This is an article from the IIAT newsletter. With an aging population, this may affect some of you.
PAP Coverage After Death
David Surles, Contributing Author
The personal auto policy is personal in nature, meaning it is designed to cover a named individual and the individual's family members. What happens when the named insured dies? There is language in the policy that specifies how coverage continues following the death of the named insured, and it is very limited. (See "Transfer of Your Interest in This Policy" in Part F – (General Provisions) in either the Texas or ISO policy.)
A recent court decision in Maryland (Maryland Automobile Insurance Fund vs. John) highlights the importance of giving good advice when you are advised of a policyholder's death. In that case, the only named insured on the policy died on May 4, 2005. The insured's sister notified the agent two days later who told her to continue making payments and the coverage would continue until ownership of the car was transferred. The sister continued to make the payments, including all premiums due for renewals of the policy through Sept. 26, 2006. Meanwhile, someone besides the sister was appointed personal representative of the estate. On Sept. 21, 2006, the sister caused an accident that resulted in bodily injury and property damage to a third party. When the injured party filed suit, the insurance company denied the claim. In deciding that the claim denial was proper, the court pointed to the plain language of the policy: "If a named insured dies, this policy will provide coverage until the end of the policy period for the legal representative of the named insured, while acting as such, and for persons covered under this policy on the date of the named insured's death." The court rejected arguments that the company was estopped from denying coverage as a practical matter and as a matter of public policy because it accepted premium payments for over a year and renewed the policy. The court decision refers to the agent's "misrepresentation" regarding coverage, but provides no clue what happened after the court decided the company wasn't required to defend or indemnify the claim against the sister.
