8 Nonownership coverage.
Many years ago, this nonowned auto exposure was covered by attaching an endorsement to the comprehensive general liability policy. The endorsement, GL 04 19, hired automobile and nonowned automobile liability insurance, applied to the use of any nonowned auto or the use of hired autos in the business of the named insured. Currently, this type of exposure is excluded from the commercial general liability (CGL) coverage forms and is supposed to be covered under the commercial auto program.
The business auto coverage form uses symbols 8 and 9 to denote hired autos and nonowned autos respectively as covered autos for insurance purposes. If these symbols are chosen by the insured, then the business auto policy will provide the sums that an insured legally must pay as damages because of bodily injury or property damage caused by an accident that results from the use of the hired and nonowned autos.
Symbols 8 and 9 were discussed in Chapter 2, but in connection with the description of covered auto designation symbols. This chapter examines symbols 8 and 9 on their own, along with some coverage issues that accompany them.
Automobile leasing or rental concerns and "drive other car" coverages also deal with hired or nonowned autos, but those issues will be discussed in subsequent chapters.
Hired or Borrowed Autos Coverage
If an insured uses a hired or borrowed auto, he or she can be liable for injuries or damages to members of the public as well as to the owner of the hired or borrowed car.
When it comes to physical damage to the hired or borrowed auto, the insured can look to the physical damage coverage section of the BAP for coverage. The insured may be liable for the damage done to the car, but the care, custody, or control exclusion in the liability section of the BAP acts to nullify any liability coverage. However, the physical damage coverage section does offer to pay for loss to a covered auto. So, the insured simply needs to choose the correct symbol from the covered auto designation symbols to make the hired or borrowed auto a covered auto, and put that symbol next to the physical damage coverage he or she desires. The BAP makes such physical damage coverage primary in that the hired or borrowed auto is deemed to be an auto owned by the named insured according to the conditions of the BAP.
As for liability for bodily injuries or property damage to property (other than to the borrowed or hired auto itself), the BAP will provide coverage if the insured chooses the right symbol and places it next to the liability column on the declarations form; symbols 1 or 8 will provide liability coverage for hired or borrowed autos. Such liability coverage is excess over any other collectible insurance. However, there are exceptions to this excess coverage.
First, the other insurance must be collectible. For example, if the insured borrows a car from a neighbor to make a quick pickup of a business article and has an at-fault accident, the hired auto coverage on the insured's BAP will provide liability insurance for him or her. If for some reason the neighbor has no insurance on the auto, the insured's BAP will provide primary coverage should someone make a claim against the insured.
Second, if the insured has hired an auto and, as part of the contract, the insured assumes the liability of the person or entity from which the auto was hired, the BAP provides liability coverage on a primary basis. The assumption of liability has to be part of an insured contract as defined on the BAP.
The third exception that allows primary coverage for hired or borrowed autos is an endorsement to the business auto policy that changes the status of the hired or borrowed auto to that of an owned auto. There are a couple of endorsements that can accomplish this: CA 20 01 and CA 99 16.
CA 20 01 is titled "Lessor--Additional Insured and Loss Payee" This endorsement's main thrust is to make a lessor an insured under the lessee-insured's business auto policy. However, the endorsement also declares that the leased auto described in the endorsement's schedule is considered a covered auto owned by the named insured and not one hired or borrowed. In addition, CA 20 01 provides owned auto status to any substitute, replacement, or extra auto needed to meet seasonal or other needs, under a leasing or rental agreement that requires the named insured to provide direct primary insurance for the lessor. Both declarations transform the leased auto into an auto owned by the named insured for purposes of primary coverage under the named insured's BAP.
CA 99 16, "Hired Autos Specified as Covered Autos You Own," is a rather short endorsement to the auto policy that declares that any auto described in the schedule is considered a covered auto owned by the named insured. As with the previous endorsement, this status change makes the named insured's BAP primary coverage for the hired auto.
Now, the named insured is an insured for any covered auto. If symbol 1 or 8 has been chosen by the named insured to describe the covered auto, then the named insured is an insured for the use of the hired or borrowed auto. If the named insured hires an auto for the use of its employees who are on a business trip, and an auto accident occurs, the named insured's BAP will provide insurance coverage for the named insured (unless some exclusion applies, of course). If the named insured borrows a car from someone or some entity and an auto accident occurs, the BAP, again, will provide insurance coverage for the named insured. However, there are some precautions to take note of.
First, the hired or borrowed auto is not going to be considered a covered auto under symbol 8 if the named insured hires or borrows the car from an employee, a partner, a fellow member of a limited liability company, or from members of their households. So, if the car borrowed or hired in the previous paragraph is borrowed or hired from, for example, an employee of the named insured, the BAP will not consider the car a covered one (under symbol "8"), and the named insured will not have coverage under his or her own business auto policy.
Second, even though the named insured is an insured for the use of the hired or borrowed auto, the owner or anyone else from whom the car is hired or borrowed is not considered an insured. So, if the named insured hires an auto for the employees to use on a business trip, the entity who owns that auto is not an insured under the named insured's BAP. The business auto policy does allow one exception: the owner or anyone else from whom the named insured has hired or borrowed a covered auto is an insured if the covered auto is a trailer connected to a covered auto owned by the named insured. There are endorsements that make the owner of the hired auto an insured under the named insured's BAP, but the basic unendorsed business auto policy will not do so.
Third, symbol 8 calls for the named insured to lease, hire, rent, or borrow a car. If an employee or a partner (who is not a named insured) rents a car in his or her own name or borrows a car, that car is not a covered auto under symbol 8. Even if the car is used on company business, symbol 8 does not consider a covered auto one that is rented or borrowed by someone other than the named insured.
Hired Autos Rating Information
For hired autos rating purposes, a lot depends on whether the insured renter or the owner of the hired car is providing primary coverage. If the insured renter or lessee is providing primary coverage, the auto is rated as though it were owned by the insured renter. If the car owner is providing primary coverage, the premium for the insured renter is figured by applying a company rate per $100 of the cost of hire to the estimated cost of hire for each state of operations and then applying a company rate factor (to account for the primary liability coverage); the resulting premiums for each state should then be combined. The rates and amounts and factors should all be listed in item four of the business auto declarations form.
If cost of hire can not be estimated, as for a small firm that does not anticipate hiring or borrowing autos but desires the coverage nevertheless, the minimum premium is charged and language such as "if any" is inserted in the schedule of hired auto premiums.
For the physical damage coverage on hired autos, one must first estimate the annual cost for the hire of autos for each state where the insured does business and believes it will be hiring autos. Then, after determining the types of coverage desired, a company rate per each $100 annual cost of hire is applied and the premium is established. The total cost of hire for each state has to be added together. This information is also inserted in item four of the declarations form.
Nonownership Liability Insurance
If the insured wants auto nonownership coverage, he or she must choose either symbol 1 (any auto) or symbol 9 (nonowned autos only) for use on the BAP. For any covered auto that the named insured does not own, the BAP is excess over any other collectible insurance.
Symbol 9 designates as a covered auto an auto that the named insured does not own, lease, hire, rent, or borrow that is used in connection with the business of the named insured; this includes autos owned by the named insured's employees, partners, fellow limited liability company members, and members of their households, but only while used in the business or personal affairs of the named insured.
Some businesses may not see the need for auto nonownership coverage; no employees or partners or anyone connected with the company uses a car on company business. However, even if the exposure of the insured to an auto nonownership loss is remote, a loss can still be devastating. For example, the named insured usually uses the U.S. mail or UPS to deliver its packages to customers. One day, after the mail and UPS have stopped picking up for the day, the insured has a package that needs to be delivered to a customer right away. Another customer is in the office and volunteers to deliver the package since it is on his way home. That customer drives off in his own car, has an at-fault accident and kills two people. The family of those two sues the driver and, when it learns the driver was delivering a package for the insured company, sues the company. A multimillion dollar award is given to the family. The driver has only minimum financial limits on his auto policy. Chances are, the claimants will be looking to the insured company for the rest of the money. And, without auto nonownership liability insurance, the insured company is in deep financial trouble.
So, for practical business purposes, any insured company should, at the very least, explore its auto nonownership liability risks. If the risks are small, nonownership insurance can be written on an "if any" basis for a small premium; if the risks are apparent and not so small, the coverage can be purchased for a reasonable amount.
As noted above, nonownership liability coverage can be secured through the use of symbol 1 or symbol 9 on the business auto policy. Symbol 1 is "any auto" and there is no distinction made between owned autos and nonowned autos when it comes to covered autos. Symbol 9 is more specific and deserves more comment.
The description of nonowned autos under symbol 9 states that the symbol includes autos owned by employees, partners, and members of a limited liability company. This description is not an exclusive list. For example, if an employee drives any car not owned, hired, or borrowed by the named insured-perhaps the car of a neighbor or a friend-and an accident results in a claim being made against the named insured employer, symbol 9 will provide coverage for the named insured. And, consider if the named insured is a nonprofit organization that has many volunteers, these volunteers may often use their own cars in the business of the named insured; nonowned auto coverage will protect the named insured organization if a volunteer is involved in an accident while on the business of the named insured.
Another point to remember is that the coverage under symbol 9 applies on a blanket basis. There is no requirement, as there is for symbol 7 for example, that restricts coverage to autos specifically described in the policy or to newly acquired autos only under certain conditions. Any auto fitting the description under symbol 9 on the BAP is a covered auto for the named insured.
In addition to symbols 1 and 9, there is another provision on the BAP that provides auto nonownership coverage. Any auto that the named insured does not own while used with the permission of its owner as a temporary substitute for a covered auto that is out of service is a covered auto for liability purposes. Of course, the named insured must have already purchased liability coverage under the BAP, and the covered auto must be out of service because of its breakdown, repair, servicing, loss, or destruction. For example, if the named insured is an individual and has his or her car in a garage for repair work, and that garage allows the named insured to drive a garage-owned car while the repairs are going on, the named insured has auto nonownership liability coverage for the use of the garage's car. It makes no difference what symbol the named insured has used to make his or her owned auto a covered auto; this provision in the BAP applies as long as the insured has purchased liability coverage.
Who is an Insured for Nonownership Coverage?
When nonownership coverage is purchased by the named insured, the named insured is, of course, an insured for any nonowned auto since such an auto is a covered auto. But, what about those other than the named insured? If the named insured hired or borrowed an auto, then anyone the named insured allowed to use such a car would be an insured. But, a nonowned auto, by description under the terms of the BAP, does not include autos owned, hired, rented, leased, or borrowed by the named insured. So, how does a driver of such a nonowned car become an insured under the named insured corporation's BAP? There are some limited possibilities.
Endorsements can be added to the BAP naming the drivers as insureds. For example, CA 99 33 makes any employee of the named insured an insured while using a covered auto that the named insured does not own, hire, or borrow in its business or personal affairs. CA 99 17 makes a family member an insured for nonowned autos while being used by the family member, under certain circumstances. CA 99 10 makes any individual named in the endorsement's schedule (and his or her spouse) an insured while using a nonowned auto. Finally, manuscripted endorsements or company-specific endorsements may be available to enable the named insured to extend the auto nonownership coverage to those using the nonowned cars.
The limitations on finding coverage under the named insured's BAP for drivers of nonowned cars stems from the unknown exposures involved. Employees or officers of a corporation can become insureds because they are fairly well known risk factors to an insurer through the use of driving records and company fact sheets. However, if the driver of a nonowned car is a neighbor of the insured corporation's CEO or a customer doing a favor for the named insured, the insurer has no way of knowing the risks involved. Besides, the premium charged for nonownership liability is based on the number of employees and the number of partners, so it is clear that unexpected, unknown drivers are not the focus of attention by insurers providing auto nonownership liability coverage. Business auto insurers would no doubt prefer that such drivers provide their own auto liability insurance.
Nonownership Property Damage Coverage
For some insureds, such as clubs, hotels, restaurants, a major auto nonownership exposure is the driving of autos belonging to members, customers, and other members of the public to and from garages or parking places. Auto nonownership liability coverage under the BAP through the use of symbol 9 will apply to BI or PD for which the insured is liable. And, the exposure also can be partly covered through a CGL form since that form covers the insured's liability for the parking of an auto not owned by or rented or loaned to any insured on the premises owned or rented by the named insured, or on ways next to such premises.
However, liability for damage to the customer's car or the member's car can be excluded if that car is in the care, custody, or control of the insured. Both the BAP and the CGL form exclude this exposure. So, if the insured wishes to insure property damage to autos in its custody, it should purchase garagekeepers insurance, either as a separate policy or through endorsement CA 99 37. Garagekeepers coverage is for sums that the insured legally must pay as damages for loss to a customer's auto left in the insured's care while the insured is parking, servicing, repairing, or storing that auto.
The insured could seek to cover property damage to cars in its care and custody by scheduling symbol 9 next to the physical damage coverages on the BAP declarations form. However, the insured would have to find an insurer willing to write such an exposure and underwriters of commercial auto insurance have in common practice shied away from extending physical damage insurance to nonowned autos. The risk exposures are too great due to the "unknown" factors for insurers to properly underwrite such a coverage.
The commercial lines manual contains rules for determining premium for nonownership liability which are to be used if 50% or less of the insured's employees regularly operate their own cars in the insured's business. Insureds having a higher percentage of employees using their own cars are to be referred to the insurance company for rating.
Item five on the business auto declarations form contains a schedule for nonownership liability. It is based on the total number of employees of the insured at all locations; the total number of employees and not just the number who usually use their autos in the insured's business is to be listed. Once this number is set, the premium is selected from the table shown in the state company rates/ISO loss costs for the state where operations are principally conducted.
When a partnership is the named insured, item five has as a rating basis the number of partners. The premium is arrived at by multiplying the private passenger type rates (regardless of the type of autos being used) in the state company rates/ISO loss costs by .10 for each active or inactive partner for the territory in which the partnership is located.
Is Symbol 8 the Proper Symbol for Coverage?
The named insured is ABC Corporation. The corporation's CEO leases his own auto to the named insured for use on business. And, when he travels, the CEO often rents cars on his own credit card and is reimbursed later from the company for his expenses. The named insured's auto policy uses symbol 8 for liability coverage since it has no owned autos.
Recently, a coverage question has arisen. A new company risk manager told ABC's CEO to check the BAP's language describing hired auto coverage because of possible coverage gaps. Is symbol 8 the proper symbol to use in these situations involving the CEO?
There are two entities here to consider when it comes to the question of coverage under the named insured's BAP: the named insured corporation and the CEO. If the named insured leases the CEO's auto, then symbol 8 makes the leased auto a covered auto and the named insured is an insured for liability coverage under the terms of the BAP. The CEO is not an insured under the BAP since he owns the car. If the CEO rents a car on his business travels in his own name, then neither the named insured nor the CEO are insureds under the BAP. Symbol 8 calls for the named insured to lease, hire, rent, or borrow an auto; it makes no allowances for CEOs, employees, or anyone else to do the hiring or borrowing.
So, there are coverage gaps, but there also are various ways to fill those gaps. If the named insured leases the CEO's car, the CEO can be scheduled as an insured under the BAP through the use of endorsements, such as CA 99 16 (named autos specified as covered autos you own) or CA 20 01 (lessor--additional insured and loss payee). As for the CEO leasing a car for his travels, he needs to rent it in the named insured's name. Or, the named insured can start using symbol 9--nonowned autos--on the BAP; this symbol describes a covered auto as one not owned, leased, hired, rented or borrowed by the named insured as long as the car is used in connection with the named insured's business.
Symbol 9 gives the named insured coverage under the BAP when the CEO rents a car in his own name. However, the CEO may still have a problem under that symbol. The BAP declares anyone an insured while using, with the named insured's permission, a covered auto that the named insured owns, hires, or borrows. If the CEO has rented the car, the named insured has not actually hired or borrowed the car. So, the CEO will not be considered an insured under the company's BAP.
To remedy this, consider endorsement CA 99 33. This endorsement is titled "Employees as Insureds" and makes any employee of the named insured an insured while using a covered auto that the named insured does not own, hire, or borrow in the business of the named insured. As long as the CEO can be considered an employee of the named insured corporation, CA 99 33 will provide coverage for him if he rents a car in his own name and drives it on a business trip. Of course, whether an executive officer can be considered an employee depends on the circumstances, since an executive can act as an employee or at other times as an officer of the corporation; but, renting a car and driving it on company business most probably is the act of an employee.