Like many employers, your firm may furnish trusted employees a company-owned vehicle to use on and off the job. Many workers consider a "free" vehicle a valuable perk. Yet, problems can arise if someone other than the employee drives the vehicle and inadvertently causes an accident. The accident may injure a third party, who then sues the driver for damages. As the following example demonstrates, the driver may discover that the claim isn't covered under any available auto insurance.
Because of coverage gaps in both business and personal auto policies, unauthorized drivers of company-owned autos may have no coverage for claims arising out of accidents they cause.
Carla works as an interior designer for Creative Concepts, an architectural firm. Because Carla's job requires a considerable amount of driving, Creative Concepts has provided her a company vehicle, a Ford Focus. Per the company's written policy, Carla uses the vehicle for business during work hours and pleasure during non-work hours. The company specifically prohibits employees from allowing family members or anyone else from driving the company vehicle.
Carla's husband, Tom, owns a Honda that's registered in his name only. It's insured under a personal auto policy that lists Carla and Tom as named insureds. The couple's 17-year-old daughter, Melinda, has recently obtained a driver's license and is an insured driver under her father's policy. Carla has forbidden Melinda from driving the Ford under any circumstances.
One weekend afternoon, Melinda is at home making cookies with a friend while Carla and Tom run errands in the Honda. When Melinda discovers that the sugar canister is empty, she eyes the car keys on the kitchen counter. She knows the car is off-limits but the grocery store is only five minutes away. She can drive there and back in twenty minutes and her parents will never know. She grabs the car keys and the girls head out the door.
The fact that a company has a policy prohibiting anyone other than employees from driving company-owned vehicles does not guarantee that unauthorized drivers won't use the vehicles.
Twenty minutes later, Melinda is driving home when she rear-ends another vehicle at a stop sign. Both cars are damaged. Neither Melinda nor her friend is hurt but the driver of the other car (Bill) has sustained a painful neck injury. Bill sues Melinda for bodily injury and property damage. Carla gives the claim to her employer, which forwards it to the company's commercial auto insurer.
Business Auto Policy
Creative Concepts is insured for auto liability and physical damage coverages under a standard business auto policy. It has purchased auto liability insurance for owned, hired, and non-owned autos, and physical damage insurance for owned autos.
For an auto liability claim to be covered under a commercial auto policy, the target of the claim must qualify as an insured under the policy. The policy covers the named insured (Creative Concepts) for claims involving any covered auto. It also covers anyone driving a vehicle owned or hired by the named insured with the company's permission .
Melinda has been sued for injuries Bill sustained in an accident she caused while driving the Ford. At the time of the accident, Melinda did not have Creative Concepts' permission to use the vehicle. For this reason, the firm's auto insurer might deny coverage for the claim on the basis that Melinda was not an insured when the accident occurred.
Personal Auto Policy
If Bill's claim isn't covered under Creative Concepts policy, could Melinda have coverage under Tom's auto policy? Again, the answer is probably no. Most personal auto policies exclude coverage for any vehicle furnished or available for the regular use of the named insured or their family member. Carla is a named insured on Tom's policy and the Ford was furnished for her regular use. Thus, the exclusion would apply.
The "available for regular use" exclusion applies to all of the employee's family members, including their spouse. This means that Tom isn't an insured under his auto policy while driving the vehicle furnished to his wife.
Plugging the Coverage Gap
Claims like the one against Melinda can be covered under a personal auto policy by an endorsement called Extended Non-Owned Coverage. The endorsement affords liability and medical payments coverage to the individual named in the endorsement schedule and (if the appropriate box is checked) that person's family members, including their spouse. The named individual and their family members are covered while driving a vehicle furnished or available for the regular use of that individual.
Suppose that Tom asks his insurer to add Extended Non-Owned Coverage to his auto policy. The endorsement should list Carla as the named individual since a vehicle has been furnished for her regular use by her employer. The box covering Carla's spouse and family members should be checked.