From the Land Mines in Accident Cases section of How You Can Avoid Legal Land Mines by Joseph S. Lyles (2003).

Donna was a young adult with minimal experience in business or insurance. She purchased a brand new personal watercraft (PWC) for several thousand dollars, and she financed the purchase through a bank. The bank loan officer explained to Donna that shew as required to carry insurance coverage on the PWC and recommended an insurance agency.

Donna went to the insurance agency and told an employee that she needed insurance on her PWC. Donna believes she told the insurance agency representative that the PWC was financed. The agent completed the application process and an insurance company issued her a policy. Someone from the insurance company sent proof of the insurance coverage to the loan officer.

Shortly thereafter Donna was at a lake with several people she knew and a few she didn’t know. She let two teenaged girls borrow her PWC, and they collided with another PWC operated by a young man. When Donna made a claim for her totaled PWC, she learned that there is more than one type of insurance. The agency had obtained liability coverage for her, but not collision coverage. Liability coverage only pays damages to someone who suffers a loss as a result of your negligence. Thus, the insurance company did not have to pay her claim for damages to the PWC.

Donna was stuck making the monthly loan payments for over two years while her lawsuit worked its way through the system. Donna was very unhappy that she had to make payments on a PWC she couldn’t use and couldn’t afford to replace or have repaired.

Donna learned a hard lesson about the importance of reading legal documents like insurance applications and having a basic understanding of all types of insurance.

The Lesson: Ask your insurance agent to explain the details of your coverage. If you have a relatively new vehicle to insure, make sure you get collision coverage to protect you in the event the vehicle is damaged.