The question in this month's column is answered by Diana Kowatch, CPCU, AU, AAM, CPIW, editor in chief of Technical and Educational Products for The Rough Notes Company.
Q It is my understanding that Hired Auto Physical Damage Coverage would apply if such coverage was purchased using Symbol 8 "Hired Autos Only."
How can we provide this coverage on an employee's automobile while it is being used for company business?
--FUSAO KAWATO, Sato Insurance Agency, Los Angeles, California
A You are correct regarding the use of Symbol 8 which may be used to provide physical damage coverage for hired, rented, or borrowed vehicles. The definition of Symbol 8, Hired "Autos" Only, states that this symbol covers only those "autos" that the insured leases, hires, rents, or borrows, unless the "auto" is leased, hired, rented, or borrowed from an employee, partner, or member of the insured's household.
However, the same type blanket physical damage coverage for Symbol 9--Nonowned "Autos" Only--is not available in standard business auto programs. Some insurers may have developed special endorsements, coverages, or programs to offer this protection, but for most standard insurers, it is not available.
Currently, there are only two suggestions for possibly providing physical coverage for employee's vehicles.
Before we look at the two possibilities, this is a good time to make sure the insured is aware of the potential drawbacks that would accompany any option to cover physical damage to employees' vehicles. Neither of the options limit the vehicle usage by the employee to company business only. Any physical damage, not otherwise excluded, would be covered. Does the insured truly want to carry the loss history and resultant higher premium that may result from personal usage by any family member which may include youthful, underaged, elderly, or other drivers with less than desirable records?
Looking at possible solutions, the first would be to schedule the vehicles individually within the policy. The use of symbols would be critical. If Symbols 2 through 4 were used, the vehicles specifically must be owned by the insured. When Symbol 7 is used, the vehicles need only be specifically scheduled and not necessarily owned. *(See below.)
If this option is used, additional underwriting and coverage questions need to be asked. These questions include: Does the employee have a personal auto policy covering the physical damage? If so, which company would be considered primary and which company would be considered excess? Are there any gaps when two policies are in force on the same vehicle? Read and know the policies carefully to avoid complications. **(See below.)
The second suggestion--if your insurer would permit--would be the use of a manuscript symbol.
Most standard insurers do not choose to use manuscript symbols because of the legal, rate-making, filing, and other complex issues involved. However, if you do have an insurer willing to manuscript a symbol, endorsement CA 99 54, Covered Auto Designation Symbol, is available. On that endorsement, a manuscript symbol, such as 10 for the business auto policy and 7 for the business auto physical damage policy can be used and the insurer has the option of defining what symbol 10 or 7 will include.
As this is a manuscript coverage, the pricing of the endorsement is at the option of the insurer (within state parameters--which is where many of the legal, rate-making, filing, and other issues fall into play.) Often, the cost to the insurer in filing rates and the time and expense involved in legal research make such usage too time-consuming and cumbersome.
Finally, items to think about: What is the insured trying to accomplish by covering the physical damage to employee's vehicles? If the insured is merely trying to make sure that employees are adequately compensated for any possible physical damage loss that may occur if damage should occur while driving on company business, then a possible solution is to give the employees that drive personal vehicles on company business an allowance to purchase adequate insurance coverages on their personal auto policy.
* Here is a recap of the business auto symbols:
1 = Any "Auto." This is the broadest of the symbol designations. For liability purposes, this covers any "auto."
2 = Owned "Autos" Only. This symbol covers any "auto" owned by the insured, including any "auto" that is acquired after the policy begins. For liability purposes, this also covers any "trailer" whether owned or not, that is towed by an owned vehicle. Refer to Section V--Definitions to understand what is considered a "trailer."
3 = Owned Private Passenger "Autos" Only. This symbol covers only private passenger type "autos" owned by the insured, including any private passenger type that may be acquired after the policy begins.
4 = Owned "Autos" Other Than Private Passenger "Autos" Only. This symbol covers all "autos" other than private passenger type "autos" owned by the insured, including any "autos" other than private passenger type that may be acquired after the policy begins. For liability purposes, this also covers any "trailer" whether owned or not, that is towed by an owned vehicle.
5 = Owned "Autos" Subject To No-Fault. Any "auto" owned by the insured that is garaged or licensed in a state that has No-Fault Benefits laws or is required by that state to have No-Fault Benefits, including any "auto" acquired after the policy begins, is covered by this symbol.
6 = Owned "Autos" Subject To A Compulsory Uninsured Motorists Law. Any "auto" owned by the insured that is garaged or licensed in a state where drivers are required to have and cannot reject the Uninsured Motorists Coverage, including any "auto" acquired after the policy begins, is covered by this symbol.
7 = Specifically Described "Autos." Only those "autos" that are specifically scheduled and for which there is a premium charge shown, are covered. For liability purposes, this also covers any "trailer" whether owned or not, that is towed by an owned, scheduled vehicle.
8 = Hired "Autos" Only. This symbol covers only those "autos" that the insured leases, hires, rents, or borrows, unless the "auto" is leased, hired, rented, or borrowed from an employee, partner, or member of the insured's household.
9 = Nonowned "Autos" Only. The use of this symbol covers only those "autos" the insured does not own, lease, hire, rent, or borrow that are used in the insured's business, including "autos" owned by employees, partners, or members of the insured's household, but only while those non-owned "autos" are used either in the insured's business or personal affairs.
** This is how the Other Insurance provision works in the business auto policy:
a. For covered "autos" owned by the insured, this insurance is primary. For covered "autos" not owned by the insured, this insurance is excess over any other collectible insurance. When a "trailer" that is considered a covered "auto" is connected to another vehicle, the Liability Coverage provided for the "trailer" is excess when connected to a vehicle not owned by the insured and primary when connected to a covered, owned "auto."
b. If Hired Auto Physical Damage Coverage applies, then any covered "auto" the insured leases, hires, rents, or borrows is considered an owned, covered "auto," unless that "auto" is leased, hired, rented, or borrowed with a driver.
c. Regardless of the provisions of paragraph a, Liability Coverage in this Coverage Form is primary for any liability that has been assumed in an "insured contract."
d. When any other insurance covers the "loss" on the same basis, regardless of whether primary or excess, the insurer will only pay its share. The insurer's share is the proportion that the limit of insurance of this Coverage Form bears to the total of the limits of all Coverage Forms and policies that apply on the same basis. Ratios will be determined based on each insurer's percent of limits to the total limits applicable. The "loss" will be proportioned among the insurers accordingly.
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