RISK PROBLEMS/SOLUTIONS
By LeRoy H. Utschig, CPCU, ARM
In the last article, we discussed the possibility of using a coverage checklist as an aid in preventing errors and omissions (E&O) claims. Using a checklist may also be a useful defensive tool should you have an E&O claim brought against you. This article will help you develop a coverage checklist for commercial auto risks.
Correct auto policy
The Insurance Services Office promulgates three different commercial auto policies. Each is designed to meet the coverage needs of particular types of auto insureds. Business auto policies (BAP) protect the needs of insureds that haul only their own goods. A motor carrier contract (MCC) is for insureds that haul both their own goods and the goods of others. Trucking firms who haul only goods that belong to others use a truckers policy (TP).
The premium charged for the truck will be the same whether it's on the motor carrier policy or the business auto policy. For many losses, it will not make any difference if an account is insured on a business auto policy or motor carrier contract. Some agents and underwriters use the business auto policy to insure a firm that hauls goods belonging to others. The BAP's definition of insured does not address the exposures created by hauling others' goods. A motor carrier policy includes wording that addresses that issue. Sometimes an insured will use someone else's semi-trailer to haul goods. Should a non-owned trailer be damaged while your insured is using it, the question becomes who is responsible for the damage to the semi-trailer. Is your insured responsible or is the trailer owner? This question is an ever-changing one. Perhaps, for trailer number one, your client is responsible for any damage it receives while your insured is using it. For trailer number two, the owner is responsible for the damage to the trailer while your insured is using it.
Your insured has the same problems when someone else is using his or her trailers. Using the motor carrier form can easily provide coverage for physical damage to non-owned trailers. Trailer interchange is one of the exposures that can be covered by using a motor carrier form. This coverage addresses the issue of providing physical damage coverage on non-owned trailers the insured is using. It also addresses the issue of covering the insured's trailers while someone else is using them. Putting an appropriate symbol on the declaration page can activate coverage for the trailer interchange coverage.
I recommend never using a business auto policy for a firm that is hauling for others--for two reasons. A business auto policy does not have an adequate definition of "who is insured" to deal with the exposure of a firm hauling another firm's goods. In addition, a business auto policy does not have an adequate provision to deal with physical damage on non-owned trailers.
Of course, a trucker's policy is designed to cover the unique insurance needs of firms that haul the goods of others. For example, Trucker, Inc., is hauling a cargo that Carrier, LLC, originated. It is possible that Carrier's insurance is protecting Trucker while Trucker is carrying Carrier's load. Wording in the trucker's policy automatically deals with this type of situation. This is not the only unique coverage situation that the truckers form is designed to handle. The wording of the truckers insurance form is designed to cover the exposures that are unique to trucking risks.
Drive-other-car coverage
Let's say a manager for a trucking company is furnished a company car for both her business and personal use. She does not own a car in her own name, nor does she have a personal automobile policy. This woman has a serious accident while driving a friend's car. The friend's car has low liability limits and the claim far exceeds them.
This manager does not have any coverage for the claim in excess of the friend's auto insurance limits.
If the trucking company had named the manager on drive-other-car coverage, she would have had protection while driving the friend's car. Drive-other car coverage (DOC) covers the people named on the endorsement. Many times, the people named on DOC are just the corporate officers. You may want to be alert to situations where a client desires to have DOC for people besides the officers. In an actual case, a firm provided DOC for about 30 key people besides the corporate officers.
Here is a recommendation that can be controversial: I recommend adding the names of children for each person insured on drive-other-car coverage.
Two actual losses are the basis for this recommendation. In one case, a two-and-a-half-year-old boy got into a neighbor's car, released a parking brake and the car rolled down a small hill. The car ran into and damaged a structure.
The second loss involved a boy who was 15 years old at the date of the renewal of the father's insurance contract. The 15-year-old was not listed on the drive-other-car coverage. During the policy period, this young adult reached driving age. He was driving a friend's station wagon when he caused a very serious accident. Because he was not named on the drive-other-car coverage, there was no coverage for him.
These two losses illustrate why I recommend including the names of all children. In all likelihood, this would include naming children who are not of driving age. Whenever I encounter underwriters who do not want to add children to the drive-other-car coverage, I remind them that every personal auto policy issued by their firm automatically includes drive-other-car coverage for children of any age who are members of the household. We are just trying to provide similar coverage in the commercial lines side of the insurance business.
Typically, only liability coverage has been written on drive-other-car coverage. When discussing this coverage with the clients, you would do well to tell them about the availability of comprehensive, collision, medical payments, underinsured and uninsured motorist coverage. Some states may have the option of providing no-fault coverage.
Hired and non-owned
Hired auto coverage provides automatic protection when an insured hires a vehicle. In today's world, this means that a firm leases a vehicle. While many leases are for one to two years, a firm can lease a vehicle for as short a time as one day. A typical situation is when an insured's rig breaks down and the insured cannot wait for it to be repaired. In this type of scenario, the insured may lease a vehicle on a short-term basis.
This is what happened with a Milwaukee company that did convention setup. Its regular truck broke down. The company had to get a job completed over a weekend, so it rented a truck on a short-term basis. The insured had the typical hired and non-owned coverage of liability only.
The driver of the leased truck had an accident and sustained about $4,000 of damage to the vehicle. As collision was not part of the hired-car coverage, there was no insurance coverage for this loss.
This loss taught me the value of writing physical damage coverage on hired-car coverage. So, two decades ago I began putting physical damage coverage on every commercial account that had hired-auto coverage.
It is possible that some underwriters might take exception to writing hired auto physical damage. Two of their objections are that there are no rates for the coverage and they don't know how to add the coverage to an automobile contract.
Rates for the physical damage exposure are available in an ISO Commercial Auto Manual, Hired-Auto Rules.
In my experience, every underwriter activated the hired auto physical in a business auto policy by putting the covered auto symbol "8" on the declarations page next to the spot designated as physical damage coverage. Employees using their own auto for their employer often assume that the employer will take care of everything in the event of an accident. They expect the employer to furnish them with liability protection and to repair their vehicle in the event of an accident. A simple way to provide this type of protection is to put the non-owned auto covered auto symbol by the liability and physical damage coverages.
Covered auto symbol
Big Time Trucking, Inc. (BTT), was located on a well-traveled highway. Delivery, LLC, a friend of BTT, had its headquarters and transfer station on a road that was off the highway. Delivery wanted to sell one of its semi-tractors; however, because of the small amount of traffic that went by its location, there was no point in trying to sell it by parking it by the road at that location.
When the owners of Big Time Trucking learned of Delivery's problem, they invited Delivery to park its truck on BTT's property near the road. Big Time Trucking made this offer as a favor and did not charge Delivery for it.
Someone stopped, expressed an interest in buying Delivery's semi-tractor, took it for a test drive and had a serious accident. The injured party sued both BTT and Delivery.
Their insurer told BTT that they did not have any coverage for this claim. According to the claim person, they were using covered auto symbols seven, eight and nine--covering, respectively, scheduled, hired and non-owned vehicles. It is obvious that Delivery's truck was not scheduled or hired by Big Time Trucking. It is possible for someone to think that the non-owned auto coverage would protect BTT. After all, Big Time Trucking did not own Delivery's truck. Delivery's truck was not being used for BTT's business. Therefore, according to the wording in the insurance contract, Delivery's unit was not a non-owned auto from the standpoint of Big Time Trucking.
It would have been very easy to cover this loss for BTT. Using covered auto symbol one, any auto would have been covered. There is no difference in premium between using covered auto symbol seven (scheduled autos) and one (any auto). Why wouldn't an agency provide the best possible coverage for its client(s)?
There are clients for whom you do not wish to provide broad coverage. In those few cases, my recommendation is that you document your file regarding why you are not offering the broadest coverage available. It also would be well to inform your client of the situation.
For the vast majority of your clients, I recommend using the coverage symbol for any auto. *
The author
LeRoy H. Utschig, CPCU, ARM, is a Wisconsin-based insurance educator, consultant and expert witness.