What is an Omnibus Clause?
Most commercial auto policies contain "catch-all" wording that is often referred to as the omnibus clause. The clause is located in the Auto Liability section under the heading Who Is An Insured. This article will explain the purpose of the clause and why it is important.
Who Is An Insured
Who qualifies as an insured under commercial auto liability coverage? The answer can be found in a paragraph entitled Who Is An Insured.
This paragraph lists three categories of parties (people or entities) that are considered insureds under liability coverage. They include:
- You This is the named insured, meaning the person or entity listed in the declarations.
- Permissive Users Anyone using a covered auto with your permission is an insured.
- Vicariously Liable Parties This category includes anyone who is liable for the conduct of the named insured or a permissive user.
The third clause cited above is called the omnibus clause because of its broad wording.
Covers Vicarious Liability
The omnibus clause automatically covers anyone who could be held liable for your negligence or for the negligence of a permissive user. That is, it covers anyone who is vicariously liable for negligence committed by you (the named insured) or an authorized driver.
Vicarious liability means liability that is attributed to someone even though that party did not directly commit a negligent act.
A person or company may be held vicariously liability for someone else's negligence because of a legal relationship.
An employer may be held vicariously liable for an auto accident caused by a negligent employee. This is because employers are liable under common law for negligent acts their employees commit in the course of their employment.
In some situations, a general contractor might be held vicariously liable for injuries sustained by a third party in an auto accident caused by a negligent subcontractor. If the general contractor is sued as a result of the accident, he or she might be covered for the suit under the omnibus clause in the subcontractor's auto policy. Here is an example.
Busy Builders is a general contractor that has been hired to construct an office building. Easy Electric is an electrical contractor hired by Busy Builders to install wiring in the new building. Jim works for Busy Builders as a job site supervisor. One day, Jim asks Ed, an Easy Electric employee, to pick up a big load of building supplies at a warehouse and transport the items to the job site. The only available vehicle is a pickup owned by Easy Electric. Ed is worried that the pickup is too small to carry such a large load, but Jim dismisses his concerns. He says the supplies are urgently needed and Ed needs to hurry. Ed complies and drives off to pick up the supplies.
Ed is returning to the job site in the jam-packed pickup when the truck overturns onto a car driven by Jane. Jane is injured and sues Easy Electric for bodily injury.
She also sues Busy Builders, contending that Busy is vicariously liable for the accident. Jane alleges that the time the accident occurred, the truck was being driven at the direction of a Busy Builders supervisor. Jim knew (or should have known) that an overloaded pickup was a hazard that could lead to an auto accident. Even though no Busy employee was driving the truck when the accident occurred, the general contractor is liable for Jane's injury.
Busy Builders would likely qualify for coverage under the omnibus clause in Easy Electric's commercial auto policy. Busy is an insured because it is liable for the conduct of an Easy Electric employee.
No Endorsements Needed
The omnibus clause eliminates the need for additional insured endorsements under a commercial auto policy. Anyone liable for the conduct of the named insured or a permissive driver is covered automatically.
In the previous example, Busy Builders is covered as an insured under Easy Electric's auto policy. No endorsement is necessary.
Note that the omnibus clause in the commercial auto policy applies only to vicarious liability. It will not cover someone's direct liability for an auto accident if that person is not an insured under the policy.