November 16, 2020
Non-owned and hired automobile liability insurance covers bodily injury and property damage caused by a vehicle you hire (including rented or borrowed vehicles) or caused by non-owned vehicles (vehicles owned by others, including vehicles owned by your employees). This coverage is typically added to your business automobile policy; however, it can be added to your general liability policy if you do not have a business automobile policy. It protects your company if it is found legally liable as a result of an automobile accident that you or your employee has in a hired or non-owned vehicle while on company business. Hired automobile coverage replaces or augments the liability coverage offered by automobile rental agencies.
Non-owned and Hired Automobile Coverage Basics
Here are the first things you need to know about non-owned and hired automobile coverage:
Who needs non-owned and hired automobile coverage?
- If you or your employees ever drive vehicles not owned by your business for business purposes, then you need non-owned and hired automobile coverage.
What is non-owned automobile coverage?
- Non-owned automobile insurance provides liability protection when an employee occasionally has to drive his or her personally owned vehicle for business purposes. It assumes that the vehicle is not owned, registered or contracted in your name or on your behalf.
What is hired automobile coverage?
- Hired automobile insurance provides liability protection when you or an employee is driving a rented, hired or borrowed vehicle.
There are many situations that present a potential for you to be held accountable for the actions of your employees while they are driving their own vehicles:
- Do administrative employees use their own vehicles to go to the post office or bank on your company’s behalf?
- Do you occasionally send an employee to pick up a visiting client at the airport?
- Have you sent employees to pick up lunch, drop off mail or pick up office supplies?
- Have you ever rented a vehicle while on a business trip?
- Do you have a sales force to which you provide a car allowance for business use of their personal vehicles?
If an employee has an accident under any of these situations, your business can be held accountable and sued for damages. Basic business automobile policies only cover employees while they operate company-owned vehicles to perform company business. Your best protection: non-owned and hired automobile liability coverage. This type of coverage will kick in if there is an accident and your company is found legally liable. Typically, an employee’s personal automobile insurance will provide primary insurance to both the employee and the business if the employee is using their own vehicle on company business. However, there is the chance that charges will exceed the employee’s policy limit and would then be passed on to the company. Without non-owned and hired automobile liability coverage you may be vulnerable to a potentially costly exposure.
If you do not already have this type of coverage and your employees occasionally use their own vehicles for business purposes—even quick errands—consider adding it to your business insurance package today. Consult with Reliance Partners to review your business automobile and general liability policies to ensure you have adequate coverage and liability limits for non-owned and hired automobiles.
Personal Automobiles for Business Use
According to the U.S. Census Bureau, there are more than 240 million registered motor vehicles in the United States, and an estimated one-fourth of those are used for business in some way. If you have employees who use personal vehicles for business use, you could be exposing your business to a significant liability risk.
Even if your employees have Personal Auto Policies (PAPs) for their personal vehicles, in the event of a serious accident that occurs during business use, your business could be sued to collect additional damages.
What is “Business Use”?
Activities that constitute general business use include visiting customers, picking up supplies, attending conferences, and commuting to and from work. For activities like this, the general business use of a personal vehicle is usually covered by a PAP. This is because a policy purchased for a specific vehicle is considered the primary insurance, which covers damages before any other policy takes effect.
An exception to general business use is livery, or carrying goods or people for a fee. Livery includes the delivery of items such as food, flowers, or wholesale or retail items to customers, as well as chauffeur services. Carpooling or ridesharing is not considered livery and is covered under a PAP.
Employees that work from home can still pose a risk if they use personal vehicles for business use. It may be more difficult to ascertain the driving habits of employees that work from home or the operational status of their vehicles. Communicate regularly with these employees concerning your company’s policy for the use of personal vehicles.
Employee PAP Coverage
For employees using their personal vehicles, the primary insurance on the vehicles will likely be their PAPs. You should know how your employees are covered for the business use of their vehicles. Encourage your employees to speak with their PAP carriers to be sure of their coverage and to make it clear to the insurance agents what business activities the vehicles may be used for.
Some PAPs appear to exclude coverage for business use, but they may include broad exceptions for a private passenger automobile, or pickup trucks and vans. However, some policies may be stricter depending on the circumstances. Clarification may prevent complications if a claim must be filed.
Four Ways to Reduce Risk
Though employees’ use of personal automobiles may pose a risk to your business, there are steps you can take to help protect both your employees and your business from liability.
- Review driving records and create an approved-driver list: All employees that use a vehicle for business use should be cleared to drive by a manager. This process should include reviewing motor vehicle records and PAP coverages regularly and maintaining records to help reduce risk exposure.
- Establish standards for personal vehicles: Even employees without any incidents on their motor vehicle records can be a risk to your business if they are driving personal vehicles that are not properly maintained. Establish company guidelines for maintaining personal vehicles. If employees are compensated for time spent driving or if they routinely use their personal vehicles for business, consider regularly collecting maintenance reports to gauge the reliability of personal vehicles.
- Make the company policy clear: After you create guidelines for the use of personal vehicles at your business, be sure to communicate them to your employees in a clear and timely manner. Although it is common to have policies against the use of intoxicating substances or mobile devices while driving, reminding employees of all of your company policies is an effective way to mitigate risk.
- Establish rental vehicle policies: The use of rental vehicles for business also presents exposure to risk. It may be beneficial to establish a relationship with a particular rental vehicle agency to determine which vehicles best suit the needs of your business and employees while traveling. You should also give your employees guidelines on which rental vehicle insurance coverages to accept during the rental process.
Obtaining Appropriate Liability Insurance
Additional coverage may be needed if any potential risks from personal auto use threaten your business. A standard Business Auto Policy (BAP) will protect your business from any additional liability after an employee’s PAP has paid for damages related to personal auto use.
Although employees who have personal vehicles should be required to have PAPs, obtaining liability insurance should be a priority to protect your business. In the event of a serious accident, your employees’ PAP coverage may not be adequate to pay for all the damages. Be sure to prepare a list of vehicles that may be used by employees and the type of business they may be used for, and contact Reliance Partners in order to discuss your coverage
Uninsured and Underinsured Motorists Coverage
As if learning that an employee was involved in an accident on company time isn’t alarming enough, what happens when you find out the at-fault driver doesn’t have coverage or is underinsured? While most states require drivers to maintain auto insurance, according to recent study by the Insurance Research Council (IRC), one in eight motorists remain uninsured.
The IRC study indicates that the magnitude of the uninsured motorist problem varies widely from state to state. Uninsured motorist (UM) and underinsured motorist (UIM) are coverage options added to your commercial auto policy for transferring risk in such unfortunate circumstances.
In the event a driver or passengers are injured due to the negligence of an uninsured or underinsured driver, you may seek compensation for injuries and damages through the UM and UIM portions of your policy:
- Uninsured motorist coverage is used when the at-fault driver can’t pay due to lack of insurance.
- Underinsured motorist coverage is used when the driver’s liability limits are lower than the costs of the accident.
- The coverage typically has two components, but it varies from state to state:
- Coverage for bodily injury provides insurance for medical bills, funeral expenses, lost wages, pain and suffering, disfigurement and permanent or partial disability.
- Coverage for property damage provides insurance for auto repairs, total loss, rental car and damage to personal items carried in the vehicle.
The following are additional coverage considerations:
- For UM/UIM to pay, it must be established that the other driver was at fault. Comparative negligence allows for more than one person to be at fault for an accident. As a result, your company can reduce the settlement of your uninsured/underinsured motorist claim by the percentage of fault attributable to you.
- UM coverage pays losses up to the coverage limits from an accident caused by a hit-and-run driver, but be sure to report the accident promptly.
- Commercial excess liability policies typically exclude UM/UIM coverage.
A risk management best practice for UM/UIM is to set the limits equal to your commercial auto bodily injury and property damage limits. Since UM and UIM coverage protects you, adequate limits are critical. Please contact us to learn about all the limit options available.
Personal Injury Protection
As a business owner, you know that automobile insurance is essential in protecting your business, employees and vehicles. Many policies come with Personal Injury Protection (PIP) coverage, which pays for medical expenses and lost wages for drivers and their passengers who are injured in an auto accident, regardless of who is at fault. This form of insurance falls under the guise of no-fault auto insurance, which is designed to speed up payments to accident victims and lower the cost of auto insurance rates by reducing the number of lawsuits for minor claims.
Over 15 states require PIP coverage, though it can be a smart coverage option if expedited payments are necessary.
What Does PIP Cover?
PIP covers reasonable and necessary medical expenses for those named in the policy—you, your employees, others riding in a company vehicle and other authorized drivers—for injuries sustained from an automobile accident. Payments are made for costs incurred by the injured person by the insured’s own insurance company. If your company carries PIP coverage, it applies to all automobiles that you insure, and there is a premium for each vehicle.
How Much Protection Does PIP Provide?
Specific limits and coverages vary from state to state, some states have set ceilings for coverage. Total payments covered by PIP are set by the limits indicated, which are the maximum amounts that will be paid per person for any combination of covered expenses.
If PIP is not available in your state, then medical payments insurance will pay for reasonable medical bills and funeral expenses, if necessary.
Drive Other Car Coverage
If you provide company vehicles to your employees and these employees don’t have their own personal automobile policy, a potential gap in coverage may exist. To adequately cover your risk, a drive-other-car endorsement is specifically intended to bridge this gap.
Drive-other-car Coverage Basics
If you have employees that are provided with company-owned vehicles, they often do not have an additional automobile and therefore do not carry a personal automobile policy.
If the employee doesn’t carry a personal policy and drives a vehicle borrowed from another party, other than the company-issued vehicle, drive-other-car coverage affords them protection should an accident occur.
Drive-other-car coverage is endorsed onto your business automobile policy and provides coverage only for scheduled individuals.
How Does This Differ From Hired/Non-owned Coverage?
There are some key differences between hired/non-owned coverage and drive-other-car coverage:
- Hired automobile coverage is provided for vehicles that are leased, rented, hired or borrowed by the insured or its employees for business purposes.
- Non-owned coverage is afforded to employers when an employee uses their own personal vehicle for business purposes.
Are You Covered?
To show how drive-other-car coverage applies, consider the following situations:
- A salesperson rents a car for personal use on vacation and damages another vehicle. Is he or she covered?
- A business owner has all the vehicles titled in the company’s name. The owner’s family travels out of town on vacation and rents a car, opts not to purchase coverage and is involved in an accident. Is he or she covered?
- An executive borrows a friend’s minivan to move and is involved in an accident. Is he or she covered?
In all of these circumstances, the business automobile policy provides no coverage since the “covered auto,” or company-owned vehicle, was not involved in the accident. A drive-other-car endorsement closes the exposure loop in these instances.
Take these steps to minimize your exposure:
- Require all of your employees who are either issued or that will drive company vehicles to have personal automobile policies.
- Notify Reliance Partners of any employees and family members that do not have personal automobile policies.
- Review the coverage provided on the endorsement so that you have a clear understanding of what is included. Coverage can include liability, medical payments, uninsured motorist and physical damage coverage. Review the endorsement to ensure that all employees and/or family members that do not have personal automobile policies are scheduled on the endorsement.
- Notify us of any individuals not shown on the schedule.
Proper Planning is No Accident
Talk to an agent who understands your business can help you understand drive-other-car coverage and endorse your business automobile policy to your individual needs.