Who's Covered Under My Commercial Auto Policy?

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Has your company purchased a commercial auto policy? If so, you may have wondered who qualifies as an insured under your liability coverage. This article will answer that question.

Standard Policy

Most insurers that provide commercial auto coverage utilize standard policy forms published by ISO. The backbone of the ISO commercial auto policy is the Business Auto Coverage Form. This form contains key parts of the policy, including the coverages (liability and physical damage), exclusions, conditions, and  definitions.

Three Categories of Insureds

Section II of the Business Auto Coverage Form outlines the persons or entities that qualify as insureds under commercial auto liability coverage. These parties are described in a paragraph entitled Who Is An Insured. They are divided into three categories:

  • You: You are an insured. "You" means the named insured, the person or company listed in the declarations.
  • Permissive Users: Anyone else who is driving a covered auto you own, hire or borrow with your permission is an insured. That is, if you allow someone to drive a vehicle you own, rent or borrow, the driver is an insured. Drivers in this category are often called permissive users.
  • Omnibus Insureds: Also an insured is anyone who is liable for your conduct or for the conduct of a permissive user. Often referred to as the omnibus clause, this wording covers anyone who may be held legally responsible for an accident caused by a named insured or a permissive user.

    Named Insured Has Broadest Coverage

    Of the three types of insureds, you are afforded the broadest level of coverage. You are covered for any covered auto. Which autos are “covered” depends on the covered auto designation symbols that appear in the declarations section of your policy. For example, if symbol 2 (owned autos) appears next to liability coverage, you are covered for claims arising out of any auto you own.

    Likewise, if symbols 8 and 9 (hired and non-owned autos) are shown, you are covered for claims arising from any auto you hire, as well as any auto you don't own.

    Note that you (the named insured) are covered even if you are not driving the auto when the accident occurs. This is important because employers are vicariously liable for negligent acts of their employees. If you are sued as a result of an auto accident caused by a negligent employee, you should be covered for the claim.

    Employees Covered as Permissive Users

    Most of the individuals who drive company-owned vehicles are employees. Your employees are insureds while driving autos you own, hire or borrow if such vehicles are covered autos. (Borrowed vehicles are covered as hired autos.) That is, employees are covered while driving vehicles you own or hire as long as you have purchased liability coverage for autos you own or hire. If your liability coverage applies only to owned autos, employees are insureds only while driving autos you own. They are not covered while driving autos you hire.

    Employee-Owned Vehicles

    The coverage afforded for permissive users does not apply to partners and employees driving vehicles owned by them. Such vehicles are considered non-owned autos because they are not owned by the named insured.

    Partners and employees are not insureds while driving non-owned autos, even if they are using the vehicles on company business.

    Suppose that your firm employs sales workers who utilize their personal vehicles to make calls on customers. You want to insure your workers for liability under your commercial auto policy. Fortunately, an endorsement is available for this purpose. Entitled Employees as Insureds, this endorsement covers employees who drive their personal vehicles on behalf of their employer.

    Note that the endorsement provides excess coverage only. This means that the employee's personal auto policy will apply first if the worker is sued due to an accident involving his or her personal auto. The endorsement will apply only after the employee's coverage has been used up.

    Omnibus Insureds

    The third category of insureds includes anyone who may be held vicariously liable for an auto accident caused by you or a permissive user.

    That is, it covers any party who might be held legally responsible for an auto accident caused by you or by someone using your vehicles with your permission. Here is an example.

    Capital Construction is a general contractor that is constructing an office building. Capital has hired two subcontractors, Prime Painting and Luxurious Landscaping. Prime Painting has purchased a commercial auto policy that provides liability coverage for owned autos. The painting contractor has signed a contract promising to insure Capital Construction against any claims that arise out of Prime Painting's work on the project.

    One day, Paul, a Prime Painting employee, is moving one of Prime Painting's trucks at the job site when he accidentally hits Lenny, an employee of Luxurious Landscaping. Lenny sues Capital Construction. His suit claims that the general contractor is liable for his injury because it failed to maintain a safe workplace. Capital Construction forwards the claim to Prime Painting and demands coverage. If Capital Construction is held liable for the painting contractor's negligence, it should be covered for the claim under Prime Painting's commercial auto policy. Prime's auto insurer will be obligated to defend Capital and to pay any damages awarded to Lenny.