Covering Family Members Under a Commercial Auto Policy

Mom and daughter in car
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Commercial auto insurance is not designed to cover personal autos. Vehicles owned by an individual should be insured under a personal auto policy. However, this rule doesn't apply to autos owned by a sole proprietorship. A sole proprietorship is a business owned by an individual. If your business is a sole proprietorship, you and your business are legally one and the same. One cannot be separated from the other.

As this article will explain, autos owned by a sole proprietor may be insured under a commercial auto policy. The policy may be extended to cover both the sole proprietor and his or her family members as insureds

Overlapping Coverages

Problems can arise if a sole proprietor maintains two separate auto policies, one for personal autos and another for commercial autos. This is because both policies provide some automatic coverage for vehicles not listed on the policy. For instance, both afford some coverage for vehicles you acquire after the policy inception date. Both provide liability coverage for a vehicle used as temporary substitute for a covered auto that is out of service. These coverages may overlap.

Coverage overlaps may also occur with regard to rented and non-owned autos. Most personal policies afford liability coverage for insureds driving rental vehicles. Insureds are also covered while driving autos owned by someone else.

The autos covered under a commercial auto policy depend on the covered auto designation symbols shown in the declarations. Depending on the symbols used, a commercial auto policy may afford liability coverage for hired autos (rental vehicles) and non-owned autos.

Clearly, varying degrees of overlap may exist between the coverages provided by a personal auto policy and those afforded by a commercial auto policy.

If an accident occurs that could be covered by either policy, your insurers could disagree as to which is liable for the loss.

Individual Named Insured Endorsement

You can avoid the potential problems outlined above by insuring your personal autos under your commercial auto policy. A standard ISO endorsement, entitled Individual Named Insured, is available for this purpose.

The Individual Named Insured endorsement adds personal auto coverage to your commercial auto policy. It is available only if your business is owned by you personally. The endorsement cannot be used if your business is a corporation, partnership or any other type of legal entity other than a sole proprietorship.

The endorsement includes as insureds, your family members while using covered autos you own that are private passenger type autos. This term means cars, vans and pickups not used for business purposes (other than farming or ranching). Your family members are also covered while driving autos you don't own with the following exceptions:

  • Autos owned by your family members. For example, your 20-year-old daughter owns a car that is registered in her name. Neither she nor any other family member is an insured under your commercial auto policy while driving that vehicle.
  • Any auto furnished or available for your use or for the use of any family member. For instance, your wife's employer provides her a company car. Neither she nor any other family member is an insured under your commercial auto policy while using her company car.
  • Any auto used by you or another family member while working in a business of selling, servicing, repairing or parking autos. For example, your teen-aged son works part-time for a company that provides valet parking. Your son is not an insured under your commercial auto policy while parking customers' cars.
  • Any auto, other than a private passenger type auto, which is used by you or any of your family members while working in any other business or occupation. For example, your spouse owns a pickup truck that he or she uses in a landscape designer business your spouse owns. Your spouse is not an insured under your commercial auto policy while using the truck.

    The term family member means anyone related to you by blood, marriage or adoption who is a resident of your household. It includes wards and foster children.

    Physical Damage

    The Individual Named Insured endorsement makes one important change under your commercial auto policy with regard to physical damage coverage. If you own a private passenger type vehicle that is covered for physical damage coverage, then physical damage coverage applies to any non-owned auto.

    The meaning of this term in the endorsement differs from that in the commercial auto policy. In the endorsement, non-owned auto means any private passenger vehicle, pickup, van or trailer that is being operated by, but is not owned by, you or any family member. The definition excludes any vehicle that is furnished or available for regular use to you or a family member. The most your insurer will pay for physical damage to any non-owned trailer is $500.

    For example, suppose that a private passenger vehicle is insured under your commercial auto policy for liability, Comprehensive and Collision coverages. Your teen-aged son borrows a car from a friend to run an errand. While driving the car he skids on a patch of ice and hits a tree. Your son is not hurt but the front of the car is badly dented.

    Because a private passenger type vehicle you own is covered for physical damage, physical damage coverage extends to autos you don't own. This coverage will apply on an excess basis because the damaged car is not owned by you. If your son's friend has no physical damage coverage on the car, your policy should cover the loss.

    Spouse is a Named Insured

    Under the endorsement, the words you and your in the policy include your spouse. Since you and your refer to the named insured under a commercial auto policy, your spouse is covered as a named insured. The only exception applies to a notice of cancellation. If your insurer cancels your policy, it will send the notice to you, not to your spouse.