Risk & Business Magazine Spectrum Insurance Fall 2016 | Page 6

COMMERCIAL AUTO POLICIES

BY: JESSE FURRER
INSURANCE ADVISOR, PARTNER,
SPECTRUM INSURANCE GROUP

Individually Owned Autos Insured
Under Commercial Auto Policies:
Coverage Insights For Business Owners

I

n order for a private passenger
auto that is regularly used for the
business purposes of the named
insured business entity to be properly
scheduled under a commercial
auto policy, it must be owned by, and/
or registered in the name of, the named
insured business entity. Alternatively, a
private passenger auto owned by an
employee can be leased back to the named
insured business entity on a long-term
basis. However, a lease should only be
utilized if the private passenger auto is
actually used for the named insured’s
business purposes on a regular basis. If it is,
Insurance Service Office (ISO) Form CA 99
47, “Employee as Lessor,” must be endorsed
to the commercial auto policy in order for
the auto to be considered “owned” by the
insured and to provide coverage to the
employee as an insured.
When these ISO rules are not followed,
gaps in coverage may arise, potentially
resulting in the individual owner of the
private passenger auto not meeting the
commercial auto policy‘s definition of an

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FALL 2016

“insured” under the “Who Is An Insured”
section of a Business Auto Coverage
form. While the named insured business
entity may be covered under negligent
entrustment, negligent hiring, or negligent
retention causes of action, it is important to
remember that the individual owner of the
auto may not be covered by the commercial
auto policy for his or her personal liability.
Also remember that several coverage
symbols tie coverage to autos owned by the
named insured.
For example, a coverage issue arises
when a private passenger auto is owned
by, and/or registered in the name of, an
individual, and it is involved in a motor
vehicle accident. The individual owner
may be the corporate entity’s principal,
spouse, child relative, or employee. If,
at the time of the accident, the private
passenger auto was actually being used for
business purposes, the insured business
entity may be covered for allegations of
negligent hiring, supervision, retention,
or a similar type of respondeat superior
allegation. But, as noted in the preceding

paragraph, the individual owner or
operator may not be covered for their
alleged negligent operation. Why? Because
based on the “Who Is an Insured” section,
if the private passenger auto is not owned
by the business, the owner of that auto
will not meet the criteria of an insured
permissive user. This is true whether or not
the individual owner is an employee of the
named insured business entity.
Here is another example. Landscaping,
Inc. is our named insured. John Smith,
the president, has an individually owned
private passenger auto on the commercial
auto policy and has no personal auto
policy. While driving his spouse and child
to dinner in that private passenger auto,
he ran a red light, struck another car, and
killed the two people in that car. His wife
and son suffered serious injuries. John
Smith may not be protected as an insured
under the “Who Is an Insured” section
because the private passenger auto was not
owned, hired, or borrowed by Landscaping,
Inc. +