Meaning of Hired Autos Under a Commercial Auto Policy
Hired autos is a defined term under most commercial auto policies. It means any autos that you (the policyholder) lease, hire, rent or borrow. This definition often appears on the first page of the policy form. It is located under a section entitled Description of Covered Auto Designation Symbols.
What is a Hired Auto?
Most commercial auto policies contain the same definition of hired autos found in the standard ISO auto policy. This term is defined as any autos you lease, hire, rent or borrow. "You" means the named insured. Thus, a vehicle qualifies as a hired auto only if it is leased, hired, rented or borrowed by the person or entity listed in the policy declarations. A vehicle leased, hired or borrowed by someone other than the named insured is not a hired auto.
The definition of hired autos does not include any auto you lease, hire, rent or borrow from any of your employees. It also excludes vehicles you lease, hire, rent or borrow from any of your partners (if you are a partnership), members (if you are a limited liability company) or members of their households.
Hired Autos Versus Non-Owned Autos
Autos you don't own that don't qualify as hired autos are considered non-owned autos. These include autos you rent or hire from your employees, partners or members.
For example, suppose that your firm plans to participate in a sales exhibition at a convention hall located ten miles from your office. Throughout the three-day event, you will need to ferry employees and equipment back and forth between your office and the convention. Tom, an employee of yours, has offered to help with the transport problem by loaning you a truck he owns. You decide to rent Tom's truck from him for the three days at a rate of $75 per day.
Tom's truck does not qualify as a hired auto. The definition of hired autos specifically excludes any vehicle you rent, hire or borrow from an employee. Tom's truck is considered a non-owned auto.
Short-Term Versus Long-Term Leases
Suppose that you lease an auto to use in your business. Does the vehicle qualify as a hired auto? The answer depends on the period of the lease.
ISO's Commercial Lines Auto Manual contains rules for rating leased autos. It distinguishes between autos rented short-term and those rented or leased on a long-term basis. Autos rented, hired or leased for less than six months are treated as hired autos. Autos leased for six months or more are covered in the same manner as autos you own.
Unfortunately, the standard commercial auto policy makes no mention of ISO's rules regarding short and long-term leases. The definition of hired autos does not specify a particular time period for which vehicles may be leased or rented. Yet, the rules still apply. Thus, the term hired autos is intended to mean vehicles you hire, rent, borrow or lease on a short-term basis.
Like many businesses, your firm may lease vehicles under long-term contracts that extend for six months, a year or longer. These vehicles should be listed in the schedule of vehicles that is included in your policy's declarations section. They are rated for auto liability and physical damage coverages in the same manner as if they were vehicles you own. When you lease a vehicle on a long-term basis, the lessor (owner of the leased auto) may require you to insure him or her under your policy as both a loss payee and an additional insured.
An endorsement is available for this purpose.
Rating of Hired Autos
Hired autos may be insured for liability and physical damage coverage. The premiums for these coverages are normally rated based on the cost of hire (cost of the rental contract). The premiums are calculated by dividing the cost of hiring the vehicle by 100 and then multiplying the result by a rate.