Coverage Corner: Employees, Their Personal Autos, and the BAP

By Kevin C. Amrhein, CIC

With the first page of its policy form listing an array of coverage symbols, the ISO Business Auto Coverage Form distinguishes itself off the bat as a unique and challenging read.

Agents often struggle to explain these symbols to insureds who struggle to make sense of them, especially as their fleets grow and coverage needs evolve. Agents who manage to navigate these choppy waters and leave their insureds with a clear understanding of symbols are primed to coast through the remainder of the form, explain limitations, and alleviate concerns, right? Right?! Every time I teach this form, at least a few agents in my classes are surprised to learn about a limitation applicable to employees while driving personally owned autos.

When I explain the limitation, folks often express frustration in their inability to locate it in the Exclusions section of the policy (hint – it’s not there). As further evidence of confusion, other agents think the coverage symbols are the key to addressing this limitation. This lack of understanding inspired me to write this article with the hope that, once and for all, agents will 1) clearly spot the limitation in the policy, 2) clearly explain it to an insured, and 3) clearly identify a solution if such is desired by the insured.

THE LIMITATION – WHERE THE $%^! IS IT?

When presented with a coverage inquiry, many agents will review the Declarations page and the Exclusions section, skipping all information between (there’s no need to explain why this approach is problematic). Agents who read the policy correctly (e.g. in order) should clearly see that the limitation in question appears in SECTION II, Part A.1. – Who Is An Insured (portions included here):

The following are “insureds”:

a. You for any covered “auto”.

b. Anyone else while using with your permission a covered “auto” you own, hire or borrow except:

(2) Your “employee” if the covered “auto” is owned by that “employee” or a member of his or her household.

In summary, whether the argument against an employee being an insured is based on the language in item b. or b.2., the limitation is created in the definition of “insured” and not in the Exclusions section of the policy.

THE LIMITATION – WHAT THE $%^! DOES IT MEAN?

Employees frequently drive personally owned autos on company business. Should the employee cause an accident during such use, the injured party may accuse both the employee (operator) and employer (vicarious) of negligence and file the liability claim accordingly.

There are two auto policies addressed here. For the purposes of this article, assume both are ISO: the employee’s Personal Auto (PAP) and the employer’s Business Auto (BAP). The PAP is primary and considers both the employee (Named) and the employer (Vicarious) as insureds. Barring an exclusion, it will defend/pay on behalf of each party accordingly.

If needed, the BAP will defend/ pay on behalf of the employer (Named) provided the appropriate coverage symbol is in place and that no exclusion applies. The BAP will NOT defend/pay on behalf of the employee due to the policy language cited previously. THE LIMITATION – HOW THE $%^! DO I FIX IT?

After reviewing this limitation with them, some Business Auto insureds may wish to address this limitation, thus making the BAP available for such accidents to employees on an excess basis. The endorsement needed is ISO’s Employees As Insureds – CA 99 33. In addition to the availability of excess coverage for the employee, this endorsement may also reduce the likelihood of successful subrogation against the employer/employer’s insurer from the employee/employee’s insurer. That said, the endorsement is subject to underwriting and the insured may have no interest in obtaining/paying for it.

CONCLUSION – TAKEAWAYS FOR THE AGENT

When reviewing coverage inquiries, resist the urge to skip around the form or go directly to the Exclusions section. Always review the policy in full and in order.

Acknowledge that employees driving personally owned autos is a ubiquitous exposure and should be addressed with every BAP insured.

Understand the “Who Is An Insured” section of the BAP and the limitations contained within it, including for employees while driving personally owned autos.

Explain how this limitation would apply to a claim involving both the employee and the employer.

Discuss options with insureds so they can decide what – if any – action they wish to take.

That’s all for now. Until the next round … cheers!

Kevin C Amrhein, CIC, is IA&B‘s education consultant. He works with our CISR and CIC programs, as well as our special topic seminars and live webinars. Catch him at one of our upcoming professional training offerings: IABforME.com/education.