Insuring Employer Non-Owned Autos
Non-Owned Autos Create the Risk of Vicarious Liability
Many businesses utilize autos they don't own or rent. Examples are vehicles that belong to employees or executive officers. In commercial auto insurance, such vehicles are called non-owned autos. Non-owned autos can generate claims against the business if they are involved in accidents, so they should be insured for liability under a business auto policy.
What are Non-Owned Autos?
Under the standard commercial auto policy, 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 you lease, hire, rent or borrow are considered hired autos. Non-owned autos are vehicles you don't own that don't qualify as hired autos. They include vehicles owned by your employees, partners, members (if you are a limited liability company) or members of their households.
Non-owned autos are vehicles used by a business that aren't owned, hired or borrowed by the business.
While many businesses seldom use employee-owned vehicles, others use them extensively. An example is a consulting firm that requires its consultants to drive their personal autos when calling on clients.
If a non-owned auto is involved in an accident that injures a third party, the business may be held responsible for that person's injuries under the theory of vicarious liability. Employers are vicariously liable for auto accidents their employees inadvertently cause in the course of their employment. Companies may also be held liable for accidents caused by people other than employees who are driving a non-owned vehicle for the benefit of the business. Here are examples of non-owned autos that don't belong to employees:
- Volunteers working for a charitable organization use their personal autos to ferry elderly people from their homes to doctor appointments.
- Members of a professional association use their personal autos to conduct association business.
- Christopher drives a truck owned by his employer, Crown Construction. One day, the truck is in the shop so Christopher borrows his neighbor's pickup. Later that day, Christopher uses the pickup to transport some tools from one job site to another.
- Peter and Paul are partners in a landscaping business. A prospective customer is flying in for a meeting with the partners and needs a ride from the airport. Peter enlists his sister, who is not associated with the business, to pick up the customer in her personal auto and drive him to the office.
Insuring Non-Owned Autos
Non-owned vehicles are insured for auto liability coverage under a commercial auto policy if symbol 1 (any auto) or symbol 9 (non-owned autos) appears in the declarations next to liability coverage. Non-owned autos may be insured for liability only. They cannot be covered for physical damage.
Note that non-owned auto liability coverage applies only to the named insured. It does not extend to the owner of the vehicle. If an employee inadvertently causes an accident while driving a personal auto on the employer's behalf and is sued as a result, he or she will not be covered by the employer's policy.
Employees aren't covered as insureds under their employer's business auto policy while driving their personal autos, even if they are using the auto on behalf of the business.
For example, suppose that Barbara, an employee of yours, is running a business-related errand 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 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 while they are driving vehicles your business doesn't own, hire or borrow.
The Employees as Insureds endorsement provides excess coverage. 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 respond first. The employer's business auto policy will provide excess coverage after 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.