Irene Morrill, CPCU, CIC, ARM, CRM, CRIS, LIA, CPIW Vice President of Technical Affairs

Transcription

1 TECH TALK Commercial Risks and Auto Non-Ownership Issues Irene Morrill, CPCU, CIC, ARM, CRM, CRIS, LIA, CPIW Vice President of Technical Affairs March 2016 Happy daylight savings time and Spring! We all know that auto non-ownership coverage for a business is vital, but just how does it work? This particular issue is sort of a follow-up to the February Tech Talk about delivery in the MAP. So some kid was using his parent s vehicle (private passenger auto) to deliver pizza as a part-time job. This kid had an at- fault accident while using the parent s car to deliver pizza. The MA auto carrier on the parent s vehicle denied the liability claim due to the business delivery exclusion hmmmm Last month we discussed the potential problem with the grammatical structure in the MAP Part 4 and 5 business exclusion. Some companies are disregarding the AIB original filing memorandum and stating that the restriction on delivery applies to private passenger autos as well as pickups and vans. The agent who insured the pizza joint submitted the claim to the auto-non-ownership carrier, and guess what that carrier denied the claim stating that auto non-ownership coverage is excess. Well, now we have a pickle. Is HNO (hired auto/auto non-ownership) coverage just excess and won t drop down? I can only speak to the BAP language and the ISO BOP HNO endorsement, so let s look. Is commercial auto non-ownership coverage truly excess in Massachusetts? First we have to look at the MAP language for BI and PD which applied to the vehicle being driven on behalf of the employer. MAP coverage for the vehicle in question: Part 4 insuring agreement states -- Part 4. Under this Part, we will pay damages to someone else whose auto Damage to or other property is damaged in an accident. The damages we will Someone Else s pay are the amounts that person is legally entitled to collect for Property property damage through a court judgment or settlement. We will pay only if you or a household member is legally responsible for the accident. We will also pay if someone else using your auto with your consent is legally responsible for the accident. Massachusetts Association of Insurance Agents 91 Cedar Street - Milford, MA TECH Hotline * * * (FAX)

2 2 Part 5 insuring agreement states: Part 5. Under this Part, we will pay damages to people injured or killed in Optional Bodily accidents if you or a household member is legally responsible for Injury to Others the accident. We will also pay damages if someone else using your auto with your consent is legally responsible for the accident. March 2015 The MAP covers You and Household Members when you drive vehicles you don t own because it covers if you are legally responsible. You and household members can be legally responsible using a non-owned auto. See purple language. The MAP only covers someone else if they are USING your auto. Is Domino s really using your auto when your son is driving it when delivering pizza for Domino s? PAP insured language for liability The National PAP language is different and actually grants insured status under liability to someone legally responsible for the actions of your auto, in addition to you and household members using owned and non-owned autos and someone using your auto: 3. For your covered auto, any person or organization but only with respect to legal responsibility for acts or omissions of a person for whom coverage is afforded under this Part. This definition would allow insured status to another entity that is not even IN your auto as long as the vehicle is being used for the benefit of that entity and no policy exclusion applies. So, if the MAP does NOT provide insured status for the entity when a vehicle that is insured under the MAP is used on its behalf where does that entity find coverage? HMMMMMMMMMM BAP Language Can coverage for the entity such as Domino s be obtained through the BAP? Yes. First the BAP liability language states: SECTION II LIABILITY COVERAGE A. Coverage We will pay all sums an insured legally must pay as damages because of bodily injury or property damage to which this insurance applies, caused by an accident and resulting from the ownership, maintenance or use of a covered auto. So, if the entity has a BAP in its name then it is an insured. Next we need to create covered auto status by picking some symbols to activate liability coverage. For vehicles used on the named insured s behalf we generally use symbol 9: 9 Non-owned 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 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. So if symbol 9 activates liability on the BAP, then when a vehicle is being used on the behalf of the named insured ( you ), then the named insured has liability coverage. Will the employee who is

3 March 2016 using his/her or parent s vehicle on behalf of you the named insured be an insured? NOT without an endorsement added to the BAP. 3 The definition of insured under BAP liability states: 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: The employee is not a you and is not using a vehicle that the you owns or that the you hired or borrowed and, therefore, is NOT an insured. To make the employee an insured one needs an endorsement such as CA Employees as Insured. EMPLOYEES AS INSUREDS This endorsement modifies insurance provided under the following: BUSINESS AUTO COVERAGE FORM MOTOR CARRIER COVERAGE FORM TRUCKERS COVERAGE FORM With respect to coverage provided by this endorsement, the provisions of the Coverage Form apply unless modified by the endorsement. The following is added to the Section II Liability Coverage, Paragraph A.1. Who Is An Insured Provision: Any employee of yours is an insured while using a covered auto you don t own, hire or borrow in your business or your personal affairs. So why did that HNOA carrier deny the claim for the insured employer? If the coverage was under the BOP endorsement, would there be a difference? BP Hired Auto and Non-Owned Auto Liability Endorsement Endorsement states: 2. Non-Owned Auto Liability The insurance provided under Paragraph A.1. Business Liability in Section II Liability, applies to bodily injury or property damage arising out of the use of any non-owned auto in your business by any person. And the BP endorsement definition of insured states: 2. Paragraph C. Who Is An Insured in Section II Liability, is replaced by the following: 1. Each of the following is an insured under this endorsement to the extent set forth below: a. You; b. Any other person using a hired auto with your permission; c. For a non-owned auto : (1) Any partner or executive officer of yours; or (2) Any employee of yours but only while such non-owned auto is being used in your business; and

4 4 d. Any other person or organization, but only for their liability because of acts or omissions of an insured under a., b. or c. above. March 2016 No matter what the version of the BP Hired Auto and Non-owned Auto Liability endorsement, the you is always an insured. BUT, employees only received insured status with the 2006 and later edition of the endorsement. So, either way, the YOU should be covered by either the BAP with proper symbol and/or the BOP Hired Auto and Non-owned Auto Liability endorsement. Why did the company deny the claim? How does the other insurance provision read? The BAP Other Insurance condition states: 5. Other Insurance a. For any covered auto you own, this coverage form provides primary insurance. For any covered auto you don t own, the insurance provided by this coverage form is excess over any other collectible insurance. The BAP states that your (the named insured s) policy is excess when it responds to an auto you do not own. The BAP also states that it is excess if the other insurance is collectible. If there is insurance applicable to the negligent vehicle, then the non-owned auto coverage found in the BAP would pay after or be excess. The issue is for WHOM? Definitely the named insured of the BAP, but what about the employee who caused this incident that activated the employer s non-owned auto coverage. Is the employee an insured when using a vehicle that the named insured does not own and did not hire or borrow? No, not without the Employees as Insureds endorsement CA Is the BAP always just excess? What if there was coverage on the negligent vehicle, but the company denied the claim? If that other insurance is not collectible, then this BAP coverage appears to become the ONLY coverage. And, technically, since the BAP named insured employer is NOT EVER an insured under the MAP covering the at-fault employee, isn t the BAP the only coverage for the employer anyway???? What about Hired Auto Non-owned Auto Liability through the BOP BP 04 04? Well, it depends. Prior to 2010 the endorsement did NOT mention on what basis it applied. One had to refer to the BOP form (2006 and earlier), and the BOP Other Conditions really doesn t address hired auto and auto-non-ownership coverage BOP Section III Common Policy Conditions 2. Business Liability Coverage is excess over: a. Any other insurance that insures for direct physical loss or damage; or b. Any other primary insurance available to you covering liability for damages arising out of the premises or operations for which you have been added as an additional insured by attachment of an endorsement. Hmmm so this is confusing. The BOP should be primary UNLESS the excess language works. Since the BOP you named insured is NOT an additional insured on the employee s MAP, then the coverage should be primary for you.

5 March 2016 The 2010 BOP BP Hired Auto and Non-Owned Auto Liability now adds another insurance provision: C. For the purposes of this endorsement only, Paragraph H. Other Insurance in Section III Common Policy Conditions is replaced by the following: 5 This insurance is excess over any primary insurance covering the hired auto or non-owned auto Easy example first. If there is primary coverage on that non-owned auto, then this endorsement provides excess coverage. But, what if there is no primary coverage? Then this endorsement should provide coverage, and it has to be primary since there is no other primary insurance covering to activate the excess language. What if the primary coverage denies the claim? Will this endorsement still be excess or does it provide primary coverage because there is no primary insurance covering? If insurance was purchased and there is no primary coverage, then it certainly seems fair that the coverage should be there for the insureds. I m sure your clients expect to have protection if they bought a policy or endorsement. What if it is a company specific Hired Auto and Non-Owned Auto endorsement? Then you are on your own. You should review the endorsement/policy to state on what basis coverage applies, and does it apply at all? Just how much protection have you provided your business client??? Aren t words fun? Good luck. As usual, if I can be of service to you, please call me, Irene Morrill, Vice President of Technical Affairs at or BETTER YET me at imorrill@massagent.com. This article has been developed expressly for the members of MAIA. Reprint by other than members without the express permission of the author is not permitted.