Commercial Auto Forms and Endorsements
A business auto policy answers questions a personal auto policy never reaches: whether a lessor is protected, whether a forklift is an auto at all, and which no-fault rules apply to a company truck. The sections below work those questions, price two physical damage claims, compare the motor carrier form, and end with the hired and non-owned auto coverage a small business adds to a businessowners policy. Names and figures in the examples are invented. Amounts quoted from forms are those printed in the specimen editions named, and a current edition may differ.
The Lessor and Who Is an Insured
The business auto form makes insureds of the named insured for any covered auto, and of anyone else using, with permission, a covered auto the named insured owns, hires or borrows. Its exceptions include the owner, or anyone else from whom the named insured hires or borrows a covered auto, and an employee for a covered auto the employee or a household member owns (CA 00 01 03 10, Section II, A.1.b).
The first exception is the one a lessor notices. Veldt Plumbing rents a box truck for a year from a leasing company and signs a lease promising to protect the lessor from claims. A Veldt driver injures a pedestrian, who sues Veldt and the lessor. The lessor is the owner from whom a covered auto is hired, so it is not an insured under Veldt’s policy, and the policy will not defend it in its own name. An endorsement that adds the lessor as an additional insured fixes this, and lessors generally require one. The motor carrier form handles the problem inside the form: a lessor is an insured only while the leased auto is used in the named insured’s business as a motor carrier for hire, and only if the written agreement does not require the lessor to hold the named insured harmless (CA 00 20 10 13, Section II, A.1.d). A producer reads which rule is on the policy in front of the producer.
The lease also creates an indemnity promise. The business auto form’s definition of insured contract includes a contract for the rental or lease of an auto, but not to the extent it obligates the insured to pay for property damage to the rented auto itself (CA 00 01 03 10, Section V, definition H.6). Veldt’s liability coverage responds to the lessor’s liability to the pedestrian. Damage to the truck itself is a physical damage question.
Autos and Mobile Equipment
The business auto form says “auto” does not include “mobile equipment” (CA 00 01 03 10, Section V). Mobile equipment includes bulldozers, farm machinery, forklifts and other vehicles designed for use principally off public roads, vehicles kept for use solely on or next to the insured’s premises, and crawler-tread vehicles. Two rules cut the other way: certain self-propelled vehicles carrying permanently attached snow removal, road maintenance or street cleaning equipment are autos, and so is any land vehicle subject to a compulsory or financial responsibility law or other motor vehicle insurance law where it is licensed or principally garaged (CA 00 01 03 10, Section V, definition K).
| Vehicle | Treated as | Why |
|---|---|---|
| Forklift used inside a warehouse | Mobile equipment | Designed for use off public roads and kept on the premises |
| Excavator on crawler treads | Mobile equipment | Travels on crawler treads |
| Dump truck licensed for the highway | Auto | A land motor vehicle designed for travel on public roads, and subject to a motor vehicle insurance law |
| Excavator riding on a flatbed | Mobile equipment, which the auto form covers for liability while carried or towed by a covered auto | Transport is the auto form’s exposure (CA 00 01 03 10, Section I, C) |
The general liability form excludes injury or damage arising out of the transportation of mobile equipment by an auto owned, operated, rented or loaned to an insured (CG 00 01 04 13, exclusion h(1)). That exclusion and the auto form’s grant fit together. Where a mobile vehicle becomes subject to a registration or financial responsibility law, symbol 19 can bring it under the auto form as an auto.
Michigan No-Fault on a Business Auto
The owner or registrant of a motor vehicle required to be registered in Michigan must maintain security for personal protection, property protection and residual liability (MCL 500.3101(1)). A motor vehicle for chapter 31 is a vehicle operated or designed for operation on a public highway with more than two wheels, and a farm tractor or other implement of husbandry not subject to registration is not one (MCL 500.3101(3)(i)). Several rules matter to businesses in particular.
- Leased vehicles. An owner includes a person renting or having the use of a motor vehicle under a lease for more than 30 days. A business engaged in leasing, holding title under a lease longer than 30 days, is neither the owner nor a registrant (MCL 500.3101(3)(l), (n)). The lessee’s policy carries the no-fault coverage.
- Employees. An employee, spouse or household relative injured as an occupant of a motor vehicle owned or registered by the employer claims PIP from the insurer of the furnished vehicle (MCL 500.3114(3)).
- Fleets. A person with more than 25 registered motor vehicles may qualify as a self-insurer by a certificate from the Director, who may issue it on being satisfied the person can pay judgments (MCL 500.3101d(1), (2)).
- Repair businesses. Property protection benefits do not cover damage to tangible property, other than the insured vehicle, that occurs within the course of a business of repairing, servicing or maintaining motor vehicles (MCL 500.3121(1)).
A garage that damages a customer’s car therefore does not look to PPI. It looks to garagekeepers coverage, because the business auto form excludes property damage to property in the insured’s care, custody or control (CA 00 01 03 10, Section II, B.6).
Physical Damage Claims
The physical damage section pays the lesser of the actual cash value of the damaged or stolen property at the time of loss, or the cost to repair or replace it with property of like kind and quality, less the deductible (CA 00 01 03 10, Section III, C and D). It adjusts for depreciation in a total loss and does not pay for betterment.
Collision claim. A Veldt van is wrecked. Actual cash value just before the loss was $28,000, the repair estimate is $31,500, and the collision deductible is $500.
- The lesser of $28,000 and $31,500 is $28,000.
- Less the $500 deductible, the payment is $27,500.
Hired auto loss of use. Veldt rents a van without a driver under a written agreement, and a driver damages it. For hired auto physical damage the form treats a covered auto leased, hired, rented or borrowed as one the named insured owns, unless it was hired with a driver (CA 00 01 03 10, Section IV, B.5.b). It pays loss of use expenses the insured becomes legally responsible for under the rental agreement, but at most $20 per day to a maximum of $600 (CA 00 01 03 10, Section III, A.4.b). The rental company charges $95 a day for 11 days of repair, or $1,045.
- The form pays $20 x 11 days = $220, which is under the $600 maximum.
- Veldt owes the remaining $1,045 - $220 = $825 unless other insurance or the contract shifts it.
The gap is why a producer asks what rental contracts a client signs.
Motor Carrier Coverage
The motor carrier form is written for businesses that transport property for hire. It adds trailer interchange coverage, which pays what the insured legally must pay for loss to a trailer it does not own under comprehensive, specified causes of loss or collision, and it has symbols for trailers held under a written interchange agreement (CA 00 20 10 13, Section III). The Motor Carrier Act of 1980 requires certain motor carriers to maintain minimum liability coverage and file proof of it, and the limits depend on the kind of carriage and are revised by regulation, so they should be read from the current rule. A plumber with a few trucks fits the business auto form. A trucker that leases equipment to and from other carriers needs the motor carrier form’s lessor rules and its interchange coverage.
Hired and Non-Owned Autos on a Businessowners Policy
A businessowners policy’s liability section excludes injury or damage arising from any auto owned or operated by, or rented or loaned to, any insured. An employee who drives a personal car to the bank on the employer’s errand and causes a crash exposes the employer, because an employer answers for an employee acting within the job. The exclusion removes that exposure from the policy.
A hired and non-owned auto liability endorsement generally adds it back for autos the business hires or rents and autos it does not own that are used in its business, such as employees’ personal cars. It never covers autos the business owns, which need a business auto policy. The business auto form shows the usual layering: for a covered auto the named insured does not own, the form is excess over any other collectible insurance (CA 00 01 03 10, Section IV, B.5.a), so the employee’s own auto policy answers first.
Lesson summary
- The business auto form does not make the owner or lessor of a hired covered auto an insured. An endorsement adds the lessor, and the motor carrier form makes a lessor an insured only on stated conditions.
- A contract for rental or lease of an auto is an insured contract, except to the extent it makes the insured pay for damage to the rented auto.
- Mobile equipment is not an auto, but a land vehicle subject to a motor vehicle insurance law is an auto.
- The owner or registrant of a registered Michigan motor vehicle must carry no-fault security. A lessor under a lease longer than 30 days is not the owner, and an employee hurt in the employer’s vehicle claims PIP from that vehicle’s insurer.
- Physical damage pays the lesser of actual cash value and repair or replacement cost, less the deductible. Hired auto loss of use is capped per day and in total.
- A hired and non-owned endorsement adds liability for hired autos and non-owned autos, never for owned autos.