Commercial Auto and Garage Coverage

A business that owns, hires or borrows vehicles needs more than a personal auto policy, which limits business use and has no way to describe a fleet. The business auto coverage form (ISO CA 00 01, 03 10 edition) and the garage coverage form (CA 00 05, 07 97 edition) solve this with covered auto symbols, a broader list of insureds and separate coverages for liability, physical damage and, for garages, the customer’s vehicle in the insured’s care. Each is worked through with invented businesses. Insurers file their own wording and later editions of these forms differ in detail, so the discussion describes standard forms generally and the editions quoted.

Covered Auto Symbols

On a business auto policy, the Declarations list each coverage with the numerical symbols that say which autos it covers. Only the autos the symbol describes are covered autos for that coverage, so the symbol is where most business auto coverage disputes begin.

Symbol	Covered autos
1	Any auto
2	Owned autos only
3	Owned private passenger autos only
4	Owned autos other than private passenger autos only
5	Owned autos subject to no-fault
6	Owned autos subject to a compulsory uninsured motorists law
7	Specifically described autos, meaning those listed in Item Three of the Declarations for which a premium is charged
8	Hired autos only: those you lease, hire, rent or borrow, other than from your employees, partners, members or their households
9	Non-owned autos only: autos you do not own, lease, hire, rent or borrow that are used in your business, including employees’ own vehicles while used in your business or your personal affairs
19	Mobile equipment subject to a compulsory, financial responsibility or other motor vehicle insurance law

Two of the symbols turn on state law. Symbol 5 picks up owned autos that are required to have no-fault benefits where they are licensed or principally garaged. Michigan requires the owner or registrant of a motor vehicle required to be registered there to maintain security for personal protection and property protection insurance and residual liability insurance (MCL 500.3101(1)), so owned autos required to be registered in Michigan fall within symbol 5. Symbol 6 reaches only autos that the garaging state’s law requires to carry uninsured motorists coverage the owner cannot reject. Michigan’s Code does not list that coverage among those an owner must maintain (MCL 500.3101(1)), so the symbol ordinarily describes no Michigan auto, and uninsured motorists coverage there depends on what is purchased.

Here is how symbols are chosen. Redwood Mechanical, an invented heating contractor with six vans, rents a box truck now and then and lets two technicians use their own cars for parts runs. A common choice is symbol 1 for liability, which covers every auto. A narrower choice is symbols 7, 8 and 9, which together cover the described vans, hired autos and non-owned autos. If Redwood chooses only symbol 7 for liability, a rental truck and an employee’s car are not covered autos, and a crash in either is not covered. Symbol 1 is simpler, and as a matter of practice it is usually priced higher.

When Redwood buys another van during the year, the rule depends on the symbol. For symbols 1 through 6 and 19, autos of the described type acquired during the policy period are covered automatically. For symbol 7, a new auto is covered only if the insurer already covers all the autos you own for that coverage or the new auto replaces one that had it, and you tell the insurer within 30 days that you want it covered. The form also makes three kinds of vehicle covered autos for liability whatever the symbol: trailers with a load capacity of 2,000 pounds or less designed for public roads, mobile equipment while being carried or towed by a covered auto, and an auto you do not own used with the owner’s permission as a temporary substitute for a covered auto that is out of service.

Liability Coverage

Insuring Agreement and Insureds

The insurer pays all sums an insured legally must pay as damages for bodily injury or property damage caused by an accident and resulting from the ownership, maintenance or use of a covered auto. It also pays a covered pollution cost or expense, but only when the same accident causes covered bodily injury or property damage. It has the right and duty to defend, and its duty ends when the limit is exhausted by payment of judgments or settlements.

The insureds are:

• You, for any covered auto.
• Anyone else using with your permission a covered auto you own, hire or borrow.
• Anyone liable for the conduct of an insured, but only to the extent of that liability.

The permissive-user rule has five exceptions. The owner or anyone else from whom you hire or borrow a covered auto is not an insured, unless the covered auto is a trailer connected to a covered auto you own. Your employee is not an insured if the covered auto is owned by that employee or a member of the household. Someone working in a business of selling, servicing, repairing, parking or storing autos is not an insured unless that business is yours. Anyone other than your employees, partners, members or a lessee or borrower (or their employees) is not an insured while moving property to or from a covered auto. A partner or member is not an insured for a covered auto owned by that person or a member of the household.

An example shows the rule at work. A Redwood technician, driving her own car on a parts run under symbol 9, causes an accident, and the claims total $330,000. Redwood is an insured as the employer. The technician is not, because the covered auto is hers. Her personal auto policy, with a $250,000 limit, is primary. The business auto form is primary for a covered auto you own and excess over other collectible insurance for one you do not own, so it is excess here. It pays $330,000 - $250,000 = $80,000 for Redwood’s liability, within its own limit. The technician does not look to the business policy for her own protection.

The Limit and Supplementary Payments

One limit applies to the total of all damages and covered pollution costs resulting from any one accident, however many covered autos, insureds, claims or vehicles are involved. This single limit differs from the split limits of a personal auto policy. Supplementary payments are made in addition to the limit and include up to $2,000 for bail bonds, up to $250 a day of actual lost earnings at the insurer’s request, and all interest on the full amount of a judgment accruing after entry until the insurer has paid, offered or deposited its limit. Court costs taxed against the insured are paid, but attorneys’ fees taxed against the insured are not.

Exclusions and Where the Loss Goes

Business auto liability covers the auto exposure, so most exclusions send a different exposure to a different policy.

Exclusion	What it removes	Where the loss usually goes
Contractual	Liability assumed under a contract, except an “insured contract” (such as a lease of premises, a sidetrack agreement, an easement or an indemnity of another’s tort liability) and liability the insured would have anyway	Only insured contracts are covered, and the insured keeps the rest
Workers’ compensation	Obligations under workers’ compensation, disability benefits or unemployment laws	The workers’ compensation policy
Employee injury and fellow employee	Bodily injury to an employee in the course of employment, and to a fellow employee or relatives, except domestic employees not entitled to compensation	Workers’ compensation and employers liability
Care, custody or control	Damage to property owned or transported by the insured or in its care, custody or control	Motor truck cargo, inland marine or garagekeepers coverage
Handling and mechanical devices	Injury from handling property before it is loaded or after it is delivered, and from moving property by a mechanical device not attached to the covered auto	General liability
Operations	Injury from operating cherry pickers and similar devices on a truck chassis, and air compressors, pumps and generators mounted on a vehicle	General liability
Completed operations	Injury arising out of your work after it is completed or abandoned	General liability
Pollution	Release of pollutants carried by or being handled from the covered auto, with exceptions for fuel and fluids that escape from the auto’s own parts	A pollution policy

Expected or intended injury, war and racing are also excluded. The care, custody or control exclusion explains why a business auto form does not insure what a truck carries. Suppose a Redwood van carrying a customer’s $18,000 furnace is driven into a $9,000 car on a delivery in another state. The car’s damage is a business auto liability claim, paid up to the limit. The furnace is property in Redwood’s care, custody or control, so it is excluded, and the customer’s loss falls on cargo or inland marine coverage if Redwood has it. In Michigan the car’s damage would be handled differently. Property protection insurance pays for damage to others’ tangible property, such as a building or a car parked so as not to cause unreasonable risk, without regard to fault, but it excludes a moving vehicle and does not apply to accidents outside the state (MCL 500.3121(1), (2); 500.3123(1)(a), (2)). A claim for damage to a moving car is limited to $3,000 not covered by insurance and is not part of residual liability (MCL 500.3135(3)(e), (4)(b)).

Physical Damage Coverage

The insurer pays for loss to a covered auto or its equipment under three options, each chosen separately in the Declarations.

• Comprehensive pays for loss from any cause except the covered auto’s collision with another object or overturn.
• Specified causes of loss pays only for fire, lightning or explosion, theft, windstorm, hail or earthquake, flood, mischief or vandalism, and the sinking, burning, collision or derailment of a conveyance carrying the auto.
• Collision pays for the covered auto’s collision with another object or its overturn.

Glass breakage, hitting a bird or animal, and falling objects are paid under comprehensive if the auto carries it. The insurer pays the lesser of actual cash value at the time of loss or the cost of repairing or replacing with like kind and quality. Depreciation is applied in a total loss, betterment is not paid, and diminution in value is excluded. A comprehensive deductible does not apply to fire or lightning losses. Electronic equipment such as radios and navigation systems is excluded unless permanently installed, and equipment installed in a place the manufacturer does not normally use is limited to $1,000 in any one accident.

For a private passenger covered auto stolen in total, the form pays temporary transportation expense of up to $20 a day to a maximum of $600, beginning 48 hours after the theft, for autos with comprehensive or specified causes of loss.

Hired auto physical damage works through the rental contract. Any auto leased, hired, rented or borrowed is treated as one the insured owns for this purpose, but an auto hired with a driver is not covered. The form also pays loss of use that the insured becomes legally responsible to pay under a written rental agreement, up to $20 a day to a maximum of $600. Suppose Redwood rents a van for a job, and a collision damages it by $9,000. The rental company also charges $85 a day for 21 days while the van is repaired, which totals $1,785. Collision pays the $9,000 less the deductible shown for the coverage. Loss of use pays $600 of the $1,785, and Redwood is responsible for the remaining $1,185.

Conditions That Change Results

Premium is estimated at inception from the exposures the insured reports and finalized by audit, so the insured is billed the difference if the audit finds more exposure and gets a refund if less. Other insurance makes the form primary for covered autos the insured owns and excess for those it does not, except that liability is primary for liability assumed under an insured contract. If the insured and insurer disagree on the amount of a physical damage loss, either may demand an appraisal by two appraisers and an umpire. The coverage territory is the United States, its territories and possessions, Puerto Rico and Canada, with worldwide coverage for private passenger autos hired for 30 days or less when the suit is brought in those places.

Garage Coverage

A business that repairs, services, parks or sells vehicles has exposures the business auto form was not built for: customers’ autos left in its care, a showroom open to the public, and test drives. The 07 97 garage coverage form adds its own symbols and splits liability and customer-vehicle coverage into separate sections. Insurers now often place auto service businesses on general liability and the business auto form, with garagekeepers coverage added by endorsement, and dealers on a separate dealers form, so a producer checks which form the policy uses. The exposures and the garagekeepers idea are the same.

The garage form’s symbols run from 21 to 31. Symbols 21 through 29 resemble the business auto list: 21 any auto, 22 owned autos, 23 owned private passenger autos, 24 owned autos other than private passenger, 25 owned autos subject to no-fault, 26 subject to a compulsory uninsured motorists law, 27 specifically described autos, 28 hired autos and 29 non-owned autos used in your garage business. Symbol 30 is any customer’s land motor vehicle, trailer or semitrailer left with you for service, repair, storage or safekeeping, including vehicles of employees who pay for the work. Symbol 31 covers dealers’ autos and autos held for sale.

The form’s liability section has two parts. Garage operations other than covered autos protects the business for premises and operations, such as a customer who slips on a wet showroom floor. Garage operations involving covered autos protects it for the ownership, maintenance or use of covered autos, such as a road test. For covered autos, the insureds include you and anyone using a covered auto with your permission, with an exception when your business is shown as an auto dealership: a customer using a covered auto is an insured only as a backstop. A customer with no other insurance is covered up to the compulsory or financial responsibility limits where the auto is garaged, a customer with some insurance below those limits is covered for the shortfall, and a customer insured at or above the limits is not an insured. For other operations, the insureds are you, your partners, members, employees, directors and shareholders while acting within the scope of their duties.

Liability excludes property in the insured’s care, custody or control, so it does not pay for a customer’s car damaged in the shop. That gap is filled by garagekeepers coverage, a separate section that pays all sums the insured legally must pay as damages for loss to a covered auto or auto equipment left in its care while attending, servicing, repairing, parking or storing it. The coverage is chosen from three options, as in physical damage: comprehensive, specified causes of loss (limited in this form to fire, lightning or explosion, theft, and mischief or vandalism) and collision. Because it responds to the garage’s legal liability, it pays only where the garage is legally responsible, and a customer’s loss that no one was at fault for is outside it.

Suppose a customer’s $31,000 SUV is stolen from the lot of an invented repair shop, Calloway Auto Service, after an employee left the keys in it. The shop is legally liable. Whether the shop’s garagekeepers coverage comes from the garage form or an endorsement, assume its limit is $50,000 for each loss at each location, and the deductible for theft is $1,000. The insurer pays $31,000 - $1,000 = $30,000. The deductible also comes off the limit: under this form the most it pays for each loss at each location is the limit minus the deductible, here $49,000. Theft caused by the shop’s own employees or shareholders is excluded from garagekeepers coverage, as are defective parts, faulty work performed and liability assumed under an agreement.

Lesson summary

• A business auto symbol is the first thing to check. Symbol 1 covers any auto, while symbols 7, 8 and 9 cover described, hired and non-owned autos separately.
• Symbol 5 picks up autos subject to no-fault, and Michigan’s requirement of personal protection and property protection coverage means owned autos required to be registered in Michigan qualify.
• Liability pays damages from the ownership, maintenance or use of a covered auto up to a single limit per accident, with defense and supplementary payments outside it.
• An employee driving a personal car for the business is not an insured under the business auto form. The employer is, and the form is excess over the employee’s own insurance.
• Exclusions for workers’ compensation, employee injury, care custody or control, handling, completed operations and pollution send those exposures to other policies.
• Physical damage offers comprehensive, specified causes and collision, pays actual cash value or repair cost, and pays hired auto loss of use only up to $20 a day to $600 under this edition.
• Garage liability does not cover customers’ cars in the shop’s care. Garagekeepers coverage pays the legal liability for them, subject to a limit per location and a deductible.