North Carolina Adjuster Practice Exam

Which provision in an auto insurance policy indicates that coverage does not extend to damages while a vehicle is in the care of another party?

1. Liability Coverage

2. No Benefit to Bailee

3. Subrogation

4. Physical Damage Coverage

The correct answer is: No Benefit to Bailee

The provision known as "No Benefit to Bailee" specifically addresses the issue of coverage limits when a vehicle is under the care, custody, or control of another party. This clause is designed to protect the insurer from having to pay for damages to the vehicle while it is being rented, serviced, or otherwise in the hands of a third party who might be liable for those damages. Including this clause in an auto insurance policy ensures that the insurance company does not provide coverage that might otherwise benefit the bailee, or the person who has taken possession of the vehicle. This is important for maintaining the balance of risk between the insured (the vehicle owner) and the bailee, who would typically be responsible for any damages incurred while the vehicle is in their care. Other provisions mentioned do not serve this specific purpose; liability coverage pertains to damages caused by the insured to others, subrogation refers to the insurer's right to pursue recovery from a third party after a claim has been paid, and physical damage coverage is about protecting the vehicle itself against certain types of damage. Thus, the 'No Benefit to Bailee' provision is critical for clarifying the extent of insurance coverage related to vehicles in the care of others.