Coverage Corner

AUTO POLICY RACING EXCLUSIONS

By Bill Wilson

In the last issue, we answered the question, “Who needs an umbrella policy?” At the end of that column, I mentioned that the majority of umbrella claims originate from auto accidents. There have been a number of high-profile “celebrity” auto accidents. One that comes to mind and is relevant to this discussion involves the family of professional wrestling (or as we insurance columnists here in the South say, “wrasslin’”) legend Hulk Hogan, whose real name is Terry Bollea.

In 2007, his 17-year-old son, Nick Bollea, was involved in an auto accident that resulted in a permanent brain injury to his passenger. Bollea was allegedly street racing another vehicle when he lost control of his father’s car. According to news accounts, the Bollea family’s sole source of insurance recovery was $500,000 under his auto policy, so he sued his insurance agent for failing to provide umbrella insurance.

In a motion to dismiss the case, his agent provided evidence that umbrella coverage was offered, but declined, on several occasions, including just four days before the accident. As an aside, it’s easy to see why all those E&O classes you’ve attended recommend always offering broader essential coverages and documenting declinations of those offers.

But the question we’re focused on in this issue’s column is, “Do personal auto policies cover liability claims arising from racing?” The answer is what you might expect: It depends. It depends on the circumstances and facts of the accident and on what the policy form says given that (despite what consumers might gather from industry advertising) auto insurance is not a commodity differentiated only by price. Let’s examine the wording in three different personal auto policies.

First, ISO’s Personal Auto Policy excludes:

Any vehicle, located inside a facility designed for racing, for the purpose of … competing in; or … practicing or preparing for … any prearranged or organized racing or speed contest.

Note that this racing exclusion applies only while the vehicle is “inside a facility designed for racing.” Since the Bollea family had auto liability coverage that responded to the claim, presumably the racing exclusion, if that was an issue, might have been comparable to this language, and so the exclusion did not apply.

Second, a non-ISO insurer’s proprietary policy excludes:

Covered ‘autos’ while used in any professional or organized racing or demolition contest or stunting activity, or while practicing for such contest or activity. This insurance also does not apply while that covered ‘auto’ is being prepared for such a contest or activity.

Note that this racing exclusion doesn’t require the auto to inside a facility designed for racing. However, the race must be professional or “organized,” whatever that last term might mean. Typically, street racing doesn’t fall into this category, so the Bollea policy could have been similar to this wording such that there was coverage.

Third, a form mandated at the time in North Carolina excluded:

Any vehicle while participating in any prearranged, organized, or spontaneous … racing contest, speed contest, demolition, stunt activity…. [emphasis added]

Note that this exclusion applies even to “spontaneous” racing, such as most street racing, an exposure far more common than organized racing events. Since the policy in force responded to the claim, it is unlikely that the “racing” exclusion was this restrictive.

This illustrates that, when you’re assisting a customer in choosing a policy, coverage differences are material. Is a vehicle being insured a high-performance model? Are there any youthful drivers? Are there drivers with speeding violations? Answers to questions like these could be material to the insured’s decision on which policy is most appropriate for their unique potential loss exposures.

This type of exclusion alone debunks the premise so often put forth in consumer articles about saving money on car insurance, that you need to compare “apples to apples.” What they mean is compare the same basic coverages at the same limits or deductibles. However, we know that this tells you very little about the actual policy language or how it might be applied to the facts and circumstances of each accident.

Finally, I’ll leave you with some words of advice you can pass along to your customers from the 19th century English philosopher and writer John Ruskin:

There is hardly anything in the world that some man cannot make a little worse and sell a little cheaper, and the people who consider price only are this man’s lawful prey.

Bill Wilson, CPCU, ARM, AIM, AAM is the founder and CEO of InsuranceCommentary.com and the author of seven books, including “When Words Collide…Resolving Insurance Coverage and Claims Disputes.” He can be reached at Bill@InsuranceCommentary.com.