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Contributory negligence law

Law that prevents a person from

recovering damages if that person
contributes in any way to his or her
own injury.

Comparative negligence law

Law that requires both parties to a loss

to share the financial burden of the
injury according to their respective
degrees of fault.

Tort reform

Proposed or actual legislation intended

to reduce legal costs or settlement
awards resulting from negligence
lawsuits.

Financial responsibility law

Law that requires motorists, under

certain circumstances, to provide proof
that they have the ability to pay, up to
certain minimum amounts, for damage
or injury that theymight cause as a
result of operating a vehicle.

Compulsory auto insurance laws

Law that requires the owners or

operators of automobiles to carry
automobile liability insurance at least
equal to certain minimum limits before
the vehicle can be licensed or
registered.

Unsatisfied judgment funds

Funds established by some states to

compensate auto accident victims who
have obtained a court judgment that is
uncollectible because the negligent
party cannot pay.

Uninsured motorists (UM) coverage

Coverage that reimburses an insured

auto accident victim who sustains

bodily injury (and, in some states,

property damage) caused by an
uninsured motorist, a hit-and-run
driver, or a driver whose insurer is
insolvent.

Underinsured motorists coverage

Coverage that applies when a

negligent driver has liability insurance
at the time of the accident but has
limits lower than those of the injured
person's coverage.

No-fault automobile insurance

Insurance that covers automobile

accident victims on a first-party basis,
allowing them to collect damages from
their own insurers regardless of who
was at fault.

Monetary threshold

The level of monetary damages in a

no-fault system at which one injured
party can seek compensation from the
at-fault party.

Verbal threshold

The level of severity of injury in a no-fault system,

including death and certain specified injuries, such as
disfigurement or dismemberment, at which the injured
party can seek compensation from the at-fault

Personal injury protection

(PIP) endorsement

Pure no-fault system

Endorsement to an auto
insurance policy
describing the no-fault
benefits that are
provided.
System that would
prevent an injured
person from seeking
compensation for

damages from the atfault party, regardless of

the injury's severity; the
injured person would
collect no-fault benefits
directly from his or her
own insurer.

Add-on plan

Endorsement that
provides certain benefits
to injured automobile
victims regardless of
fault; the injured person
retains the right to seek
compensation from the
negligent party who
caused the accident.

Modified no-fault laws

Laws that prevent an

injured person from
seeking compensation
for damages from a
negligent driver unless
damages exceed the
monetary or verbal
threshold; if the claim is
below the threshold, the
injured person collects
benefits from his or her
own insurer.

Choice no-fault plan

Plan that gives an

insured the option, at the
time an auto insurance
policy is purchased or
renewed, of choosing
whether to be covered
on a no-fault basis.

Residual market (shared

market)

Term referring
collectively to insurers
and other organizations
that make insurance
available to those who
cannot obtain coverage
in the standard market.

Automobile insurance plan

Plan for insuring highrisk drivers in which all

auto insureres doing
business int he state are
assigned their
proportionate share of
such drivers based ont
he total volume of auto
insurance written in the
state. (i.e., if one insurer
writes 10 percent of all
the auto insurance int he
state, it would be
assigned 10 percent of
the state's high-risk
drivers.)

Joint underwriting
association (JUA)

Organization created in a
few states that
designates servicing
insurers to handle highrisk auto insurance
business; all auto
insureres in the state are
assessed a
proportionate share of
the losses and expenses
based ont heir
percentage of the
voluntary auto insurance

premiums written in the

state.

Reinsurance facility

ront

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A state-wide reinsurance
pool to which insurers
can assign premiums
and losses for high-risk
drivers; original insurers
service the policies, but
all insurers in the pool
share the losses and
expenses of the facility in
proportion to the total
auto insurance they write
in that state.

Underwriting

the process by which insurers decide

potential customers to insure and the
that insureds will be offered. Underwr
activities include selecting insureds, p
coverage, determining policy terms a
conditions, and monitoring underwritin

Cancellation

a decision by the insurer or the insure

terminate coverage during hte policy
(before the expiration date of the polic

Material misrepresentation

a false statement by an insured of an

(material) fact on which the insurer re
an underwriting decision.

Nonrenewal

an insurer's decision to terminate cov

expiration date of the policy; in other
insurer refuses to renew the policy wh

Restrictions on cancellation do not apply for the

TRUE

first 60 days (for example) on a policy period. True

or False?

Cancellation is usually permitted for what

reasons?

- Nonpayment of premium
- Suspension or revocation of a driver
- Submission of a false or fraudulent c
- Material misrepresentation of releva
underwriting information
- Conviction for certain offenses, such
under the influence of alcohol or drug
- Violation of policy terms or condition

What are some restrictions on nonrenewal?

- The insurer must give the insured w

that the policy will not be renewed
- A certain number of days of advance
required
- Many states require the insurer to g
reason for the nonrenewal or to provi
reason on request.

Unfair discrimination

the application of different standards

of treatment to insureds that have the
characteristics and loss potential. Exa
unfair discrimination in auto insurance
would include charging higher-than-n
for an applicant based solely on the a
race, religion, or ethnic background.

What are the primary factors used in determining

the cost of personal auto insurance?

- Age
- Sex
- Marital status
- Territory
- Use of the auto
- Good student discount
- Driver education credit

What are the important but non-primary rating

factors used in rating personal automobile

- Driving record
- Type of vehicle

insurance?

- Number of vehicles
- Deductibles
- Liability limits