Commercial Auto Insurance
This coverage part may be added to the CPP to protect an insured against BI or PD to others resulting from the ownership, maintenance, or use of a covered auto.
This coverage part is similar in nature and scope to the PAP, except that the exposure is different. It provides BI and PD coverage in addition to physical damage protection for the covered business auto. Coverage is provided for three classes of autos, including owned, hired, and non-owned autos.
Any type of auto can be a covered auto under this coverage part when the correct covered-auto symbols are listed on the declarations page. There are several coverage forms that can be purchased, including:
- Business Auto Coverage
- Garage Coverage (commonly tested term, though for auto dealers ISO replaced it with the “Auto Dealers Coverage Form” in most states in 2013)
- Garage keepers’ Liability
- Truckers’ Coverage (commonly tested term, though many insurers now use “Motor Carrier Coverage Form”)
Business Auto Coverage Form
The standard form for insuring commercial automobiles is the Business Auto Coverage Form. It may be added to the commercial auto coverage part and can provide:
- liability coverage
- physical damage coverage
- medical payments
- uninsured motorist coverage
This form has five coverage sections.
Section I
Covered autos. Three classes of autos are insurable:
- owned autos
- hired autos
- non-owned autos
Hired autos include those that are leased, hired, rented, or borrowed, excluding autos that are owned by employees.
Non-owned autos are autos the insured does not own, lease, hire, rent, or borrow. This typically includes employees’ personal vehicles used in the business.
In the Business Auto Policy, coverage is triggered by “covered auto symbols” shown next to each coverage on the declarations page. These symbols identify which autos are insured based on ownership, type, or state requirements. A brief exam-level overview is below:
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Symbol 1 - Any Auto Provides the broadest coverage and applies to any auto used by the business.
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Symbol 2 - Owned Autos Only Covers autos the business owns, including those acquired during the policy term.
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Symbol 3 - Owned Private Passenger Autos Covers private passenger vehicles the business owns.
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Symbol 4 - Owned Autos Other Than Private Passenger Types Covers business-owned commercial or non-passenger autos, such as trucks and vans.
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Symbol 5 - Owned Autos Subject to No-Fault Law Used when state law requires no-fault benefits on owned autos.
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Symbol 6 - Owned Autos Subject to Uninsured Motorist Requirements Applies to owned autos where UM coverage is mandatory.
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Symbol 7 - Specifically Described Autos Covers only the autos listed by description on the declarations page.
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Symbol 8 - Hired Autos Only Covers autos the business leases, hires, rents, or borrows - excluding autos from employees or household members.
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Symbol 9 - Non-Owned Autos Only Covers autos the business does not own, lease, hire, rent, or borrow but that are used in its operations, such as employees’ personal vehicles used for business.
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Symbol 19 - Mobile Equipment Subject to Compulsory or Financial Responsibility or Other Motor Vehicle Insurance Law Only Applies when certain mobile equipment becomes subject to registration or financial responsibility laws.
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Symbols 1, 7, 8, and 9 are the most commonly tested on insurance exams.
Section II
Liability coverage covers:
- the legal liability of the insured
- defense costs, which the form pays as a supplementary payment
- other supplementary payments, such as bail bond costs and interest on judgments, which do not reduce the limit of insurance
Pollution damage is generally excluded, including cargo or other pollutants the covered auto is carrying, even when they spill in an accident. The exclusion does not apply to the auto’s own fuel, lubricants, fluids or exhaust gases escaping directly from a part designed to hold them, such as fuel from a damaged gas tank. Away from the insured’s premises, it also does not apply to pollutants that are not in or on a covered auto when the auto’s use upsets, overturns or damages them or their container and they escape as a direct result.
Section III
The physical damage coverage section may be written to cover the following:
- Collision - overturn of the covered vehicle or collision with another object.
- Comprehensive - any loss, other than collision or overturn, that is not otherwise excluded. This would include glass breakage or hitting an animal.
- Specified Causes of Loss - is similar to comprehensive but is more limited in coverage. Specified perils are fire, lightning, explosion, theft, windstorm, hail, earthquake, flood, mischief or vandalism, and the sinking, burning, collision, or derailment of a conveyance transporting the covered auto
Sections IV
The Conditions section of the policy includes the conditions that the insured and the insurer must abide by. Common conditions listed are the duties of the insured following a loss, subrogation, liberalization, policy periods, and coverage territory.
Section V
This section of the Business Auto Coverage Form gives the full meaning of terms included within the policy.
The exclusions sit with the coverages they limit, not in Section V: the liability exclusions are in Section II and the physical damage exclusions are in Section III. Most of the liability exclusions are similar to those appearing in other liability policies. Pollution liability is not broadly covered; only limited accident-related pollution may apply.
Garage Coverage Form
This form was written for businesses that want coverage for liability arising out of garage operations, such as a garage, auto sales firms, service stations, repair shops, public parking lots, and storage garages. It is still a commonly tested term, but ISO’s program has changed. In 2002 ISO removed auto service businesses, such as service stations, repair shops, parking lots and storage garages, from its garage program. Under ISO’s program such a business looks to general liability coverage for its premises and operations and to the Business Auto Coverage Form for its autos, with garagekeepers coverage added by endorsement for customers’ autos. In October 2013 ISO’s Auto Dealers Coverage Form replaced the Garage Coverage Form for auto dealers in most states. Its coverages are covered autos coverages (liability, garagekeepers and physical damage), general liability coverages, and acts, errors or omissions liability coverages.
Garage coverage does not cover property damage to autos or other property of customers in the care, custody, or control of the named insured. That exposure is addressed by garage keepers’ liability.
Garage keepers’ liability is a form of bailee liability. It provides coverage for damage to customers’ autos while they are in the custody of the named insured. The insured may choose from among several perils insured against, including collision, comprehensive, or other specified perils.
Truckers’ Coverage Form
Truckers may insure a single vehicle, several vehicles, or a fleet. The truckers’ coverage form may be added to the commercial auto coverage part. Premiums charged are generally based on class rates. This form protects a trucker who contracts with another party in order to haul goods or property.
Some truckers may use their own tractor or cab to haul the property of others in the customer’s trailer. The party responsible for liability depends on the hauling arrangement and which party has operating authority.
If the tractor or trucker’s cab is not being used to pull another trucker’s trailer, it requires its own coverage in the form of a bobtail endorsement. “Non-trucking” use of the tractor or cab without a trailer is called bobtailing.
If a tractor or cab pulls an empty trailer, this is known as deadheading. The actual endorsement that is added to provide coverage for bobtailing or deadheading is called “Truckers Insurance for Non-Trucking Use.”
Regulation of Commercial Carriers
An organization that transports goods or passengers for a fee is known as a carrier. A common carrier is one that makes transportation available to the public and has liability for bodily injury to others.
The 1980 Motor Carrier Act requires that truckers and carriers file proof of liability insurance in order to operate (MCS90 endorsement). The financial responsibility limits required according to this Act were as follows:
- A Type 1 trucker who is for hire to carry non-hazardous property in interstate or foreign commerce must carry a minimum of $750,000 of coverage
- A Type 2 trucker for hire for private intra or interstate transportation of hazardous substances must carry a minimum of $5 million of coverage
- A Type 3 transporting oil listed as a hazardous substance or any other substance not identified under Type 2 must carry a minimum of $1 million of coverage
Several endorsements are available to be added to commercial auto coverage, including:
- Auto Medical Payments Coverage is a form of accident insurance with coverage limited to land motor vehicle incidents without regard to fault. It provides a prompt source of medical expense reimbursement for occupants of covered autos.
- Drive Other Car Coverage is available when persons have been furnished a company auto for business and personal use. The endorsement makes the person insured for an auto owned neither by the named insured nor the operator and, therefore, provides personal non-ownership liability coverage
- Employees as Insureds can be used to provide employees with protection in the event of accidents while employees are using their own auto on company business. This provides excess protection once the employees’ personal auto limits are exhausted.
- The Individual Named Insured Endorsement is used when the named insured is a sole proprietor. Its purpose is to provide the insured with the equivalent of insurance as provided by the personal auto policy.
- Deductible Liability Coverage can be added, which is characterized by a deductible that must be satisfied by the insured before the policy will pay any liability losses.
- Uninsured Motorists Coverage can include coverage for property damage and/or liability coverage.
Lesson Summary
Commercial auto insurance can be added to a CPP to protect against BI or PD to others resulting from the ownership, maintenance, or use of a covered auto. It offers BI and PD coverage along with physical damage protection for owned, hired, and non-owned autos as identified by the covered-auto symbols listed on the declarations page.
- Business auto coverage forms available include:
- Business Auto Coverage Form
- Garage Coverage Form
- Truckers’ Coverage Form
The Business Auto Coverage Form includes sections for covered autos, liability coverage, physical damage coverage, conditions, and definitions. It covers various perils like collision, comprehensive, and specified causes of loss.
The Garage Coverage Form is for businesses with garage operations, while the Garage keepers’ Liability covers damage to autos of customers in the insured’s custody. Truckers’ Coverage Form protects truckers hauling goods for others and includes coverage for situations like bobtailing or deadheading.
Regulation of commercial carriers like truckers and carriers mandates proof of liability insurance as per the 1980 Motor Carrier Act, with varying coverage limits depending on the type of transportation.
- Endorsements that can be added to commercial auto coverage:
- Auto Medical Payments Coverage
- Drive Other Car Coverage
- Employees as Insureds
- Individual Named Insured Endorsement
- Deductible Liability Coverage
- Uninsured Motorists Coverage