This month our continuing discussion of insuring retail stores focuses on business auto. We will discuss commonly occurring losses and some claims that occur less frequently, and then how each can be insured. The Insurance Services Office's Business Auto Policy will be used as the basis for discussion.
Our fictitious business, Riverside Hardware Store, Inc. (RHS), owned several vehicles, including all of the business owner's personal vehicles. Besides the personal cars, RHS also owned several pickup trucks. The owner's insurance company wrote the coverage using the most restrictive covered auto description that was available. The restrictive coverage is shown on the Business Auto Policy's declaration page as "specified autos only." There was no premium difference between using the broadest description of covered autos and the most restrictive definitions of covered autos. Activating "any auto" is accomplished by putting the appropriate symbol on the declarations page.
The newest truck was delivered to RHS the day after Thanksgiving. This was the busiest shopping day of the year and because the store was so busy, the owner of RHS forgot to inform her insurance agent about the new vehicle.
During the early part of January, an employee had an at-fault accident with the new truck. Riverside Hardware Store reported the loss. A few days later, the insurer's claim person informed RHS that there was no coverage. Because the loss occurred more than 30 days after the purchase of the vehicle, there was no coverage for the loss.
There was no coverage because the policy in effect used the most limited definition (specified autos only) of covered vehicles. By using the broadest definition(s)(any auto) of covered autos, the newly purchased vehicle would automatically have been covered until the expiration of the policy. Ironically, the broadest definition(s) of covered auto is available at no additional cost.
As an agent, you must either explain to your insureds that they are getting restricted coverage (specified autos only) or give them the broad coverage (any auto) that they are entitled to. An insured can sue an agent for the coverage that he/she should have had but did not. There is virtually no defense for an errors and omissions claim against an insurance agent where broader coverage (any auto) could have been written without any additional premium charge but where the agent had written limited coverage (specified autos only).
The Insurance Services Office (ISO) publishes the auto rating and coverage rules that are used by many insurers. Insurers tend to use the ISO rules directly or recopy them into their own manuals so that it appears that they are not using ISO-promulgated rules and rating procedures. ISO commercial automobile rules state that the broadest coverage (any auto) is to be used. Should an insurer not provide the broadest coverage per the ISO rule, this can be used to demonstrate that an insurance agent did not properly do his/her job. It would be used as one more piece of evidence in an E&O suit based upon an uncovered claim due to restricted coverage.
My recommendation is to always use the broadest covered automobile definition(s)(any auto) on the Business Auto Policy. In the absence of using the broadest covered auto definitions, have your insureds sign a form to show that they understand they are getting restricted coverage. Having such a signed form in your file will be some defense when you are sued for not providing the best possible (any auto) coverage.
Physical damage, hired and non-owned
One of the secretaries for Riverside Hardware Store often picked up the mail for the store on her way to work. On one of these occasions, she was hit by an uninsured, drunk driver. Fortunately, she was not seriously injured. However, her vehicle sustained considerable damage.
The secretary's insurer paid for the damages to her car. Subrogation was the next step. However, the insurer did not subrogate against the drunk driver--he had no insurance and no assets--but instead subrogated against Riverside Hardware Store. RHS forwarded the subrogation papers to its insurer. No coverage was provided for the physical damage to the employee's vehicle.
Traditionally, only liability coverage is provided for the business firm in situations where employees are driving their own vehicles on behalf of their employer. This type of loss situation is many times referred to as employer's non-ownership. However, under a business auto policy, it also is possible to provide primary physical damage coverage to employees using their vehicles on behalf of the employer. Today, many insurance agents are quoting and writing employer's non-ownership physical damage coverage.
It makes sense for agents to offer auto non-ownership physical damage coverage to every business client for whom they write auto coverage. Many of your clients will buy the coverage, and some clients will reject it. When clients refuse to buy the coverage, have them write "no" next to the non-owned auto physical damage part of your coverage proposal, date it and sign their name.
Drive-other-car coverage
As was mentioned previously, the owner of Riverside Hardware Store did not own any autos in her own name. The corporation owned all of vehicles. One of her children--her son--was driving his girl friend's car to college when he had an at-fault accident. There was no insurance on the girl friend's car.
If the owner of RHS had had a personal auto policy, the son would have been covered because he was still a member of the household. However, there was no personal auto coverage. The only coverage was the hired and non-owned auto coverage provided by the insurance contract issued to the store. The owner submitted a claim to RHS's insurer--for the damage to the car that her son hit, as well for damage to the car he was driving. Since the son was not driving his girl friend's car on behalf of Riverside Hardware Store, the insurer denied the claim.
Riverside Hardware Store's owner went on a business trip. After flying into the city where she would be attending a hardware manufacturer's show, she rented a car. She would be driving from her hotel to the convention site on a daily basis, but she also planned to use the car to visit some historic sites in the area. On the way to one of those sites, she had an at-fault accident.
Immediately upon learning of the accident, the car rental firm wanted money for its damaged car. To do this, they maxed out her credit card, charging the entire credit limit remaining on the card.
Riverside Hardware Store presented a claim to its insurer for this loss. Initially, the insurance company thought there would be coverage under the hired and non-owned auto provisions of RHS's business auto policy. However, upon learning that the accident occurred during a non-business-related side trip, the insurer denied coverage.
Coverage for the son driving a non-owned vehicle and for the mother driving a rented car on a non-business-related trip could be provided by a business auto policy. Adding an endorsement called drive-other-car coverage will provide coverage for people while they are driving non-owned vehicles on personal trips.
Anyone who has a personal auto policy (PAP) does not need drive-other-car coverage. Every PAP provides the members of the household with coverage while they are driving non-owned autos.
Drive-other-car coverage (DOC) protects the people listed on the endorsement. Both a husband and a wife are covered if either of them is listed on a DOC endorsement and they are living together. My recommendation is that, despite the coverage for both the husband and wife being automatic coverage, both the husband and wife should be named on a drive-other-car coverage endorsement. That's because if a couple goes through a divorce process and one of the spouses moves to different living quarters, there will be drive-other-car coverage for the spouse who moves, as long as that spouse is named on the endorsement. There is no additional premium charge for naming both a husband and a wife on DOC.
Another recommendation is to list all of the children in the family on the drive-other-car coverage. Some agents do not think that this is necessary and will list only the children of driving age. It's worth noting that personal auto policies automatically provide coverage to all of the children in the household.
Because of two actual losses I am aware of, I recommend that the children of all ages should be listed on drive-other-car coverage. One loss involved a two-year-old child. The child got into the neighbor's car and somehow did something to it so that it rolled down a driveway, crossed the street and hit a parked car.
The other loss involved a business owner who had a business auto policy with $500,000 liability limits and a $2 million commercial umbrella policy. When renewing the business auto policy for his business, all of the owner's driving-age children were named on the drive-other-car coverage. During the policy year, the owner's 15-year-old son became 16 and thus eligible to drive. While driving a friend's station wagon with six people in it, the 16-year-old lost control and the vehicle slid forward on its top. Five of the teenagers suffered minor injuries. One of the teenagers, a girl, sustained serious injuries, including permanent facial scarring. A lawsuit resulted.
Because the 16-year-old was not listed on the drive-other-car coverage, there was no coverage for this loss. Due to the son's not being on the DOC, the umbrella insurer for the firm also denied coverage.
In both of the losses just cited, had all of the children in the household been listed on the drive-other-car coverage, there would have been coverage.
Historically, drive-other-car coverage was written for liability coverage only. Now, medical payments, collision and comprehensive coverage are available on DOC. My recommendation is that you quote all of the coverages that are available on drive-other-car coverage. Let the client make the coverage decisions.
Summary
Here are the key points to remember:
* Always write "any auto" as the covered auto designation.
* If you do write specified autos only as the covered auto designation, have your clients sign something that says they know they are buying restricted coverage.
* Recommend hired and non-owned auto physical damage coverage.
* For those business clients who do not have a personal auto policy, recommend drive-other-car coverage.
* Include the names of both the husband and wife on the drive-other-car coverage.
* Recommend all of the coverages that are available on drive-other-car coverage. *