Higher Insurance Rates for Middle-Class Motorists

There are a lot of different expenses associated with owning an automobile. Apart from maintenance and the ever-growing cost of gas, people also need to pay for car insurance. A recent study by the Consumer Federation of America (CFA) suggests that good drivers in moderate-income areas are often quoted high rates by many major coverage providers.
To get these results, the CFA compared quotes from four leading insurers across 15 major cities for moderate-income drivers who were searching for the minimum amount of liability protection required in their state. The CFA was surprised to find that 56 percent of the estimates they received were over $1,000 and that 32 percent exceeded $1,500. The question that continues to stump the CFA is why low- and moderate-income drivers with perfectly clean driving records are being charged so much for basic liability protection.

The Consequences of Higher Premiums

The CFA has called on state insurance commissioners to investigate these seemingly discriminating price differences, saying that the inflated prices in low-to-moderate income areas has led to a higher concentration of uninsured motorists.
Many people in these areas say that they are unable to purchase car insurance online or through an agent because they cannot afford the coverage. However, instead of making policies more affordable, many states have heightened the penalty for not meeting state financial responsibility requirements. California is one of the few states that offer a low-cost program for low-to-moderate income vehicle owners with clean driving records. A large number of people on the road without adequate protection can have a number of consequences.
If someone is struck by another motorist, the responsible driver’s insurance ends up paying for the damages. If someone is hit by someone who has no coverage, however, the victim’s own insurer often ends up paying for any hospital-related medical bills as long as the policyholder has purchased uninsured motorist (UM) protection. Consequently, an insurance company is going to charge more for UM or collision coverage for drivers living in areas with fewer insured vehicle owners.
Although the CFA uncovered a high number of overly expensive policies, prices also varied significantly between insurers. While some quotes were over $3,000, others were priced under $500. The reason for these differences is every coverage provider interprets risk differently. If low- and moderate-income drivers shop around and explore as many quotes as possible, they may be able to find adequately priced car insurance.

Down Payments Required for Florida Insurance Policies

Sometimes people need to get insured in a hurry. Maybe they need to register and start using a long-dormant extra car again, or maybe they just missed a payment and accidentally let their insurance lapse. If they’re strapped for cash, they may want to get going with a policy that will cost them nothing to start up, but Floridians looking for a no down payment auto insurance policy will find that there may be a major road block: Florida law requires insurers to collect down payments from customers for policies they buy from a new insurer.
According to section 627.7295 of Florida’s statutes, a new policyholder must pay at least two months’ worth of premiums for a new policy in order to get insured legally, and this amount must come directly from their own pocket. If they were planning on going through a premium finance company to get the first few months covered, they’re out of luck.
“Insurers, agents, and premium finance companies are prohibited from advancing the down payment to the applicant or otherwise circumventing the requirement that the down payment come from the applicant,” according to a bill analysis from the Florida House Committee on Financial Services. This law has been in place since 1995.

​Exceptions to the Down-Payment Law

There is a handful of exceptions to the law. Here are the major ones:
– When the insurer issues car insurance primarily to active duty or former military personnel or their dependents
– When the policyholder or one of the policyholder’s family members is renewing or replacing a policy written by the same insurer
– When the policyholder or one of the policyholder’s family members already has a policy in effect and is just purchasing additional coverage or adding coverage for an additional vehicle from the same insurer
– When all payments are made through a payroll-deduction plan or through an automatic electronic funds transfer payment plan

​Why Require a Down Payment?

According to the committee analysis of the law, there are three main benefits of having the law.
First, it helps them enforce the state’s mandatory auto insurance law. Floridians need coverage to register their vehicles. And if they can get covered for absolutely no start-up costs, they might take advantage of the system by taking out a policy with no down payment, registering the vehicle, and then letting the coverage lapse when they fail to pay for it. Florida’s uninsured rate has been estimated by the Insurance Research Council to be around 24 percent, the fifth-highest rate in the nation, and lawmakers don’t want that going any higher.
Second, it helps ensure that insurers don’t lose money by being required to pay for any claims on a no-down-payment policy that they never collected any premiums on.
Third, it helps keep premium finance companies and insurers from establishing an unfair edge by offering zero-down policies.

Court Decision Has Coverage Implications for ‘Accordion Families’

If you’re a parent of an adult child who lives partially at home, you might want to read about a court case decided earlier this year in California that highlights some serious insurance issues for “accordion families.”
In the case, two insurance companies—GEICO and Mercury—were duking it out over which insurer had to cover damages that Lara Edelbaum became responsible for when she crashed her mom’s car in California back in 2008. Specifically, the question was whether Lara, who was bouncing between three residences, technically “resided” with her parents at the time of the accident.
The Mercury policy Lara’s parents had bought to cover the car had said that relatives would be covered fully under the policy, but the definition of “relatives” was restricted to related individuals who resided with the policyholder. If the court found that she didn’t technically reside with her parents, then her parents’ insurer, Mercury, only had to provide a total of $35,000 worth of coverage—the minimum coverage level for auto insurance policies in California; if the court found she did reside with them, Mercury had to provide more than $500,000 worth of coverage.
This notion should be reason enough to get “accordion families”—families in which adult children come back to live with their parents—to contact their insurer and clear up the issue of whether their children will be fully covered in the event of an accident. If the complex contract language ends up showing that they’re not, the victims of a serious accident could come after the driver or their parents for compensation for damages.

​The Case

Lara Edelbaum lived in Beverly Hills with her parents until she graduated from college in 1991, and later moved back in after attending graduate school. She then moved to New York and later moved back in with her parents again in 2000. She stayed there for six years and then moved out with her new husband. She then moved back to her parents’ house again, with her husband, in 2007. After they split up later that year, a family friend let her live in a guesthouse. While living in the guesthouse, she also frequently visited New York, where she stayed at her sister’s apartment. Lara said she kept some of her belongings at each of the three locations and could not quantify how much time she spent at each.
In the end, the lower court found that Lara did technically reside with her parents and that Mercury would have to provide full coverage. “At the time of the accident, Lara was a woman in transition and had three residences,” the lower court wrote. After moving back in with her husband, “Lara never moved out fully but rather kept one foot in her parents’ home as she stayed at her sister’s in New York or the guest house.”
The appeals court that ruled on the case in April of this year said that Mercury’s policy language was ambiguous. Both interpretations of the policy were reasonable, giving the ambiguity of the contract. Mercury argued that she had to spend the majority of her time at the house to be considered a resident there; the Edelbaums contended that whether she resided at the house depended on whether she and her parents considered it her home, which they did.
The appeals court ultimately said that the evidence supported the lower court’s ruling that she was residing at her parents’ home. She gave the house as her mailing address for important documents, kept possessions there, and ran errands for her mother. Further, when she found a new fiance and moved to San Francisco, she took all of these belongings with her.

A Valuable Lesson for Parents in “Accordion Families”

​Although the situation ended up working out for the Edelbaums, this is an isolated incident with its own unique details. Every company’s insurance contract can vary, and you don’t want to be caught technically uninsured due to one sentence in fine print. If you’re a parent in an accordion family, talk to your insurer about whether your children are covered under your policy.

Indiana Court Decision Has Insurance Implications for Parents, Insurers

At the end of June, an Indiana U.S. district court ruled that a father’s repeated verbal warnings to his daughter about not letting anyone else drive her car were strong enough to allow his insurer to deny coverage for an accident that occurred while her boyfriend was driving. The case has implications for insurers as well as parents who want to control their liability when their children are in possession of their insured car.
The case was brought by Allstate Insurance against the Agoston family (which owned the car that was insured by Allstate), Michael Hahn (the boyfriend of Sarah Agoston who ended up causing the crash), and Samantha Smythe (who was riding in the car at the time of the accident and was “seriously injured”). The court ruled Allstate did not have to pay for damages caused in the accident because Hahn was at the wheel, not one of the insured drivers under the policy.

Case Background

More than three years before the accident, when Sarah Agoston turned 16 and started driving, her father, Vincent Agoston, repeatedly warned her that she was to allow no one else to drive their cars. Court documents indicate that he reminded her of this restriction repeatedly.
But when Sarah started dating Hahn, who lacked a valid license, he would continually insist on driving, and she eventually gave in, allowing him to drive the car. She did this without letting her parents know about the existence of Hahn, much less the fact that she was allowing him to drive the car. After a party at Sarah’s apartment one night in March 2010, she gave in again and let him drive the car with she and Smythe riding as passengers. The court documents say that the group of friends at Sarah’s apartment that night had consumed alcohol and pills, and while on the way to a friend’s house, Hahn crashed the car. The accident was serious, with Hahn having to be transported by lifeline to the hospital.
Smythe ended up seeking compensation from Hahn, the Agostons, and American Commerce Insurance for her medical expenses. (The court documents do not explain who was insured by American Commerce, however.) And at the same time, Allstate filed this case, arguing that it did not have to provide compensation since Hahn was the one in the driver’s seat. Ultimately, the court agreed.

Why the Accident Was Not Covered

Whether someone else who drives your car will be covered by your insurance policy is one of the most common auto insurance claims questions that get asked. And, usually, they would be covered as long as they had your permission. But since Sarah’s parents had explicitly restricted her ability to let others drive the car, that general principle did not apply in this case, the court said. In the court’s decision, it cited a handful of cases in which coverage was negated because individuals who had borrowed a car under specific restrictions had lent the car out in spite of those restrictions. Sarah, after all, wasn’t the actual policyholder; her parents were.
Sarah’s parents “expressly prohibited anyone but Sarah from driving the vehicle, and Sarah had been continually reminded of this,” the court wrote. “Because of this restriction, Sarah herself did not have the right to grant anyone else permission to use the vehicle.”
When addressing the argument submitted by Smythe that Allstate had to cover the accident because Sarah’s parents had not listed Hahn as an excluded driver, the court said that her parents had made the rule so clear that it was “not necessary to explicitly list excluded drivers in the policy to make this restriction effective.”
This is only one case, though, and other incidents may have crucial details that affect who is covered. When you’re unsure, it’s always best to contact your insurer and go over who’d be covered in the event of an accident.

Don’t Get Caught in an Insurance Verification Mess

A bureaucratic mess that a 24-year-old Oregon man found himself tangled up in last month should serve as a warning to drivers who are thinking about letting their policies lapse in order to temporarily save on car insurance. In an age of coverage verification programs, things aren’t always so easy.
According to a report from the Blue Mountain Eagle newspaper in Grant County, Ore., the trouble started when Nolin Page’s 88-year-old grandmother added him to the title on her pickup truck. She did it so that he would come into possession of the car when she passed away. When winter came, Nolin’s grandmother let the insurance on the vehicle lapse. She made a habit of avoiding driving on ice and snow and figured she might as well not pay for premiums on a car that she was keeping off the road.
But after Nolin’s grandmother dropped the coverage, her pickup just happened to be selected for a random insurance checkup from the DMV. The state’s DMV selects a handful of registered vehicles each month and mails out notices to their owners asking them to provide their insurer’s name and their policy number. After the DMV gets a response, they verify the coverage with the insurer. If there’s no response from the vehicle owner, his or her license gets suspended.
The DMV sent letters both to Nolin and his grandmother. The grandmother didn’t respond, and neither did Nolin, who was going to school in Idaho at the time.  Pretty soon, Nolin was notified that he would lose his license in 30 days if he didn’t provide proof of insurance coverage. When they went to their insurance agent, who called the DMV, it appeared the only course of action would be for Nolin to lose his license, reapply, and then provide an SR-22, which would require him to prove compliance with the mandatory insurance law for the next three years. The SR-22 is a requirement for drivers who are identified through DMV verifications as not having coverage.
Ultimately, Nolin did not have to lose his license and file an SR-22. When the DMV wouldn’t budge on its plan to suspend Nolin’s license, the family reached out to their local legislator, who smoothed the matter over.

Avoid Sticky Insurance Verification Situations

Even though Nolin ended up keeping his license, they could have avoided the whole mess.
In Oregon and most other states, all registered vehicles must be insured at all times. If Grandma Page had discussed with her insurance agent the fact that she was planning on letting coverage lapse, the agent likely would have let her know that she’d be breaking the law by keeping the car registered and uninsured.
The situation also most likely could have been made a little less sticky if Nolin’s grandmother would have simply replied to the DMV explaining that she had let insurance lapse because she was keeping it off the road for a few months. That might not have necessarily gotten her off the hook, but it may have helped them avoid the prospect of having Nolin’s license canceled.
So the bottom line of all this? Take insurance-verification requests seriously and respond to them promptly. With the proliferation of online verification programs across the country, snafus like this one are likely to become more and more common.