Is it just business when it should be personal?
How best to coordinate personal and commercial lines
Alvin is president of Adams Homes, Inc., a family-owned business. The business owns five pickup trucks and Alvin owns three private passenger autos. Alvin wants to insure his three personal cars under the company’s business auto policy.
Betty is president of Beautiful Furniture, Inc. Beautiful Furniture owns three vans and four private passenger autos, which are insured under a business auto policy. The four autos are used by Betty, her husband and their two children.
Why does Alvin want his personally owned autos insured under the company’s business auto policy? Why does Betty purchase her family autos through the company? Number one, taxes. And, number two, they might be trying to “hide” their teenage drivers.
Who are the insureds?
Will Alvin and Betty and their family members be insureds under the business auto policy while driving any of the autos scheduled in the policy?
Who is an insured under the business auto policy, in addition to the named insured, includes: “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.”
What does that mean for Alvin?
- Alvin is not covered for his ownership or use of his personally-owned autos, and he and his family members have no coverage when they rent or borrow cars.
- Alvin should be named in addition to Adams Homes Inc. as a named insured in the Declarations of the Business Auto Policy. Alvin is now an insured for any covered auto. If Symbol 1, then any auto; if Symbols 2, 8 and 9, then all owned, hired and non-owned autos.
- Alvin has coverage for the autos he owns, hires or borrows. Certainly Alvin’s family members will be considered permissive users of the owned autos. But what if they rent or borrow autos? They are not covered. Therefore, the Individual Named Insured endorsement (CA 99 17) must be added. This endorsement adds family members (related to the named insured by blood, marriage or adoption) as insureds for the use of any auto not owned by them or furnished or available for their regular use.
What about Betty?
- Betty and her family members are covered driving the autos owned by her company. They are permissive users. However, they are not covered for any autos they may rent or borrow. The Business Auto Policy states that the named insured must own, hire or borrow the covered auto.
- In order to cover Betty and her family members for autos they may hire or borrow, add the Drive Other Car (DOC) endorsement (CA 99 10). Each individual must be scheduled. The spouse of any scheduled individual is also an insured. However, name Betty’s husband on the same line with her. The DOC covers the spouse of the scheduled individual only “while a resident of the same household.”
- A common mistake when writing a DOC is providing liability coverage only. Will Betty and her family know they don’t have Medical Payments, UM/UIM and Physical Damage when they rent an auto? All of these coverages can be provided under the DOC.
- Does Alvin’s Individual Named Insured endorsement cover family members who are not scheduled? Yes. Are the Named Insured’s children covered driving any auto under a Personal Auto Policy? Yes — but not under the DOC. They must be scheduled. NOTE—the Business Auto Policy excludes fellow employee claims. The Individual Named Insured endorsement deletes this exclusion. The DOC does not. The Personal Auto Policy covers the Named Insured, the spouse and all family members for the use of any auto. The Personal Auto Policy does not exclude fellow employee claims.
Bottom line—individuals are better off with a Personal Auto Policy rather than trying to play games with the Business Auto Policy.
Jerry Milton, CIC, contributed this resource. The legal profession recognizes him as an expert on insurance coverages. He is also an education consultant for IA&B, working with CISR, CIC and continuing education programs.