In auto insurance, an omnibus clause is a part of the insurance policy that extends coverage to individuals who aren't specifically named in the policy. As long as the individual has permission to drive the car, they are covered by the omnibus clause. It also extends coverage to those who are vicariously liable.
Here's a full description of an omnibus clause, how it can affect businesses, and an example of how the coverage could play out.
What Is an Omnibus Clause?
A business auto policy will often contain an omnibus clause. This clause appears under the heading "Who Is an Insured" in Section II, "Auto Liability Coverage." It eliminates the need for additional insured endorsements under a commercial auto policy.
The standard Insurance Services Office (ISO) business auto policy describes three categories of parties (people or entities) that are insured by liability coverage.
- Yourself: This is the named insured—the person or entity listed in the declarations.
- Permissive users: This includes anyone using a covered auto with your permission. For example, an employee of yours drives a company-owned vehicle to make a delivery.
- Vicariously liable parties: This category includes anyone liable for the conduct of an insured described above. That is, it includes anyone liable for the conduct of the named insured or a permissive user.
How Does an Omnibus Clause Work?
The omnibus clause automatically covers anyone who could be held liable for your negligence or the negligence of a permissive user. That is, it covers anyone who is vicariously liable for negligence committed by the named insured or an authorized driver. These parties are covered only to the extent of their liability for acts of the named insured or a permissive user. They are not covered for their direct liability for an auto accident.
Vicarious liability is a liability attributed to someone who did not directly commit a negligent act. A person or company may be held vicariously liable for negligence committed by someone with whom they have a legal relationship.
An employer may be held vicariously liable for an auto accident caused by a negligent employee. Common law holds employers accountable for negligent acts their employees commit in the course of their employment. It's less clear when it comes to the negligence of independent contractors. However, if a general contractor is deemed liable for an accident caused by a subcontractor, they might be covered for the suit under the omnibus clause in the subcontractor's auto policy.
Consider this hypothetical scenario to better understand how omnibus clauses can impact general contractors who manage a team of independent contractors.
Capital Construction is a general contractor that has been hired to construct a commercial building. Capital hires Peerless Paving to create a new parking lot at the facility. Capital requires all contractors involved in the project to enter and exit the construction site via a narrow driveway. The driveway is difficult to access, especially for large trucks. To enter the site, truck drivers must make a U-turn, pass through a pedestrian crosswalk, and then drive over a sidewalk.
Peerless Paving owns six trucks, all of which are insured for liability under a standard business auto policy. Peerless Paving begins constructing the parking lot. It completes the excavation and grading work and lays the subbase. The next step is to install the aggregate base layer. A Peerless employee picks up a load of aggregate in a company truck and heads back to the construction site. They are entering the narrow driveway when they accidentally hit a pedestrian. The pedestrian is seriously injured and sues Peerless Paving and Capital Construction for bodily injury. The suit against Peerless is covered under the paving company's auto liability insurance.
In their suit against the general contractor, the pedestrian contends that Capital created a particular risk when it required the contractors to use the narrow driveway. The pedestrian argues that the driveway was inherently dangerous and that Capital is liable for the accident because it failed to take precautions to protect the public from injury. Capital seeks coverage for the suit under Peerless Paving's auto liability insurance.
If Capital is liable for the accident caused by the Peerless driver, it should be covered for the pedestrian's claim under the paving contractor's auto liability coverage. The auto policy automatically covers anyone liable for the conduct of an insured. Both Peerless and its employee driver are insureds under Peerless's auto liability insurance.
No Endorsements Needed
As noted above, the omnibus clause eliminates the need for additional insured endorsements under commercial auto liability coverage. The policy automatically covers anyone liable for the conduct of the named insured or a permissive driver. In the previous example, Capital Construction is automatically covered as an insured under Peerless Paving's auto policy. No endorsement is needed.
- An omnibus clause is an insurance policy clause that extends coverage beyond specifically named insureds.
- Omnibus clauses cover both those who aren't on the insurance policy but have permission to operate the vehicle as well as those who are vicariously liable.
- Omnibus clauses are common in business auto insurance policies for companies that have a fleet of vehicles.