HOUSE BILL REPORT

REESHB 240

BYHouse Committee on Financial Institutions & Insurance (originally sponsored by Representatives Crane, Winsley and Unsoeld)

Requiring vehicle insurance policies covering comprehensive and collision to also cover liability.

House Committe on Financial Institutions & Insurance

Majority Report:     The substitute bill be substituted therefor and the substitute bill do pass.  (12)

     Signed by Representatives Lux, Chair; Zellinsky, Vice Chair; Betrozoff, Chandler, Crane, Day, Dellwo, Ferguson, Meyers, Nutley, Silver and Winsley.

House Staff:John Conniff (786-7119)

AS REPORTED BY COMMITTEE ON FINANCIAL INSTITUTIONS & INSURANCE

FEBRUARY 12, 1987

BACKGROUND:

Policies that are sold providing only collision or comprehensive coverage are most commonly found as part of a financing agreement for an auto loan.  This type of coverage (vendor single interest coverage - VSI) is designed to protect a lender's interest in the vehicle.  If the vehicle is damaged or destroyed, the policy will pay the lender an amount not exceeding the outstanding loan amount.  The coverage is typically purchased when a borrower fails to obtain a policy of his own; then, the lender obtains VSI and adds the premium to the borrower's loan.

In 1981, the legislature adopted an insurance code provision that would have prohibited collision or comprehensive coverage without providing liability coverage.  At the time of adoption of the act, legislators expressed a belief that some borrowers were mistakenly led to believe that the VSI coverage was similar to a standard auto policy.  In addition, legislators wanted to promote the sale of a complete policy hoping to reduce the incidence of uninsured motorists.  However, Governor Spellman vetoed the prohibition shortly after its passage.

SUMMARY:

SUBSTITUTE BILL:  Private passenger automobile and motorcycle insurance policies written or renewed after January 1, 1988, may not provide collision or comprehensive coverage without providing liability coverage. Two exceptions are made.

Collision or comprehensive coverage may be provided without liability coverage if the automobile or motorcycle is not being operated upon state highways and if the collision or comprehensive coverage is being provided by a lender to protect the lender's interest in the vehicle after the borrower has failed to maintain insurance required by the loan agreement.

Whenever a policy is sold that only provides collision or comprehensive coverage the agent or insurer must notify the owner of the vehicle that liability coverage is not included in the policy. In addition, the Insurance Commissioner is authorized to adopt any rules necessary to ensure that such notice is prompt and sufficient.

SUBSTITUTE COMPARED TO ORIGINAL:  The original bill would have prohibited the sale of collision and comprehensive coverage policies without the sale of liability coverage under any circumstances.  Moreover, the original bill applied to commercial as well as to personal policies.

Fiscal Note:    Not Requested.

Effective Date:This act applies to certain insurance policies written on or after January 1, 1988.

House Committee ‑ Testified For:     None Presented.

House Committee - Testified Against: None Presented.

House Committee - Testimony For:     None Presented.

House Committee - Testimony Against: None Presented.