Insuring Physical Damage on Employee Autos

VU Faculty

Abstract Under a Business Auto Policy (BAP), liability coverage for the business can be extended to employee-owned autos using Symbols 1 or 9 and the employees can be covered as insureds by endorsement. However, what if an employer, as a perk or out of a sense of obligation, wants to extend coverage under the BAP to employees if they damage their own vehicles while on business?

"I have a client that wants to provide primary physical damage coverage to employees that use their own (employee owned) vehicles for business purposes. My reaction is this can't be done. However, in my effort to resist the constant temptation to quickly jump to the conclusion, I decided to research it bit.

"I traditionally put the CA 20 54 'Employee Hired Autos' endorsement on my accounts. When I was closely reviewing this endorsement again, I noticed the language that states: 'For Hired Auto Physical Damage Coverage, the following are deemed to be covered "autos" you own: 1. Any covered "auto" you lease, hire, rent or borrow; and.....'

"This made me wonder if I have Symbol 8 for Physical Damage coverage and the CA 20 54 attached, does the CA 20 54 supersede the portion of the definition of Symbol 8 that restricts the employee's owned auto from this coverage? I wouldn't think so, but the CA 20 54 does say 'ANY'.

"If this doesn't accomplish the desired outcome, can physical damage coverage be provided on a primary basis to employee owned autos while being used on company business? Thanks for helping a brainlocked agent!"

"How can the BAP be endorsed to provide physical damage for employees' vehicles?"

"I have a client in the auto parts business. On occasion my client will borrow an employee's auto to test new or experimental parts they plan to handle. My client wishes to provide direct primary physical damage for the employee's auto while it is on loan to my client. I can't find an auto form to provide this coverage. The employee does not pay for any services or parts supplied by the employer. The client is not engaged in 'garage operations' as defined in CA 99 37 10 01. Employee autos are not covered under hired auto physical damage under CA 00 01 10 01."

"In your opinion, could an insured specifically describe a non-owned auto using symbol 7 for physical damage? Example, an employer wants to insure the employee(s) vehicle(s) for physical damage when used for business purposes. I had suggested a manuscripted symbol (e.g., 10) in order to specify the parameters of the employer’s intent, but in review I gave thought to the use of symbol 7. While underwriting would pose a challenge and coverage would apply to business and non-business exposures, it would seem to me such symbol usage could achieve the desired result."

The question of how (if at all) a business can provide physical damage coverage on an employee-owned auto on a primary basis while being used by an employee on business has come up a number of times before. Below are some faculty comments on this topic.

Unless you have a carrier with a manuscript endorsement, there's no convenient way to provide primary physical damage coveraeg on an employee's car in the ISO BAP program. There's certainly no endorsement to explicitly extend physical damage coverage (and Symbol 9 only provides liability coverage). I heard of a company doing this using Symbol 10 which is a define-your-own-covered-auto symbol, but I don't know if that is anything more than a rumor.

ISO has no direct way to extend physical damage coverage on a primary basis unless you can get a company to make up a symbol using CA 99 54. The only other thing I can think of would be some 'hair-brained' scheme where the employees technically lease their vehicles to the business and they're covered as leased autos. I think a better solution would for the business to pay employees on a mileage basis or using some sort of stipend. A portion of that would go towards offsetting the cost of their physical damage coverage. An alternative would be to allow them the use of a business-owned auto for errands if possible.

I don’t think anyone has ever raised the issue of using Symbol 7 to cover physical damage on an employee’s auto, but perusing the form, I don’t see anything that precludes this…Symbol 7 applies to “described” autos, not owned autos.

I suspect the biggest obstacle, as you imply would be underwriting, if they are aware of the nature of the exposure. Another potential problem, even if a Symbol 10 was used, is the Other Insurance clause:

5. Other Insurance
a. For any covered "auto" you own, this Coverage
   Form provides primary insurance. For any covered
   "auto" you don't own, the insurance provided by
   this Coverage Form is excess over any other
   collectible insurance.

Unless that provision can be amended, if the employee has a PAP, it’s going to be primary on the vehicle they own.

What about insurable interest? The business doesn't own the auto. Is there a contract that makes the business responsible for damage?
 
I would suggest the insured pay the physical damage premium for the employee and keep any employee loss experience out of the company account.

Interestingly, the BAP has no insurable interest clause. One might be inherently required on some fundamental legal indemnity basis, but it’s not in the contract.

I’d be concerned about how the vehicle is reported by the insured or agent…since I suspect few underwriters would want to incur this risk, there could be some fraud, misrepresentation or concealment that could trigger this clause:

B. General Conditions
   2. Concealment, Misrepresentation Or Fraud
      This Coverage Form is void in any case of
      fraud by you at any time as it relates to
      this Coverage Form. It is also void if
      you or any other "insured", at any time,
      intentionally conceal or misrepresent a
      material fact concerning: 
      a.  This Coverage Form; 
      b.  The covered "auto"; 
      c.  Your interest in the covered "auto"; or 
      d.  A claim under this Coverage Form.

I think it is all underwriting. There is NO ISO rule that says you cannot use Symbol 1 for physical damage.
 
Also just because the insured "wants" to insure may not create an insurable interest at the time of loss.

I believe that an employer who asks employees to use the employees’ vehicles on company business should develop a published company policy addressing the issue of physical damage to employees’ vehicles while being used on company business. It is better to let everyone know (up front) what the employer will pay in the event of damage to employees’ vehicles, rather to wait until after the loss to address the issue. Possible published company policies include:

(1) each employee is responsible to pay for damages to his own vehicle, since the IRS reimbursement rate for auto use contemplates liability and physical damage insurance on the personally-owned vehicle (I cannot prove this). If an employee elects not to purchase physical damage insurance on his personal vehicle, he is being over-reimbursed for company usage and assumes the risk of physical damage loss to his vehicle;

(2) the company can agree to reimburse employees’ out-of-pocket costs up to a maximum of $1,000.00 (this should cover most deductibles);

(3) the company can agree to reimburse employees’ out-of-pocket costs to repair or to replace damage to employees’ vehicles (no maximum). In this event, using Symbol 7 or Symbol 10 to purchase physical damage insurance on employees’ vehicles might be a good idea, even if  the “Other Insurance” clause applies—if the employee’s personal policy responds, the employer is liable only for the out-of-pocket costs of the employee (usually a deductible); if the employee carries no physical damage insurance, the employer’s insurance becomes primary (since no “other collectible insurance” exists).

Response to the above:

Your suggestions seem very sound – and especially generous.

From my own point of view, I have a personally-owned vehicle that is insured for business use, and I get a tax deduction for the use of that vehicle in business [business percentage for maintenance, insurance, taxes, etc.], and so I’m wondering why my employer would be involved at all with my personally-owned vehicle.

Even if I’m using my vehicle for business, I can’t imagine that I would expect my employer to pay my deductible. I guess if my vehicle was parked at a required company function and hit by an uninsured motorist [no fault of my own], it would be nice to have my employer pay my $1,000 deductible, but I certainly don’t see that as an obligation by my employer. 

Of course, I am of the opinion that each of us should be grown-ups and not expect our employer to ‘take care’ of all our financial and personal obligations. [Ooooooo. Does that sound cynical?  Didn’t mean for it to.]  Sorry, I’m off my soap-box now.

Additional comment to the above:

Most of the inquiries I get on this are directed more towards nonexempt, “lower echelon” personnel who use their autos for business without compensation…Betty Lou who runs to the post office twice a day or Bubba who makes a few trips a week to Office Depot or Sam’s Club. What most employers are looking for is not the provision of wholesale physical damage but only for the occasions while they’re using the vehicle on business. The primary/excess issue is problematic and, outside a possible leasing arrangement (which is rather impractical), I don’t see a solution other than compensating them on a mileage basis and perhaps voluntarily agreeing to pay for their deductible. I think this is a common issue that is worth asking ISO to review.

Why not have the employee lease the vehicle to the employer and add the Employee as Lessor endorsement? All the coverage would be provided on that car and would include when the employee was using it. My only objection would be if the employee had a driving problem. The endorsement solves the primary/excess problem:

Any auto described in the schedule will be considered a covered auto you own and not a covered auto you hire, borrow or lease under the coverage for which it is a covered auto.

Why don't they just pay the employee the amount of the premium for physical damage on the PAP? Heck, pay the whole premium for them. The PAP insurers don't care whose money it is. They're listening to their accountant, aren't they?

See Selective Ins Co of SC v Terry, USDC, Middle District NC. Grandaughter’s auto added to Inc’s policy. Husband of grandaughter driving car, hit Terry. Court looked at Item 3 of declarations, saw that it was entitled “Covered Autos You Own”. Court ruled that Inc did not own auto, even though listed on the policy and premium paid.

I think that symbol 7 would have the same result, in that the employee’s auto is not owned by the named insured.

I don’t believe Symbol 7 will work…at least I don’t think it’s intended for this type of non-owned exposure. I believe the presumption for Symbol 7 is that it applies to owned autos even though the symbol on the first page of the policy references only “described” autos without regard to ownership. The autos are described on the declarations page which includes a qualification. That is, Symbol 7 autos are listed under Item Three of the CA 00 15 declarations page. That section is entitled “Schedule of Covered Autos You Own” which, I think, makes the intent of Symbol 7 coverage clear…owned autos only.

I believe the CA 99 16 - Hired Autos Specified as Covered Autos You Own would work. It adds the vehicles outside of the usual Hired Car Symbol 8 and Hired Car Physical Damage, and adds the owner as an additional insured. It requires scheduling, but seems to me to be a neater approach than leaning on Hired Car and waiting for an audit on cost of the hire.

The employer has no insurable interest in the employee's vehicle, and therefore shouldn't attempt to insure the vehicle. While such an interest could be created contractually, that may cause more problems than it fixes. I suggest that the employee carry comprehensive and collision insurance personally and the employer can be responsible for payment of the deductible if the damage arises on the job and isn't the employee's fault.

As for the CA 20 54 endorsement in the first question, I don't think it would have the effect that the language, on the surface, appears to provide. The reason is that the language cited in the question only modifies the "Other Insurance" provision in the BAP and Garage forms. It doesn't affect the status of Covered Autos or any exclusions relating to that.

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