SENATE 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

Senate Committee on Financial Institutions & Insurance

Senate Hearing Date(s):February 18, 1988; February 23, 1988

Majority Report:  Do pass as amended.

      Signed by Senators von Reichbauer, Chairman; West, Vice Chairman; Johnson, Kreidler, Moore, Rasmussen, Smitherman.

Senate Staff:Walt Corneille (786-7416)

                  February 24, 1988

AS REPORTED BY COMMITTEE ON FINANCIAL INSTITUTIONS & INSURANCE, FEBRUARY 23, 1988

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:

Private passenger automobile and motorcycle insurance policies written or renewed after January 1, 1989, may not provide collision or comprehensive coverage without providing liability coverage.  Three 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.

Before a policy providing only collision and comprehensive coverage may be sold the applicant must provide the agent with the name and policy number of the applicant's liability insurer.

SUMMARY OF PROPOSED SENATE AMENDMENT:

The exception to the requirement that liability insurance be sold when coverage is acquired to insure a secured interest is clarified.  Technical changes are made to improve clarity.

Appropriation:    none

Revenue:    none

Fiscal Note:      none requested

Senate Committee - Testified: Representative Crane, original sponsor (for); Representative Winsley, sponsor (for); Keith Hopper, Washington Bankers Association; Fred Alari, Affiliated Agencies; Steve Schneider, Intersure; Dennis Martin, WSTLA (for)