Company Cars and the ISO Personal Auto Policy

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Company cars present a serious coverage gap under the Personal Auto Policy, an exposure that exists for a very high percentage of your insureds. Fortunately, in most cases, this exposure can be treated. This article explores two options for addressing this issue.

Here’s a question our “Ask an Expert” service received recently from a California agent:

Question

“My client is supplied a car by his employer and is permitted to use it for both work and pleasure. The employer told him he needs his own insurance to cover him when he uses the car off duty. How can I do this under a personal auto policy?”

Answer

Let’s answer this question one coverage at a time.

Liability. Under the 2005 personal auto policy (PAP), an exclusion states there is no coverage for the use of an auto furnished or available for your regular use. It sounds like this person fits this exact situation, thus, when he drives the employer-owned auto (for business or personal use) his PAP does not protect him. The same can be said for his spouse or other family members if they drive the auto. Normally the policy written in the name of the business would protect the employee but, in this case, the employer told the employee he was not protected off duty.

This being the case, the employee faces a huge gap in coverage. The solution is easy though: simply add Extended Non-Owned Coverage endorsement (PP 03 06 01 05) to the policy and the exclusion disappears.

Medical Payments. It’s exactly the same as liability, with the same exclusion and same solution — add the PP 03 06.

PIP. There are no coverage issues of concern in most PIP states (but be sure to check your state’s no-fault law), but this response is based on the no-fault law in Florida. The employee and family members get their own PIP while occupying the employer-owned auto anywhere in Florida. Of course if workers compensation applies it pays first, otherwise PIP is primary. Outside of Florida PIP does not apply.

Uninsured Motorists. As in PIP there are no coverage issues (though, again, be sure to check your state’s UM law). The employee and his family members can get their own UM in the employer-owned auto when using it for business or personal purposes, anywhere in the policy territory, whether the UM is stacked or non-stacked (stacking is not permitted in all states).

Physical Damage. Here’s the problem coverage. The same “furnished or available for your regular use” exclusion pops up under physical damage and the bad news is there is no endorsement to fix the gap. This means if your client takes the car to the store at night to pick up milk and wrecks the car, his PAP does not pay for the damage…coverage lies solely with the business auto policy (BAP), which opens up a can of worms if the BAP carrier seeks a subrogation claim against the employee.

So, there you go. This situation is very common today. Whenever an employee is furnished an auto for his regular use (or even has one available for his regular use), thePP 03 06fixes two of the three gaps in coverage.

BUT…what if your PAP carrier won’t add the Extended Non-Owned (PP 03 06) endorsement to your personal auto policy? If your company won’t (or can’t) add the PP 03 06 endorsement (or a similar one if they are a non-ISO company), you have a huge coverage gap. If this is the case, the best option (and maybe only option) is to write the client a “Named Non-Owner policy” to fill the gap. In general that policy provides options to include liability, medical payments, and uninsured motorist coverage, but not PIP or physical damage coverage. It, in effect, accomplishes about the same thing as the PP 03 06 Extended Non-Owned endorsement does, but a price that’s much more expensive.

Whereas the “Extended Non-Owned” is going to cost less that $100 in most cases, the “Named Non-Owner” is going to run into the hundreds of dollars most likely…typically about 50% of the “owned” premium. With the Named Non-Owner policy you must be careful in that every person to be insured must be named. That means, for example, that you’ll have to name dad, mom, and each kid to be covered. It’s not enough to name just one parent. For such a Named Non-Owner policy you may be be looking at a specialty auto insurance market or the residual market in many cases. Again, note that the 2005 PAP allows for covering the entire family by checking a box. The insured must also indicate on the endorsement if coverage is desired for a vehicle furnished or available for regular use.

So there you have it. First try the Extended Non-Owned route and, if you hit a brick wall, fall back to the Named Non-Owner route. Either way, fix that gap in coverage!

Additional Reading:
For another scenario, check out “When Company Cars ARE Covered.”

 

Copyright 1999-2007 by the Florida Association of Insurance Agents.
Used with permission.