Property and Casualty Insurance · Casualty Insurance · 6 min read
Rented and Employee-Owned Business Autos
- Explain how the Businessowners Policy auto exclusion creates liability gaps for hired and nonowned vehicles.
- Distinguish between hired autos and nonowned autos under standard endorsement definitions.
- Describe the coverage scope, exclusions, and priority of coverage provided by the Hired Auto and Nonowned Auto Liability endorsement.
The Businessowners Policy Auto Exclusion and the Solution
An unendorsed standard Businessowners Policy generally excludes liability arising from the ownership, maintenance, use, or entrustment of an auto owned or operated by, or rented or loaned to, any insured. An unendorsed standard Businessowners Policy generally does not cover the business's auto liability, but its auto exclusion has limited exceptions, such as certain liability arising from parking a customer's auto on or next to the insured premises.
Under the legal doctrine of vicarious liability, an employer can be held legally responsible for negligent acts committed by employees within the course of employment. For example, an employer may be vicariously liable if an employee negligently causes an accident while running a work-related errand in a personal vehicle. Similarly, a business can be sued if an employee causes bodily injury or property damage while driving a rented car for company travel.
A business without a standalone Commercial Auto Policy can add auto liability protection by endorsement to its Businessowners Policy. The standard endorsement used to add this protection is the Hired Auto and Nonowned Auto Liability endorsement. This endorsement is commonly used when a business has a Businessowners Policy but no Commercial Auto Policy, though its availability is not defined solely by whether the business holds a Commercial Auto Policy. An insurer may allow the policyholder to purchase hired auto coverage, nonowned auto coverage, or both.
Common mistakes
- Assuming the endorsement covers physical damage to the rented vehicle or the employee's personal car; the endorsement only provides third-party liability coverage.
- Believing the endorsement protects an employee who is personally sued after an accident; the endorsement protects the named insured business, not the employee driving their own car.
- Classifying every auto borrowed from an employee as a hired auto; the standard hired auto definition excludes autos borrowed from employees, but you must check the nonowned auto definition rather than assume coverage.
Key points
- An unendorsed standard Businessowners Policy excludes liability arising out of autos owned, operated, rented, or loaned to any insured.
- Under vicarious liability, an employer can be held legally responsible for employee negligence while driving personal or rented cars on company business.
- The Hired Auto and Nonowned Auto Liability endorsement adds third-party bodily injury and property damage liability coverage for the named insured business.
- Vehicles the named insured leases, rents, or borrows from commercial vendors are generally hired autos; autos owned by employees, partners, or LLC members and used in the business are generally nonowned autos if they meet the endorsement's definition.
- The endorsement provides no physical damage coverage for hired or nonowned vehicles and generally excludes bodily injury to an employee of the named insured arising out of and in the course of employment, subject to its terms.
- When an employee uses a personal car for business, the employee's personal auto policy is generally primary, and the business endorsement generally responds after primary insurance subject to its other-insurance terms.
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