10 Commercial Automobile

10 Commercial Automobile Learning Objectives When you finish this study, you should be able to meet the following objectives: Explain the need for forms, endorsements, and agreements in addition to the Owner s Policy to insure commercial risks. Identify the information required for an application for fleet insurance. State the meaning of the phrase, respondeat superior, and identify and explain the common law principle it represents. Explain the purpose of the Non-owned Automobile Policy. Describe the provisions of the standard Non-owned Automobile Policy and the endorsements that apply to this policy. Identify the businesses that require Garage Auto insurance. Describe the insurance needs that garage risks share with other businesses and those needs that are unique to garage risks. Identify the gaps in the Owner's Policy that help create the need for a Garage Policy. Describe the provisions of the Garage Automobile Policy and the endorsements that apply to this policy. 1

ALBERTA AUTOMOBILE INSURANCE Contents Introduction Commercial Automobile Applications for Insurance Fleet Applications Endorsements Non-owned Automobile Insurance The Purpose of the Non-owned Policy The Standard Non-owned Automobile Policy Section A Third Party Liability Exclusions Under Section A Additional Agreements General Provisions and Definitions Statutory Conditions Endorsements Garage Automobile Insurance Filling the Gaps in the Owner s Policy The Garage Automobile Policy Identifying the Insured Identifying the Insured Automobile Newly Acquired Locations Third Party Liability Coverage Exclusions Additional Agreements of Insurer Agreement of Insured Accident Benefits Loss of or Damage to Owned Automobiles Uninsured Automobile Coverage Liability for Damage to Customers Automobiles in the Care, Custody, or Control of the Insured Endorsements Review Questions 2

10 COMMERCIAL AUTOMOBILE Introduction No legislative distinction of commercial use The legislation that approves the Owner s Policy makes no distinction between commercial and personal uses of an automobile; the same Owner s Policy is used for both. To accommodate the differences between personal and commercial automobile risks, insurers use a variety of forms, endorsements, and agreements in addition to the Owner s Policy to aid them in their underwriting or to tailor the terms of the contract to the commercial risk. Most insurers divide their portfolios of commercial automobile risks other than garage risks into two groups: individually rated commercial auto risks and fleetrated commercial auto risks. In this study we will deal briefly with individually rated commercial automobiles and then consider insurance for fleet-rated commercial automobiles, the non-owned automobile policy, and the garage automobile policy. Along the way we will discuss some of the more commonly used endorsements applicable to each of these classes of risk. Commercial Automobile Individual risks Individually rated commercial auto risks are usually defined as having fewer than five power units, though some insurers set their thresholds at ten. (A power unit has a motor and so is self-propelled for example, a car or a truck. In contrast, a trailer is not a power unit.) These risks are underwritten by largely the same criteria as are personal auto risks: use, operating radius (i.e., the greatest distance travelled by a vehicle on business in any direction from the garaging address), length of time the risk has owned the vehicles or similar vehicles, driving record, number of years accident-free, and rate group. Gross vehicle weight is an additional criterion that applies only to commercial autos. Further, commercial auto rating assigns the number of accident-free years to the vehicle, not the driver. Similar to personal auto underwriting, commercial auto underwriting comprises: Elements of underwriting Selection of risk 1) The acceptance or rejection of a risk (except for government insurers) 2) The negotiation of the policy terms under which the insurer will accept the risk 3) The negotiation of an acceptable premium for a policy issued on these terms In most provinces, insurers are free, as with personal auto risks, to select or decline individually rated commercial auto risks, or terminate, or refuse to renew them, as they choose. In Ontario, insurers must have the grounds on which they may select, decline, terminate, or refuse to renew any auto risk approved; no distinction is made between personal and individually rated commercial risks. In provinces where a government insurer insures auto risks, all risks must be offered insurance. 3

ALBERTA AUTOMOBILE INSURANCE Applications for Insurance Commercial auto applications should include the information in personal auto applications and additional information particular to commercial risks. Different provinces have different application forms for this information. Some use the same standard application form used for personal auto applications and another separate form called the Commercial Vehicle Supplement. Others include a section in the standard application form for information for commercial risks. You should obtain a copy of the form used in your province. Commercial Vehicle Supplement Gathers underwriting detail Nature of the business The purpose of the Commercial Vehicle Supplement (CVS) is, together with the application, to gather underwriting details for an individually rated commercial automobile. The CVS includes questions about the use of the vehicle, whether the vehicle is light or heavy, how many years the applicant has owned or leased each commercial automobile, whether hauling is done for others, the type of goods carried, the radius of operations, any attached machinery, vehicles used to haul non-owned trailers, and vehicles used to carry passengers for compensation. However the information is collected it is important that applications for insurance of commercial automobiles describe the exact nature of the applicant s business, including what commodities, if any, are being transported, and specify the operating radius and the gross vehicle weight (the actual weight of the vehicle plus its carrying capacity). Fleet Applications No standard form for fleets In most jurisdictions, even where an approved application form (e.g., the SAF #1) is required for fleets as for individual risks, there is no standard form designed specifically for fleets. Approved application forms have limited space for listing vehicles, drivers, and claims. Moreover, the amount and type of additional information that an insurer can request of an applicant for fleet-rated commercial auto insurance is not regulated. Therefore, most insurers with any sizeable fleet portfolio have either designed their own fleet survey forms or established minimum requirements for information included in a fleet application so that the necessary fleet premium may be developed. Fleet applications should include Vehicle list (a) a list of vehicles, including attached equipment or machinery, that includes the use, the gross vehicle weight, the list price new, and the operating radius of each Regardless of the method used for developing the fleet premium, and there are various methods of rating fleet risks, the vehicles must be categorized for statistical purposes and actuarial analysis. 4

10 COMMERCIAL AUTOMOBILE Loss experience Fleet losses can be hard to monitor Experience from insurer preferable Drivers list Lengths of employment Driver selection Maintenance (b) the loss experience for a minimum of three years, usually displayed on an insurer s letterhead A fleet numbers at least five power units, excluding recreational vehicles, though, again, some insurers set their thresholds at ten, but it may number many more, perhaps hundreds of vehicles. The number of losses for a large fleet over a given period may be considerable and a substantial challenge to an applicant s recordkeeping. A single loss could include many claimants for example, passengers injured on a bus each having a separate reserve, and it could take years before all claims arising from this single loss are settled. Claims experience obtained on an insurer s letterhead is more likely to be complete. Most insurers provide computer printouts; the print date should be checked to ensure the information is current. Again, insurers rely on past experience to estimate future experience. A minimum of three years experience is needed to determine credible patterns. (c) a list of drivers, usually including length of time employed, and the applicant s hiring procedures Lengths of employment determine the stability of the applicant s workforce. A stable workforce suggests that employees are treated fairly and are paid a fair wage for the industry, that morale is acceptable, and that management is capable. Nothing will have greater effect on the performance of a risk than driver selection. In evaluating an applicant s hiring procedures, the underwriter should consider the minimum number of years of driving experience the applicant requires of candidates on equipment similar to its own. (Discrimination by age in hiring is prohibited by law, but discrimination by experience is not.) The underwriter should also consider the number and type of convictions the applicant will accept of candidates for its driving positions. (d) maintenance procedures The applicant may have garage facilities and licenced mechanics on staff or may use the services of a local independent garage. Years in business New businesses often fail (e) the number of years that the applicant has successfully operated the business or a similar business Unfortunately, more new businesses fail than succeed. A new business, by definition, has little or no loss experience with which the insurer can calculate a credible premium. A failing business represents a moral hazard. For these reasons, insurers prefer to insure going concerns established businesses that have 5

ALBERTA AUTOMOBILE INSURANCE Finances (f) financial statements operated long enough to allow insurers to calculate credible premiums and successfully enough to suggest that the businesses will continue to do so indefinitely. A company that is financially secure is much more likely to attract high-quality drivers by its ability to pay, ensure that vehicles are maintained in top running order, regularly replace older equipment with new, and provide the service required to keep a solid client base. Financial statements for at least three years are often required to afford a direct assessment of financial strength. Endorsements There are a number of approved endorsements that apply to commercial automobiles. Some of these apply specifically to fleet-rated risks; others may also be used on policies for individual commercial automobiles. Blanket Basis Fleets Insurance on blanket basis Many large fleets are insured on a blanket basis. All of the vehicles owned by an insured on the inception date of the policy are rated to determine the advance premium. No changes are reported or endorsed during the term. At the expiration of the policy, all changes are reported and any adjustments are done at that time. Thus the insured does not have to go through the process of notifying the broker or insurer every time a change is made and the insurer is not constantly processing changes to the policy. Usually an insurer will not provide blanket coverage unless the fleet is of a certain minimum size. The two methods generally used to provide this coverage are: Monthly Reporting Basis Fleet and Blanket Fleet. Monthly Reporting Basis Fleet Covers all vehicles owned or leased The Monthly Reporting Basis Fleet endorsement guarantees coverage to all vehicles that are owned by or leased on a long-term basis to the insured and that are licenced or required to be licenced. A schedule on the endorsement assigns common coverages and deductibles to specified categories of insured automobile determined by the type of use or the description of automobiles in a given category. A fleet insured on a blanket basis is rated to determine an advance premium. By the fifteenth of every month, the insured is required to file a statement of the amount of actual receipts, mileage, or other rating basis for the preceding month. The insurer calculates the earned premium based on this statement. The method of premium payment is negotiated between the insured and the insurer. For example, a two-month advance premium may be charged, with additional payments each 6

10 COMMERCIAL AUTOMOBILE month based on the monthly adjustment. To ensure an adequate premium, insurers usually insist on a minimum retained premium for the policy term. Benefits seasonal risks This endorsement benefits risks that are seasonal in nature, as higher premiums are due the month following higher revenues. Blanket Fleet Coverage As with the Monthly Reporting Basis endorsement, the Blanket Fleet Coverage endorsement guarantees that all vehicles acquired by the insured during the policy term, either owned by or leased on a long-term basis to the insured and licenced or required to be licenced, are covered and that similar types of vehicles carry similar coverages and deductibles. Unlike the Monthly Reporting Basis Fleet endorsement, the Blanket Fleet Coverage endorsement requires that all vehicles owned by or leased to the insured on the effective date of coverage be filed with the insurer to guarantee coverage. There is no coverage for vehicles owned or leased by the insured before the effective date of coverage if they are not included on the schedule of vehicles filed with the insurer at that time. The advance premium at policy inception is stated on the endorsement and the premium is adjusted after the policy expires. Excluding Attached Machinery Excludes coverage provided under CGL Many commercial vehicles have attached machinery that is not in use during the actual operation of the vehicle. The vehicle is used mainly as a means of transporting the equipment to the job site. The operation of equipment such as a crane, a welder, or steam-cleaning apparatus presents exposures that are different from those arising from the use or operation of an automobile. The Excluding Attached Machinery endorsement excludes liability arising from the operation of such equipment under the Third Party Liability and Accident Benefits sections of the Owner s Policy. Coverage for that liability is provided under the Commercial General Liability policy (CGL). Non-owned Equipment Liability for equipment others own There are situations in which machinery, equipment, or apparatus attached to an automobile is owned by a third party. This Non-owned Equipment endorsement extends liability coverage under the Owner s Policy to include the use and operation of such attachments while in the care, custody, or control of the insured. If the insured has purchased physical damage coverage under the Owner s Policy, this endorsement extends that coverage, too, to include loss or damage to those attachments. The insurer is liable for the actual cash value of the attachment or the amount stated, whichever is less. The endorsement further states that losses will be paid jointly to the insured and the owner of attachments named on the endorsement. 7

ALBERTA AUTOMOBILE INSURANCE Non-standard Endorsements Many companies that compete for commercial automobile business have applied for and received approval to use non-standard endorsement forms. Some of the more common endorsements are outlined below. Approval of non-standard endorsements is usually sought by an insurer to fill a need for a particular class of business. Cross-Liability Endorsement The Cross-Liability endorsement is used when there are multiple named insureds. It states that, while not increasing the insurer s limit of liability, it will protect each named insured as if a separate policy had been issued to each. Exclusion of Damage to Attached Machinery Physical loss or damage coverage under the Owner s Policy extends to any machinery or equipment mounted on an automobile. The Exclusion of Damage to Attached Machinery endorsement excludes coverage for loss or damage to attached machinery designed for any function other than transportation or travel. Additional Insured Adds owner/operators to fleet policy Many large fleets use the services of owner/operators. These are employees who own their own vehicles; normally, the owner/operator is obligated under contract to carry goods only for the insured s fleet. To meet licencing regulations, the owner/operator leases the vehicle to the insured. Because a policy covering a vehicle must be in the name of the owner of the vehicle, the policy that covers the insured s fleet is usually modified by an Additional Insured endorsement that adds the registered owner/operators of all fleet vehicles as additional insureds. As an additional insured, the owner/operator has no right to negotiate changes to policy terms, but he or she is entitled to see the policy and know its terms and is guaranteed notification should the insured s policy be terminated. Non-owned Automobile Insurance The Non-owned Automobile Policy (NOAP) provides legal liability coverage to a business entity for automobiles it does not own but may at times use for its business purposes. It is often attached to the CGL Policy. Respondeat superior The Non-owned Automobile Policy exists for one and only one reason: the common law concept known as respondeat superior, which means let the superior answer. This is the fundamental principle that a master (or employer) 8

10 COMMERCIAL AUTOMOBILE can be held liable for the servant s (or employee s) careless or negligent acts while the servant is engaged in the master s business even if in doing so the servant disregarded the express instructions or authority of the master. Use of automobile on someone s behalf Courts have repeatedly held that when an automobile is used on a person s behalf or under a person s direction, that person has a definite responsibility for the operation of the automobile and may be held liable for damages in the event of an accident even though he or she is not the owner or driver of the vehicle. This common law principle has been extended by a number of court decisions to make an employer responsible for the operation of an automobile when an employee is operating an automobile not owned by the employer in the employer s business. The Purpose of the Non-owned Policy Employers Policy Employer defined Three parties to sue The purpose of the Non-owned Automobile Policy is to protect an employer when employees operate vehicles not owned by the employer on behalf of the employer. A better name for this policy might have been the Employers Policy, since it is most often employers who need its protection. There is no legal requirement in any Canadian jurisdiction to purchase this policy; indeed, insureds that buy Garage Automobile Policies already enjoy protection from the non-owned automobile exposure. But all other employers should buy a Non-owned Automobile Policy, since they could be sued whenever an employee has an automobile accident while on company business. It is normally sold as part of a General Liability Policy. An employer is normally thought of as an incorporated business, partnership, joint venture, or other commercial enterprise. An individual, however, can also be an employer for example, a person who employs a live-in nanny or maid or chauffeur. Such an individual should purchase a Non-owned Automobile Policy. When an automobile accident occurs, an innocent third party that has suffered injuries or loss has three potential parties to sue: The driver of the vehicle, the owner of the vehicle, and the employer of the driver. The first two are covered by the Owner s Policy (assuming the vehicle owner has purchased one); the third is covered by the Non-owned Automobile Policy (assuming the employer has purchased one). The questions that the Non-owned Policy will address are these: Was the driver on company business at the time of the accident? Was the driver acting as an employee or an independent contractor? If the answers to these two questions are no and independent contractor, then there is no liability on the employer. 9

ALBERTA AUTOMOBILE INSURANCE Non-owned Policy pays defence costs But nothing precludes an injured party from taking action against an employer or general contractor, regardless of the arms-length agreement between the employer or general contractor and the independent contractor. Even if found not liable, the employer will still have to defend itself against the action. Therefore, the main protection provided by the Non-owned Automobile Policy is this: It pays defence costs for the insured, regardless of negligence. In addition to defence costs, the Non-owned Automobile Policy will actually pay a third party claim in only two situations: When the at-fault vehicle is uninsured When the at-fault vehicle is insured and the owner s limit of liability under the Third Party Liability coverage is insufficient to pay a judgment or settlement The Standard Non-owned Automobile Policy For the most part, the Non-owned Automobile Policy in various jurisdictions throughout Canada is, if not identical, largely similar. It consists of four parts: the Policy Declarations, the Insuring Agreements, the Statutory Conditions, and the Endorsements. The Policy Declarations reproduce the application by the insured that forms part of the contract of insurance. Insuring agreement The Insuring Agreement has five parts: the insurer s agreement as specified under Section A Third Party Liability; the Exclusions under Section A that qualify the insurer s agreement; the Additional Agreements of the Insurer; the Additional Agreements of the Insured; and the General Provisions and Definitions. Section A Third Party Liability The insurer agrees to indemnify the insured against the liability imposed by law upon the insured for loss or damage arising from the use or operation of any automobile not owned in whole or in part by or licenced in the name of the insured and resulting from bodily injury to or the death of any person, or damage to property of others not in the care, custody, or control of the insured. 10

10 COMMERCIAL AUTOMOBILE Exclusions Under Section A The insurer s agreement under Section A applies provided always that the Insurer shall not be liable under this policy for certain types of liability or loss. In particular, there is no coverage under the policy for Exclusion may be deleted by endorsement Exclusion may be amended by endorsement Identical to Owner s Policy liability that arises from the use or operation of any automobile while personally driven by the insured if the insured is an individual. There is an endorsement that deletes this exclusion to grant coverage for such liability under the Non-owned Policy, provided it arises from use or operation of an automobile in the business of the insured. liability assumed under any contract or agreement. Here, too, there is an endorsement, one that amends this exclusion to grant coverage under the policy for liability assumed under a contract or agreement specified on the endorsement. property carried in or upon an automobile personally driven by any person insured under the policy or property owned, rented by, or in the care, custody, or control of any insured person. This exclusion is identical to the exclusion in the Owner s Policy. for amounts in excess of the limit stated in the policy and expenditures provided by the additional agreements of the insurer. This exclusion also is identical to its counterpart in the Owner s Policy. liability imposed on any insured person by any workers compensation law or any law for bodily injury to or the death of the insured or any partner, officer, or employee of the insured while engaged in the business of the insured. Additional Agreements The Additional Agreements of the Insurer section and the Agreements of Insured section in the Standard Non-owned Automobile Policy are the same as those in the Owner s Policy. General Provisions and Definitions Additional Insureds Others covered in certain situations In addition to the insured named on the policy, the Non-owned Policy does extend coverage to employees in certain situations. Partners, officers, and employees are covered as long as they are not driving their own vehicles or vehicles owned by others living with them and the liability they incur arises while they are on the business of the insured. Territory The policy territory for the Non-owned Policy is the same as for the Owner s Policy. 11

ALBERTA AUTOMOBILE INSURANCE Hired Automobiles Defined Hired automobiles are vehicles hired or leased from others, where others excludes the insured or any partner, officer, or employee of the insured. Automobiles Operated under Contract Defined Vehicles that are completely supervised, directed, and controlled by their owners in the business of the insured are automobiles operated under contract under the Non-owned Policy, provided they are neither wholly nor partly owned by or licenced in the name of the insured or any partner, officer, or employee of the insured. Two or More Automobiles The Two or More Automobiles provision in the Non-owned Policy is the same as its counterpart in the Owner s Policy. Statutory Conditions The Statutory Conditions that apply to the Non-owned Automobile Policy are the same as those that apply to the Owner s Policy. Endorsements There are a number of approved endorsements that apply to the Non-owned Automobile Policy. We have already mentioned two of them: Liability while the non-owned automobile is being personally driven by the insured for business purposes only, where the insured is an individual; and liability assumed under contract. Damage to hired automobiles Restricts definition of hired automobiles Reduced coverage for decreased premium Another common endorsement extends the Insuring Agreement to include a Section B that covers the insured s legal liability, either imposed by law or assumed under contract, for loss or damage to hired automobiles as defined in the policy. The endorsement provides the same physical damage coverage found in the Owner s Policy, subject to the same exclusions. The fourth common endorsement restricts the definition of hired automobiles to only those hired for less than 30 days. That eliminates all coverage for long-term leased vehicles that should be covered under the Owner s Policy with the lessee as an additional insured. Some insurers have already incorporated the provisions of this endorsement into their policy wordings. Finally, there is a group of six endorsements that, for a decrease in premium, reduce coverage under the Non-owned Policy. 12

10 COMMERCIAL AUTOMOBILE Coverage is excluded for hired automobiles or automobiles operated under contract. Coverage is restricted to hired automobiles and automobiles operated under contract. Coverage is provided only for automobiles owned by named persons. Coverage is provided only for business conducted at specified locations. Coverage is provided only for the operation of automobiles by named persons. Coverage is excluded for automobiles personally driven by named persons. Garage Automobile Insurance Common insurance needs Unique insurance needs Similar to other businesses that own and use automobiles, garage risks have specific insurance needs. Garage risks need liability coverage under a CGL policy for their premises and completed operations. As well, any vehicles owned by the business entity fall under the statutory requirements for automobile insurance in all provinces and must be insured for at least the minimum limits and mandatory coverages required in their home province for the use and operation of any automobile. Unlike other businesses, however, garage risks have an additional exposure not covered under a CGL policy or an automobile Owner s Policy. A garage risk accepts vehicles of others for the purposes of selling, repairing, maintaining, storing, servicing, or parking them. These business purposes are the definition of a garage operation and are the reason that such a risk needs a Garage Automobile Policy. Filling the Gaps in the Owner s Policy Customer should have Owner s Policy Garage operator s needs Additional needs A customer who leaves his automobile with a garage operation of any kind should have an Owner s Policy on the vehicle, as required by law and as discussed earlier. That policy covers Third party Liability and Accident Benefits for licenced persons operating the vehicle with the consent of the owner. But it does not provide this coverage for such persons operating the automobile in connection with the business of selling, repairing, maintaining, storing, servicing, or parking automobiles. A garage operator needs a policy that will cover liability arising from death, bodily injury, or property damage to others; accident benefits for garage personnel who may not be protected under another policy; and legal liability that will cover liability for physical damage to a customer s automobile that may occur while the customer s automobile is in the care, custody, or control of garage personnel for reasons directly related to the garage business. In addition, automobile dealers those persons in the business of selling automobiles own a constantly changing stock of new or used automobiles for which liability, accident benefits, and physical damage coverages are needed. It would become quite laborious for the insured, the broker, and the insurer to 13

ALBERTA AUTOMOBILE INSURANCE properly cover these vehicles if they were insured under a standard Owner s Policy, which requires that additions and deletions be reported. Automobile dealers need a policy that provides blanket coverage and an appropriate combination of coverages and that also recognizes other specialized needs. The Garage Automobile Policy Filling the gap In general, the Garage Automobile Policy follows the Owner s Policy in its coverage of owned automobiles that is, automobiles owned by the insured. Similar to Non-owned Automobile Policies, the Garage Policies in various jurisdictions throughout Canada, though not identical, are largely similar. Here we will concentrate on those parts of the Garage Policy that differ from the Owner s Policy. Identifying the Insured Who is covered Who is not covered The Garage Policy covers the named insured and any person who, with the consent of the insured, drives, operates, or occupies an automobile owned by the named insured. The policy also covers any person who drives or operates an automobile in connection with the business and with the consent of the owner unless that person is the owner of the vehicle or the use of the vehicle is otherwise excluded. The policy does not cover the personnel of other garage operations. A person who is in the business of selling, repairing, maintaining, storing, servicing, or parking automobiles is not entitled to indemnity under this policy unless that person is the insured or an employee or partner of the insured. Identifying the Insured Automobile What is covered The garage automobile policy defines three classes of automobile subject to exclusions. Consult the policy in your jurisdiction for the specific exclusions. An owned automobile is an automobile owned by the insured and used for pleasure or in connection with the business stated, or an automobile sold but not delivered. A customer s automobile is an automobile being towed, pushed, driven, or in the care, custody, or control of the insured in connection with the business stated. A non-owned automobile is an automobile that is neither owned nor a customer s automobile but is used for pleasure or in the business stated. Newly Acquired Locations The Garage Policy automatically extends coverage to newly acquired locations provided the business carried out at such locations is the business specified on the 14

10 COMMERCIAL AUTOMOBILE application and the insured notifies the insurer of such new location within 14 days of acquisition. Third Party Liability Coverage As the Owner s Policy does, the Garage Policy provides financial protection for the insured against the liability imposed by law for bodily injury to other people and damage to the property of others arising from the ownership, or directly or indirectly from the use or ownership, of any owned automobile. The Garage Policy also covers the insured against the liability imposed by law for bodily injury or property damage arising from the use or operation of any customer s or non-owned automobile. Exclusions Similar to Owner s Policy Certain types of losses are not covered by the Third Party Liability section of the policy. Most exclusions are the same as in the Owner s Policy. The following three exclusions applicable to the Garage Policy are not found in the Owner s Policy: Claims for liability imposed on any insured person by a workers compensation law or plan or for bodily injury to or the death of a partner, officer, or employee of an insured person while engaged in the business of that person. Claims for loss or damage resulting from bodily injury to or the death of any insured person or the son, daughter, or spouse of any insured person while an occupant of an automobile driven by that person. Claims for loss or damage to any customer s automobile. The last exclusion may appear to undermine the purpose of liability coverage, which includes coverage for the insured s liability for loss or damage to a third party s property. But, we will look at the part of the policy specifically designed to cover this exposure later. Additional Agreements of Insurer Similar to the Owner s Policy, the Garage Policy automatically provides insured persons with certain benefits in addition to its third party liability coverage. Agreements of Insured These are the same as the agreements of the insured under the Owner s Policy. 15

ALBERTA AUTOMOBILE INSURANCE Accident Benefits Insured person Accident Benefits apply in the same manner and to the same extent as under the Owner s Policy. For purposes of this section of the policy, an insured person is understood to mean an occupant of an owned or customer s automobile any person who is not an occupant of an automobile or of railway rolling stock that runs on rails but is struck by an owned or a customer s automobile This definition of insured person is found in most Garage Policies across Canada although there are some provincial variations. Loss of or Damage to Owned Automobiles Physical damage Under Loss of or Damage to Owned Automobiles, the Garage Policy covers physical damage; that is, it indemnifies the insured against direct and accidental loss of or damage to owned automobiles and attached equipment. Physical damage coverage is optional, but lienholders insist that vehicles be insured at least against fire, theft, and collision losses. The physical damage coverages under this section of the policy are subject to deductibles. In this section of the policy, there are four subsections from which insureds may select one or more coverages: A. Collision or Upset B. Comprehensive C. Specified Perils D. Specified Perils excluding Theft The first three of these are familiar from the Owner s Policy; however, the All Perils coverage that is also available in the Owner s Policy is not available in the Garage Policy. To distinguish between Collision and Comprehensive coverages, the words, another object, as used under Comprehensive coverage include (a) another automobile to which the automobile is attached or upon which it is being transported and (b) the surface of the ground or any object in or on the ground. Limits of Liability Insurer not liable for more than limit For physical damage coverages other than Collision coverage, the insurer is not liable for any limit in excess of the limit stated in the application at each specified location. The limit that applies to newly acquired locations is the lowest limit specified for any location. The policy limits physical loss or damage coverage to four owned automobiles at any location other than a business location of the insured s. 16

10 COMMERCIAL AUTOMOBILE Exclusions All Physical Damage Coverages for Owned Automobiles As in Owner s Policy Many exclusions under this part of the Garage Policy are found in the Owner s Policy. Consult the policy in your jurisdiction for the specific exclusions. The following exclusions not found in the Owner s Policy apply to the Garage Automobile Policy. The insurer is not liable for loss or damage: Partial payment plan Auto-haul-away vehicles To an automobile sold by the insured and in the possession of the purchaser under a partial payment plan. For loss or damage to any automobile while being carried in or upon any automobile owned, hired, or leased by the insured which is designed for transportation of other automobiles, provided always that a tow truck shall not be deemed designed for such purpose. This exclusion is designed to ensure that the insurer does not inadvertently cover auto-haul-away vehicles. Theft For theft under Collision coverage, except where the theft has been committed by a person residing in the same dwelling or by a person employed by the insured in the business described. Partial theft For partial theft under Comprehensive and Specified Perils when the partial theft occurs from any open lot or unroofed space owned, rented, or controlled by the insured. Theft of entire vehicle Theft of the entire vehicle is covered. There is no coverage for loss or damage resulting from partial theft such as the theft of a radio or tires. Under Specified Perils Excluding Theft for loss or damage occurring after theft of the automobile and before recovery of the automobile by the insured. Additional Agreements of Insurer Related expenses In addition to the coverages for physical damage to owned automobiles, the policy also covers some related expenses that often arise as a result of an automobile accident. Those expenses are similar to the ones covered under the Owner s Policy. Waiver of Subrogation If someone else is using an owned automobile with the permission of the insured when an insured loss occurs, the resulting claim is covered. Usually, the insurer will also forgo its right to recover the money from that person; that is, to subrogate 17

ALBERTA AUTOMOBILE INSURANCE against that person for the amount of any payment it made to settle the claim. But the insurer will retain its right to recover payment from Exclusions to waiver any person having care, custody, or control of the vehicle who is in the business of selling, repairing, maintaining, servicing, storing, or parking automobiles and is not an officer or employee of the insured. Subcontracted work The insurer has this right of recovery in the same circumstances under the Owner s Policy, but we need to emphasize here its equivalent right under the Garage Policy. Many garage businesses accept vehicles, then subcontract parts of the work they are unable to perform to other, specialist garages. The Garage Policy for the business that accepted the vehicle will not cover damages incurred while the vehicle is in the care, custody, or control of another garage business. The garage that originally accepted the vehicle has a moral obligation to the vehicle owner to ensure that any garage to which it subcontracts work on the owner s vehicle has its own insurance for damage to customers vehicles. any person who violates any condition of the policy or operates it in the circumstances related in the Exclusions. Agreement of Insured The insured agrees, if asked by the insurer, to replace property or repair damage suffered as a result of an insured peril at actual cost to the insured. Insured might repair more efficiently To understand this undertaking by the insured, suppose that the insured is an automobile dealer that has suffered hail damage to part of the inventory of new vehicles displayed in its open lot. As a dealer in new automobiles, the insured would probably be able to repair or replace the damaged vehicles more quickly and less expensively than would the insurer. Therefore, the insurer might ask the insured to arrange the repair or replacement of its own damaged vehicles, then settle the claim by paying the insured only for the cost it incurs for the repair or replacement (so that the insured would not make a profit from its loss). Uninsured Automobile Coverage This coverage under the Garage Policy applies in the same manner and to the same extent as under the Owner s Policy. Liability for Damage to Customers Automobiles in the Care, Custody, or Control of the Insured Physical damage customers autos The insurance provided under Liability for Damage to Customers Automobiles in the Care, Custody, or Control of the Insured indemnifies the insured for liability 18

10 COMMERCIAL AUTOMOBILE arising from loss of or damage to customers automobiles or attached equipment and for customers loss of use of their automobiles for which the insured is legally liable. The insured may buy one or both of two coverages: Collision or Upset or Specified Perils. Both coverages also include expenses incurred by the owner of the vehicle for alternative transportation. Endorsements When you consider the variety of businesses that may be defined as garage risks, you can appreciate that endorsements are often required to adapt the coverage of the Garage Policy to specific needs. Some endorsements used with the Garage Policy are similar to endorsements used with the Owner s Policy. There are, however, endorsements, common to most provinces, that are specifically designed for the Garage Policy. Excluding Owned Automobiles Where blanket coverage is not required The Excluding Owned Automobiles endorsement allows an insurer to issue a Garage Policy that excludes coverage for automobiles owned by the insured. This endorsement is used when the insured is not in the business of buying and selling automobiles and does not need the blanket coverage the Garage Policy would otherwise provide for owned automobiles. With that coverage excluded by the endorsement, the insured s premium for the policy can be greatly reduced. Excluding Financed Automobiles For insureds that buy and sell autos An endorsement for insureds who are in the business of buying and selling automobiles is the Excluding Financed Automobiles endorsement. This endorsement allows an insurer to issue a Garage Policy that provides physical damage coverage for the insured s owned automobiles but excludes coverage for owned automobiles that the insured buys with financing from a third party. The best example of such an insured is a new car dealer who could obtain physical damage protection for financed automobiles from the manufacturer as part of the financing arrangement. Open Lot Pilferage For an additional premium, an insured can usually buy an endorsement that deletes the Garage Policy exclusion of loss caused by partial theft from any open or unroofed space controlled by the insured for owned automobiles. There is a similar endorsement for customers automobiles. 19

ALBERTA AUTOMOBILE INSURANCE Additional Insureds Covers non-employees and partners The principals and active partners of many dealerships provide their spouses and other family members with automobiles for their personal use. The Additional Insured Broad Form endorsement extends coverage under the Garage Policy to specifically named persons who are not active partners or full-time employees but who are furnished with vehicles for their regular and frequent use. Each additional person is usually underwritten in the way an individual would be underwritten by any personal automobile insurer. A flat premium is added to the total policy premium. Comprehensive Coverage for Customers Automobiles Broadens coverage for customers autos In most provinces, the coverage for customers automobiles can be broadened to Comprehensive coverage by endorsement. The endorsement includes coverage against careless acts by the insured and employees. Therefore, many insurers will consider this coverage only for superior risks, and the rates for the broader coverage are high. The amount of the deductible should be carefully considered to guard against smaller, nuisance claims. Physical Damage Coverage for Specified Owned Automobiles Insured may want to self-insure some autos Similar to the owner of any automobile, a garage owner may have automobiles that he or she is prepared to self-insure for collision, along with other, highervalued automobiles for which he or she would like to buy physical damage insurance. The garage owner can buy an endorsement that restricts physical damage coverage for owned automobiles under the Garage Policy to those vehicles the garage owner specifies rather than providing blanket coverage for all owned automobiles. Such an endorsement to reduce coverage under the Garage Policy will also reduce the garage owner s premium for the policy. 20