Small Business Auto Coverage Guide

David D. Thamann

• Publisher: The National Underwriter Company
• Year: 2017
• Print ISBN: 9781945424281
• eBook ISBN: 9781945424298
• Topic: Business
• Subtopic: Insurance
• Index: Business

Commercial auto policies can provide insurance coverage for risk exposures that may be beyond the scope of a personal auto policy. This easy-to-understand coverage guide supplies small businesses with much-needed information pertaining to small business auto risks and the use of insurance policies as one way to manage those risks. Written specifically with small businesses in mind, it provides: • analyses of the standard business auto policy and the auto dealers coverage form (both products issued by the Insurance Services Office) • endorsements used with the policies • discussions of coverage issues Additionally, the book contains analysis of both the business auto policy and the auto dealers coverage form, as well as: • endorsements to the forms • coverage issues pertaining to the forms • court cases relevant to the coverages offered by both forms Moreover, business auto policy and the auto dealers coverage forms have been fully reproduced in this book. Chapter by chapter, this plain-English guide dedicates its coverage to providing small businesses with options for having their auto exposures covered.

Chapter 1

The Business Auto Coverage Form

The Insurance Services Office (ISO) now files on behalf of its member companies standardized policies for insuring commercial automobiles that small businesses can use to their insurance and risk management benefit: the business auto coverage form and the auto dealers coverage form. These coverage forms are worthy of an in-depth discussion and the scope of this section of the coverage guide is on the October 2013 edition of the business auto policy (or the BAP), CA 00 01.

CA 00 01 is the most widely used policy in the commercial auto program of ISO. (Note: the ISO BAP is the standard business auto policy. Individual insurance companies may use the ISO form as-is, use the ISO form and tweak it to fit the individual company underwriting and marketing plans of that company, or use the individual company's own policy.) Like other ISO coverage forms, the BAP is combined with a declarations form, common policy conditions, and any applicable endorsements to be used as either a monoline policy or as one coverage part in a multiline, or package, policy. Private passenger type autos, as well as other types of autos, owned by corporations, partnerships, unincorporated associations, individuals, or government agencies can be insured under CA 00 01. Nonowned and hired autos can also be insured under the BAP.

ISO Rules

The general rules governing the writing of coverage under the business auto coverage form are found in Division One of the Commercial Lines Manual (CLM). A review of some of the basic rules is helpful in discussing and analyzing CA 00 01.

Policies may be written for a specific term of one, two, or three years, or on a continuous basis. A policy may be renewed by renewal certificates which must conform in every respect to current rules, rates, and forms at the time of renewal. Premiums for the policies, whether new or renewal, are computed at the rates in effect at the time of the policy inception or policy renewal.

In addition to the conditions found on the business auto coverage form itself, common policy conditions form IL 00 17 is also used with the BAP. IL 00 17 contains six conditions that apply to the BAP: cancellation, changes, examination of the named insured's books and records, inspections and surveys, premiums, and transfer of rights and duties.

More than one interest may be named on the policy and rated as a single risk if one interest owns more than 50 percent of another. All the interests that are combined must be named on the policy.

Other rules applicable to the BAP may be noted throughout this book and are placed in relation to the coverage(s) being discussed.

The Declarations Form

The business auto declarations form, CA DS 03 10 13, is attached to the auto coverage form in order to publicize basic information about the insured, the type of coverage bought by the insured, endorsements attached to the BAP that modify coverage granted under CA 00 01, and premiums paid for the exposures insured.

Item one of the dec form lists the named insured, mailing address, and policy period. The type of business is also specified—corporation, partnership, limited liability company, individual, or other; this is relevant to the discussion of who is an insured under the BAP. The declarations form also provides a space to list the premium payable at the inception of the policy and whether the audit period (if applicable) is annually, semiannually, quarterly, or monthly. Any applicable endorsements are also listed in Item one.

Item two of the dec form is a schedule of coverages and covered autos. The policy provides only those coverages where an amount is shown in the premium column of item two. For example, if the insured wants liability coverage for his or her auto, a premium charge has to be shown on the dec form for that coverage; this also applies to physical damage coverage, medical payments, or any other relevant coverage. Item two also has a column for the insured to show a symbol for the covered autos. There are ten symbols to describe covered autos under CA 00 01, ranging from symbol 1 through symbol 9 and symbol 19 (these symbols will be discussed more fully in Chapter 2). For example, if the insured wants liability coverage for any auto, he or she puts the symbol “1” in the column next to the liability coverage; if the insured wants collision coverage for specifically described autos only, he or she puts the symbol “7” in the column next to the physical damage—collision coverage. Because coverage under CA 00 01 is for “covered autos,” the insured must enter the proper symbol on the declarations form to make sure that the proper auto is given the desired coverage.

Item three is a schedule of covered autos that the named insured owns. This schedule asks the insured to specifically describe the covered owned auto(s) as to year, model, body type, serial number, and vehicle identification number; list the original cost new of the auto(s); note the city and state where the covered auto is principally garaged; and classify the covered auto as to its use (service, retail, commercial), age group, and radius of operation. The classification information aids the insurer in the rating process for the covered autos. This item also offers a summary of the premiums, limits, and deductibles for the owned covered autos, on an auto by auto, coverage by coverage basis.

Item four is a schedule of hired or borrowed covered auto coverage and premiums. The schedule shows if the insured has liability and physical damage coverages for hired or borrowed autos, the estimated annual cost of the hire, and the premium for the coverages. The cost of hire rating basis has a definition based on whether the covered auto is used in the named insured's motor carrier operations.

Item five is the schedule for nonownership covered auto liability coverage. The number of employees, partners, or volunteers (for social service agency insureds) is used in item five for the rating basis.

Item six is the schedule for gross receipts or mileage used for rating purposes for liability coverage for public autos and leasing or rental concerns. If the insured is in the business of transporting passengers, mail, or merchandise and uses CA 00 01 for insurance coverages, the gross receipts (per $100) and mileage (per mile) listed in item six offer the rating bases for the charged premium. The same is true if the insured rents or leases autos to others.

Chapter 2

Covered Auto Designations

Coverage Symbols

The business auto coverage form, CA 00 01, uses ten symbols to describe covered autos. These coverage symbols are used in item two of the declarations to signal which autos qualify as covered autos for each coverage being purchased by the insured. Unless there is a coverage symbol shown beside the coverage name, the coverage will not apply. And, unless the correct coverage symbol is shown, the insured may be without coverage that it intended to have.

As an example, see Schuster v. Occidental Fire and Casualty Company of North America, 2015 IL. App (1^st) 140718. In that case, the administrator of the estate of a truck driver who was killed when his truck tipped brought a declaratory judgment action against the commercial auto insurer for the driver’s employer after the estate had been assigned the employer’s insurance rights as part of the settlement agreement in a negligence action. The Appellate Court of Illinois, First Division, said that the policy only covered vehicles owned by the named insured and so, did not cover the leased truck in which the driver was killed. The court noted that the commercial auto liability policy covered only vehicles owned by the named insured since that was the coverage the insured chose. Since the truck that was involved in the accident was leased, the coverage selected by the insured did not apply in this instance.

The covered auto designation symbols in the BAP are numerals ranging from “1” through “9, and “19”.

Symbol 1

Symbol 1 signifies “any auto.” The use of symbol 1 makes any auto a covered auto. The insured will have coverage for any auto owned, hired, borrowed, or used by the insured. When symbol 1 is used, there is no need to indicate any other coverage symbol because symbol 1 encompasses all of them. Any auto that the insured acquires during the policy period is automatically covered and need not be reported to the insurance company before the insurer conducts an audit of exposures (which ordinarily occurs at the end of the policy period).

From the insured’s perspective, symbol 1 is clearly the best choice for coverage. Of course, since the coverage is so broad, the premium charged is appropriately higher than if a less omnibus designation symbol is chosen. The insured has to decide if the peace of mind of having its auto exposures so broadly covered is equal to the price paid.

Symbol 2

Symbol 2 is for “owned autos only”. The named insured uses this symbol if he wants coverage only for autos that he owns; this symbol is not to be used for hired, borrowed, and nonowned autos. Symbol 2 provides automatic coverage for any auto that the named insured acquires ownership of during the policy period. Also, if symbol 2 is used for liability coverage, it extends that coverage to cover trailers or semitrailers that the named insured does not own while they are attached to power units that the named insured does own. Again, symbol 2 can be used to extend the coverages offered by the BAP to any auto owned by the named insured.

Symbol 3

Symbol 3 is for “owned private passenger autos only.” This classification includes private passenger autos that the named insured acquires ownership of during the policy period.

The coverage umbrella for this symbol is slightly smaller than when symbol 2 is used; the auto must be a private passenger auto and not just any owned auto. However, the BAP does not define a “private passenger auto” so this can lead to disputes over just what that term includes.

As an example, a local deli has a business auto policy using symbol 3—owned private passenger autos only—for the liability and physical damage coverages. The insured bought a motor home for the use of the employees for events like tailgating at football games. At one of these events, the motor home was damaged by a collision with a concrete wall. The insurer declined coverage, stating that the motor home was not a private passenger auto. The insured believes the loss is covered since the term “private passenger auto” is not defined on the policy.

The insured is usually entitled to have the policy interpreted in its favor if there is any ambiguity in the wording. And, since the term “private passenger auto” is not defined on the policy, the insured might have a sympathetic judge grant coverage. However, two things work against such an interpretation: the definition of private passenger auto found in the Personal Vehicle Manual published by the Insurance Services Office (ISO) and common sense.

The manual defines a private passenger auto as a four-wheel auto of the private passenger or station wagon type, including a pickup, panel truck, or van that is not mainly used for business purposes. The implication is clear that something as big and heavy as a motor home is not considered a private passenger auto by the insurer. Also, when most people refer to private passenger cars, they normally don’t include motor homes in that category; common sense calls for separating the two.

This is not to say that the BAP is not meant to apply to a motor home since the BAP defines an auto as a land motor vehicle designed for travel on public roads. However, symbols 1 (any auto), 2 (owned autos only), 4 (owned autos other than private passenger autos), or 7 (specifically described autos) are more appropriate for such coverage. By using those symbols, both the insured and the insurer will recognize the proper exposures and be able to develop a fair and adequate premium.

Symbol 4

Symbol 4 refers to “owned autos other than private passenger autos only;” this includes autos of the same type that the named insured acquires ownership of during the policy period. When used for liability coverage, symbol 4 also includes trailers or semitrailers not owned by the named insured while attached to power units owned by the named insured. When seen in contrast to symbol 3, symbol 4 provides evidence that the insurer sees a distinction between private passenger type autos and other than private passenger types.

Symbol 5

Symbol 5 designates “owned autos subject to no-fault.” This symbol is for autos owned by the named insured that are required by law to have no-fault coverage in the state where the autos are licensed or principally garaged. Autos that the named insured acquires ownership of during the policy period are automatically covered if they are also required to have no-fault benefits.

No-fault auto insurance is a system under which a person injured in an auto accident receives compensation from his own auto insurer for the economic loss (for example, medical expenses, rehabilitation expenses, and funeral expenses) caused by the injuries, even though another person who is at fault for the accident would be responsible for payment under the tort liability system. (Note that states that compel the purchase of no-fault coverage on all registered autos are in the minority.)

Symbol 5 is not appropriate in states where the named insured has the right to buy no-fault coverages, but is not required to do so by law. If the insured does choose to purchase no-fault coverage in one of these states, the symbol used by the insured to describe the covered autos is not crucial to the no-fault endorsement’s coverage; a symbol (anyone except symbol 5) would still have to be chosen for the coverages afforded under the BAP, of course, but that would not affect coverage under the no-fault endorsement.

Symbol 6

Symbol 6 is for “owned autos subject to a compulsory uninsured motorists law.” This symbol applies to autos owned by the named insured that, because of the law in the state where the autos are licensed or principally garaged, must have uninsured motorists (UM) coverage, that is, the insured cannot reject the coverage. Symbol 6 does include autos that the named insured acquires ownership of after the policy begins.

Uninsured motorists coverage pays compensatory damages that an insured is legally entitled to recover from the owner or o...

Table of contents

• Cover 
• Title Page
• Copyright Page
• About the National Underwriter Company
• About the Authors
• Acknowledgements
• Table of Contents 
• Chapter 1: The Business Auto Coverage Form
• Chapter 2: Covered Auto Designations
• Chapter 3: Liability Coverage
• Chapter 4: Physical Damage Coverage
• Chapter 5: Business Auto Conditions
• Chapter 6: Business Auto Definitions
• Chapter 7: Auto Medical Payments Coverage
• Chapter 8: Endorsements
• Chapter 9: The Auto Dealers Coverage Form
• Chapter 10: Covered Auto Designations
• Chapter 11: Covered Autos Liability Coverage
• Chapter 12: Garagekeepers Coverage
• Chapter 13: Physical Damage Coverage
• Chapter 14: General Liability Coverages
• Chapter 15: Acts, Errors, or Omissions Liability Coverages
• Chapter 16: Auto Dealers Coverage Form Conditions
• Chapter 17: Definitions
• Chapter 18: Endorsements to the Auto Dealers Coverage Forms
• Chapter 19: Issues In Commercial Auto Insurance
• Appendix A: Coverage Forms
• Appendix B: Declarations
• Appendix C: BAP Endorsements
• Appendix D: Auto Dealers Endorsements
• Appendix E: Commercial Auto Coverage Checklist
• Index