By Donald S. Malecki, CPCU
In Part 1 of this article last month, the subject was the so-called Drive Other Car (DOC) coverage, its need and limitations. It is a coverage that has been the subject of question for as long as it has been available.
Another supplemental coverage for use with commercial auto policies that can be source of confusion is the Individual Named Insured endorsement. The current standard ISO Individual Named Insured endorsement for use with commercial autos, CA 99 17, is designed for use with the Business Auto, Garage, Motor Carrier, and Truckers coverage forms.
As the endorsement's title connotes, it is to be used when one or more autos of the private passenger type are to be covered under a commercial auto form when it is the owner's desire to obtain the equivalent of personal auto policy coverage under the commercial auto form.
However, it is not necessary that the named insured be a sole proprietor in order to qualify for this endorsement. It can also be issued on the commercial auto policy of a closely-held corporation, or "S" corporation, so long as the principal officers (owners of the autos) also are listed on the policy as named insureds.
When the Individual Named Insured endorsement is attached to a commercial auto coverage form, it offers the following benefits when the policy encompasses an auto(s) of the private passenger type:
* If the policy provides liability coverage, the endorsement extends coverage to (A) resident relatives while using any auto the named insured owns of the private passenger type that is an otherwise covered auto; and (B) the named insured and resident relatives while using autos not owned by them or furnished or available for their regular use. (The auto in this latter category (B) is not restricted to private passenger autos. The nonowned auto could be a truck or tractor-trailer.)
* If the policy provides physical damage coverage on private passenger type autos, physical damage coverage also applies to nonowned autos defined in the endorsement to mean "a private passenger auto, pickup, van or trailer not owned by or furnished or available for the regular use of you [the named insured] or any family member [resident relative] while it is in the custody of or being operated by you or any family member."
The Individual Named Insured endorsement is sometimes referred to interchangeably with Drive Other Car coverage. It is a mistake to do so because there are significant differences between the two coverages apart from the eligibility of the coverages. For example, if one were to purchase a personal auto policy (PAP), he or she would obtain the equivalent of DOC coverage as part of that policy; but the endorsement is not limited solely to DOC coverage. On the other hand, Drive Other Car coverage does not provide the equivalent of personal auto policy coverage.
Problem area
One area of confusion over the Individual Named Insured endorsement concerns eligibility. Without question, the endorsement can be issued on a commercial auto policy when the auto's owner is a sole proprietor. However, matters get somewhat muddled when the private passenger type auto is owned by an individual who owns an "S" corporation, or who is the owner of a closely-held corporation.
In one case, for example, a business auto policy was issued to a closely-held corporation owned by an individual, Berry. The named insured, however, listed the corporation's name only and not its sole owner. Attached to this endorsement was the Individual Named Insured Endorsement, CA 99 17. The dispute arose after Berry's daughter was involved in an accident causing injuries to another motorist while driving a car owned by someone other than herself or her father.
The insurer filed a declaratory judgment action asking the court whether it had any obligation to defend Berry's daughter, as well as to provide any coverage under the business auto policy. There was no dispute that the policy provided coverage and that a premium was paid for the nonbusiness use of the autos listed on the policy.
The insurer's rationale for wanting to deny coverage and defense was that the business auto policy did not provide coverage to the named insured's daughter; that is, drive other car coverage. The BAP, the insurer argued, was limited to covering only accidents involving the use of specified autos.
The trial court concluded that the endorsement did not apply to the named insured's daughter because the additional coverage of this endorsement applied solely if the named insured were to be an individual, and the named insured in this particular case was listed as a corporation.
On appeal in the case of Home Folks Mobile Homes, Inc., v. Meridian Mutual Insurance Co., 744 S.W.2d 749 (Ct.App.Ky.1988), the court held the Individual Named Insured endorsement to be ambiguous by virtue of the insurer's issuance of the endorsement.
The insurer argued that this endorsement was included "for exactly the reason stated in the endorsement itself, to change the policy if the named insured was an individual as opposed to a corporation." This explanation, the court said, is "nonsensical," since the insurer knew that the named insured was not an individual, but rather a corporation. The court added that the insurer offered no reason, nor could it (the court) think of any reason for including the endorsement, unless it was to provide expanded personal coverage as requested by the named insured.
The court also stated that the endorsement explicitly set out that it "changes" the policy, and that the endorsement provides "drive other car" coverage not provided elsewhere in the policy. There also was the reasonable expectation of the corporation's owner that the endorsement was meant to extend coverage to members of Berry's family.
Both the producer and the company underwriter of this policy appear to have been caught sleeping in this case. One of them should have questioned the issuance of the policy solely naming the corporation, if in fact it was the producer's intent to obtain personal auto coverage for its client. If the Individual Named Insured endorsement is issued, someone should check to make sure that an individual also is a named insured on the policy or an endorsement.
Fellow employee exposures
One of the advantages of the Individual Named Insured endorsement is that no fellow employee exclusion is applicable to the named insured or his or her family members. Thus, if the named insured or family member were to cause a fellow employee to sustain an injury arising out of the use of an auto, and the fellow employee were to file suit against the named insured or family member, the latter would be protected to the extent necessary by law.
As a matter of interest, only four states permit suits against fellow employees for other than allegations of intentional torts: Arkansas, Maryland, Missouri and Vermont.1 What this means is that a fellow employee who collects workers compensation insurance can still pursue an action against an allegedly negligent fellow employee and obtain a judgment. The insurer that paid statutory benefits, however, would have a lien against the injured employee for the amount obtained against the negligent fellow employee.
The fact that most states do not permit suits against fellow employees does not necessarily mean that suits cannot be filed. If such suits are still filed, the employee who is the subject of the suit may not have to pay damages because the law precludes them, but the employee may still incur legal costs until the matter is resolved. Thus, even though most states do not permit these kinds of suits, the inapplicability of the Fellow Employee exclusion of the Individual Named Insured endorsement can be viewed as a distinct advantage.
What should not be overlooked here is that the Fellow Employee exclusion is inapplicable only to the named insured and his or her family members. It does not affect other insureds under the commercial auto policy, such other employees.
A recent case in point is Empire Fire and Marine Insurance Company v. Dust d/b/a Triple D Hauling, 932 S.W. 416 (Mo.Ct.App.1996). In this case, the Individual Named Insured endorsement was attached to a commercial auto policy issued to Joseph Dust (doing business as) Triple D Hauling. However, it was while John Dust was operating a truck owned by Joseph Dust that a fellow employee, Fisher, was injured.
As was noted earlier, Missouri is one of the states that permits fellow employee suits. In this particular case, when John Dust sought protection under the policy of Joseph Dust, it was denied. The insurer's rationale for doing so was that the Fellow Employee exclusion was inapplicable only with respect to "your or any family member's fellow employee," and John Dust was neither the named insured nor a family member of the named insured.
The court agreed with the insurer. It also held that even though Joseph Dust was the policy's named insured, it remained unaffected by this liberalization dealing with fellow employee suits because, as an employer, Joseph Dust did not have any fellow employees.
In summary, Joseph Dust did not have any coverage for Fisher's claim of injury because the policy excluded coverage for Joseph Dust's employees and Fisher was such an employee (under the Workers Compensation and Employers Liability exclusions of the commercial auto policy); John Dust, although an insured under the policy, had no coverage under the endorsement because of the policy's exclusion for bodily injury to fellow employees and John Dust and Fisher were employees; Joseph Dust, as named insured, did not have any fellow employees; and the Individual Named Insured endorsement modifying the Fellow Employee exclusion did not apply. *
1 Larson's Workers' Compensation Desk Edition, Chapter 14-28, Sec. 72.11, 9-94 revision. Matthew Bender.