Insuring Non-Owned Autos Modern society is dependent on cars, and few businesses can function without them. Yet, many small businesses do not own any vehicles.
Instead, they rely on autos that belong to company principals, employees, or other parties. Vehicles that your company does not own but that it uses for business purposes are called non-owned autos. Non-owned autos may be insured for liability under a commercial auto policy.
What are non-owned autos?
Under the standard commercial auto policy, non-owned autos are defined in terms of what they are not. Non-owned autos means “autos you do not own, lease, hire, rent or borrow that are used in connection with your business”. Autos that you lease, hire, rent, or borrow are considered hired autos. Thus, non-owned autos are vehicles other than those you (the named insured) own or hire.
Non-owned autos include vehicles used in your business that are owned by your employees, partners, members (if you are a limited liability company) or members of their households.
Some businesses make extensive use of vehicles owned by employees. For instance, a company may employ a large sales force and require all sales employees to drive their own cars when making sales calls on clients. Other businesses rely on employee-owned vehicles only occasionally. No matter how often your company uses them, it is important to make sure that non-owned autos are covered under your commercial auto policy.
The term non-owned auto” may include a vehicle owned by virtually anyone as long as it is used in your business. For example,
- Volunteers for your charitable organisation use their personal automobiles to ferry elderly people from their homes to doctor appointments.
- Members of your company, a professional association, use their personal automobiles to conduct association business.
- Your employee drives to work using his neighbor’s car because the employee’s car is in the shop. Later that day, you send the employee on a business-related errand (buying stamps at the post office)
and the employee complies, using the vehicle he borrowed from his neighbour. - A customer of yours will soon arrive at the airport, but neither you nor your business partner are available to meet him; thus,
your partner asks his friend (Bill) to pick up the customer using Bill’s vehicle.
None of the autos described above are owned or hired by the business.
Because they are used on behalf of the business, they are all considered non-owned autos.
Vicarious Liability
How could you be liable for accidents involving autos that don’t belong to you? The answer has to do with vicarious liability. As an employer, you may be held vicariously liable for negligent acts committed by your employees. This liability extends to auto accidents your employees inadvertently cause while performing their jobs. You may also be held liable for accidents caused by people who are not employees
(such as the partner’s friend in the above example), if they are driving a non-owned vehicle for the benefit of your business.
Who is insured?
You may elect to insure non-owned autos for liability under your commercial auto policy. If you have purchased this coverage, only you (the named insured) are covered for claims arising out of auto accidents involving non-owned autos. No one else is covered. This means that your employees are not insured under your policy while driving their personal autos on your company’s behalf.
For example, suppose that Barbara, an employee of yours, is running an errand for you using her personal automobile. Barbara has completed the task and is on her way back to your office when she runs into a stop sign.
Barbara broadsides another car, injuring its driver. The driver later sues both Barbara and your company. Assuming your commercial auto policy covers non-owned autos, the claim against your company should becovered. However, Barbara will have to rely on her own personal auto policy to cover the claim against her.
Employees as Insureds
You can elect to cover your employees under your policy as insured for their use of non-owned autos. An endorsement called “Employees asInsureds” is available for this purpose. The endorsement will cover employees of yours for claims arising out of accidents that occur while employees are driving their personal vehicles on company business.
Unfortunately, the endorsement applies as excess coverage over the employee’s personal auto policy. Why isn’t the endorsement primary?
The standard commercial auto policy states that it provides excess liability coverage for any automobile you don’t own. The endorsement does not affect this provision, so the coverage it affords applies on an excess basis.