Insuring Employer Non-Owned Autos
Like many small businesses, your company may utilize autos owned by your employees, partners, or other parties. In commercial auto insurance, such vehicles are called non-owned autos. Auto accidents involving non-owned vehicles can generate claims against your firm. Thus, it is important to insure them for liability under a commercial auto policy.
What are Non-Owned Autos?
Under the standard commercial auto policy, non-owned autos are defined in terms of what they are not.
The term non-owned autos means autos used in your business that aren't owned, leased, hired, rented or borrowed by you (the named insured). Autos that you lease, hire, rent or borrow are considered hired autos. Non-owned autos are vehicles that don't qualify as either hired autos or owned autos.
Non-owned autos include vehicles used in your business that are owned by your employees, partners, members (if you are a limited liability company) or members of their households. Some businesses make extensive use of such vehicles. An example is a company with a large sales force that requires all sales employees to drive their own autos when calling on clients. Other businesses rely on employee-owned vehicles only occasionally.
The term non-owned auto may include a vehicle owned by virtually anyone as long as it is used in your business. Here are some examples.
- Volunteers for your charitable organization use their personal autos to ferry elderly people from their homes to doctor appointments.
- Members of your company, a professional association, use their personal autos to conduct association business.
- An employee of yours drives to work using his neighbor's car because the employee's car is in the shop. Later that day, you send the employee on a business-related errand (buying stamps at the post office). The employee drives to the post office using the vehicle he borrowed from his neighbor.
- A customer of yours needs to be picked up at a nearby airport, but both you and your business partner are in a meeting. Your partner asks his friend Bill, who is not associated with your firm, to pick up the customer using his personal vehicle.
None of the autos described above is owned or hired by your business. Each qualifies as a non-owned auto because it is are used on your firm's behalf.
How could your business be liable for accidents involving autos that don't belong to it? The answer has to do with vicarious liability. Employers are vicariously liable for negligent acts committed by employees in the course of their employment. This liability extends to auto accidents employees inadvertently cause while performing their jobs. Companies may also be held liable for accidents caused by people who are not employees (such as the partner’s friend in the above example), if they are driving a non-owned vehicle for the benefit of the business.
Covered Auto Symbols
Non-owned vehicles may be insured for auto liability coverage under your commercial auto policy. You can determine whether your policy covers non-owned autos by looking at the covered designation auto symbol that appears in the declarations next to liability coverage.
If symbol 1 (any auto) or symbol 9 (non-owned autos) is listed, non-owned autos are covered. Note that non-owned autos may be insured for liability only. They cannot be covered for physical damage coverage.
Who Is an Insured?
Suppose that you have purchased auto liability coverage for non-owned autos. Does anyone who drives a non-owned auto qualify as an insured under your auto policy? The answer is no. Only you (the named insured) are covered for claims arising out of auto accidents involving non-owned autos. No one else is an insured for the use of non-owned autos. This includes your employees.
For example, suppose that Barbara, an employee of yours, is running an errand for you using her personal auto. Barbara has completed the task and is on her way back to your office when she runs a stop sign.
Barbara broadsides another car, injuring its driver. The driver later sues both Barbara and your company. Assuming your commercial auto policy covers non-owned autos, the claim against your company should be covered. However, Barbara will have to rely on her own personal auto policy to cover the claim against her.
Employees as Insureds
Some businesses may wish to provide auto liability coverage to employees who drive their personal vehicles on the job. An endorsement called Employees as Insureds is available for this purpose. The endorsement covers employees as insureds while they are driving vehicles your business doesn't own, hire or borrow.
Unfortunately, the endorsement applies as excess coverage over the employee’s personal auto policy. If an employee is sued as a result of an auto accident that occurred while he or she was driving a personal auto on company business, the employee's policy will apply to the claim first. Your business auto policy will provide excess coverage once the employee's coverage has been used up.
Why isn’t doesn't the endorsement provide primary coverage? The standard ISO commercial auto policy states that it provides excess liability coverage for any auto you don’t own. The endorsement does not alter this provision, so the coverage it affords applies on an excess basis.