Is Your Auto Coverage the Best It Can Be?

When it comes to making decisions about your business, commercial auto insurance is pretty routine, right?

That’s why many contractors seem to purchase commercial auto insurance using the same logic and buying habits they use to insure the family station wagon. But that can sometimes result in inappropriate coverage and higher insurance costs.

Typically, when you purchase insurance for the cars and trucks used to conduct your business, all of the following reasons are considered:

• Asset protection-Both to protect the value of the vehicle and to protect yourself from financial consequences if you are found liable for injury or damage to others resulting from the use of your vehicle
• Meeting financial responsibility requirements-To provide a means of compliance with state and federal laws
• Requirements for umbrella coverage-To purchase an umbrella policy for catastrophic loss protection, an auto policy and general liability policy with minimum limits, usually $1 million, are required

For contractors, it pays to consider some of the less obvious aspects associated with an auto insurance program. Here are some tips that you and your agent may find helpful to fine-tune coverage and control the auto insurance risks often associated with construction businesses.

Additional Insureds

Most construction contracts used today require the project owner or general contractor to be named as an additional insured on a subcontractor’s policies. Do your policies require this? There are endorsements available to do this for general liability, but did you know the standard auto policy already includes this provision? A special endorsement is not generally required. However, some owners or general contractors insist on a special endorsement. This can be done, but since it’s already included in the basic policy, there should be no additional charge. You may also need an endorsement to add an auto leasing company as an additional insured.

Speaking of insureds, individuals should not typically be listed as an insured on a business auto policy. The party/parties to whom the vehicles are titled should be shown as an insured. This is usually the name of your business. Typically, in the standard form used in the industry, you, your officers and your employees will be covered by the policy because of the way “insured” is defined in the policy.

Coverage Forms

Is your general liability insurance and commercial auto insurance with the same company? If not, there are potential gray areas that can result when interpreting policy definitions or other contract language in the event of a claim. For example, it’s not always clear whether a loss resulting from the loading and unloading of a vehicle should be covered by a general liability or auto policy. In another instance, two versions of the same insurance form have differences in the definitions of mobile equipment versus an automobile that may raise questions at the time of a loss. You can avoid the potential gray areas by having your general liability and auto insurance with one company so when there is a claim, there is no doubt about who should handle it. This should also minimize inadvertent coverage gaps and uncovered claims.

In 2004, revisions to industry standard general and auto liability forms were offered.  Not all insurance companies adopted them and today you’ll find that both 2001 and 2004 forms are used. In addition, although most insurance companies use comparable coverage forms, each will modify coverage to suit underwriting requirements. It would be difficult to find a “one-size-fits-all” approach between companies and avoid interpretation problems, even if special endorsements were devised in an attempt to synchronize coverages. Always consult with your agent on the coverage afforded under any specific policy or contract in order to avoid coverage gaps or duplication.

Financial Responsibility

Do you like publicity? The right kind can attract favorable attention. But being in the news because one of your vehicles was in an accident and you lacked the proper insurance is not the best approach.

Your standard commercial auto policy should satisfy the various state financial responsibility laws, but do you know if you are subject to federal financial responsibility laws? Many construction trades back-haul or are involved with work or maintenance requiring use of oils, solvents and other materials deemed hazardous. For-hire interstate haulers of non-hazardous and hazardous property need a special auto endorsement called a MCS-90. If hazardous materials are being hauled, you may need the MCS-90 endorsement as well, even if you haul the materials locally for yourself. Consult with your insurance advisor about MCS-90 requirements and qualifications as these endorsements can add to your premium costs.

Personal Use of Company Vehicles

Do you provide company cars to any of your employees, such as foremen to get to and from jobsites? Do you drive a company car?  Does your company allow personal use of these vehicles? The standard auto policy can cover you and your employees when operating a company vehicle, whether used for business or pleasure. You may choose to restrict use of company vehicles to business purposes because claims, whether from business or personal use, can impact the cost of your insurance. Too many times, that error in judgment on the way home from work has disrupted business and caused heartache to a family. You can prevent this with a company policy of no personal use of vehicles.

Drive Other Car (DOC) Coverage

Does your auto policy cover you when renting a car for business? Fortunately, the business auto policy can be designed to include coverage for hired or borrowed automobiles. Although you and your employees can be covered while using such autos, you or your employees are typically not covered for the use of automobiles that are hired or borrowed on one’s own. For example, if you are an executive officer of a corporation and you are insured under a business auto coverage form, you will have no insurance under that policy while using a vehicle that you borrow or rent for personal affairs, even if the policy covers hired or borrowed cars.

These provisions can be especially problematic when a company automobile is furnished to a person who has no other auto insurance, whether it’s an executive officer or his or her family members, a sales representative or any other employee. Because the person may qualify as an insured under the employer’s policy with respect to the furnished vehicle, it might be erroneously assumed that the person will also be an insured for the use of other vehicles. As discussed above, that is not the case. However, if you and the insurance company agree, your policy can be extended through a Drive Other Car (DOC) endorsement to offer coverage to any individual named in the endorsement. The Drive Other Car coverage often includes coverage for the spouse for no additional charge.

Uninsured/Underinsured Motorist Coverage (UM/UIM)

What happens if one of your vehicles is involved in an accident that is the fault of another driver who has no automobile liability coverage? Or, what if one of your vehicles is involved in an accident resulting from the fault of another driver whose automobile liability coverage limit is insufficient to cover the amount of bodily injury or property damage claims?

You don’t have to pay for this yourself. Uninsured/Underinsured Motorist (Um/UIM) coverage is the answer. When UM/UIM coverage is purchased, your employees, any permissive user or passengers in your vehicle may be covered for a portion of their bodily injury claims that result from the other driver’s fault. Depending on the applicable state law, the UM/UIM coverage may apply to damage to your owned vehicle caused by the other driver. However, UM/UIM coverage does not cover damages that are the fault of your employee or permissive user in the operation of the owned vehicle when that owned vehicle causes or contributes to cause the accident.

But be careful. UM/UIM coverage may overlap with other coverages that have already been purchased for your organization and your employees or coverages that these employees have purchased for themselves. Possible overlapping coverage might come from your workers’ compensation policy, employee medical in your benefit plan or medical coverage the employee may purchase themselves. You will need to decide if UM/UIM coverage is needed to further your company’s risk protection objectives. Sometimes it may not, and you can minimize costs by purchasing lower UM/UIM limits or rejecting the coverage all together depending on individual state law.

Each situation is unique. Consider your business objectives and consult with your agent to understand the options available to you. Just as with your car, a tune-up of your auto insurance will only enhance the performance of your company.

Construction Business Owner, February 2006

Nothing herein affects the terms, conditions and coverages of any insurance policy or bond issued by St. Paul Travelers, nor does it imply that coverage does or does not exist for any particular claim or type of claim under any such policy. Availability of coverage can depend on our underwriting qualifications and state regulations.