Employee Drivers - Avoid This Coverage Gap!

Young woman driving on highway while reading or writing text on smart phone.

Does your firm employ workers who drive on the job? If so, you may provide those workers a company-owned vehicle. You may also allow your workers to use that vehicle during non-work hours. For many employees, a "free" vehicle is a valuable perk. Yet, problems can arise if someone other than the employee "borrows" the company vehicle and is involved in an accident. As the following example demonstrates, such difficulties may occur even if you have forbidden your workers from allowing anyone else to drive the vehicle.


Steve works as a salesperson for Savvy Solutions, a software developer. Steve spends much of his work time on the road, so 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 commercial auto liability and physical damage under a standard business auto policy. The covered autos symbols on the policy are symbol 1 (any auto) for liability coverage, and symbol 2 (owned autos) for comprehensive and collision coverages.

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, recently obtained a driver's license. Jeff is covered as an insured driver under his mother's policy. Steve has informed his son of Savvy Solutions' vehicle use restrictions. He has forbidden Jeff from driving the Prius under any circumstances.

One Saturday morning, Jeff asks his mother for permission to drive the Honda. Marsha declines, stating that she needs her car to run errands. Jeff is about to argue when he spots the keys to the Prius on the kitchen table. He'll borrow his dad's car and return it before anyone notices it is gone. He grabs the keys when his mother isn't looking and heads out the door.

An hour later, Jeff sheepishly phones his father. He's had an accident with the Prius! He was on his way to the beach to meet some friends when he missed a stop sign, broadsiding 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's injuries and her inevitable liability claim against Jeff. Sarah will probably seek compensation for both bodily injury and property damage. Will a claim against Jeff be covered under Savvy Solutions' business 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 that caused the accident must be a covered auto.
  2. The vehicle driver must qualify as an insured.
  3. The accident must occur during the policy period and in the coverage territory.

In the above scenario, Savvy Solutions' auto policy shows symbol 1 (any auto) for liability coverage. This symbol includes owned autos, so the Prius (which is owned by Savvy) is a covered auto. We'll assume that condition #3 has been satisfied. But what about condition #2? Is Jeff an insured under Savvy's insurance policy? The answer may be no.

Commercial auto liability coverage applies to the named insured (in this case, Savvy Solutions) for any covered auto. It also applies to anyone driving a vehicle that you (the named insured) own or hire if he or she has your permission to use the vehicle. 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 of Savvy's Solutions' vehicle use policy. Jeff's father had explicitly instructed him not to use 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, but this would be debatable.)

Personal Auto Policy

Would a claim against Jeff by Sarah be covered under Marsha's personal auto policy? Again, the answer might 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.

Many personal policies also exclude the use of a vehicle by an insured who does not have a reasonable belief that he or she was entitled to use it. Jeff took the Prius even though his father had prohibited from driving it.

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.