Insuring Hired and Non-Owned Autos
Why You Need to Insure Hired and Non-Owned Autos
Like many businesses, your company may utilize autos it doesn't own. Examples are vehicles you rent from a rental agency and autos owned by employees or partners. Even if you don't own them, vehicles you use in your business should be insured for commercial auto liability coverage. This coverage will protect you if the vehicles are involved in accidents that result in lawsuits against your firm.
Vehicles your company rents, leases, hires, or borrows are called hired autos under a commercial auto policy. These are vehicles you rent or lease on a short-term basis. An example is a car you rent for a three-day business trip in another city. Autos you lease long-term (for six months or more) are insured in the same manner as autos you own.
Vehicles your company uses that are not owned or hired by your firm are called non-owned autos under a commercial auto policy. Non-owned autos include vehicles owned by your employees but used in your business. An example is an auto owned by an employee that he or she uses to call on customers. Here are other examples of non-owned autos:
- a vehicle owned by a partner of a partnership that he or she uses on company business
- a vehicle that a company president borrows from his neighbor to use on company business
- a vehicle owned by member of a limited liability company that is used in the business
Don't Rely on the Owner's Coverage!
If your company uses hired autos, don't rely on the rental agency to insure your business against lawsuits. Many states require rental companies to provide auto liability coverage to their customers, but only at the minimum limit mandated by law. This limit is usually very low. In some states, rental companies are not obligated to provide any liability coverage. To protect your company against lawsuits, be sure to purchase hired auto liability coverage.
A similar rule applies to non-owned autos. Don't assume that the vehicle owner's auto insurance will cover claims filed against your firm. For one thing, the vehicle owner could be uninsured or have very little coverage. Secondly, the owner's insurance may not extend to other drivers. For these reasons, be sure your commercial auto policy includes non-owned auto liability coverage.
Hired auto and non-owned auto liability coverages are inexpensive and easily obtained. These coverages are a wise investment. Auto liability claims can be very costly. An accident that causes serious injuries to another driver or a pedestrian can result in damages against your firm of $100,000 or more. If you do not have the proper liability insurance, a single claim could put your company out of business.
Hired auto and non-owned auto liability coverages are available under a commercial auto policy. You can purchase these coverages by themselves, or you add them to an existing policy that covers vehicles your company owns.
Suppose that you have already purchased commercial auto coverage. How can you tell whether your policy covers hired and non-owned autos? Look at the covered auto designation symbols in the declarations. If symbol 1 (any auto) or symbols 8 and 9 (hired and non-owned autos, respectively) appear next to liability coverage, hired and non-owned autos are covered. If you are still unsure, ask your agent or broker for assistance.
If you do not have a commercial auto policy, your liability insurer may be willing to add hired auto and non-owned auto liability coverages to your general liability policy. These coverages may be included in a liability policy via an endorsement.
Whether provided under a commercial auto or a general liability policy, hired and non-owned auto liability coverages apply on an excess basis. That is, these coverages apply after other collectible primary insurance, such as the vehicle owner's auto policy, has been used up.
The premium for hired auto liability coverage is based on the cost of hire, meaning the money you spend renting the vehicles. Your insurer may charge you a small minimum premium when your policy begins. After your policy has expired, you'll need to tabulate your rental costs and report them to your insurer. If your calculated premium exceeds your initial premium, your insurer may bill you for the additional amount.
The premium for non-owned auto coverage is based on the number of workers you employ. The insurer calculates an average number of employees for the year and applies a rate.
Personal Auto Policy
Finally, don't rely on your personal auto policy or an employee's policy to cover claims against your business. Personal auto policies are designed to cover individuals and their family members, not business entities. They provide limited coverage for autos the policyholder doesn't own. Personal policies also contain a number of business-related exclusions.
Article edited by Marianne Bonner