Employee Drivers - Avoid This Coverage Gap!

Image courtesy of [Upper Cut Images] / Getty Images. Image courtesy of [Upper Cut Images] / Getty Images

Do you provide a company-owned vehicle to workers who drive on the job? If the answer is yes, do you permit your workers to use the vehicles during non-work hours as a "perk?" Many employers do. Like some employers you may prohibit the use of company-owned autos by anyone other than the employees to which they were assigned. This can be an effective tool for reducing auto-related risks. Yet, problems can arise if someone other than an employee, such as his or her family member, "borrows" a company vehicle and is involved in an accident.

Consider the following example.

Example

Steve works as a salesperson for Savvy Solutions, a software developer. As Steve spends much of his work time on the road his employer has provided him a company vehicle. Steve drives his company car, a Toyota Prius, home at the end of each work day.

Savvy Solutions has a written policy regarding the use of company autos. Employees who are furnished a company auto may use those autos during non-work hours, including on weekends. However, employees may not allow anyone else (including their family members) to drive the vehicles. All of Savvy's vehicles are insured for auto liability and physical damage under a commercial auto policy. The policy covers any auto (symbol 1) for liability and owned autos (symbol 2) for physical damage.

Steve's wife, Marsha, owns a Honda that is registered in her name only. It is insured under a personal auto policy that lists Marsha and Steve as named insureds.

The couple's 17-year-old son, Jeff, is covered as an insured driver. Jeff recently obtained a driver's license and occasionally drives his mother's vehicle. Jeff knows that the Prius is off limits to him under Savvy Solutions' vehicle use protocol.

One Saturday morning Jeff asks for permission to drive the Honda.

Marsha declines because she needs her car to run errands. Jeff is disappointed. Then he spots the keys to the Prius on the kitchen table. When no one is looking Jeff grabs the keys and heads out the door.

One hour later Jeff sheepishly phones his father. He's had an accident in the Prius! Jeff was driving to the beach when he missed a stop sign and broadsided another vehicle. Both cars are badly damaged. Jeff is unhurt but Sarah, the driver of the other car, sustained multiple injuries. Steve is grateful that his son is all right but he is worried about Sarah. He is also concerned about the inevitable liability claim. Sarah will probably seek compensation from Jeff for both bodily injury and property damage. Will a claim against Jeff be covered under Savvy Solutions' auto policy? If not, will it be covered under Marsha's policy?

Commercial Auto Policy

For an auto liability claim to be covered under a commercial auto policy the following conditions must be satisfied:

  1. The vehicle being driven must qualify as a covered auto.
  2. The vehicle driver must be an insured.
  3. The accident must occur during the policy period and in the coverage territory.

In the above scenario, the Prius Jeff was driving is a covered auto because it is owned by Savvy Solutions.

We'll assume that condition #3 has been satisfied. But what about condition #2? Does Jeff qualify for coverage under Savvy's insurance policy? The answer may be no.

A commercial auto policy covers, as an insured, anyone driving a vehicle that you (the named insured) own or hire if that person is driving it with your permission. Individuals driving autos with your permission are called permissive users.

Did Jeff have permission to drive the Prius? Savvy's auto insurer could argue that he did not. Jeff was well aware that Savvy's Solutions' vehicle use policy prohibited family members from driving company autos. Moreover, Jeff's father had not given him verbal permission to drive the vehicle. Some might argue that Steve gave his son tacit permission to use the auto when he left the car keys in an easily accessible location.

Personal Auto Policy

Would a claim against Jeff by Sarah be covered under Marsha's personal auto policy?  Again, the answer may be no. Most personal auto policies exclude coverage for any vehicle that is furnished or available for the regular use of the named insured or his or her family member. The Prius was furnished for Steve's regular use. Since Steve is a family member of Marsha, the exclusion would apply.

Although Jeff is an insured under his mother's personal auto policy, the vehicle he was driving at the time of the accident was not a covered auto. If Jeff seeks coverage for Sarah's claim under Marsha's auto policy, the auto insurer may deny coverage.

To avoid this coverage gap, Marsha could ask her auto insurer to add the Extended Non-owned Coverage endorsement to her personal policy. As long as Jeff is listed in the endorsement, he should qualify as an insured while driving his father's company auto. This endorsement covers auto liability and medical payments only. It does not cover physical damage to the non-owned vehicle.