When the Limited Mexico Coverage endorsement is added to a personal auto policy it provides coverage while the covered autos is how many miles into Mexico?

By Donald S. Malecki, CPCU

United States citizens who operate a vehicle into Mexico without purchasing Mexican insurance at the border are engaging in a dangerous practice because in the event of an accident, the consequences imposed by the Republic of Mexico not only can be considered a civil matter, but also a criminal offense. What's more, the vehicle operator can be detained and his/her vehicle impounded until financial responsibility has been verified.

With the 1994 implementation of the North American Free Trade Agreement (NAFTA), there has been an increase in commercial vehicle travel between the United States and Mexico. However, coverage for accidents that occur in Mexico is very limited--available under the standard ISO Business Auto, Motor Carrier, Truckers, and Garage Coverage forms only.

ISO introduced an endorsement in 1999 titled Limited Mexico Coverage, CA 01 21 02 99, for use with the above coverage forms, subject to an additional premium. Whether the coverage will apply not only hinges on the conditions, as discussed subsequently, but also is subject to the discretion of the Mexican authorities.

The ISO endorsement in fact contains a warning that reads as follows:

Auto accidents in Mexico are subject to the laws of Mexico only--not the laws of the United States of America. The Republic of Mexico considers any auto accident a criminal offense as well as a civil matter.

In some cases the coverage provided under this endorsement may not be recognized by the Mexican Authorities and we may not be allowed to implement this coverage at all in Mexico. You should consider purchasing auto coverage from a licensed Mexican Insurance Company before driving into Mexico.

This endorsement does not apply to accidents or losses which occur outside of 25 miles from the boundary of the United States of America.1

The Limited Mexico Coverage endorsement amends four sections of the standard commercial auto coverage form in question.

The first policy section to be amended is the General Conditions that deals with Policy Period and Coverage Territory. As a result, the coverage territory of the policy is said to be extended to include Mexico but only for (1) "accidents" or "losses" occurring within 25 miles of the U.S. border, and trips into Mexico of 10 days or less. Salespeople in Texas border cities who must go into Mexico daily or weekly may find this endorsement to be a time-saver if these salespeople have to stop and purchase Mexican insurance every time they are required to cross the border.

The commercial policy's Other Insurance condition also is amended with this endorsement. The effect is that the coverage provided by this endorsement is viewed as excess over any other collectible insurance--Mexican insurance purchased at the border, for example. However, in the absence of any other applicable coverage, the endorsement would convert to a primary basis.

Physical damage coverage also is amended, if such coverage is maintained on the covered auto. Here is how this coverage works. If a loss to a covered auto occurs in Mexico, the insurer, under this endorsement, agrees to pay for such loss, assuming it is covered, in the United States. If the damage is such that the covered auto cannot be driven and has to be repaired in Mexico, the insurer will not pay more than the actual cash value of the loss at the nearest U.S. point where the repairs can be made.

For example, if the repairs in Mexico cost $3,200, and the same repairs would cost $2,800 if the auto were repaired in a U.S. border city, the most the insurer would pay would be the lesser amount. Unfortunately, tow and labor coverage does not apply to this endorsement. So whatever costs are incurred to get the auto to a U.S. border state come out of the insured's pocket.

The last section of the commercial auto that is amended by this endorsement concerns the exclusions. Two exclusions are added. Insurance does not apply: (1) if the covered auto is not principally garaged and principally used in the U.S., and (2) to any insured who is not a resident of the U.S.

Personal auto policies may not count

It is important to note that the Limited Mexico Coverage endorsement applies solely to standard commercial auto coverage forms. A salesperson who uses his/her own auto to go into Mexico is not covered by this endorsement, nor is any person or family traveling into that country for business and pleasure or solely for pleasure purposes.

However, it may be possible to purchase some limited coverage comparable to that provided by standard commercial auto coverage forms. The Personal Auto Policy of ISO, for example, can be amended with comparable limited coverage under an endorsement titled, Mexico Coverage, PP 03 21. But in the absence of that type of endorsement, the operator can face all kinds of consequences, such as impoundment of the auto and criminal charges.

A woman who drove her auto into Mexico and had an accident found out that her auto insurance, which was not amended by any Mexico Coverage endorsement, did not apply. The accident occurred within 10 miles of the United States/Mexico border. When she applied for medical payments coverage, the insurer denied payment, leading to the case of Ruiz v. Government Employees Insurance Company, 4 S.W.3d 838 (Tex.App.-El Paso 1999). In her suit against the insurer, she claimed fraud and negligent misrepresentation on the insurer's behalf in failing to disclose the limits of the policy.

Her policy, like that of standard ISO editions, not only defined the policy territory to include the U.S., its territories, or possessions, Puerto Rico, or Canada, but also applied to loss to, or accidents involving a covered auto while being transported between their ports.

She maintained that this latter provision of her policy could be interpreted as providing coverage while the vehicle was being transported "between ports of entry," of which, it was pointed out, there are five in the El Paso, Texas, area. The court stated that, while the specific issue of the definition of "ports" had not been addressed in Texas, it had been considered in California and Arizona.

In the case of California State Auto Assn., Inter-Insurance Bureau v. Superior Court of the State of California, et al., 177 Cal. App. 3rd 877 (1986), the court denied coverage for an auto accident in Mexico involving an insured and companion while travelling between two ports of entry in the U.S. The following is what the court had to say as to the argument that coverage applied while the covered auto was being transported "between their ports."

"Real parties argue that 'between their ports' applies to travel between two places in the United States over land outside the United States. Land travel between two places located within the United States is subsumed by the provisions covering accidents happening within the covered domains. The only other circumstance in which travel might occur between two such places is travel on or over water between such places. Travel over domestic waters is travel within the United States, considering it to include its territorial waters. That leaves only travel on or over international waters as the subject of 'between their ports,' a necessary condition for transportation between certain states of the United States and between the United States and its possessions or territories. Giving 'port' its broadest permissible reading within the policy limits it to a seaport or other place within a covered domain from which such travel over international waters might occur. . . . [The insureds] could not reasonably have expected coverage under the policy during their vacation visit to Mexico."

The court in the Arizona case of Dykeman v. Mission Ins. Co., 471 P.2d 317 (1970), came to essentially the same conclusion as the above California court. In reviewing this Arizona case, the California court explained that "[I]f the auto were being transported from the United States to Puerto Rico, or from Miami to the Port of Houston, and the carrier was sunk during a hurricane, the loss would be covered by the policy."

One of the justices concurring with the opinion of the majority in the California case against the insured stated that conspicuous language in a policy warning the purchaser that the policy covers no travel outside the U.S. or Canada seems like a simple addition and one that would avoid misunderstandings such as the case in question. "The legislature or State Board of Insurance would perform a service to all residents of the border in creating such a requirement," the judge concluded.

There is some merit to that suggestion, and perhaps it has been done. However, insurance people are aware of this Mexican insurance dilemma but it is doubtful that many insureds are aware of it. The public needs to be reminded time and again. *

1 Copyright, Insurance Services Office, Inc., 1998. (Map © Rand McNally & Company.)

The author

Donald S. Malecki, CPCU, is chairman and CEO of Donald S. Malecki & Associates, Inc. He is a committee member of the International Insurance Section of the Society of CPCU, on the Examination Committee of the American Institute for CPCU, and an active member of the Society of Risk Management Consultants.

Does my US car insurance cover me in Mexico?

What car insurance is mandatory in Mexico?

Which of the following would not be eligible for coverage under a personal auto policy quizlet?

Which of the following is true of supplementary payments under Part A of the personal auto policy?