Fred took his friend, Mary, out to dinner on her birthday. While driving Mary ho

Question

Fred took his friend, Mary, out to dinner on her birthday. While driving Mary home, Fred became ill and asked Mary to drive. While driving Fred's car, Mary negligently injured another motorist when she failed to top at a red light.

Fred has an auto insurance policy with a liability insurance limit of $250,000 per person for bodily injury liability. Mary has a similar auto insurance policy with a liability limit of $100,000 per person.

1) If a court awards a liability judgment of $100,000 against Mary, how much, if any, will each insurer pay? Explain your answer.

2) If the liability judgment is $300,000, how much, if any, will each insurer pay? Explain your answer.

3) Assume that Fred cannot afford to pay the premium and lets his auto insurance policy lapse. At the time of the accident, he is uninsured. If the liability judgment against Mary is $100,000, how much, if any, will Mary's insurer pay? Explain your answer.

Explanation / Answer

The normal rule is that liability insurance on borrowed car is primary and any other insurance is considered excess. Therefore here, Fred’s policy is primary and Mary’s policy is excess. So, Mary’s policy does not pay until Fred’s policy limits are exhausted. By the rule, Mary is covered under her policy as she is driving a friend’s car with the permission of the owner. She is also covered under Fred’s policy. If a court awards a liability judgment of $100,000 against Mary; Fred’s policy will pay $100,000 as his limit is $250,000 and Mary’s policy will pay nothing.

2)   If the liability judgment is $300,000, how much, if any, will each insurer pay? Explain your answer.

If the liability judgment is $300,000, in that case Fred’s policy will pay $250,000 as his limit is $250,000 and Mary’s policy will pay remaining $50,000 as her policy limit is $100,000.

3)   Assume that Fred cannot afford to pay the premium and lets his auto insurance policy lapse. At the time of the accident, he is uninsured. If the liability judgment against Mary is $100,000, how much, if any, will Mary's insurer pay.

If Fred is uninsured and the liability judgment against Mary is $100,000, in that case Mary's insurer will pay whole amount of $100,000 as her policy limit is $100,000.

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