By LeRoy Utschig, CPCU, CLU, ARM
This article deals with the non-owned automobile exposures faced by people who are furnished a car by their employer and who do not have their own personal auto policy. Providing insurance for non-owned auto exposure(s) is not new. However, many agents either do not have a knowledge of the solution or have some misconceptions about it.
In Madison, Wisconsin, in the early 1960s an electrical contractor had all of his vehicles titled to the corporation he and his wife owned. All of the vehicles were insured. Their daughter, a college student, hit a parked car while driving her boyfriend's car. There was no insurance on the boyfriend's car. The daughter asked her parents if she had coverage on their policy. Hired and non-owned auto coverage was included on the insurance policy for their corporation. However, their insurer denied coverage saying that the boyfriend's car was not hired by the corporation. And, the use of the non-owned vehicle was not for corporation business. As the daughter's trip was not on behalf of the business, non-owned auto coverage did not apply in any way.
In another example, the president of a local computer service went to a trade show to pick up ideas for new products to carry and to update herself to the new trends in the business. A travel agent had made the arrangements for the entire trip. When the company president got to the car leasing booth, the leasing agency asked for her driver's license. As she did not have any credit cards for the business, she used her personal credit card to pay for the leased car.
After finishing an early dinner, she went to a shopping center to pick up some presents for a family member she had left behind. Not being familiar with the area, she made a mistake at a very busy intersection, causing an accident. Several people were taken to the hospital. She reported the accident to the insurer of her business.
The leasing agreement did not show the name of her business. Payment for the car lease was made using the company president's personal credit card. And, at the time of the accident, she was on a personal trip. Because of these facts, the insurer denied coverage for this loss.
In the above two auto accident situations the insurance for a business did not provide coverage for people who were otherwise insured by their firm's auto insurance program. In both cases, the insurer denied coverage stating that the auto trips involved did not pertain to the business. The other part of the scenarios was that neither person had an auto insurance policy in her own name.
Coverage for both losses could have been provided by the use of a drive other car (DOC) coverage endorsement. Here is the wording from Insurance Services Office, Inc.'s (ISO) Form CA 99 10 12 93, Drive Other Car Coverage--Broadened Coverage For Named Individuals (DOC):
B. CHANGES IN LIABILITY COVERAGE
1. Any "auto" you don't own, hire or borrow is a covered "auto" for LIABILITY COVERAGE while being used by any individual named in the Schedule or by his or her spouse while a resident of the same household...
This is a form where there is very little automatic coverage. Only a spouse residing in the household with the person named is automatically covered. Everyone else who is to be covered must be named in the schedule on the endorsement. Agents will commonly name either the husband or the wife. Children of driving age might also be named.
My recommendation is to name both the husband and wife on the drive other car coverage schedule of covered persons. Only one premium charge is made for the two of them. When explaining this at seminars, I am often asked, "Why name both of them when they are both already covered?" This recommendation is made in light of the current social situation in this country. Statistics indicate that about half of all marriages end in divorce. After a divorce, the individuals generally take care of their own insurance. In the early days of a pending divorce, however, it is typical for one of the marriage partners to move out of the house. Calling an insurance agent to change their drive other car coverage is probably the last thing on that person's mind. If the person who moves out is the spouse not named on the DOC, he or she does not have coverage while driving non-owned vehicles. By showing both of their names on the DOC, both of them are covered should one of them move out of the house.
In central Wisconsin in the 1980s, a very professional agent insured a substantial contractor. The contractor had a commercial umbrella liability contract (umbrella) with a $2 million limit in addition to the limits shown as being on the primary auto policy. (Umbrellas sometimes are called a commercial excess liability policy which is a misnomer. "Umbrella" and "excess" have significant coverage differences--they are not identical coverages.)
Primary auto insurance was provided by a business auto policy (BAP) with a $500,000 limit. DOC was on the policy. Listed on the DOC were the contractor and her husband, plus only their children of driving age at the inception date of the policy. The insured understood that their children could drive a friend's car and, sometimes, the friend's car might not have insurance.
During the policy period, another one of their sons became old enough to drive. While this son was driving a friend's car, an accident occurred where several lost their lives and others were seriously injured. There was no insurance on the friend's car. As this son was not of driving age at the inception of the policy, he was not listed on the Drive Other Car coverage. The claim was submitted to the insurer for the contracting firm. The denial of coverage came quickly. As this son was not named on the DOC for the firm's BAP, there was no coverage.
An errors and omissions claim was made against the agent as a result of this uncovered loss. The basis of the claim was that the agent should have known of this potential exposure and should have done something about it. These are two of the allegations from the insured's Complaint and Request for Summary Judgment. One was that the client should have been told to inform the agent when the child started to drive, so that the child could be added to the Drive Other Car coverage. The other was that the agent should have taken care of the exposure by adding the son without the insured's needing to notify the agent.
Another illustration of the challenge of providing proper drive other car coverage involves a situation that occurred in eastern Pennsylvania in the early '80s. A young sales representative felt pleased about getting a new job. Her employer provided her with a car and drive other car coverage as part of the compensation package. The young sales representative sold her old, worn-out car and canceled her personal auto policy. One of the neighbors in the mobile home court where she lived agreed to baby-sit her two-year-old son while she was working.
Everything was going fine as she left for a day of making sales calls. About mid-morning, there was a message waiting for her on her mobile phone. The message said to call the lady who was taking care of her son. When the young sales representative called the baby sitter, she was told that her two-year-old had gotten into a neighbor's car and released the parking brake. As the car had been parked on a hill, it rolled down the hill and ran into a mobile home. Damage to the mobile home was about $4,000, and the car sustained about $1,500 in damages.
A claim was presented to the DOC insurer. As the son was not named on the DOC, there was no coverage.
There is a very definite reason for including these two actual losses. Children without driver's licenses can have auto losses while driving a non-owned car. In personal lines, it often happens that a child reaches driving age without the agent's becoming aware of it until some time after the young adult has begun to drive. The same problem exists in commercial lines. While some insureds would notify an agent when a young driver is added, not all insureds would call their insurance agent the same day the young adult gets a learner's driving permit. The young adult's potential for driving a non-owned car starts that day. And, as illustrated, drive other car exposure can happen before a child or young adult reaches driving age.
Better too much...
My recommendation is to always name all of the children regardless of their age. Commercial underwriters, however, may be reluctant to do this. If your insurer is insuring 300,000 personal autos, they are automatically providing drive other car coverage for all of the children in those households. So, you are just asking for similar coverage for your commercial accounts.
The loss involving the two-year-old mentioned collision damage to the non-owned car. Collision can be written on DOC. Liability, medical payments, uninsured motorist, underinsured motorist, comprehensive (full coverage) and collision ($50 deductible) can all be written on DOC. While, historically, only liability coverage was written on DOC, my recommendation is to always offer all of the DOC coverages to your business clients.
Typically, drive other car coverage is written for business owners. Sometimes, an account will furnish cars to key employees. Many of those key employees will not have an auto in their own name and, therefore, will not have a private passenger auto policy. Of the eight employees at the auto dealership I use, five have a furnished car. Upon explaining the DOC to them, the employer added the names of the employees to DOC. The employees paid for the coverage. With another account, DOC was provided to 15 of 30 key employees who were furnished autos.
A risk management tip: Earlier we mentioned the problem encountered by the woman who signed her own name and used her personal credit card to lease a vehicle while on a business trip. Suggest that your clients sign the auto leases by writing on the lease the name of their firm, their name and their business title. Then the signature on the lease will say the client (or any of their employees traveling for the business) is acting as an agent for a firm.
The generally-accepted interpretation of this type of a signature is that it is a "qualified signature." Usually this results in others being made aware that the individual is acting within the scope of the limitations implied by the firm named and the job title. A lawsuit will name the firm and might by-pass the individual. In any case, signing in the way we suggest at least will give the individual a chance that the employer will be brought into the claim. When an individual signs using a personal credit card and without indicating that he or she is working for someone, it is highly unlikely that the employer would be brought into the claim.
Summary
Offer drive other car coverage whenever the client does not have a personal auto policy. Name both the husband and wife. Offer all of the available DOC coverages: liability, medical payments, underinsured motorist, uninsured motorist, comprehensive and collision. Cover all of the children in the household(s). Car leases should be signed with a qualified signature showing whom the person works for and the person's job title.
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