Is your next business errand putting your company assets at risk?
Picture this: Before a business meeting, you ask your employee to run to the store and purchase lunches for the attendees. Shortly after, the phone rings, informing you that the employee was involved in a car crash. The other driver is injured and transported to the hospital, and both vehicles need to be repaired. Your employee is in good health.
Like most business owners, your concern is first for the wellbeing of the drivers and then reporting the crash to your insurance company. You investigate and discover that your employee was driving their personal vehicle, as no company-owned vehicle was available for use.
Sound familiar? Many businesses may assume they do not have a fleet risk if employees use their own vehicles for business purposes. Operating under this assumption can have consequences for your business. The business owner has transferred the auto liability risk onto their employees, often unwittingly.
Hired and Non-Owned Auto (HNOA) coverage typically covers liability claims for the scenario crash discussed.2 It is unlikely that it will cover the employee’s vehicle or any damage to materials carried within the vehicle. Also excluded is the employee’s commute and running personal errands during business hours. An employee’s personal auto policy will cover the employee’s vehicle damage. HNOA coverage is typically included within your commercial auto policy to provide protection for your business.
- Non-owned autos are typically personal vehicles owned by your employees and used for business purposes, whether reimbursed for that driving or not.
- Hired autos are those vehicles that your business hires, leases, or rents for business purposes./span>
Vehicles leased for 6 months or longer are typically required to be listed as a scheduled vehicle on your business auto policy.
Consequences
Now let’s assume your employee has the state minimum coverage for auto insurance; this policy can have limits as low as $5,000. The claim from the crash scenario involves $80,000 in bodily injury to the other driver and full replacement of their high-end SUV of $65,000. As you can see, the employee’s auto limits are much lower than the total claim cost, and this doesn’t even address repairs to the employee’s vehicle.
The employee’s insurance is the primary policy, while your commercial auto policy for your vehicles becomes the secondary coverage. Often the other driver’s insurance company will expect your commercial auto policy to make up the differences between the employee’s state minimums and the total costs for bodily injury and vehicle replacement. You can be financially responsible to make up that difference via your business auto policy.
Controls to protect your business
For any business-use driver, verify their driver’s license is valid and their Motor Vehicle Record (MVR) does not have an excessive number of violations. Drivers should inform you of their past vehicle crashes. Consider the following MVR criteria:
- Use vendors who deliver to your business and limit the errands.
- Provide a company vehicle for business errands.
- Insure this vehicle through your commercial auto policy. Keep it properly maintained, inspected, and correct any vehicle recalls.
- Consider other means for employees to get to off-site meetings or conferences.
If you permit your employees to use personal vehicles for business use:
- Discuss the risk with your insurance broker and underwriter.
- Designate responsible individuals as authorized driving employees.
- Require that your employees hold an acceptable level of auto liability insurance and provide your business a policy declaration page listing those limits. Financial articles recommend limits of at least $100,000 per person and $300,000 per occurrence.
- Require that employees inform their auto insurance carrier that they use their personal vehicle for occasional business purposes. A business-use addendum might be required.
- Require that employees retain that auto coverage or inform management if the policy is changed or cancelled.
- Require employees to report motor vehicle violations, convictions, crashes, or related incidents.
- Consider a continuous MVR monitoring vendor to maintain vigilance on driver records.
- Limit the vehicle style permitted for business purposes. No motorcycles or non-street legal vehicles.
While we make sure the drivers are back in good health, the overall goal is to confirm that the crash claim stays with the primary insurance bought by the employee, and that the personal auto policy has higher limits to pay for higher-severity claims. By following the controls listed above, pass-through claims could be limited and you can protect your commercial auto policy.
1. Bureau of Labor Statistics. (2019). Fatal occupational injuries resulting from transportation incidents and homicides, all United States, 2018. Retrieved from https://www.bls.gov/
2. Insurance Business America. (April 2019). Hired and non-owned auto insurance – everything you need to know. Retrieved from https://www.insurancebusinessmag.com/
Source: Liberty Mutual Insurance