Business-Owned Vehicles Insurance – New Appleman on Insurance Law Library Edition, Chapter 67

Business-Owned Vehicles Insurance – New Appleman on Insurance Law Library Edition, Chapter 67

By Eileen Swarbrick, Attorney

Chapter 67 provides an in-depth examination of insurance for the business-owned vehicle.  The chapter examines the unique features of a business automobile policy, specifically the Insurance Services Office ("ISO") Business Automobile Coverage Form, that are designed to cover the property and liability risks associated with the use or ownership of business-owned vehicles.

Business Owned Vehicle Crash

Section 67.01 explains the difference between a personal automobile policy and a business automobile policy and the importance of choosing the appropriate policy.

Section 67.02 identifies the types of covered vehicles under a business automobile policy, including non-commercial private passenger vehicles and fleet vehicles used for commercial or personal use.   The special problems associated with fleet coverage are examined.  A fleet policy may be exempt from any statutory requirement that the insurer obtain a rejection or selection of policy limits for certain types of coverage, such as uninsured/underinsured motorist ("UM/UIM") coverage.  In addition, stacking of certain types of coverage under a fleet policy by occupancy insureds would not be allowed.  State and federal regulations addressing commercial vehicles are also explained.   Regulations may impose higher liability limits for commercial vehicles and restrictions on the transport of certain types of materials in interstate commerce.

The ISO Business Automobile Coverage form designates covered automobile symbols that provide insured status to different classes of vehicles. The designation symbols, which appear in the policy's declarations page, define the policy's scope of coverage.  These designation symbols are explained in further detail in Section 67.02[4].

Section 67.03 discusses the types of available coverage for a business automobile policy.  The policy includes specialized types of coverage, such as drive other vehicle, hired automobile and non-owned vehicle coverage, which is not available under a personal private passenger policy. The other types of coverage including comprehensive, loading and unloading, medical payments, property damage liability, rental reimbursement, bodily injury, collision, and towing and labor coverage are offered.  Depending on the jurisdiction, a business owner may be required to maintain UM/UIM coverage for all of its vehicles.  UM coverage applies when the tortfeasor has no liability insurance or the insurance is less than the amount required by statute. UIM coverage applies if the victim's damage exceed the tortfeasor's liability limits or if the victim's UIM coverage exceeds the tortfeasor's liability limits.  A fleet policy may not be subject to the same requirements for rejection of UM/UIM coverage.   No-fault coverage, which provides for medical expenses, lost wages, and replacement cost services in the event of a covered accident regardless of fault, is mandatory in some jurisdictions.  Business-owned vehicles, particularly private passenger vehicles, would be subject to the no-fault statute.

The business, rather than an individual, is the named insured under a business automobile policy.   Thus, the legal structure as a sole proprietor, partnership, limited liability company (LLC), or corporation determines who is the named insured.  Section 67.04 identifies the persons insured under a business automobile policy and the scope of permissive use of a business-owned vehicle.  Several state statutes require that the policy contain an omnibus clause or read one into the policy by construction, in order to guard against the defense that the insured was not operating the vehicle personally or through an agent.  Often, the policy or the named insured define whether a vehicle may be driven for personal purposes.  Most courts have used a reasonable person standard for determining whether the permitted user would have understood the permission to have terminated.  The business automobile policy is designed to protect employers for the actions of employees driving vehicles on company business.  Determining whether  a driver is an employee rather than an independent contractor is critical.  The actions of an employee would be covered whereas the actions of an independent contractor would not.  If permission is for scope of employment only, coverage does not exist where driver uses the vehicle for personal purposes.  Depending on the policy, family members of the business may be allowed to drive the vehicle.    If there are no express restrictions on permissive use, the compulsory requirements of the jurisdiction's insurance law and omnibus clauses have been construed to include family permissively driving a business-owned vehicle.  The majority view is that family-oriented language in a business policy does not create an ambiguity.  The business automobile policy does not provide coverage for employees who are sued even if the accident takes place on company time. Rather, the business automobile policy protects the business from suit.

Section 67.05 examines common exclusions in a business automobile policy.  Most automobile policies include a "livery" exclusion, which excludes coverage when carrying goods or people for a fee.  The livery exclusion is discussed in Section 67.05[1].   The automobile business use exclusion, which is covered in Section 67.05[2], involves the business or occupation of selling, repairing, servicing, storing, or parking automobiles and is quite common in a personal private passenger vehicle policy.   As explained in Section 67.05[3], unless the policy provides for Symbol 9 non-owned vehicle coverage, a valid non-owned vehicle exclusion would apply. The liability section of the business automobile policy excludes coverage for bodily injury to any fellow employee of the insured arising out of and in the course of the fellow employee's employment or while performing duties related to the business.  The fellow employee exclusion, which has been upheld by a number of jurisdictions, is examined in Section 67.05[4].    Section 67.05[5] discusses the war, military action, and terrorism exclusion, which applies to both liability and property damage coverage.  The ISO business form excludes coverage for bodily injury or property damage resulting from the handling of property before it is moved from the place where it is accepted by the insured for movement into or onto the covered automobile or after it is moved from the covered automobile to the place where it is finally delivered by the insured.   This exclusion is explained in Section 67.05[6].    The workers compensation exclusion, discussed in Section 67.05[7], appears in the liability coverage section and excludes coverage for any obligation for which the insured or the insurer may be held liable under any workers' compensation, disability benefits, or unemployment compensation law or any similar law.   As explained in Section 67.05[8], the intentional injury exclusion, discussed in 67.05[9], applies to liability coverage for bodily injury or property damage expected or intended from the standpoint of the insured.  To trigger the intentional injury exclusion, the insured must intend to act and to cause harm. The pollution exclusion, which is examined in Section 67.05[10], applies to bodily injury or property damage coverage arising out of the actual, alleged, or threatened discharge, dispersal, seepage, migration, release, or escape of pollutants that are, or that are contained in any property that is being transported or towed by, handled, or handled for movement into, onto, or from the covered automobile.   Section 67.05[11] addresses the racing exclusion.  There is no coverage, either for liability or property damage, for any automobile while being used in, practicing, or being prepared for any professional or organized racing, demolition contest, or stunts.

Finally, Section 67.06 compares ISO Business Form Exclusions for Property Damage and Liability Coverage.   There are fewer exclusions for property damage coverage than for liability coverage.  Both property damage and liability coverage exclude coverage for racing and war. Property damage coverage is excluded for nuclear hazard, wear and tear, and tire damage and specifically excluded property whereas liability coverage is excluded for intentional injury, workers' compensation, fellow employee, movement of property by mechanical device, pollution, and operations.

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Eileen Swarbrick has authored chapters for many publications, including No-Fault and Uninsured Motorist Insurance, New Appleman Insurance Law Practice Guide, Appleman on Insurance 2d, New Appleman Library Edition, Damages in Tort Actions, Practical Solutions for New York Lawyers, and What's It Worth?.  She has also served as the educational coordinator of the Queens College Paralegal Studies Program, a referee in foreclosure matters and a guardian ad litem in civil matters.  She is a graduate of the St. John's University School of Law and is admitted to practice law in New Jersey and New York.

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