What is a “Non-Owned” Automobile and Why Should You Care?
Let’s start with a couple of examples:
- Your employee is “off the clock” for the day driving his own vehicle, but he decides to pick up supplies for the next day’s job using his own vehicle. Along the way, he crosses the center line, striking an oncoming vehicle and severely injuring the other driver. Your company may be liable for any damages above the employee’s personal automobile insurance limit if the employee’s actions at that time were considered to be in the course and scope of employment.
- One of your project managers heads out for lunch driving his own vehicle and decides to make a quick stop at the bank to make a business deposit. Along the way, he strikes another vehicle backing out of a driveway, and three occupants of that vehicle suffer severe back and neck injuries. Combined medical and indemnity costs will be in excess of $100,000. His personal automobile policy’s liability limit is only $10,000. Again, your company may be liable for the injuries and damages.
When employees are involved in accidents while driving their own vehicle on company business, your company’s automobile policy can be triggered to pay the damages if a claim or lawsuit is filed. In the insurance world, this exposure is called “Non-owned Auto” liability, and it can contribute to large losses and increased expenses for your business.
The meaning of the term is exactly what it sounds like. Under ISO’s business automobile policy, “non-owned auto” refers to automobiles that you or your company do not own, lease, hire, rent, or borrow, and that are used in connection with your business. The automobiles that most commonly fall into this category are employee-owned vehicles, driven by the employee on company business. Any time an employee uses their personal vehicle to conduct a business activity, your company may be liable. As is evident in the examples above, many businesses may have some degree of non-owned automobile exposure.
Cover Non-Owned Autos in Your Business Policy
Arranging liability coverage for non-owned automobiles is simple under ISO’s Business Auto Coverage Form, the most commonly used form in the industry. It is simply a matter of making sure the appropriate covered auto designation symbol is used to indicate liability coverage on the declaration page. Using either the number ‘1’ or the number ‘9’ as a designation symbol provides coverage for non-owned autos. Your insurance carrier will want to know how many of your employees use their vehicles on company business to develop a premium charge, which is often relatively inexpensive. Check with your insurance agent to be sure your company’s coverage is properly arranged.
What About the Employee’s Own Insurance?
If your employee has their own personal automobile insurance policy, it will generally respond to any claims or lawsuits as the primary coverage, and your company’s automobile policy will probably be excess above the limits of your employee’s personal auto policy. As a result, your company’s exposure to loss increases if your employees carry inadequate auto liability limits on their personal policies. Many employees elect to carry the state required minimum liability limit, which can be as low as $10,000 in some states. As illustrated in the second example above, this can expose your company to costly “non-owned auto” liability claims and lawsuits. Another consideration is that personal auto policies will usually exclude coverage for business delivery, which could potentially put your company’s auto policy on the hook for the entire claim!
Why Worry if I’m Insured?
It is true that many firms purchase insurance coverage for non-owned auto liability exposures, just as they do for property, workers’ compensation, and general liability exposures. However, forward-thinking businesses also use simple risk management procedures to control and reduce their loss exposures.
For instance, you probably mandate the use of personal protective equipment to prevent and reduce employee injuries, right? Why not take the same proactive attitude towards controlling your company’s non-owned auto exposure as well? Ultimately, the cost of non-owned automobile accidents comes back to your company in the form of higher business auto insurance premiums.
Reduce the Potential for Non-Owned Auto Losses
The most effective way to reduce the potential for non-owned auto losses is to simply establish and enforce a policy that employees do not operate their own vehicles for business purposes. However, since this approach might not always be practical, it pays to implement additional measures for controlling your company’s exposure to non-owned auto losses:
- First, don’t let employees drive their own cars for business if you are not comfortable allowing them to drive a company vehicle. You should be reviewing the motor vehicle records (MVR) of employees who use their own vehicles for business purposes, just as you review the MVR’s of employees assigned to drive company-owned vehicles. If you knowingly allow a driver with a bad driving record to drive his or her own car for company business and a serious accident occurs, charges may be filed against your company. In a worst-case scenario, your company could be liable and held responsible for all damages, including punitive damages which may not be insurable.
- Maintain a copy of the employee’s valid driver’s license in their driver file.
- Recommend that employees carry adequate auto liability limits, such as $100,000 per person and $300,000 per accident, or a combined single limit of $300,000 on their personal automobile policies. Always consult with your insurance agent and legal counsel, who can advise you of what limits you should require of employees.
- Require that a Certificate of Insurance or a photocopy of the declaration page of the employee’s personal automobile insurance policy be kept in the employee’s driver file showing that these limits are in place.
- Be sure to include these employees in any driver training and safety meetings.
- Require that any operation of employee-owned vehicles for company business follow the same guidelines for driving company-owned vehicles. You should require that the vehicles be regularly inspected to assure road-readiness.
Article by CNA.