Owner, Spouse, Child- Not Covered by Insurance but the Business Is? Critical Gaps with Individually Owned Cars Insured on Business Auto Policy
PERSONAL CAR INSURED BY THE COMPANY? THE DIFFICULT CHALLENGES OF OBTAINING INDIVIDUAL(S) COVERAGE AS AN INSURED(S) UNDER BUSINESS AUTO POLICIES
Many owners of corporate entities choose to place their personally owned/leased vehicles on the company auto policy. The rationale and benefits of insuring the personal vehicles on the company policy are plenty; from some tax advantages, to higher liability protection limits and lower premiums than an individual auto policy.
Business Auto Policies, particularly the liability portions of the policy, contractually provide liability protection to the corporate entity (the “You” in the contract) for liability arising out of the business use of those autos by insureds under the Business Auto policies.
What many business owners and the agencies providing the policy fail to understand is that, even if a privately owned automobile is listed in the schedule of autos in the Business Auto Policy, the owners of the vehicles are likely not considered “insureds” while driving that vehicle, even if they are driving for business purposes.
COURT CASE: Important Precedent Set in Favor of Insurance Companies
Selective Insurance Company v. Terry and Davidson: Jan Terry was injured in a motor vehicle accident with Jason Davidson. Jason’s wife, Amanda, was the granddaughter of James Patterson, who owned and operated Patterson Paving. Patterson Paving had a Business Auto Policy which contained a “Schedule of Covered Autos You Own.” The auto that Jason Davidson was driving at the time of the accident with Jan Terry was titled in Amanda’s name, and listed on the Schedule of Covered Autos You Own in Patterson Paving’s Business Auto Policy. The United States Court of Appeals, applying North Carolina law, held that, since Amanda Davidson “owned” the auto on the Schedule on Patterson Paving’s Business Auto Policy and not Patterson Paving, Selective Insurance was not required to provide coverage for Jason’s liability arising out of the use of this auto during the accident with Terry. Link to actual decision: http://www.ca4.uscourts.gov/Opinions/Unpublished/042028.U.pdf
In short, even if you scheduled a privately owned automobile on a Business Auto Policy, that does not mean that everyone driving that automobile will be protected by a company’s Business Auto Policy. In this Selective case, Jason and Amanda were “uninsured” for the liability of the accident. They had to pay out of their own assets/bank account.
Solutions to the Problem:
There are only a few possible insurance endorsements that can help fix the “gap” in the individual liability. In some circumstances, there is not a “fix” and the auto needs to be insured personally.
Talk with your agent about the various endorsements to provide the proper coverage to the individuals driving the vehicles, not just covering the company and the vehicle. BEWARE: There are some endorsements that are misleading by title. The title (Lessor as Additional Insured) appears to add back the coverage, but within the definitions exclude coverage for the exact scenario we are attempting to fix.
by Brian Pilarski