Hired and Non-Owned Vehicle Insurance Coverage
In this month’s blog I’ll discuss Hired and Non-Owned Vehicle coverage for business owners.
One question some may ask is, “If I need auto insurance coverage for my company, wouldn’t I just buy a Business Auto insurance policy?” That’s a perfectly valid question. If your business owns or leases vehicles titled in the company’s name, then you definitely need to purchase a business auto insurance policy or a business package insurance policy that provides coverage for business vehicles.
But what if your business doesn’t own any vehicles or have any vehicles titled in your company’s name? Then you don’t business auto insurance, right? Well, not so quite fast. This situation is fairly common and is not as logical or simple as it may initially appear.
There’s a high likelihood that your business has a “hired” and/or “non-owned” vehicle exposure(s). Such an exposure is any vehicle that is used for your business’ purposes, but that your company does not own. Non-owned vehicles may be borrowed, rented, hired, leased on a short-term basis. Even be your employees’ vehicles can present an exposure for your company.
For borrowed vehicles and generally for employees’ vehicles, the insurance policy providing coverage for that vehicle will typically “respond” for an accident first. More about this in a moment.
Here are some fairly common vehicle claim examples where hired and non-owned insurance coverage can into play.
- You have a large file cabinet in your office. It’s taking up space because you’re now scanning business and client documents. Rather than pay someone to remove the file cabinet, you decide to donate it to a local charity. You borrow your neighbor’s pick-up truck to deliver the cabinet to the charity’s office several miles away. On the way over, the file cabinet slides out of the truck bed, striking a car and causing them to swerve into a tree. That car is damaged and the driver is injured.
- You are on a business trip. You rent a car at the airport, using your company name as the renter and you pay with your corporate credit card. You decline the rental company’s insurance option. As you exit the airport, you scoot though an intersection traffic signal that just turned yellow. You T-bone another vehicle in the intersection, seriously damaging that car and injuring a passenger.
- You are having an all-employee meeting at 10:00 AM. You meant to bring treats, but you forgot to pick them up on the way to work. So at 8:30 you ask employee Joe to take his personal car to run over to Starbuck’s and pick up coffee and donuts. Joe has an accident on the way home from Starbucks, injuring several individuals in the other vehicle.
- A client asks you to stop over. Your personal car is in the shop so you borrow employee Mary’s to drive to the client’s office. On the way you rear-end another car at a stoplight, damaging both cars and injuring the other driver.
It’s a litigious society in which we live. CLAIMANTS WILL SUE ANYONE AND EVERYONE FROM WHOM THEY MIGHT GET ANY FINANCIAL SETTLEMENT.
In cases 1, 3 and 4 above, the vehicles’ insurance will generally provide some coverage, because typically the vehicle’s coverage is primary. But that won’t necessarily protect your business or you (the business owner). And in case #2, sometimes your credit card company will provide coverage for damage to the vehicle, but not damage to other vehicles or for injuries to anyone.
In cases 1, 3 and 4 the damage and injury amounts could easily exceed the limit of insurance carried by the vehicle owners. As a result, your business will most likely be next in line to provide compensatory payments for the claims.
However, your company doesn’t have a separate business automobile insurance policy. So you and your company could take a very serious financial hit for any or all of these accidents, unless you carry Hired and Non-Owned Vehicle coverage.
Additionally, your business can be sued and held responsible (liable) for all or some portion of the damages and injuries caused in these accidents. In fact, the company can be sued even if an accident wasn’t yours or your employee’s fault and even if your company is ultimately found to have no liability. When this happens your company will be forced to hire an attorney to provide legal defense. Legal expenses are significant and can occasionally exceed accident damage and injury costs. So having protection for legal defense expenses is another critical reason to purchase Hired and Non-Owned Vehicle insurance coverage.
An important note to consider when purchasing insurance coverage for your company is that Hired and Non-Owned Vehicle coverage comes in two different flavors and those are typically purchased individually. The two types of coverage are Liability and Physical Damage.
Liability coverage pays for bodily injuries you or your employees cause in an accident, while using a borrowed, rented, hired or leased vehicle for business purposes. Physical Damage coverage is for accident damages to that borrowed, rented, hired or leased vehicle, while being used for business purposes.
There are some other considerations for the business owner whose company doesn’t own vehicles. If you have employees who use their personal vehicles in the course of your business (sales calls; miscellaneous errands; pick-ups or deliveries; etc.), you should definitely do the following annually:
- Require and verify that these employees’ vehicles are insured for liability, typically with limits no less than $100,000/$300,000.
- Run each of these employees’ motor vehicle records (MVRs). Employees with very poor driving records present a significant risk for business owners.
When you apply for Hired and Non-Owned insurance, your insurance agent/broker will ask questions to help determine the exposure and perhaps with which insurance carrier to place the coverage. Examples of questions you’ll need to answer include:
- Why are you requesting Hired and Non-Owner Vehicle coverage?
- If you hire, rent, borrow or lease vehicles from others
- what is the term
- are there hold harmless or additional insured clauses
- is there a written agreement?
- If you hire subcontractors, do you require certificates of insurance?
- Do you want Hired and Non-Owner Vehicle Physical Damage coverage?
- How often are non-owned vehicles used in your business?
- Do your employees drive their vehicles for your business? If yes,
- How often
- What limit of liability insurance do you require these employees to maintain?
- Will any non-owned vehicle be driven by anyone other you or your employees?
Conceptually Hired and Non-Owned Vehicle Insurance Coverage appears relatively simple. However, there are nuances that lead to my recommending that business owners’ use a qualified insurance agent/broker to help with the assessment process.
At the end of the day it’s all about protecting yourself and your business, so shop carefully!
Jonathan Farris is a retired insurance executive and president of InsuranceRescue Services, LLC, a property & casualty insurance consulting firm based in Madison, Wisconsin. Mr. Farris can be reached at firstname.lastname@example.org