Non-owned Auto Coverage and Why Every Business Policy Should Have It
April 16, 2015
Even businesses that own fleets of autos sometimes use vehicles that do not belong to them. Often, a business asks an employee to run an errand or visit a customer or vendor using that employee's car. The business may become legally liable for anything an employee acting on the business's behalf does while behind the wheel. Lawsuits and accompanying legal costs may confront the business if he has an accident. Many business automobile insurance policies cover this situation, but they do not do so automatically.
The standard Insurance Services Office Business Auto Policy uses numbered symbols to identify covered autos for each coverage the business has purchased. The policy provides liability coverage for non-owned autos only if symbols 1 or 9 are shown on the information page. Symbol 1 means "Any auto." Symbol 9 means "Nonowned autos." The policy defines non-owned autos as autos the insured business does not own, lease, hire, rent or borrow and that are used in the business. The term includes autos owned by the business's employees; partners (if the business is a partnership); members (if it is a limited liability company); or members of their households. However, coverage applies only if the vehicle is used in the business or in the policyholder's personal affairs.
To illustrate, assume that an auto repair shop needs an alternator and associated parts for a 10 year-old car. One of the mechanics drives his personal vehicle to an auto parts distributor 30 minutes away. On his way back with the parts, he collides with another car going the opposite direction. If the repair shop's auto insurance policy's information page has either symbol 1 or 9 for liability coverage, it will cover this accident. It will pay for the shop's legal defense costs and any resulting damages the shop owes, up to the amount of insurance purchased.
If the policy has another symbol, it will not cover an accident resulting from the use of the mechanic's car.
Many types of businesses use autos their employees or partners own. Some examples:
- Restaurants that deliver
- Businesses that do not provide company cars for salespersons
- Architects, attorneys, engineers, and other professionals who make site visits
- Any organization that sends employees to offsite meetings or professional conferences
- Contractors who borrow trucks on job sites or who send employees to get tools
- Any organization that sends employees to the bank or post office
It is possible that the employee's personal auto insurance policy may provide some coverage for the employer. However, the employer should not assume that this is guaranteed. Also, many individuals purchase the minimum amounts of insurance required by state law, so any coverage the employer shares with the employee may be used up quickly.
Almost every business has situations where it asks someone to use a personal vehicle for business. Business owners should discuss this with their insurance agents and make sure the proper coverage is in place. An uninsured loss is both financially devastating and easily avoidable.