BY MARIANNE BONNER
A commercial auto insurance policy can provide physical damage and liability coverage for the cars, trucks, and other vehicles used in a business enterprise. However, as a business owner, you must understand what the policy covers, when it is in effect, and if it covers all of your employees.
Most insurers that provide commercial auto coverage utilize standard policy forms published by the Insurance Services Office Inc.(ISO). The ISO provides statistical loss data to insurance providers as well as standardized policies and other forms. The backbone of the ISO Business Auto Policy is the Business Auto Coverage Form. This form contains key parts of the policy, including the coverages—liability and physical damage—exclusions, conditions, and definitions.
Three Categories of Insureds
Section II of the Business Auto Coverage Form outlines the persons or entities that qualify as insureds under commercial auto liability coverage. These parties are described in a paragraph entitled "Who Is An Insured." They are divided into three categories:
You: You are insured. "You" means the named insured, the person or company listed in the declarations.
Permissive Users: Anyone else who is driving a covered auto you own, hire or borrow with your permission is an insured. That is, if you allow someone to drive a vehicle you own, rent, or borrow, the driver is an insured. Drivers in this category are often called permissive users.
Omnibus Insureds: Also an insured is anyone who is liable for your conduct or the conduct of a permissive user. Often referred to as the omnibus clause, this wording covers anyone who may be held legally responsible for an accident caused by a named insured or a permissive user.
Named Insured Has Broadest Coverage
Of the three types of insureds, you are afforded the broadest level of coverage. You are covered for any covered auto. Which autos are “covered” depends on the covered auto designation symbols that appear in the declarations section of your policy. This page will include small numbers near the various listed coverages to indicate what type of vehicle or individual that is covered.
For example, if symbol two (owned autos) appears next to liability coverage, you are covered for claims arising out of any auto you own. Likewise, if symbols eight and nine (hired and non-owned autos) are shown, you are covered for claims arising from any auto you hire, as well as any auto you don't own.
Note that you (the named insured) are covered even if you are not driving the auto when the accident occurs. This is important because employers are vicariously liable—held responsible for—negligent acts of their employees. If you are sued as a result of an auto accident caused by a negligent employee, you should be covered for the claim.
Employees Covered as Permissive Users
Most of the individuals who drive company-owned vehicles are employees. Your employees are insureds while driving autos you own, hire, or borrow if such vehicles are covered autos (Borrowed vehicles are covered as hired autos.).
That is, employees are covered while driving vehicles you own or hire as long as you have purchased liability coverage for autos you own or hire. If your liability coverage applies only to owned autos, employees are insured only while driving autos you own. They are not covered while driving autos you hire.
The coverage afforded for permissive users does not apply to partners and employees driving vehicles owned by themselves. Such vehicles are considered non-owned autos because they are not owned by the named insured. Partners and employees are not insureds while driving non-owned autos, even if they are using the vehicles on company business.
Suppose that your firm employs sales workers who utilize their personal vehicles to make calls on customers. You want to provide insurance to your workers for liability under your commercial auto policy. Fortunately, an endorsement is available for this purpose. Entitled Employees as Insureds, this endorsement covers employees who drive their personal vehicles on behalf of their employer.
Note that the endorsement provides excess coverage only. It means that the employee's personal auto policy will apply first if the worker should be sued due to an accident involving their personal auto. The endorsement will apply only after the employee's coverage has been used up.
The third category of insureds includes anyone who may be held vicariously liable for an auto accident caused by you or a permissive user. That is, it covers any party who might be held legally responsible for an auto accident caused by you or by someone using your vehicles with your permission.
Example of Omnibus Commercial Coverage
XYZ Construction is a general contractor that is constructing an office building. XYZ has hired two subcontractors, LMQ Painting and ABC Landscaping. LMQ Painting has purchased a commercial auto policy that provides liability coverage for owned autos. The painting contractor has signed a contract promising to insure XYZ Construction against any claims that arise out of LMQ Painting's work on the project.
One day, an LMQ Painting employee, is moving one of the painting company's trucks at the job site when he accidentally hits an employee of ABC Landscaping. The injured worker sues XYZ Construction.
His suit claims that the general contractor is liable for his injury because it failed to maintain a safe workplace. XYZ Construction forwards the claim to LMQ Painting and demands coverage. If XYZ is held liable for the painting contractor's negligence, it should be covered for the claim under LMQ's commercial auto policy. The painter's auto insurer will be obligated to defend XYZ and to pay any damages awarded to the injured landscape worker.
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