(October 2019)
Individual business owners frequently find it difficult to distinguish between personal and business assets. This is especially true when business operations are conducted from a residence. The use of a separate building or office space exclusively for business operations often provides clarity of business and personal property. On the other hand, automobiles represent a major asset of a business, yet are not so easily separated.
The personal auto policy severely restricts coverage for autos that are being used in business. This creates problems for individuals who have accidents with their personal vehicle when their insurance company subsequently discovers that it was being used for business. An insured may believe that the answer to this dilemma is to insure all its vehicles under a commercial auto form and cancel all personal auto policies. Unfortunately, this method works well with respect to owned vehicles, but it creates significant gaps in coverage for family members. CA 99 17–Individual Named Insured closes many of those gaps. Attaching it is mandatory when an individual is a named insured and does not involve any additional premium charge.
1. The fellow employee exclusion is part of every commercial auto coverage form. This means that if the individual or a family member accidentally strikes a fellow employee of the individual or of the family member there is no coverage.
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Example: Fred Hubert is a plumber who operates his own business. He has business auto coverage but does not have a personal auto policy. He is married with two children. There are four vehicles in the family that are covered under his business auto coverage form. Fred drives both the Ford F-150 Pickup and a Ford Taurus. Carol, his spouse, drives a Ford Explorer and his daughter Ashley drives a Camry. His son, Freddy, is not old enough to drive. Ashley works at a pizza parlor down the street. She pulls into the parking lot one day and a cat runs in front of her. She swerves to avoid hitting it and strikes her boss, Hank, as he comes out the back door. Fred's business auto coverage does not respond to Hank's injuries because he and Ashely are fellow employees. |
2. A family member is not an insured.
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Example: Fred’s 15-year-old son Freddy is enrolled in a drivers' education program. Fred likes to take him out to practice his driving skills. Freddy wants some extra driving practice and takes the vehicle without Fred’s knowledge. While driving down the highway, a deer crosses in front of him. Freddy swerves and avoids hitting the deer but clips another vehicle, damaging both Fred's and the other vehicle. Freddy is not an insured because he was driving without permission which means that all coverage is denied. |
3. There is no coverage for liability due to the operation of any hired or non-owned auto.
The individual is covered only while driving the company-owned vehicle or a non-owned vehicle used for business purposes. There is no coverage when a family member hires an auto or uses any non-owned vehicle.
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Example: Fred and the family drive to Indianapolis to visit Carol’s mother. While there, his mother-in-law asks Fred for a favor. She wants to sell her car because she has not driven it in years so asks Fred to take it out for a drive. Unfortunately, the street next to the garage had become a one-way thoroughfare since his last visit. Fred turns and enters the street going the wrong way and strikes another vehicle. Worse yet, his mother-in-law had let her insurance lapse and his policy does not respond because he was driving a nonowned vehicle but not for a business purpose. |
4. The commercial lines pollution exclusion applies to personal use vehicles.
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Example: Fred mows his mother’s lawn every other Saturday. He loads his riding mower into the pickup along with the gasoline he needs and begins to drive to her three-acre property. Along the way, he hits a large pothole, the lawnmower tumbles out of the vehicle into the creek and the five-gallon gas can ruptures and discharges its contents into the creek. Coverage does not apply but Fred is responsible for the cleanup. |
5. Physical damage to non-owned vehicles is excluded.
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Example: Carol’s mother is upset about the accident with her car. Because Fred caused the accident, she thinks he should be responsible for the repairs. Fred is upset because his mother-in-law did not tell him that the car was uninsured and thinks that she should pay for the repairs because he was doing her a favor. The commercial auto insurance company is not upset at all and is just happy that the loss is not its problem. |
This endorsement does not
require scheduling individual names. Coverage applies to each named insured who
is an individual.
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Example: Fred’s insurance policy is written as Fred’s Plumbing, Inc. and Fred Hubert. This endorsement is available because Fred listed himself as a named insured. |
1. The Fellow Employee exclusion does not apply to the individual and family members.
Coverage applies if the named insured, his or her spouse or any relative, ward or foster child residing in the same household strikes one of the named insured's employees or an employee of any establishment where they work because the fellow employee exclusion is deleted.
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Example: Refer to the first example under GAPS IN COVERAGE above. In this case, Ashley is covered for any claims Hank brings against her. |
2. Family members operating owned vehicles are considered insureds.
Any private passenger auto, pickup, van, or similar auto is considered a covered auto when the individual, his or her spouse, or any relative, ward or foster child residing in the household uses it. Such vehicles cannot be owned by any of these persons, be furnished to them as part of their jobs, or be used in any type of auto business or operation. Such vehicles cannot be associated with the household in any way except for being used by family members and not related to their businesses.
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Example: Refer to the second example under GAPS IN COVERAGE above. In this case, Freddy is covered even though driving without permission and without a license. |
3. The individual and all family members are insureds when driving hired and non-owned vehicles, even in non-business related situations. Coverage applies as long as the vehicles are not owned by family members residing in the same household and are not furnished to a member of the household for business purposes.
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Example: Refer to the third example under GAPS IN COVERAGE above. In this case, Fred is covered because his mother-in-law owned the vehicle. The vehicle is a covered vehicle because she is not considered a family member and because she does not reside in Fred’s household. |
4. The Pollution exclusion does not apply to private passenger autos. This extension applies to any private passenger auto scheduled but benefits only the individual named insured. As a result, a pollution spill is covered. However, if another named insured entity is also sued as a result of the spill, that entity is still subject to the pollution exclusion.
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Example: Refer to the fourth example under GAPS IN COVERAGE above. Because there is no pollution exclusion, the clean-up costs are covered. |
5. Physical damage coverage applies to non-owned vehicles.
Physical damage on non-owned private passenger autos is covered if physical damage coverage applies to owned private passenger autos. One condition is that the most paid for loss to such vehicles that are trailers is $500.
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Example: Refer to the fifth example under GAPS IN COVERAGE above. Fred informs the family that his insurance covers the damage to his mother-in-law’s vehicle. The family thinks he is a great guy and he is invited to the Super Bowl party at his brother-in-law’s house for the very first time. |
This endorsement does not specifically address or mention uninsured or underinsured motorists coverage. However, because of the modification to the Who Is an Insured section of the Business Auto Coverage Form, when the named insured is an individual, uninsured and underinsured motorists endorsements also extend to family members.
Note: Each state's uninsured and underinsured motorists endorsement should be reviewed for the exact wording and coverage.
A complete list of all household members and their ages should be provided when this endorsement is used. Motor Vehicle Reports (MVRs) should be obtained for every licensed driver along with the individual's loss history.
Individual insureds must be aware of the exceptions and exclusions in this endorsement with respect to personal auto coverage. There are situations where this endorsement does not completely meet an individual insured's needs and a Personal Auto Policy is necessary. They can include situations where family members own private passenger autos that are not covered by the Business Auto Coverage Form, autos that may not be owned by the insured or a family member but are furnished to any family member for regular use, or any other auto that is not covered that may be used in a business.
While this endorsement is not subject to a premium charge, problems with any family member’s driving record could affect the overall credits applied. In addition, accidents on the personal side may adversely affect the premium charged and overall acceptability of the entire commercial exposure.