If your business uses autos, it probably needs commercial auto coverage. A business auto policy protects your company against financial losses that result from auto accidents. It covers lawsuits against your firm for injuries or property damage claimants have allegedly sustained in auto accidents for which your company is responsible. The policy also covers the cost to repair physical damage to your vehicles.
Business owners should not rely on a personal auto policy to cover vehicles used for business purposes. Personal policies are intended to cover individuals and their family members, not business operations. Consequently, most contain exclusions that eliminate coverage for many business-related exposures.
Business Auto Policy (BAP)
Many commercial auto insurers issue policies on standard forms published by ISO. The ISO commercial auto policy is called the Business Auto Policy (BAP). The BAP is very versatile. It can be used to insure many types of businesses, both large and small, in a wide range of industries. The BAP typically consists of a business auto coverage form, the business auto declarations, and various endorsements.
Some insurers issue policies using their own proprietary commercial auto forms rather than ISO forms. Others use a combination of ISO forms and proprietary endorsements.
Business Auto Coverage Form
The backbone of the ISO BAP is the Business Auto Coverage Form. This form consists of the five sections discussed below.
The Business Auto Coverage Form contains key elements of the policy including liability and physical damage coverages, the conditions, and the definitions.
Section I, Covered Autos
Section I explains the meaning of "covered autos". The types of autos that are covered are indicated by one or more numeric symbols that appear in the declarations. These are called covered auto designation symbols. The BAP utilizes the numbers 1 through 9 and 19. Each number represents a category of covered autos. For instance, symbol 2 means "owned auto only" while symbol 3 means "private passenger autos only".
You can determine which vehicles are "covered autos" by looking at your policy declarations. For example, suppose you have purchased liability coverage for autos your company owns, autos it hires, and autos it doesn't own. You have also purchased physical damage coverage for autos your company owns. Your policy declarations should show symbol 1 (any auto) next to liability coverage, and symbol 2 (owned autos only) next to physical damage coverage.
Section II, Liability Coverage
Section II provides commercial auto liability insurance, which covers third-party claims resulting from accidents caused by vehicles used in your business. Such claims can be very costly. Thus, your business needs liability coverage if it uses any vehicles, even if they are owned by someone else. Rental vehicles and employee-owned autos create risks for your business. If a rental car or employee-owned vehicle is involved in an accident and the driver is at-fault, your company could be held liable for any injuries sustained by third parties.
Commercial auto liability coverage protects your firm against third-party claims for bodily injury or property damage caused by an accident that results from the use of a covered auto. It also provides some coverage for pollution cleanup costs that stem from an auto accident.
Who Is An Insured
For an auto liability claim to be covered by the BAP, it must result from an accident caused by a covered auto and be filed against an insured. The parties that qualify as insureds are described in a paragraph entitled Who Is An Insured. They include the following:
- You. "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 such as an employee or a company principal to drive a vehicle your business owns, rents or borrows, the driver is an insured. These individuals are often called permissive users.
- Omnibus Insureds. Anyone liable for your conduct or the conduct of a permissive user is an insured. 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 permissive user.
Of the three types of insureds, you are afforded the broadest level of coverage. The named insured is covered for any covered auto. Which autos are “covered” depends on the symbols that appear next to liability coverage in the policy declarations. You are an insured whether or not you are 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.
Note that company partners and employees are not insureds while driving vehicles owned by them. Such vehicles are considered non-owned autos because they are not owned by you (the named insured).
The omnibus clause affords automatic coverage for anyone who might be held vicariously liable for an auto accident caused by you or a permissive user. This clause eliminates the need for additional insured endorsements under the BAP.
While commercial auto liability insurance affords relatively broad coverage, it does not cover every claim. Certain types of claims are excluded. These are outlined in the liability exclusions section of the auto coverage form.
Section III, Physical Damage Coverage
Section III of the auto coverage form provides commercial physical damage insurance. This coverage may be purchased to cover autos your business owns or hires. It differs from property damage insurance, which covers your company's liability for damage to property owned by other parties.
Physical damage insurance is a first-party coverage while property damage insurance is a third-party coverage.
The BAP offers three types of physical damage coverage:
- Comprehensive. Covers loss to a covered auto by any cause other than the vehicle's overturn or its collision with another object. Examples are theft, hail, and vandalism.
- Specified Causes of Loss. Covers loss caused by any of six types of perils. This coverage is a cheaper alternative to comprehensive coverage.
- Collision. Covers loss to a covered auto caused by the vehicle's overturn or its collision with another object.
Section IV, Business Auto Conditions
The Conditions section consists of two parts. First, the Loss Conditions section outlines your obligations under the policy if an accident, claim or loss occurs. It also explains how physical damage losses are assessed and paid. Secondly, the General Conditions section details the basic rules of the policy. For example, it defines the coverage territory and explains how your policy will apply when other insurance exists.
Section V, Definitions
Additional Coverages and Amendments
While the basic auto coverage form includes only liability and physical damage coverages, other coverages and coverage amendments can be added by endorsements.
Here are three coverages that are often added to a commercial auto policy.
- Uninsured Motorist (UM) and Underinsured Motorist (UIM). UM coverage applies when you've been injured in an auto accident and are unable to collect any damages because the at-fault driver has no liability insurance. UIM coverage applies when you've been injured in an auto accident and the at-fault driver has insufficient insurance to cover all of your losses. UM and UIM are mandatory in some states.
- No-Fault. Covers medical expenses incurred by an insured driver or passenger as required by state law. No-fault coverage is mandatory in a few states.
- Auto Medical Payments. Covers medical expenses incurred by insured drivers and passengers (other than employees) of covered autos. Medical Payments coverage is optional (not mandatory).
Many endorsements are available to modify coverage under the Business Auto Policy. Here are some examples:
- Employees as Insureds. Amends the "who is an insured" section under liability coverage to include employees driving non-owned autos. The intent is to cover employees driving their personal autos on company business. You can also cover an employee who is given a company vehicle to drive, so may not have his or her own auto policy, with a drive other car endorsement. This will protect them from liability if they are in an accident while driving someone else's private vehicle.
- Employee Hired Autos. Amends the "who is an insured" section to include employees driving autos rented in their name (rather than your company's name) to use on company business
- Fellow Employee Coverage. Eliminates the fellow employee exclusion under auto liability coverage
- Auto Loan/Lease Gap Coverage. Applies when a covered auto has suffered a total loss and you owe more on the lease or loan than the vehicle is worth. Covers the difference between the balance on your loan or lease and the actual cash value of the vehicle.
Many insurers offer "broadening" endorsements that can be added to the BAP. These are proprietary endorsements that vary widely from one insurer to another. They typically include coverage enhancements under both liability and physical damage. They are a convenient way to obtain a group of coverages at a reasonable price.