Covering Family Members Under a Commercial Auto Policy

A family going for driving, Illustration

As a general rule, autos owned by a business should be insured under a business auto policy, and vehicles owned by an individual should be insured under a personal auto policy. However, this rule has an exception. When the business is a sole proprietorship, the owner may insure both commercial and personal vehicles under a commercial auto policy. The business owner's family members may also be covered under the policy via an endorsement.

One Policy to Avoid Duplication

If you are a sole proprietor, you may own commercial vehicles that you use in your business. Commercial autos must be insured under a business auto policy. You may also own one or more private passenger autos that you use during non-work hours. Should you insure your private passenger autos under a separate personal auto policy? The answer is no. 

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 in the declarations. Both afford some coverage for vehicles you acquire after the policy inception date. Both provide auto liability coverage for a vehicle used as a temporary substitute for a covered auto that is out of service. These coverages may overlap.

Overlapping coverage may also occur with regard to rented and non-owned autos. Most personal policies extend liability insurance to cover insured parties while driving autos they don't own, including rental vehicles. The types of autos that are covered under a commercial policy depend on the covered auto designation symbols that appear 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.

Duplicate coverage is a waste of premium dollars. It can also lead to coverage disputes if the business and personal policies have been issued by different insurers. If an accident occurs that could be covered by either policy, the insurers might disagree as to which one is liable for the loss.

Individual Named Insured Endorsement

If you are a sole proprietor, and you own at least one auto that you don't use in your business, you can insure all autos you own under a commercial auto policy. A standard ISO endorsement, entitled Individual Named Insured, is used to add personal auto coverage to your commercial policy. The endorsement is available only if your business is owned by you individually. It cannot be used if your business is a corporation, partnership or any other type of legal entity other than a sole proprietorship.

Who's Covered?

The endorsement includes your spouse in the definition of you and your. Consequently, your spouse is a named insured as long as he or she is a resident of your household. The endorsement also covers your family members as insureds while they are using covered autos you (or your spouse) 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. For example, your teen-aged son borrows a neighbor's car to run an errand and is involved in an accident in which another driver is injured. If the injured driver sues for son for bodily injury, your policy will cover the claim. Your liability coverage applies on an excess basis over any coverage that is available under the neighbor's policy.

No Fellow-Employee Exclusion

The Individual Named Insured endorsement eliminates the fellow-employee exclusion with regard to injuries sustained by your fellow employees or by fellow employees of your family members. The exclusion is eliminated because most personal policies do not exclude suits by fellow employees of insured parties.

Autos Not Covered

The Individual Named Insured endorsement does not cover your family members while driving any of the following:

  • Autos owned by family members (other than your spouse). 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 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 in any other business or occupation. For example, your daughter owns a two-ton truck that she uses in a landscape designer business she owns. Your daughter 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.

    To see how this coverage applies, suppose that you own a private passenger vehicle. The auto is insured under your commercial auto policy for liability, comprehensive and collision. Your teen-aged daughter borrows a car from a friend to run an errand. She is driving the car when she skids on a patch of ice and hits a tree. She isn't hurt but the front of the car is damaged.

    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 applies on an excess basis because the damaged car doesn't belong to you. If the vehicle your daughter was driving is not insured for physical damage, your physical damage insurance should cover the loss (subject to the applicable deductible)

    Notice of Cancellation

    As mentioned previously, your spouse qualifies as a named insured under the Individual Named Insured endorsement. Nevertheless, your spouse is not entitled to receive notice of cancellation.  If your insurer cancels your policy, it will send notice to you only.