BUSINESS AUTO CLAIMS
THAT CAUSE PROBLEMS
Terry L. Tadlock, CIC, CPCU, CRIS
Independent Insurance Agents and
Brokers of South Carolina
INTRODUCTION
Each of the following are claim situations
that have occurred or versions of claims
we can see taking place based on decision
of similar type claims. Each of these
situations will be discussed in a claim
scenario and then discussed using the
appropriate policy language and
endorsements needed. Some can be fixed
others are gaps we may just need to make
the insured aware.
HOW TO DETERMINE COVERAGE
Is the auto involved a covered
auto
NO
O
YES
Is the person seeking coverage
an “insured”
NO
NO
COVERED
C
O
V
YES
Does any Liability Exclusion
apply
N
YES
E
R
A
G
E
Claim #1 – “Covered Auto” A
Deceptive Term”
Your insured owns Patterson Construction
Company. They are a large general contractor in
your city. The owner, John Patterson out of the
goodness of his heart bought his granddaughter,
Amanda, a new car. The car was titled in
Amanda’s name. John has called your agency
which insures all of Mr. Patterson’s personal and
business insurance. Mr. Patterson has requested
you add the new car to his business auto policy.
Amanda’s husband Mark works as a foreman for
Patterson Construction and will use the vehicle
occasionally.
Claim #1 – “Covered Auto” A
Deceptive Term”
You have written a Business Auto policy with Liability coverage using
Symbol 2, 8 and 9. The limit of liability is $1,000,000.
2
Owned "Autos" Only
Only those "autos" you own (and for Liability Coverage any "trailers" you
don't own while attached to power units you own). This includes those
"autos" you acquire ownership of after the policy begins.
8
Hired "Autos" Only
Only those "autos" you lease, hire, rent or borrow. This does not include
any "auto" you lease, hire, rent, or borrow from any of your "employees",
partners (if you are a partnership), members (if you are a limited liability
company) or members of their households.
9
Nonowned "Autos" Only
Only those "autos" you do not own, lease, hire, rent or borrow that are
used in connection with your business. This includes "autos" owned by
your "employees", partners (if you are a partnership), members (if you are
a limited liability company), or members of their households but only
while used in your business or your personal affairs.
Claim #1 – “Covered Auto” A
Deceptive Term”
Several months later Amanda is involved in an
accident with another vehicle injuring two
passengers seriously. Amanda is determined to be
at fault. The injuries of the other parties total
over 1 million dollars. Much to your surprise the
insurance company had denied coverage. The
carriers’ position is that Amanda is not an
“Insured” under Patterson Constructions
Business Auto policy and the vehicle involved in
the accident was not a covered “Auto” under
Patterson Constructions Business Auto Policy.
Claim #1 – “Covered Auto” A
Deceptive Term”
Question 1 – Do you agree with the
company’s position that Amanda is not an
“Insured” under the Business Auto policy?
Claim #1 – “Covered Auto” A
Deceptive Term”
Question 2 – Based on the Symbols language above,
do you agree that the vehicle is not a covered
“Auto?”
Question 3 – What effect will this denial have on the
Excess Liability policy for Patterson Construction?
Question 4 – Would your answer concerning this
claim change if the policy was written with Symbol 1?
1
Any "Auto"
Claim #1 – “Covered Auto” A
Deceptive Term”
Question 5 – Do you think this is a
common occurrence with business
owners today? How would the retail
agent or company know about this
exposure? Can you think of a solution to
this problem?
SOLUTIONS?
Claim #1 – “Covered Auto” A
Deceptive Term”
Review:
CA 99 16 Hired Autos Specified As
Covered Autos You Own
Will this endorsement help?
Claim #2 – Employee Hired Auto
“What Does It Really Do?”
Your insured manufactures and distributes machine
parts for a variety of farm machines. Your client has
several sales persons that travel in their respective
region of the country with the responsibility of selling
their products. You have written their commercial
package which includes a Business Auto policy
covering their fleet of vehicles. Also, on occasion it is
necessary that the sales person rent vehicles when
traveling to a destination too far to drive. Realizing
this exposure you have added Employee Hired Auto
CA 20 54. You have reassured your client that this
endorsement is needed to protect the company and
the employee when renting vehicles.
Claim #2 – Employee Hired Auto
“What Does It Really Do?”
One of the sales persons is on a business trip
with his supervisor seeing their largest customers.
The sales person has rented a car in their own
name for use on the trip. He will simply turn in
his expenses at the end of the trip for
reimbursement which is company policy. During
the trip to see several clients they have taken the
largest client to a nice dinner. After several drinks
and a lot of food the supervisor decides to drive
due to the amount of alcohol consumed by the
sales person. On the way back to the hotel the
supervisor has an at fault accident resulting in a
law suit against the company and the supervisor.
Claim #2 – Employee Hired Auto
“What Does It Really Do?”
When the claim is filed with the insurance carrier
they immediately issue a “Reservation of Rights”
letter stating they will continue to defend this
claim until further investigation is completed.
Three weeks later a formal denial of this claim is
issued.
Question 1 – Assuming the insured has symbols
2, 8 and 9 (same language as on the previous
page) on the declarations page would this be
covered claim?
Claim #2 – Employee Hired Auto
“What Does It Really Do?”
You have written a Business Auto policy with Liability coverage using
Symbol 2, 8 and 9. The limit of liability is $1,000,000.
2
Owned "Autos" Only
Only those "autos" you own (and for Liability Coverage any "trailers" you
don't own while attached to power units you own). This includes those
"autos" you acquire ownership of after the policy begins.
8
Hired "Autos" Only
Only those "autos" you lease, hire, rent or borrow. This does not include
any "auto" you lease, hire, rent, or borrow from any of your "employees",
partners (if you are a partnership), members (if you are a limited liability
company) or members of their households.
9
Nonowned "Autos" Only
Only those "autos" you do not own, lease, hire, rent or borrow that are
used in connection with your business. This includes "autos" owned by
your "employees", partners (if you are a partnership), members (if you are
a limited liability company), or members of their households but only
while used in your business or your personal affairs.
Claim #2 – Employee Hired Auto
“What Does It Really Do?”
Question 2 – Is the Employee Hired Auto CA
20 54 the correct endorsement to use in this
situation.
Question 3 – Do you agree with the adjuster or
have they made a terrible mistake?
Let’s take a closer look at this endorsement and
the potential problems that it may present.
Claim #2 – Employee Hired Auto
“What Does It Really Do?”
Review:
CA 20 54 Employee Hired Auto
Will this endorsement help?
Claim #3 – Employee Hired Auto CA
20 54 – “While We Are On A Roll”
Now that you have seen the form and made your
decision concerning the liability claim let’s go one
step further.
The rental car company has added to the
employee’s American Express Platinum card the
amount of the damages to the vehicle. The
amount added was $26,000, the car was totaled.
The desperate employee contacts his employer
to have the claim filed with their Business Auto
carrier (which by the way he is not very happy
with right now).
Claim #3 – Employee Hired Auto CA
20 54 – “While We Are On A Roll”
Question 1 - Should the business auto
carrier pay the $26,000 physical damage
claim? If so, what did you base your
answer on?
Claim #3 – Employee Hired Auto CA
20 54 – “While We Are On A Roll”
Let’s take the claim one step further. Assume no
claim occurred on the way home from the
restaurant. The trip was totally uneventful. But,
after making the final visit to clients the supervisor
tells the sales person that he is taking the rental car
to visit his family that is only an hour away. He will
return the car on Sunday and return to the office.
The employee that rented the vehicle thinks it is a
great idea. The supervisor drops his sales person
off at the airport and heads to his family’s home.
After a fantastic reunion the supervisor leaves for
the airport on Sunday and unfortunately is involved
in an accident and the rental car is destroyed.
Claim #3 – Employee Hired Auto CA
20 54 – “While We Are On A Roll”
Question 2 – Will the employers Business Auto
policy respond to this claim?
Question 3 – The rental car contract is in the name
of the sales person. When his American Express card
is hit with $26,000 what will happen?
Question 4 – Will either Personal Auto policy (sales
person or the supervisor) help in this situation?
Claim #3 – Employee Hired Auto
“What Does It Really Do?”
INSURING AGREEMENT (PERSONAL AUTO POLICY)
A.
We will pay damages for "bodily injury" or "property
damage" for which any "insured" becomes legally
responsible because of an auto accident. Damages
include prejudgment interest awarded against the
"insured". We will settle or defend, as we consider
appropriate, any claim or suit asking for these damages.
In addition to our limit of liability, we will pay all defense
costs we incur. Our duty to settle or defend ends when
our limit of liability for this coverage has been
exhausted by payment of judgments or settlements.
We have no duty to defend any suit or settle any claim
for "bodily injury“ or "property damage" not covered
under this policy.
Claim #3 – Employee Hired Auto
“What Does It Really Do?”
PART D - COVERAGE FOR DAMAGE TO YOUR AUTO
INSURING AGREEMENT
A. We will pay for direct and accidental loss to "your covered
auto" or any "non-owned auto", including their equipment,
minus any applicable deductible shown in the Declarations. If
loss to more than one "your covered auto" or "non-owned
auto" results from the same "collision", only the highest
applicable deductible will apply. We will pay for loss to "your
covered auto" caused by:
1. Other than "collision" only if the Declarations indicate that
Other Than Collision Coverage is provided for that auto.
2. "Collision" only if the Declarations indicate that Collision
Coverage is provided for that auto.
If there is a loss to a "non-owned auto", we will provide the
broadest coverage applicable to any "your covered auto" shown
in the Declarations.
Claim #4 – Employees As Insureds –
Not As Broad As You May Think
Coastal Realty is a commercial real estate company in
your city. Coastal hires new sales persons as
independent contractors, but after 1 year if goals are
met they are moved to full time employee status. You
have written a Business Owners Policy (BOP) for them
as well as a Business Auto Policy for a few vehicles they
allow key employees to use.
After meeting with the owner of Coastal you realize
that there are not enough fleet vehicles for all of the
sales persons and many of them use their own cars
when making sales visits with clients. You have
explained that these employees although they would be
covered under the Business Auto policy while driving a
company owned vehicle would not be covered while
driving their personal vehicles.
Claim #4 – Employees As Insureds –
Not As Broad As You May Think
1.
Who Is An Insured
The following are "insureds":
a.
You for any covered "auto".
b.
Anyone else while using with your
permission a covered "auto" you
own, hire or borrow except:
(2)
Your "employee" if the
covered "auto" is owned by
that "employee" or a member
of his or her household.
Claim #4 – Employees As Insureds –
Not As Broad As You May Think
The owner of Coastal finds this totally
unacceptable and wants you to make sure
all employees are covered under the
Business Auto policy. To satisfy this
request you add CA 99 33 Employees as
Insureds to the Business Auto policy and
assure the owner they will now be
covered.
Claim #4 – Employees As Insureds –
Not As Broad As You May Think
A claim is reported to your agency a few weeks
later. One of the employees while in their own
vehicle was involved in an accident and it appears
they were at fault. You report the claim to the
company assuring the owner that it will all be taken
care of. You are shocked when the denial of the
claim comes. The company reports that in their
investigation of the claim it was determined that
the employee was using their car, but the car was
not being used in business. The employee after a
sales call went to a nearby casino to satisfy their
addiction to gambling.
Claim #4 – Employees As Insureds –
Not As Broad As You May Think
Question 1 – Do you agree with the
adjuster’s assessment of the claim?
Question 2 – Isn’t the Employee As Insured
Endorsement designed for this exposure?
Question 3 – What do you tell the owner
when you find out the employee did not
have a Personal Auto policy because you
assured them they were now insureds under
the Business Auto policy?
Claim #4 – Employees As Insureds –
Not As Broad As You May Think
Review:
CA 99 33 Employee As Insureds
Will this endorsement help?
Claim #5 – BAP + DOC = PAP
I Am Confused
Jane Thompson is the managing partner of
Thompson & Shaw, Inc., which is a large
engineering firm that your agency insures.
Jane is a very detailed business person
and is very thorough before she makes a
business decision. She has called your
office with the following information:
Claim #5 – BAP + DOC = PAP
I Am Confused
Jane has been advised by her accountant and her
attorney to title her personally owned vehicles in the
name of the business and allow the business to pay
for all expenses associated. Jane is concerned that
her insurance may not adequately protect her. She
currently has a Business Auto policy (Symbol 1 –
Liability) for her office, which owns three other
vehicles. She also has a Personal Auto policy covering
the three vehicles she is considering moving to her
BAP. She has been advised by her accountant and her
attorney that this is a very common occurrence and
that her insurance agency should be able to handle
this request with no problems. The attorney even
explains to her that this is the way he handles his
insurance.
Claim #5 – BAP + DOC = PAP
I Am Confused
Questions you may want to ask:
1.
Who in your agency would handle a request of
this nature?
2.
Could she title the vehicles in her businesses
name but insure them under a PAP?
3.
If she decides to move her personally owned
vehicles to the businesses BAP, what would need
to be done?
Claim #5 – BAP + DOC = PAP
I Am Confused
Questions you may want to ask:
4. What impact, if any, would this have on her
Personal Umbrella policy?
5.
What advice, if any, would you give her before
making this change?
6.
Let’s take a look at a few endorsements that you
may want to consider.
Claim #5 – BAP + DOC = PAP
I Am Confused
Will any of these endorsements help?
CA 99 17 Individual Named Insured
CA 99 10 Drive Other Car Broadened
Coverage For Named Individuals
PP 03 06 Extended Non-Owned Coverage –
Vehicles Furnished Or Available For Regular
Use
BUSINESS AUTO CLAIMS
THAT CAUSE PROBLEMS
Terry L. Tadlock, CIC, CPCU, CRIS
Independent Insurance Agents and
Brokers of South Carolina