Risk Management

Sorting out complexities of two endorsements

Individual Named Insured and Drive Other Car endorsements are potentially troublesome

By Donald S. Malecki, CPCU

Determining whether or not a vehicle’s coverage is derived from a personal auto policy or a commercial policy can be confusing, and litigious. Two endorsements—the Individual Named Insured endorsement and the Drive Other Car endorsement—are at the heart of the problem.

In the case of the Individual Named Insured endorsement commonly used with the Business Auto Policy, it is difficult to determine if it is the endorsement itself that is troublesome to understand, or if the problem dealing with it is instigated by people who want to enlarge upon its scope when they are in desperate need of more insurance.

Briefly, the Individual Named Insured endorsement is used when the named insured is a sole proprietor and all of his or her vehicles—private passenger and commercial autos—are covered by a Business Auto Policy, Motor Carrier Coverage Form, or Truckers Policy. When this endorsement is attached, it provides those coverages to the named insured and his or her family that would otherwise be provided if a Personal Auto Policy were issued instead.

This endorsement also is a tool to eliminate those occasions when a sole proprietor maintains both a Personal Auto Policy (PAP) and Business Auto Policy (BAP). Once the endorsement is explained, the named insured should understand its significance.

So when one or more private passenger auto(s) are owned by the named insured, coverage should apply in the same way as a Personal Auto Policy does. Thus, liability coverage applies to family members while using any owned auto, as well as while using any auto not owned by them, subject to certain exclusions.

The ISO standard Individual Named Insured endorsement (CA 99 17) defines a “non-owned auto” as a private passenger auto, pickup, van or trailer that is not owned by or furnished or available for the regular use of the named insured or any family member, while such auto is in the custody of or being operated by the named insured or any family member or furnished or available for their regular use.

Physical damage coverage likewise applies to both the owned private passenger auto(s) of the named insured as well as any non-owned auto, as defined in the policy. So, if a family member borrows a friend’s auto and is involved in an accident, physical damage coverage should apply, to the extent it applies to the BAP, subject to the policy’s deductible.

Key point and case

The key point about this Individual Named Insured endorsement is that insurance has to be in force on all private passenger autos of the named insured to activate coverage of this endorsement. In one case, an individual maintained both a Personal Auto Policy, and a Business Auto Policy with an Individual Named Insured endorsement attached.

One has to wonder whether two producers were servicing this account because the Personal Auto Policy is not necessary, so long as the BAP is modified with the Individual Named Insured endorsement. Then again, one has to wonder what the underwriter was thinking, because both policies were issued by the same insurer. (To be fair about it, some insurers use different underwriters for personal and commercial lines business.)

In any event, the business owner (named insured), who had purchased both a PAP and BAP with an Individual Named Insured endorsement, was involved in an accident while he was hauling a grain drill behind his pickup. The husband and wife who were injured (claimants) filed suit. (Western Reserve Mutual Casualty Company v. Jeff Williams, 2005-Ohio-4250 (www.versuslaw.com)

This case did not mention the amount of damages sought by the claimants, but it evidently was higher than the limits of the PAP, or the named insured would not have also sought coverage under his BAP.

The insurer agreed to defend and pay its limits under the named insured’s Personal Auto Policy but denied coverage under the named insured’s BAP. At the trial level, the court ruled in favor of the named insured—holding that while the BAP limited coverage to specifically described vehicles (Symbol 7), the Individual Named Insured endorsement created an entirely new class of covered auto—that is, the insured’s autos of a private passenger-type.

The insurer appealed this decision because (1) the BAP listed only two vehicles and neither was the pickup involved in the accident and (2) the Individual Named Insured endorsement was not ambiguous.

The named insured contended that by virtue of the Individual Named Insured endorsement, it did not matter that the BAP, limiting its coverage to specifically described autos, did not list the pickup. The endorsement changed the BAP so that coverage applied to any private passenger the named insured owned—regardless of whether it was described or whether a premium was paid for it.

The way the named insured viewed the endorsement, he qualified for coverage under the BAP because (1) he was an individual, (2) the pickup was of the private passenger-type, and (3) the pickup was not being used for business, other than farming or ranching. Because the pickup was being used for farming purposes at the time of the accident, the named insured maintained he was covered under the liability coverage of that endorsement issued in conjunction to the BAP.

As is usual in litigation, there was give and take between the respective parties. The named insured asked the court to rely on the North Carolina case of Drye v. Nationwide Mutual Insurance Co., 487 S.E.2d 148, which held the Individual Named Insured endorsement to be ambiguous.

The insurer, on the other hand, relied on three cases holding the endorsement unambiguous. For example, in the case of Boyd v. Cruze, 1995 Tenn. App. LEXIS 81, the court stated that even though the endorsement was “inartfully drafted,” its plain meaning was not ambiguous. In Allstate v. Bridges, 302 F.Supp2d 643 (W.D. Va. 2004), the court reasoned that to find the endorsement ambiguous would result in the endorsement extending coverage “to all vehicles owned by the named insured, no matter what the number, all for the payment of a premium for one vehicle.”

In its conclusion, the court of appeals in Western Reserve Mutual Casualty Company v. Jeff Williams stated that coverage under the BAP was not extended to the named insured. To construe the language in the manner suggested by the named insured, said the court, was unreasonable because it would provide coverage for any number of owned autos, while a premium was paid only for specifically described autos. This endorsement, the court concluded, does not add or remove covered autos; it modifies coverage for existing covered autos.

Drive Other Car Coverage

The endorsement titled Drive Other Car Coverage—Broadened Coverage for Named Individuals also can be problematic, particularly when insureds are seeking uninsured or underinsured motorist coverage. The ISO version of this endorsement is identified as (CA 99 10).

Briefly, this endorsement, like the Individual Named Insured endorsement, is ideally suited for the BAP, Truckers and Motor Carrier Coverage Form to provide executive officers and employees with insurance when they are furnished with autos and therefore do not maintain their own personal auto insurance.

As is often the case, however, obtaining the Drive Other Car Coverage endorsement is an employer’s choice. Whether an executive or employee realizes the existence of that endorsement or not, they sometimes still maintain other private passenger autos and personal auto insurance for themselves.

As long as the executive officers and employees are using their company-furnished auto for business or personal use, they are covered. However, if they or any of their family members operate autos belonging to others, their only coverage is with the auto being driven. If the non-owned auto is not covered by insurance or covered with minimum limits, the borrower could be confronted with a situation where reliance on personal assets is the only alternative in resolving a claim or suit.

When this endorsement is issued, it amends the liability coverage so that any auto the named insured does not own, hire or borrow is considered to be a covered auto while being used by any individual named in the Schedule or by his or her spouse while a resident of the same household, other than: (1) an auto owned by that individual or any member of the household or (2) any auto used by that individual or spouse while working in a business of selling, servicing, repairing or parking an auto.

Problem areas

Far more court cases deal with the Drive Other Car Coverage endorsement than with the Individual Named Insured endorsement. Many, if not most, of the cases also appear to involve uninsured or underinsured motorist coverage.

One such case is Zurich Insurance Company v. Tony Fitzgerald Tolbert, et al., 2008 S.C. 0000117 (versuslaw.com), in which an employer (manufacturer) maintained a BAP with Drive Other Car Coverage because it offered an auto leasing program to its employees.

One employee (Tolbert) was involved in an accident while using a personal auto he owned and which was covered by another insurer. He sustained severe injuries, accumulating over $136,000 in medical expenses and missing nearly an entire year of work. Because he unfortunately rejected uninsured motorist and underinsured motorist coverage under this auto policy, his alternative approach was to seek coverage under this employer’s BAP because the Drive Other Car Coverage was subject to uninsured motorist and underinsured motorist coverage for $1 million limits.

One of the problems with this approach is that the Drive Other Car Coverage endorsement grants coverage for any auto the named insured (employer) does not own—other than any auto owned by Tolbert or any family member. It turned out that an exception from this endorsement’s exclusion involves use of any temporary substitute auto. Tolbert maintained that use of his personal auto was just for that purpose. He, in fact, also produced an affidavit from someone to that effect.

This case, therefore, had to be remanded so as to determine whether, in fact, the auto involved in the accident was a temporary substitute. How it was eventually settled is unknown.

Conclusion

Both the Individual Named Insured, and Drive Other Car—Broadened Coverage For Named Individuals endorsements are handy tools to better facilitate coverage for individuals in special situations.

The fact that both endorsements are used to eliminate the issuance of more than one auto policy does not always materialize. For some, this is fortunate because they have yet another document on which to argue for coverage, with mixed results.

Note, however, that the Individual Named Insured endorsement is used with commercial auto policies to provide personal auto coverage on the named insured’s private passenger autos. The Drive Other Car Coverage endorsement, on the other hand, provides coverage while using a non-owned auto, when the BAP of an employer provides coverages while using a furnished auto for business or personal uses. *

The author
Donald S. Malecki, CPCU, has spent 48 years in the insurance and risk management consulting business. During his career he was a supervising casualty underwriter for a large Eastern insurer, as well as a broker. He currently is a principal of Malecki Deimling Nielander & Associates L.L.C., an insurance, risk, and management consulting business headquartered in Erlanger, Kentucky.