By Donald S. Malecki, CPCU

When the business auto policy (BAP) was first introduced in 1978 by the Insurance Services Office, it generated a great deal of discussion, both verbal and written. For one thing, this was the first attempt to use the plain-English approach to commercial auto insurance. Most of the discussion, however, centered around the system of choosing coverages by numerical symbols. Opponents of the new approach warned about the multiplicity of problems that would arise over the confusion in using the numerical system of symbols ranging from one to nine.

After almost 25 years in use, and with several revisions--for a number of reasons unimportant for purposes here--the business auto policy has fared quite well, contrary to skepticism regarding the numerical system of symbols. Of course, there always are disputes but nothing like what had been forecast.

If the numerical symbol system of selecting coverages is not the problem that some thought it would be, the question then is what are the problems that have beset insurers and insureds alike over the BAP?

The woes of UM and UIM coverages

One of the common cases in this category is where a principal or executive officer seeks uninsured motorists (UM) coverage under a BAP applicable solely to "you or your family member."

An example: A corporation owns five autos and maintains a $500,000 limit on each auto. The question before the court is whether a corporate officer, director, or shareholder of a corporation is included under the definition of "you" or "family member," as those terms are used in the BAP that identifies only the corporation as the named insured. The rationale for such a dispute is to stack (UM) limits. Some claimants have been able to obtain the benefit of all limits applicable, whereas others have been less fortunate.

Underinsured motorist coverage (UIM) was introduced sometime after uninsured motorist coverage. One of the renowned cases giving the State of Ohio the "golden turkey" award is Scott-Ponzer v. Liberty Mutual Ins. Co., 85 Ohio St. 3d 660 (1999). This dispute is somewhat related to the one above dealing with UM coverage.

The state's highest court held that: "It would be nonsensical to limit protection solely to the corporate entity, since a corporation, itself, cannot occupy an automobile, suffer bodily injury or death, or operate a vehicle. Here, naming the corporation as the insured is meaningless unless the coverage extends to some person or persons--including the corporation's employees." In other words, despite the reference in the UIM coverage to the named insured being the "you" referred to therein, coverage still applies for an off-duty employee driving his wife's car by saying that, because UIM coverage protects the persons and not the vehicles, and because corporations cannot drive cars or sustain injuries, UIM cannot protect a corporate entity.

One entity recently lamented that its UIM limit prior to the Scott-Ponzer case was $1 million. Today, the most the entity can obtain is a limit of $50,000, and at an exorbitant price.

Who are permissive users?

Another area that's a subject of dispute is that of permissive use, and who is considered to be an insured. There is still a general misunderstanding about coverage for entities that want to be additional insureds. Perhaps its genesis is with commercial general liability, where entities often can obtain broad coverage for their sole fault and on a primary basis.

However, the situation is a little different under the business auto policy. Unless someone is a permissive user, the only other coverage available to entities, as insureds, is for their vicarious liability; that is, liability imputed to such entities because of the negligence of a permissive user.

The BAP provision in question reads: "Anyone liable for the conduct of an 'insured' described above but only to the extent of that liability." This provision appears in a separate category under the Who Is An Insured provision of the BAP to set it off from others who have broader coverage.

An example of an insured in this category is a business that hires a carpenter to do some work. The carpenter needs some more wood. On his way back from the supply store, he is involved in an injury-causing accident where he is clearly at fault. Suit is filed against the carpenter and the business whose cargo is on the truck. The business could look to the carpenter's BAP for primary protection.

What some people do not know is that the business also has excess protection for the above accident under its CGL policy, despite the exclusion of bodily injury or property damage arising out of the ownership, maintenance or use or entrustment to others of any auto. The reason is that the auto, in the above example, must be owned, operated by, rented or loaned to any insured and the carpenter's auto does fall into any such category. If anything, it is a hired auto.

Another problem area

As one might expect, problems still persist over the failure of insureds to provide proper notice in acquiring or replacing autos. Concerning newly acquired autos, symbol 7 (specifically described autos) provides coverage limited to two situations: (1) the insurer already covers all autos that the named insured owns for that coverage, or (2) the auto replaces an auto previously owned by the named insured that had that coverage. In either case, the named insured must ask the insurer to cover the newly acquired auto within 30 days after it is acquired.

In the case of Kinard v. National Indem. Co., 483 S.E. 2d 664 (Ga. App. 1997), a symbol 7 was designated after liability coverage. It was determined after the accident that the vehicle in question was acquired before the inception date of the policy and never declared at policy inception. Although there was some evidence that the vehicle served as a replacement for the vehicle listed on the declarations page, the insured still failed to notify the insurer within 30 days of the vehicle's acquisition as the policy requires.

Loading and unloading

Loading and unloading issues are not the problem they once were under earlier editions of commercial auto policies. If an injury occurred because of the loading or unloading of a commer-cial auto, an argument generally ensued over what policy applied.

Related to this issue was who were insureds should an accident involving loading and unloading occur. Problems often arose if the dockhands of businesses accepting the cargo being unloaded were injured in the course of that activity. When the employers of the dockhands were sued, they would seek coverage under the commercial auto policy of the drivers, maintaining they were "using" the vehicle and therefore were permissive users. Some of these cases still occur but not with the frequency that once prevailed, in light of policy wording changes since 1978.

What needs to be observed carefully here is the relationship of mobile equipment to the BAP or any one of the other standard commercial auto forms. Mobile equipment is covered in relation to the BAP only when such equipment is towed or carried by the covered "auto." This means that mobile equipment conveyed on a vehicle and then unloaded and used to perform some other loading function is not part of the commercial auto policy's coverage.

The BAP also does not cover injury or damage resulting from the movement of property by a mechanical device, unless such device is attached to the auto or is a hand truck. "Mechanical device" is not defined, but it should also include mobile equipment, such as forklifts. In fact, this was the decision of the court in Travelers Indemnity Company v. General Star Indemnity Co., 157 F.Supp. 2d 1273 (U.S. D.C. Ala. 2001).

It seems that the above policy provision listing the conditions under which the BAP will or will not apply for loading or unloading purposes is quite clear. But apparently it was not too clear to the two insurers in this case. One provided commercial general liability coverage and the other a commercial auto liability policy.

The issue was which of the two insurers was obligated to pay damages following an accident resulting from the movement of property by a mechanical device that was not attached to the auto, and was not a hand truck. As it turned out, the CGL policy was applicable.

The CGL policy has been subjected to many court disputes in recent years over auto-related cases. This is a subject for later discussion. But as far as the BAP policy is concerned, it appears that many of the problems that were thorns in the side of insurers early on no longer exist. It is doubtful, therefore, that there are likely to be any significant changes within the BAP coverage form. As is commonly said: If it's not broke, don't fix it. *

The author

Donald S. Malecki, CPCU, is chairman and CEO of Donald S. Malecki & Associates, Inc. He is an active member of the CPCU Society, on the Examination Committee of the American Institute for CPCU, and is an active member of the Society of Risk Management Consultants.