in search of the Great Blue Borneo Hottentot. Eloc saw the Great Blue Borneo Hottentot sitting atop a telephone pole on the edge of the jungle. However, Eloc didn’t see the pole. The damage to his 1937 Runstutt came to $600 and, after deducting the $50 deductible, the insurance company paid Eloc the balance of $550.

Remember that Comprehensive, Fire, Theft, and Collision all carry with them this deductible which you expend toward repairs or which would be deducted from the coverage amount before the insurance company paid you anything. The reason for the deductible, by the way, is to reduce the cost of your insurance premiums.

In the event your bike was totaled, the insurance company would use the current Blue Book value as a guide, subtracting the deductible and paying you the balance.

OTHER COVERAGE

Additional coverage is available for additional premiums to supplement those just covered.

Uninsured Motorist—This protects you, personally, in the event you’re hit by an individual who is at fault and who is uninsured, meaning he has no liability coverage. If, for instance, the dungwagon driver had been at fault and uninsured, this coverage would have paid for Eloc’s hospitalization only; not for repair or deodorization of the Runstutt.

Some 10 percent of the drivers in this country are not insured. Why, I don’t know. But since the chances are about one in ten that whoever you collide with next won’t be insured, it’s quite possible you may meet someone who can explain.

Towing and Labor—Should you have trouble on the highway, as did Eloc in his search for the Trans-Siberian Railway in ’42, this would cover the cost of towing and whatever additional labor was involved in getting your bike somewhere where repairs could be made or getting it home. If your bike went down a 40-ft. embankment and it had to be retrieved so that it could be towed, this would constitute additional labor and would most probably cost extra. And after having helped retrieve a BMW from a similar situation, I don’t blame anybody for charging a little extra—the smallest gully becomes the Grand Canyon.

Medical Payments Insurance—Bodily Injury/Liability coverage doesn’t cover the individual who was at fault in an accident for any hospitalization he might need. This portion will cover that need, but only to a specific amount and most usually only after a deductible.

A not uncommon coverage is $500 with a $50 deductible, meaning the coverage is actually $450. Although this does not sound like much, it would cover any hospitalization incurred in most accidents. However, most individuals (around 81 percent) have a hospitalization plan that protects them with more practical and higher limits and so would not rely on the Medical Insurance segment of a vehicle insurance policy.

This type of coverage is usually of a reimbursement nature, meaning you pay the medical bills and your insurance company would reimburse you upon presentation of the receipts; and this coverage is available for you only, or you and the passenger of your motorcycle.

Drive Other Cycle Coverage—If

you’re not an entirely myopic individual, from time to time you may take out the newest, whatever, just to find out what it’s like; i.e., to find out what you don’t like about the other guy’s bike. Or, you may borrow your buddy’s bike, right? So, if you decide to buy this coverage, you’re insured should anything nasty happens. Most companies make this coverage automatic without additional premium. Nevertheless, all companies that do offer DOC coverage include an excess clause indicating that their policy would apply in excess of the coverage provided by the company that insured the motorcycle you borrowed.

What about this other thing we’ve been hearing about called No-Fault insurance?

NO-FAULT INSURANCE

In 1933, the “Report by the Committee to Study Compensation for Automobile Accidents,” published by Columbia University, came to the conclusion that a No-Fault concept of vehicle insurance would better fill driver’s needs.

Then, in the mid-60s, the Harvard Law School made another study of the same problem and came to the same conclusion.

Two law professors, Robert E. Keeton and Jeffrey O’Connell, have written several books on the subject, perhaps the best of which is After Cars Crash, published by Dow Jones-Irwin. It was written for the layman and outlines the No-Fault concept in depth. States and legislators have gradually been paying more and more attention to it; until, today, several states have No-Fault insurance while many others are or will be considering it seriously.

With the present vehicle insurance system, 20 to 25 cents of every liability premium dollar we pay goes for attorney costs, claims investigators, and court costs. Along with other costs, only about 45 cents of your premium dollar goes for actual benefits.

According to a 21/2-year, $2.5-million Department of Transportation study, persons receiving minor injuries in accidents usually received more compensation than their injuries dictated, while the seriously injured received only a portion of their damages; only 45 percent of the seriously injured or beneficiaries of fatal accidents derive benefit in any way from liability insurance; one half of all clams take, on the average, six months to settle; and when a serious injury or death is involved, cases average 16 months and can be delayed for up to five years.

No-Fault concerns itself mainly with getting you out of the hospital and back on your feet again, and with paying any damages as quickly as possible, hopefully alleviating the long, drawn-out court battles spent trying to determine which party in an accident was at fault, thereby canceling-out many of the inequities of the present insurance system and easing the burden of increasing premiums.

Under the No-Fault concept, both parties in an accident receive compensation according to their needs—within certain limits and restrictions defined by each individual state—from their own insurance companies, not from the other guy’s company. Both parties receive compensation because fault or liability are no longer determining factors with respect to any payments made to insured individuals—initially. I say initially because, in effect, an individual who carries vehicle insurance in a state where No-Fault has been enacted is giving up his right to sue until certain amounts of damage or bodily injury are reached: If, in your state, this amount was $500, you couldn’t sue until your hospital bills exceeded that amount. Every state that has a No-Fault basis for vehicle insurance, so far, has its own laws determining to what extent, and in which events, one can sue.

Let’s assume you and Wals Eloc had a collision. Both of you went to the hospital as a result. Both of you would receive compensation, each from his own company, for the following losses, within the framework and limits of coverage set by whatever state the accident took place in:

1. For wage loss up to a set percentage of your monthly salary.

2. For out-of-pocket expenses such as hiring someone to mow the lawn or perform housework, if they were normally performed by you.

3. For your medical expenses up to a maximum.

This, then, is the No-Fault concept of vehicle insurance. It changes from state to state and with it so will the maximum amounts paid, means of payment, and the types of coverage. The entire package could be different from one state to another, so it might be a good idea to write your legislator and find out what perspective your state takes regarding to No-Fault.

THE MOTORCYCLE FRATERNITY

What concerns most motorcyclists, of course, are the rumors that if a No-Fault insurance bill is passed in your state, you won’t be able to afford the two-wheeled beauty because of the exorbitant premiums.

Well, the rumors, to a point, are true. If you live in a state that enacts a No-Fault program, and provisions are not made for motorcycles, the premiums are high—very high. An example from Universal Underwriters Insurance Company indicates that in one state it would have cost $426 to insure a 325cc bike.

Fortunately, there is a way out and that is to exempt the motorcycle from any such law, which is what many states have done. Without this exemption, premiums for bikes go sky high.

There are two basic reasons why motorcycle premiums are so high under No-Fault. First, most accidents between bikes and automobiles are caused by the car, so it follows that under the liability system we talked about before, the insuring company of the automobile was, in a majority of cases, paying you for damage to your bike and hospitalization to yourself. Under No-Fault, though, your insurance company will be paying those expenses. Second, you’ll be buying an expensive accident and health, hospitalization, life insurance, unemployment compensation and burial insurance policy that you weren’t buying before, causing a corresponding rise in premiums.

Under the exemption, the cost of insurance for your bike will rise about 10 percent. It’s a risk, true. But not as bad as the hundreds of percent it would rise otherwise. And if you drive a car, it would be covered by No-Fault with a corresponding drop of anywhere from 15 to 20 or more percent, depending on the state.

The following states have No-Fault:

S. Dakota—optional N.F.; Florida— bikes exempt; Illinois—bikes exempt; Oregon—bikes exempt.

Delaware—bikes included (no exemption). This is a structured program with elective levels of coverage, $142 being the minimum premium for bikes to be used on improved roads. Massachusetts— bikes exempt.

So, that’s insurance—the liability system and the No-Fault concept.

What to do? If your state vehicle insurance laws are still based on the liability system, talk it over with your insurance agent and find out how your state’s laws differentiate from the outline and examples given in this article and discuss with him what additional coverage you might buy, if any, the next time you hand the “wizard” your money. Use your common sense and remember that a good insurance agent is as much a “guide” as he is a salesman.

If your state is considering a NoFault bill, write your legislator and find out what’s happening. Ask him his opinion and, after forming one, give him yours. And if you decide that you approve of No-Fault, make sure you write your legislator and remind him that motorcycles should be exempt if some other provision can’t be made.

Legislators don’t intend to disregard motorcyclists when considering bills, they simply forget us when deliberating such things as No-Fault, so it’s up to us to remind them.