7 Reasons to NEVER Extend Business Auto Coverage to an Employee-Owned Auto
By Christopher J. Boggs | Academy Journal Blog | March 22, 2016 Email ThisPrintNewsletters
inShare 4 Article Comments Section II (Liability Coverage) of the Business Auto Coverage (BAC) form describes who qualifies as an insured (II.A.1.). Employees using their personally-owned vehicle to conduct business on behalf of the named insured’s business are specifically excluded from coverage.
However, employment relationships and/or job requirements may exist that prompt a business entity (the insured) to attempt to specifically include an employee-owned auto as a covered auto on its BAC. And in so doing, the entity may extend status as an insured in the BAC to the employee/driver for the use of the specified auto (even though owned by the employee). Short of transferring the title to the business, the insured/employer can accomplish these two goals by:
Having the employee lease his/her personal auto to the business (making the owner a lessor); and Appropriately endorsing the BAC. Determining the legitimacy of the insured’s desire and need to extend coverage to an employee-owned vehicle and insured status to the owner requires the agent and underwriter to:
Understand how the employee’s PAP responds to the “business use” of a personally owned auto; Determine if sufficient reason exists to extend such insured status to the vehicle and the owner; Require an appropriate lease agreement; Understand how entity type affects this decision; and Attach the appropriate endorsement. Unless the underwriter is satisfied with the legitimacy of the need, the formality of the lease agreement and understands the risks involved (for the carrier and the insured), he or she should not extend the requested protection. In fact, there are seven reasons such extension should not be granted:
The employee’s Personal Auto Policy (PAP) extends coverage for most business uses of a covered auto. Using a BAC rather than a PAP may be a form of insurance fraud (depending on the legitimacy). To extend this coverage, a lease agreement is required. A lease agreement between an employee and his employer is a legal document subject to contract law and thus must be formal in its construction. Dual ownership is created when an employee-owned auto is leased to her employer. Once a lease is in place and the policy has been endorsed, the BAC provides primary coverage for the use of the vehicle 24/7/365 – regardless of use. The insured business entity has NO control over the use of the vehicle (including who is driving it) when it is being used outside of work. Depending on the entity type, the insured may be taking on liability exposures it really does not want.
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