AUTO LIABILITY NON OWNED AUTO EXPOSURE

Transcription

1 AUTO LIABILITY NON OWNED AUTO EXPOSURE Backgrund: In tday s wrkplace, emplyees are mre ften required t use their persnally wned vehicles t cmplete their jb respnsibilities rather than a cmpany wned r leased vehicle. In these cases the emplyer nrmally reimburses the emplyee fr this business use f their persnal vehicle. The reimbursement is ften accmplished with a mnthly allwance r business mileage reimbursement sufficient t permit the emplyee t purchase and/r maintain a vehicle they will persnally wn and insure. S, what s the cncern ver emplyees using their persnal vehicles fr cmpany business? Critical issues include an insufficient understanding/appreciatin f the ptential liability expsure t rganizatins; an insufficient understanding f the terms f cverage fr emplyers business aut plicies; the emplyers ultimate respnsibility fr safe fleet peratins; and practive risk management cnsideratins. When the tpic f Nn-Owned Aut expsure was presented t a large Third Party Claim Administratr s staff f liability adjusters, a number f them said that they had handled several f these types f claims ver the years. The fllwing are sme examples f claims that were paid by the emplyer ver and abve the emplyee s persnal aut plicy limits. In each case, the curts ruled that the accident ccurred within the scpe f business related activity. As a result, the emplyer ended up being held respnsible fr the prtin f the lss abve and beynd the emplyee driver s persnal aut plicy limits. The Third Party Administratr s Liability Supervisr delivered the fllwing statement: Many f these start ut as "ntice nly" claims, and usually the persnal lines carrier settles the claim within their limits. Hwever, we have fund that a number f these claims are clsed when yu think the persnal lines carrier is ging t handle it, and then tw years later yu are cntacted by the persnal lines carrier wh indicates that the claimant is having their secnd surgery, and their insured s $30,000 limits (r whatever the persnal plicy limits were) are well belw the final claim expsure. Regarding real life examples, sme f ur grup did recall details n several larger claims they have handled. 1) Emplyee driver n the way t wrk in the mrning. He pulled ut int traffic and struck claimant, resulting in spinal trauma. Curts ruled the trip was business related, as the driver used his vehicle ften t travel between different client plants, s the definitin f "business related" was greatly expanded. Persnal aut carrier paid their $100,000 limit, and ur selfinsured client paid $245,000 abve that, fr a ttal f $345,000. Page 1 f 5

2 2) An emplyee was driving n cmpany business, and was 100% respnsible fr a cllisin in Massachusetts. The claimant ruptured a disc. The driver had $100,000 in persnal lines aut liability limits. The business aut carrier fr the emplyer paid an additinal $225,000, fr a ttal settlement f $325,000. 3) A manager returning frm a bank run struck a bicyclist. The resulting injuries were severe, with multiple surgeries and scarring. The manager s persnal insurance limits were nly $50,000. The expsure t the self-insured emplyer was an additinal $700,000, fr a ttal settlement f $750,000. 4) An emplyee went t anther cmpany lcatin t pick up sme equipment and tls. He rear ended the claimant causing serius injuries and a ttal lss t claimant vehicle. The emplyee s persnal aut liability limits were $15,000. The case is currently reserved at $250,000 n the emplyer s business aut plicy. This tpic shuld be f significant cncern t emplyers. In sme states the minimum aut liability limits required by the state fr persnal lines plicies are quite lw. (Fr example, CA, where it is $15,000/$30,000 fr required Bdily Injury Limits and $5000 fr Prperty Damage). The emplyer needs t ensure that adequate persnal lines primary limits are in place, as the minimum limits required by many states wuld be insufficient in the event f a serius accident. Insurance Cnsideratins: In all f the abve cases these vehicles, in the cntext f the emplyer s Business Aut Plicy, are cnsidered nn-wned auts. Mst cmmercial aut plicies are written t include cverage fr nn-wned auts, as well as thse that are wned r leased by the insured. Nn-Owned Aut cverage is typically defined within the Business Aut Cverage Frm. A cmmn definitin f Nn-wned Auts Only reads; Only thse auts yu d nt wn, lease, hire, rent r brrw that are used in cnnectin with yur business. This includes auts wned by yur emplyees, partners (if yu are a partnership), members, (if yu are a limited liability cmpany), r members f their husehlds but nly while used in yur business r yur persnal affairs. When we refer t Nn-Owned Aut, within the Business Aut Cverage Frm, we are referring t liability cverage. Nn-Owned Physical Damage cverage is available; hwever, it is nt cmmn fr insurers t prvide this cverage. We will limit ur discussin in this article t the liability cverage, which encmpasses cverage fr Bdily Injury and Prperty Damage t a 3 rd party vehicle. As a matter f practice many insurance cmpanies write aut liability cverage using Symbl # 1, ANY AUTO, t describe the cvered auts included within a Business Aut Cverage Frm. The nly symbl that is nt defined in the Descriptin f Cvered Aut Designatin Symbls sectin is Symbl #1. The reasn ISO (Insurance Services Office) chse nt t define this cvered aut symbl is because any attempt t define it wuld ultimately limit the meaning f Any Aut. It is intended t mean Any Aut. As such, all ther symbls can be included in the definitin f Any Aut. This answers the Page 2 f 5

3 questin is Nn-Owned Aut included in ur definitin f a cvered aut? The answer is Yes with very, very few exceptins. In rder t trigger cverage under the BUSINESS AUTO COVERAGE FORM yu need t d mre than just t meet the definitin f a cvered aut. Yu als have t meet the definitin f Wh Is an Insured within the plicy. Althugh the definitin is intentinally brad, there are a few exceptins. Emplyees are ne f these exceptins t the Wh Is an Insured definitin; Wh Is an Insured. The fllwing are insureds: Yu fr any cvered aut. (the emplyer r named insured) Anyne else while using with yur permissin a cvered aut yu wn, hire, r brrw except: The wner r anyne else frm whm yu hire r brrw a cvered aut. This exceptin des nt apply if the cvered aut is a trailer cnnected t a cvered aut yu wn. Yur emplyees if the cvered aut is wned by that emplyee r a member f his r her husehld.. Therefre, emplyees and members f their husehlds using their persnally wned autmbiles are nt Insureds under the plicy and are nt entitled t a defense under the BUSINESS AUTO COVERAGE FORM against a third party actin. In these cases, the argument used t attempt t access cverage under the Business Aut Cverage Frm is mst ften initiated by a third party claiming that the cmpany (wh is an insured under the insurance cntract) is vicariusly liable (respnsible) fr the actins f an emplyee while in the curse f his r her emplyment. Therefre, if the emplyee alne is sued fr his r her negligent acts resulting frm the wnership, maintenance, r use f an aut the insurance cmpany selected by the emplyee (persnal lines plicy) wuld respnd up t the limits f that cntract. Since the emplyee des nt meet the definitin f an Insured, the BUSINESS AUTO COVERAGE FORM wuld nt affrd cverage. Alternatively, if the emplyee is sued and the emplyer is named (as a c-defendant) in the suit, and fund vicariusly liable fr the emplyee s actins, the emplyer s BUSINESS AUTO COVERAGE FORM will respnd t defend the emplyer. Further, if a lss ccurs and the insured (emplyer) is fund legally bligated t pay damages resulting frm the negligent peratin f a mtr vehicle by an emplyee while in the curse f emplyment, the insured s plicy will typically respnd n an excess basis. The cverage frm will respnd as typically defined in a sectin labeled BUSINESS AUTO CONDITIONS; General Cnditins; Other Insurance: Fr any aut yu wn, this Cverage Frm prvides primary insurance. Fr any aut yu dn t wn, the insurance prvided by this Cverage Frm is excess ver any ther cllectible insurance. This means, that In the event f an accident invlving an emplyee f the cmpany, the persnal lines insurance plicy f the emplyee will respnd first and the BUSINESS AUTO COVERAGE FORM f the emplyer will respnd n an excess basis ver the emplyee s persnal aut plicy limits, up t the limits f liability f the emplyer s insurance plicy. Page 3 f 5

4 Bttm line - it is imprtant that the emplyer understands that expsure still remains, even if they dn t wn the vehicle but the vehicle is used in the scpe f their business. Under this scenari, the liability limits n the emplyee s persnal lines insurance plicy becme very critical, as this may be the nly layer f primary insurance prir t the Business Aut Cverage Frm f the emplyer respnding t the incident. One final discussin pint cncerning insurance requirements is the issue f Additinal Insured status. Many emplyers ften inquire if it is necessary fr the driver f an individually wned persnal aut used in the curse f cmpany business t require their persnal lines insurance carrier t name the emplyer as an Additinal Insured (AI) n the driver s persnal aut liability plicy. Technically, Additinal Insured status is nt necessary as aut insurance fllws the aut, nt the driver. As lng as a driver is using their persnally wned aut (a nn-wned cvered aut frm the standpint f the cmmercial insured) with permissin in the curse f the cmpany business, the cmmercial insured has cverage fr bdily injury and prperty damage arising ut f the use f the aut if nn-wned aut cverage is purchased. (Included in ISO symbl 1 r added separately as ISO symbl 9.) In fact, there are very few, if any, persnal lines carriers that wuld ffer AI cverage fr aut liability particularly AI cverage fr a business. There is n need fr AI status fr the emplyer given the way the persnal lines and business aut cverage wrk tgether. The language in bth plicies places the persnal aut plicy as primary, then the business aut plicy as excess, nrmally t respnd nly if the persnal aut liability limits are inadequate. This further demnstrates the imprtance f an emplyer ensuring that persnal aut liability limits are sufficient, rather than relying n state-mandated cmpulsry liability requirements which are likely t be t lw t fully prtect the emplyer. Risk Management Cnsideratins: While there are many financial and peratinal reasns why an emplyer may chse t reduce their fleet f cmpany wned r leased vehicles, and require their emplyees t use their persnal vehicle fr cmpany business, the respnsibility fr the actins f the emplyee taken in the curse and scpe f emplyment r business use remains with the emplyer. The emplyer shuld require that these emplyees are included in the emplyer s fleet management prgram, specifically in the fllwing areas: These emplyees shuld be required t carry adequate persnal aut liability limits. These cverages shuld be verified, at least annually, by acquiring certificates f insurance. Ideally, the emplyee s persnal lines insurance carrier shuld be aware that the vehicle will be used fr limited r ccasinal business use. The ptential additinal cst the emplyee will have t pay t insure the vehicle fr adequate limits and t perate the vehicle with limited business use shuld be recgnized in the amunt f mnthly allwance r mileage reimbursement being prvided t the emplyee. The emplyer needs t determine hw high the persnal aut liability limits shuld be t prvide adequate primary limits, prir t the emplyer s Business Aut Cverage Frm respnding n an excess basis. Mtr Vehicle Recrds The emplyee s MVR shuld be checked upn hire and at least annually thereafter t verify acceptability t drive n cmpany related business. Page 4 f 5

5 MVR criteria shuld be develped and cmmunicated t all drivers. These criteria shuld be cnsistently administered amng all cmpany drivers, regardless if the driver is in a cmpany vehicle r persnal vehicle used in cmpany business. Emplyees shuld be required t sign an MVR Release frm in rder t ensure cmpliance with Public Law 18 USC 2721 et. Seq., Federal Drivers Privacy Prtectin Act ; whereby the Release Frm is intended t cnstitute written cnsent as required by this Act. Mving Vilatins The emplyee driver shuld be made aware that any mving vilatins and assciated fines they receive, either while in the curse f business use r persnal use, are their respnsibility. The emplyee shuld als be infrmed that all mving vilatins affect their MVR and culd lead t an unacceptable rating. Rules f Use The emplyer shuld develp basic rules f use cncerning vehicles used in the curse and scpe f business. These may include, but are nt limited t, the fllwing: Address what passengers are permitted t be in the vehicle in the curse f business. (custmers, family members, ther emplyees, hitchhikers, etc.) Mandatry seat belt/restraint use. Guidance fr use f cell phnes while driving. Driving while intxicated r under the influence. Carrying f firearms, explsives, alchl, etc. Frbid twing f trailers while n cmpany business, unless required fr the business activity. If a trailer has t be twed, develp requirements fr lad securement, hitch requirements, security, etc. Require a mileage lg t identify the date, dmeter reading, purpse, f the trip, etc. t help verify that the trip was, in fact, business related. These expectatins shuld be memrialized in a written plicy that is required t be acknwledged and signed by the emplyee driver. It is abslutely essential that the emplyer implements adequate administrative cntrls t verify that insurance requirements are met and expectatins are carried ut in a cnsistent manner. DISCLAIMER - The infrmatin cntained in this dcument is fr the sle use f the Insured/Client. The purpse f this dcument and related activities was t identify areas f ptential risk expsure t assist yu in managing yur legal respnsibility t maintain safe premises, practices, peratins and equipment. Nthing in this reprt cntains legal advice. Fr all decisins regarding use r applicatin f the cntents f this reprt, fllw the advice f yur wn legal cunsel. Arch Insurance Grup des nt warrant that yur wrkplace is safe r healthful, that it currently cmplies with any laws, regulatins, cdes r standards, that it discvered all existing r ptential hazard(s), r that the implementatin f any recmmendatin will result in the cmpliance with the safety standards f any federal, state r lcal laws, regulatins, cdes r standards. Further, Arch Insurance Grup disclaims all warranties whether implied, express r statutry, including withut limitatin, implied warranties f merchantability, fitness fr use and fitness fr a particular purpse. Implementatin f any recmmendatins is at yur sle discretin, and Arch Insurance Grup will have n liability t any party fr any damages including, but nt limited t, direct, indirect, special r cnsequential damages, arising ut f r in cnnectin with the services prvided r the implementatin f any recmmendatins cntained herein. Further, this dcument des nt amend, r therwise affect, the terms, cnditins r cverages f any insurance plicy issued by Arch Insurance Grup. N part f this dcument r any f ur ther risk cntrl dcuments, r any f ur risk cntrl activities assciated with r leading up t the creatin f these dcuments, is a representatin that cverage des r des nt exist fr any particular claim r type f claim under any such plicy. Whether cverage exists r des nt exist fr any particular claim under any such plicy depends n the facts and circumstances invlved in the claim and all applicable plicy wrding. Page 5 f 5