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Coverage for Non-Owned Autos: Is It as Simple As We Sometimes Assume?
Coverage for Non-Owned Autos: Is It as Simple as We Sometimes Assume?
By Craig Andrews, CPCU ARM AAI AIC AU-M ARe ASLI AMIM CRIS
Malecki Deimling Nielander & Associates, LLC
In my interactions with attorneys and insurance professionals, I often come across misunderstanding of the coverages provided by the ISO Business Auto Coverage Form CA 00 01 (BACF) relative to an exposure many perceive as simple, straightforward and uncomplicated. That exposure is employees’ operation of autos not owned by their employer in their employers’ business operations.
Let’s first address the everyday, ordinary situation of employees operating their personally-owned autos in the business of their employer. We know that Covered Auto Symbol “9” is routinely used to trigger Liability for this situation on the BACF’s Declarations page. We do this so routinely, in fact, that the exposure analysis process can sometimes stop there. However, when we end our thought process by simply triggering Liability with Covered Auto Symbol “9”, we can sometimes begin a downward slide into a potential coverage controversy.
The problem is the employee operating his own auto or the auto of a family member in his employer’s business does not qualify as an “insured” for Liability under the unendorsed ISO BACF. This is clearly stated in paragraph A.1.b.(2) of the “Who Is An Insured” section of the BACF’s Section II – Covered Auto Liability Coverage. When it comes to the non-owned auto Liability coverage, the mission of the unendorsed CA 00 01 is to defend the Named Insured employer, not the employee. Nevertheless, the fact that the employee is not an “insured” for Liability in this situation has come as a shock to policyholders, employees, attorneys and even claim handlers in multiple situations in which I’ve been involved. Perhaps the fact that an employee is automatically an “insured” under the Commercial General Liability policy, but not automatically an “insured” under the BACF, is part of the reason for this shock.
In those situations where the Named Insured wishes to grant its employees “insured” status under the firm’s BACF in such situations, ISO gives us a tool to make that happen: the optional CA 99 33 Employees As Insureds Endorsement. Of course, the BACF’s coverage with that endorsement attached remains excess to any insurance coverage in place on the employee’s auto.
By the way, even when Liability under the BACF is triggered by Covered Auto Symbol “1” (as we know, defined as “Any ‘Auto’”), the employee operating his or her own auto in the employer’s business still is not an “insured”. Entry of Covered Auto Symbol “1” for Liability Coverage does not change paragraph A.1.b.(2) of the “Who Is An Insured” section of the policy’s Liability Coverage. The CA 99 33 is still needed when the policyholder want its employees to be considered an “insured” under the BACF.
Of course, employees also operate autos they hire, lease or rent within the scope of their employer’s business operations. Covered Auto Symbol “8” (Hired Autos Only) for Liability Coverage and Physical Damage coverages is often entered on the BACF Declarations in an attempt to deal with the exposure. However, if we stop there – if all we do is enter Covered Auto Symbol “8” for these coverages – we may be setting the stage for another potential coverage controversy. Why? The reason is this description of Covered Auto Symbol “8” in the BACF: “Only those ‘autos’ you lease, hire, rent or borrow. This does not include any ‘auto” you lease, hire, rent or borrow from any of your ‘employees’, partners (if you are a partnership), members (if you are a limited liability company), or members of their households”. And who is “you”? The BACF Named Insured, not the employee.
However, when an employee of the Named Insured appears at a rental car company counter at an airport somewhere, is the rental agreement executed in the name of the BACF Named Insured (“you”)? No – the agreement is executed in the employee’s name, of course. Does the BACF Named Insured sign the rental agreement? No – the employee does. So, it’s the employee who rents the car, not the Named Insured (“you”).
ISO provides a solution to this situation. The BACF policyholder that wants its employees to have the benefits of the firm’s BACF should have ISO’s CA 20 54 Employee Hired Autos endorsement attached to its policy. This endorsement grants “insured” status to employees for Liability Coverage while operating an auto hired or rented under a contract or agreement in the employee’s name. The CA 20 54 also deems an auto hired or rented under a contract or agreement in the employee’s name to be a covered auto owned by the Named Insured for Physical Damage coverages as long as Physical Damage is triggered by Covered Auto Symbol “8”. The Physical Damage coverage for hired or rented autos under the CA 20 54 endorsement is therefore primary coverage. On the other hand, as set forth in the Other Insurance General Condition of the unendorsed CA 00 01, Liability coverage is excess of any other collectible insurance with one exception: when liability is assumed under an “insured contract”.
A final thought: once again, triggering Liability Coverage with Covered Auto Symbol ‘1” doesn’t solve the issue of an employee not being an “insured” for Liability Coverage when operating hired or rented autos. Covered Auto Symbol “1” doesn’t amend the all-important “Who Is An Insured” section of the BACF. The “Who Is An Insured” provision in Section II – Covered Autos Liability Coverage of the BACF, paragraph 1.b., states an “insured’ is: “Anyone else while using with your permission a covered ‘auto’ you own, hire or borrow, except….”. Again, as outlined above, “you” is the Named Insured, period. The Named Insured does not hire or rent the car and sign the agreement at the rental car counter – the employee does, and the employee is not “you”. The CA 20 54 is the remedy for that gap.
This discussion is yet another reminder of the importance of approaching the identification and analysis of our clients’ loss exposures with a completely open mind, making no premature assumptions regarding any aspect of their operations or their risk management goals, and keeping in mind the old adage, “the devil’s in the details”.