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Lesson 1: covered auto designations.

Objectives

* Describe the purpose of the business auto policy

* Identify the designation symbols used to describe covered autos

* Describe the scope of the various designation symbols

* Determine the difference between private passenger autos and other than private passenger autos

* Discuss the definition of a hired auto

* Describe non-ownership liability coverage

* Explain how autos acquired after policy inception are insured

Key Terms

Designation symbol--Any of nine numerical symbols used on the BAP to designate a covered auto.

Hired autos--Autos that the named insured leases, hires, rents, or borrows.

Non-owned autos--Autos that the named insured does not own, lease, hire, rent, or borrow that are used in connection with the named insured's business

Private passenger auto--A four-wheel auto of the private passenger or station wagon type, including a pickup, panel truck, or van not used for business.

Temporary substitute auto--An auto not owned by the named insured while used as a temporary substitute for a covered auto owned by the named insured that is out of service.

Lesson

This course will cover the Insurance Services Office or ISO Business Auto Coverage Form CA 00 01, including the latest revisions from March 2010. This is the primary insurance policy for protecting commercial enterprises against exposures arising from the use of autos or trucks in the insured's business.

The policy offers a wide range of protection, including:

* physical damage to the insured's automobiles,

* liability to others arising out of the ownership or use of covered autos and (by appropriate endorsement), and

* auto medical payments coverage.

Business Auto Coverage Form (BAP)--CA 00 01

As will be seen, the definition of "auto" in the policy is broad enough to include most types of land-motor vehicles, including cars and trucks.

The form can be used for commercial autos, including trucks, of many types, dependent upon the particular insurer's underwriting guidelines. For example: The BAP is generally appropriate for insuring:

* autos used in an insured's business,

* delivery vehicles,

* fleets (such as taxis), and

* other commercially used autos.

However, the form probably is not appropriate for insuring a moving company's or freight-hauler's stable of 18-wheel semi-trucks, which requires a trucker's form.

The BAP uses nine designation symbols--numbered 1 through 9--to describe covered autos. A designation symbol is the mechanism an insurer uses to classify autos insured under the BAP. An insured can arrange coverage using one symbol (for example, symbol 1 only), or a combination of symbols (say, symbols 8 and 9).

These symbols are shown in item two of the policy declarations to signal which autos qualify as covered autos for each coverage being purchased by the insured. If a symbol is not shown beside a coverage, that coverage will not apply. We will begin with a discussion of the use of the nine symbols.

Symbol 1

Symbol 1 on the policy signifies "any auto." To understand the significance of this coverage symbol, consider the example of the Kennedy Company, which buys insurance coverage for its auto exposures. The president of the company favors a comprehensive approach and thinks any auto that the company owns, hires, borrows, or uses in its business should be insured. The company treasurer notes that the company acquires new autos occasionally, but he does not always have the time to report these new cars to the insurer.

To handle the wishes of the insured, the insurance agent for the Kennedy Company uses symbol 1, which signifies any auto. This symbol meets the comprehensive approach that the president wants. And, it does not require a report to the insurance company every time an auto is acquired. The BAP covers such autos automatically under symbol 1 for the remainder of the policy period.

Symbol 2

Symbol 2 provides coverage for autos that the named insured owns and for non-owned trailers while they are attached to owned autos. Also, for the overworked risk manager who cannot constantly report newly acquired autos to the insurer, symbol 2 provides automatic coverage for autos that the named insured acquires ownership of during the policy period.

As an example: The risk manager of the Hillman Company is buying auto insurance. He states that the company uses only its owned autos. Hired, borrowed, or non-owned autos are never used, although the company sometimes rents trailers to attach to its autos for business use. For this type of exposure, the agent should use symbol 2, owned autos only.

Symbol 3

Symbol 3 provides coverage for owned private passenger autos only. But what happens when the company wants to acquire a van? For example, Mycompany, Incorporated owns several autos. In a cost-cutting move, the company treasurer bought only small sedans. The new president of the company, who is rather tall, prefers a van.

The current symbol on the company auto policy is symbol 3, owned private passenger autos only. The treasurer wants to know if the company can keep symbol 3, and still provide proper coverage for the company and the president's new van.

The BAP does not define a "private passenger auto," which can lead to disputes over just what that term includes. To help determine just what a private passenger auto is, we will consider the definition of a private passenger auto found in the Insurance Services Office's commercial lines manual, or CLM, along with common perceptions.

Commercial Lines Manual (CLM)

The CLM defines a private passenger auto as a four-wheel auto of the private passenger or station wagon type, including a pick-up, panel truck, or van.

Also, most people ordinarily include vans in that category in common conversation. So, Mycompany, Incorporated can continue to use symbol 3 to cover its auto exposures.

Symbol 4

Symbol 4 refers to owned autos other than private passenger autos only. This symbol includes autos of the same type that the named insured acquires ownership of during the policy period. And, when used for liability coverage, symbol 4 also includes non-owned trailers or semi- trailers while attached to power units owned by the named insured.

As an example, Yourcompany, Incorporated has a completely different situation than Mycompany, Incorporated. Yourcompany owns only trucks and trailers and never uses private passenger type autos in its business. The agent should use symbol 4 in such circumstances.

Symbol 5

Symbol 5 refers to owned autos subject to a no-fault law.

This symbol is for autos owned by the named insured that are required by law to have no-fault benefits in the state where the autos are licensed or principally garaged.

The use of symbol 5 is not necessary in states where the named insured has the right to buy no-fault coverages, but is not required to do so by law.

Symbol 6

Symbol 6 is for owned autos subject to a compulsory uninsured motorists law. This symbol applies to autos owned by the named insured that, because of the law in the state where the autos are licensed or principally garaged, must have uninsured motorists (UM) coverage; the insured cannot reject the coverage. Symbol 6 is not necessary in states where the named insured has the right to buy UM coverage, but is not required to do so by law.

Consider Everystate, Incorporated a company with offices in several states. The employees in those states drive company owned autos. The managers of the various offices tell Everystate's corporate risk manager that the company auto insurance policy requires no-fault and uninsured motorists coverage to meet the various states' regulations. The risk manager wants to know how to handle no-fault and uninsured motorists exposures. The agent should recommend the use of symbols 5 and 6 on the business auto policy.

Symbol 7

Symbol 7 is for specifically described autos. Only those autos that are described in item three of the policy's declarations form, for which a premium is charged, are covered autos if symbol 7 is used.

Item three on the declarations page is a highly descriptive list of autos owned by the named insured.

It includes:

* The year,

* model,

* trade name,

* body type,

* vehicle identification number,

* cost, and

* classification of the covered autos.

Example

Here is an example of where the use of symbol 7 can cause an insured a problem. One of the insured's autos not specifically described in the declarations was involved in an at-fault accident, and the insurance company has denied coverage. The customer complains to his agent, who must explain the auto involved was not a covered auto because symbol 7 was used to describe covered autos on the insured's BAP form, and this auto, although owned by the insured, is not specifically described in the schedule on the declarations page.

Here, the accident would have been covered had symbols 1 or 2 been selected, but instead, the insured selected symbol 7. Symbol 7 is restricted in comparison to symbols 1 and 2. Unless the insured is absolutely certain of what autos are going to be involved in operating his business, any possible savings in premium may not be worth the restriction on coverage.

Symbol 8

Symbol 8 signifies hired autos only: autos that the named insured leases, hires, rents, or borrows. Symbol 8 will give the insured coverage for autos rented or leased during the policy period. This will save the insured premium dollars, but there are other things the risk manager needs to know about the use of symbol 8.

Consider the situation of the Baumgartner Company. The company risk manager explains that the company does not own any autos, but does rent autos every once in a while, and requires employees to use their own cars on company business.

The risk manager explains that the company's current auto policy uses symbol 1 to describe covered autos, resulting in a very expensive premium due to the broad coverage. The risk manager asks how to lower the premium and still receive proper coverage. The agent should explain symbols 8 and 9 (discussed later).

Not included under symbol 8 are autos leased, hired, rented, or borrowed from any of the named insured's employees, partners, members of a limited liability company, or members of their households.

If a company hires or borrows an auto from an employee, symbol 8 will cause that auto to be excluded from coverage for insurance purposes, even if the auto is used on company business.

Also, symbol 8 applies only when the named insured rents, leases, or hires the auto. If an employee is on company business and rents a car in his or her own name, symbol 8 will not apply.

Finally, it is important to understand that a hired auto is one that is not owned by the named insured. The BAP declares that the insurance provided for autos not owned by the named insured is excess over any other collectible insurance. The key word here is "collectible."

If there is other insurance involved for the hired auto that cannot be collected for whatever reason, the named insured's BAP will revert to primary coverage. But, when it comes to hired auto physical damage coverage, any covered auto leased, hired, rented, or borrowed by the named insured is deemed to be an auto owned by the named insured, and thus coverage would be on a primary insurance basis under the named insured's BAP.

Symbol 9

The last symbol, symbol 9, is used to denote non-owned autos only. This category is for those autos that the named insured does not own, lease, hire, rent, or borrow that are used in connection with the named insured's business.

It includes autos owned by the named insured's employees, partners, members (of a limited liability company), or members of their households; but this is only while the autos are used in the named insured's business or personal affairs.

So, symbol 9 provides coverage for employee cars used on company business. In fact, even though it's not specifically stated, symbol 9 includes the car of anyone (other than the named insured) used in connection with the named insured's business. Thus for example, symbol 9 coverage would even apply if a non-employee, such as a friend, ran an errand on behalf of the named insured.

Owned Autos Acquired after Policy Inception Provision

During a policy period, an insured may purchase additional autos. Since these autos were not present at policy inception, the insured may wonder whether the auto policy covers the newly acquired autos.

The simple answer is "yes"--the business auto coverage form does extend coverage to owned autos that the named insured acquires after the policy begins. But, the symbol used by the insured to describe covered autos at policy inception has an impact on this coverage.

If symbols 1, 2, 3, 4, 5, or 6 are entered next to a coverage in item two of the declarations, then the same coverage would apply for other autos acquired during the remainder of the policy period.

However, the designation symbols must appear next to specific coverages if they are to apply. In other words, liability and physical damage collision coverages would automatically apply to newly acquired vehicles only if an appropriate designation symbol appears next to the liability and physical damage coverages on the declarations.

If no designation symbol is included on the declarations form for any specific coverage, then that coverage will not apply to any acquired autos. The insured will not automatically receive coverages for acquired autos not purchased at the inception of the policy.

If symbol 7 is entered next to a coverage in item two of the declarations, an auto that the named insured acquires will be a covered auto for that coverage, but only if two requirements are met.

First, the insurer covers all autos that the named insured owns for that coverage, or the acquisition replaces an auto previously owned by the named insured that had that coverage. Secondly, the named insured must request that particular coverage within 30 days after the acquisition date. Therefore, coverage will attach to the acquired auto, not automatically, but only if these conditions are met.

Note that, although both conditions must be met for coverage to attach for the remainder of the policy period, if the first condition is met, the insured has the coverage for at least 30 days even if he does not report the acquisition to the insurer or request specific coverages. However, after 30 days the insured will lose the coverage for the acquired auto if no notice is given to the insurer.

Certain Trailers, Mobile Equipment and Temporary Substitute Autos Provision

If liability coverage is provided under the BAP, the following types of vehicles are considered covered autos for liability coverage:

* certain trailers,

* mobile equipment under specific circumstances, and

* temporary substitute autos.

Trailers must have a load capacity of 2,000 pounds or less and be designed primarily for travel on public roads.

Liability for mobile equipment is usually covered under the Commercial General Liability form, or CGL form, not an auto policy. However, the business auto policy considers mobile equipment a covered auto for liability coverage while being carried or towed by a covered auto. The CGL form excludes coverage for BI or bodily injury or PD (property damage), arising out of the transportation of mobile equipment by an auto owned or operated by an insured. This is meant to simplify coverage for the insured.

For example: An insured uses his covered auto to tow a forklift on a public road and is involved in an accident. The insured can seek coverage for any liability claim under the BAP. Even though the forklift is mobile equipment, the BAP clearly provides coverage. The insured's claim should not be subject to undue delay that would otherwise be caused by insurers debating whether the BAP or CGL coverage should apply.

As a final note, any non-owned auto that the named insured uses as a temporary substitute for a covered auto that is out of service is a covered auto under the BAP. The insured's vehicle must be out of service due to a breakdown, repair, servicing, loss, or destruction.

The obvious example here is a "loaner" car used by the insured while his own auto is in the shop for repair. Although, the loaner is a covered auto under the insured's BAP, his BAP is still excess over any collectible coverage under the garage's insurance.

Self Review Quiz

1. The BAP is generally appropriate for insuring all of the following vehicles except which one?

a. delivery vehicles

b. fleets

c. pick-ups and vans

d. 18-wheel semi-trucks

2. The designation symbol for owned autos subject to a compulsory uninsured motorists law is which one of the following symbols?

a. Symbol 1

b. Symbol 4

c. Symbol 6

d. Symbol 9

3. If the client wishes to take a comprehensive approach and insure any auto that the company owns, hires, borrows, or uses in its business, which covered auto designation symbol is used?

a. Symbol 9

b. Symbol 1

c. Symbol 6

d. Symbol 8

4. If symbols 1, 2, 3, 4, 5, or 6 are entered next to a coverage in item two of the declarations, what can be said of autos acquired after the policy begins?

a. the same coverage would apply automatically for other autos acquired during the remainder of the policy period

b. the insured must ask for coverage in writing before those acquired autos get any insurance coverage

c. the acquired autos are not covered under the BAP and must be added at the renewal for any coverage to apply

d. the acquired autos have physical damage coverage since they are owned autos, but no liability coverage

5. Trailers with a load capacity of how many pounds are considered covered autos for liability coverage if the BAP provides liability coverage?

a. 1,000 pounds

b. 2,000 pounds or less

c. 500 pounds or less

d. There is no load capacity limit

6. Under what circumstances does the BAP consider mobile equipment to be a covered auto for liability purposes?

a. while the equipment is being carried or towed by a covered auto

b. while the equipment is owned by the named insured and used in his business

c. while the equipment is being used off public roadways

d. while the equipment is in storage on the named insured's premises

Self Review Answers

1. The BAP is generally appropriate for insuring all of the following vehicles except which one?

d. 18-wheel semi-trucks

While the BAP is designed for insuring autos used in the business of the insured, large trucks are to be insured under the truckers coverage form.

2. The designation symbol for owned autos subject to a compulsory uninsured motorists law is which one of the following symbols?

c. Symbol 6

Symbol 6 is used to designate owned autos subject to a compulsory uninsured motorists law under the terms of the BAP.

3. If the client wishes to take a comprehensive approach and insure any auto that the company owns, hires, borrows, or uses in its business, which covered auto designation symbol is used?

b. Symbol 1

Symbol 1 designates any auto as a covered auto under the terms of the BAP.

4. If symbols 1, 2, 3, 4, 5, or 6 are entered next to a coverage in item two of the declarations, what can be said of autos acquired after the policy begins?

a. the same coverage would apply automatically for other autos acquired during the remainder of the policy period

If symbols 1, 2, 3, 4, 5, or 6 are entered next to a coverage in Item Two of the Declarations, then the named insured has coverage for autos that he acquires of the type described for the remainder of the policy period.

5. Trailers with a load capacity of how many pounds are considered covered autos for liability coverage if the BAP provides liability coverage?

b. 2,000 pounds or less

Trailers with a load capacity of 2,000 pounds or less designed primarily for travel on public roads are considered covered autos for liability coverage under the BAP.

6. Under what circumstances does the BAP consider mobile equipment to be a covered auto for liability purposes?

a. while the equipment is being carried or towed by a covered auto

Mobile equipment while being carried or towed by a covered auto is considered a covered auto for liability coverage under the BAP.
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Publication:Business Auto Policy Explained
Date:Jan 1, 2010
Words:3379
Next Article:Lesson 2: liability coverage.
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