BUSINESS AUTO CLAIMS THAT CAUSE PROBLEMS

1. BUSINESS AUTO CLAIMS THAT CAUSE PROBLEMS Terry L. Tadlock, CIC, CPCU, CRIS Independent Insurance Agents and Brokers of South Carolina

2. INTRODUCTION Each of the following are claim situations that have occurred or versions of claims we can see taking place based on decision of similar type claims. Each of these situations will be discussed in a claim scenario and then discussed using the appropriate policy language and endorsements needed. Some can be fixed others are gaps we may just need to make the insured aware.

3. HOW TO DETERMINE COVERAGE Is the auto involved a covered auto NO N O C O V E R A G E YES Is the person seeking coverage an “insured” NO YES Does any Liability Exclusion apply YES NO COVERED

4. Claim #1 – “Covered Auto” A Deceptive Term” Your insured owns Patterson Construction Company. They are a large general contractor in your city. The owner, John Patterson out of the goodness of his heart bought his granddaughter, Amanda, a new car. The car was titled in Amanda’s name. John has called your agency which insures all of Mr. Patterson’s personal and business insurance. Mr. Patterson has requested you add the new car to his business auto policy. Amanda’s husband Mark works as a foreman for Patterson Construction and will use the vehicle occasionally.

5. Claim #1 – “Covered Auto” A Deceptive Term” You have written a Business Auto policy with Liability coverage using Symbol 2, 8 and 9. The limit of liability is $1,000,000. 2 Owned "Autos" Only Only those "autos" you own (and for Liability Coverage any "trailers" you don't own while attached to power units you own). This includes those "autos" you acquire ownership of after the policy begins. 8 Hired "Autos" Only Only those "autos" you lease, hire, rent or borrow. This does not include any "auto" you lease, hire, rent, or borrow from any of your "employees", partners (if you are a partnership), members (if you are a limited liability company) or members of their households. 9 Nonowned "Autos" Only Only those "autos" you do not own, lease, hire, rent or borrow that are used in connection with your business. This includes "autos" owned by your "employees", partners (if you are a partnership), members (if you are a limited liability company), or members of their households but only while used in your business or your personal affairs.

6. Claim #1 – “Covered Auto” A Deceptive Term” Several months later Amanda is involved in an accident with another vehicle injuring two passengers seriously. Amanda is determined to be at fault. The injuries of the other parties total over 1 million dollars. Much to your surprise the insurance company had denied coverage. The carriers’ position is that Amanda is not an “Insured” under Patterson Constructions Business Auto policy and the vehicle involved in the accident was not a covered “Auto” under Patterson Constructions Business Auto Policy.

7. Claim #1 – “Covered Auto” A Deceptive Term” Question 1 – Do you agree with the company’s position that Amanda is not an “Insured” under the Business Auto policy?

8. Claim #1 – “Covered Auto” A Deceptive Term” Question 2 – Based on the Symbols language above, do you agree that the vehicle is not a covered “Auto?” Question 3 – What effect will this denial have on the Excess Liability policy for Patterson Construction? Question 4 – Would your answer concerning this claim change if the policy was written with Symbol 1? 1 Any "Auto"

9. Claim #1 – “Covered Auto” A Deceptive Term” Question 5 – Do you think this is a common occurrence with business owners today? How would the retail agent or company know about this exposure? Can you think of a solution to this problem? SOLUTIONS?

10. Claim #1 – “Covered Auto” A Deceptive Term” Review: CA 99 16 Hired Autos Specified As Covered Autos You Own Will this endorsement help?

11. Claim #2 – Employee Hired Auto “What Does It Really Do?” Your insured manufactures and distributes machine parts for a variety of farm machines. Your client has several sales persons that travel in their respective region of the country with the responsibility of selling their products. You have written their commercial package which includes a Business Auto policy covering their fleet of vehicles. Also, on occasion it is necessary that the sales person rent vehicles when traveling to a destination too far to drive. Realizing this exposure you have added Employee Hired Auto CA 20 54. You have reassured your client that this endorsement is needed to protect the company and the employee when renting vehicles.

12. Claim #2 – Employee Hired Auto “What Does It Really Do?” One of the sales persons is on a business trip with his supervisor seeing their largest customers. The sales person has rented a car in their own name for use on the trip. He will simply turn in his expenses at the end of the trip for reimbursement which is company policy. During the trip to see several clients they have taken the largest client to a nice dinner. After several drinks and a lot of food the supervisor decides to drive due to the amount of alcohol consumed by the sales person. On the way back to the hotel the supervisor has an at fault accident resulting in a law suit against the company and the supervisor.

13. Claim #2 – Employee Hired Auto “What Does It Really Do?” When the claim is filed with the insurance carrier they immediately issue a “Reservation of Rights” letter stating they will continue to defend this claim until further investigation is completed. Three weeks later a formal denial of this claim is issued.   Question 1 – Assuming the insured has symbols 2, 8 and 9 (same language as on the previous page) on the declarations page would this be covered claim?

14. Claim #2 – Employee Hired Auto “What Does It Really Do?” You have written a Business Auto policy with Liability coverage using Symbol 2, 8 and 9. The limit of liability is $1,000,000. 2 Owned "Autos" Only Only those "autos" you own (and for Liability Coverage any "trailers" you don't own while attached to power units you own). This includes those "autos" you acquire ownership of after the policy begins. 8 Hired "Autos" Only Only those "autos" you lease, hire, rent or borrow. This does not include any "auto" you lease, hire, rent, or borrow from any of your "employees", partners (if you are a partnership), members (if you are a limited liability company) or members of their households. 9 Nonowned "Autos" Only Only those "autos" you do not own, lease, hire, rent or borrow that are used in connection with your business. This includes "autos" owned by your "employees", partners (if you are a partnership), members (if you are a limited liability company), or members of their households but only while used in your business or your personal affairs.

15. Claim #2 – Employee Hired Auto “What Does It Really Do?” Question 2 – Is the Employee Hired Auto CA 20 54 the correct endorsement to use in this situation. Question 3 – Do you agree with the adjuster or have they made a terrible mistake? Let’s take a closer look at this endorsement and the potential problems that it may present.

16. Claim #2 – Employee Hired Auto “What Does It Really Do?” Review: CA 20 54 Employee Hired Auto Will this endorsement help?

17. Claim #3 – Employee Hired Auto CA 20 54 – “While We Are On A Roll” Now that you have seen the form and made your decision concerning the liability claim let’s go one step further. The rental car company has added to the employee’s American Express Platinum card the amount of the damages to the vehicle. The amount added was $26,000, the car was totaled. The desperate employee contacts his employer to have the claim filed with their Business Auto carrier (which by the way he is not very happy with right now).

18. Claim #3 – Employee Hired Auto CA 20 54 – “While We Are On A Roll” Question 1 - Should the business auto carrier pay the $26,000 physical damage claim? If so, what did you base your answer on?

19. Claim #3 – Employee Hired Auto CA 20 54 – “While We Are On A Roll” Let’s take the claim one step further. Assume no claim occurred on the way home from the restaurant. The trip was totally uneventful. But, after making the final visit to clients the supervisor tells the sales person that he is taking the rental car to visit his family that is only an hour away. He will return the car on Sunday and return to the office. The employee that rented the vehicle thinks it is a great idea. The supervisor drops his sales person off at the airport and heads to his family’s home. After a fantastic reunion the supervisor leaves for the airport on Sunday and unfortunately is involved in an accident and the rental car is destroyed.

20. Claim #3 – Employee Hired Auto CA 20 54 – “While We Are On A Roll” Question 2 – Will the employers Business Auto policy respond to this claim? Question 3 – The rental car contract is in the name of the sales person. When his American Express card is hit with $26,000 what will happen? Question 4 – Will either Personal Auto policy (sales person or the supervisor) help in this situation?

21. Claim #3 – Employee Hired Auto “What Does It Really Do?” INSURING AGREEMENT (PERSONAL AUTO POLICY) A. We will pay damages for "bodily injury" or "property damage" for which any "insured" becomes legally responsible because of an auto accident. Damages include prejudgment interest awarded against the "insured". We will settle or defend, as we consider appropriate, any claim or suit asking for these damages. In addition to our limit of liability, we will pay all defense costs we incur. Our duty to settle or defend ends when our limit of liability for this coverage has been exhausted by payment of judgments or settlements. We have no duty to defend any suit or settle any claim for "bodily injury“ or "property damage" not covered under this policy.

22. Claim #3 – Employee Hired Auto “What Does It Really Do?” PART D - COVERAGE FOR DAMAGE TO YOUR AUTO INSURING AGREEMENT A. We will pay for direct and accidental loss to "your covered auto" or any "non-owned auto", including their equipment, minus any applicable deductible shown in the Declarations. If loss to more than one "your covered auto" or "non-owned auto" results from the same "collision", only the highest applicable deductible will apply. We will pay for loss to "your covered auto" caused by: 1. Other than "collision" only if the Declarations indicate that Other Than Collision Coverage is provided for that auto. 2. "Collision" only if the Declarations indicate that Collision Coverage is provided for that auto. If there is a loss to a "non-owned auto", we will provide the broadest coverage applicable to any "your covered auto" shown in the Declarations.

23. Claim #4 – Employees As Insureds – Not As Broad As You May Think Coastal Realty is a commercial real estate company in your city. Coastal hires new sales persons as independent contractors, but after 1 year if goals are met they are moved to full time employee status. You have written a Business Owners Policy (BOP) for them as well as a Business Auto Policy for a few vehicles they allow key employees to use. After meeting with the owner of Coastal you realize that there are not enough fleet vehicles for all of the sales persons and many of them use their own cars when making sales visits with clients. You have explained that these employees although they would be covered under the Business Auto policy while driving a company owned vehicle would not be covered while driving their personal vehicles.

24. Claim #4 – Employees As Insureds – Not As Broad As You May Think 1. Who Is An Insured The following are "insureds": a. You for any covered "auto". b. Anyone else while using with your permission a covered "auto" you own, hire or borrow except: (2) Your "employee" if the covered "auto" is owned by that "employee" or a member of his or her household.

25. Claim #4 – Employees As Insureds – Not As Broad As You May Think The owner of Coastal finds this totally unacceptable and wants you to make sure all employees are covered under the Business Auto policy. To satisfy this request you add CA 99 33 Employees as Insureds to the Business Auto policy and assure the owner they will now be covered.

26. Claim #4 – Employees As Insureds – Not As Broad As You May Think A claim is reported to your agency a few weeks later. One of the employees while in their own vehicle was involved in an accident and it appears they were at fault. You report the claim to the company assuring the owner that it will all be taken care of. You are shocked when the denial of the claim comes. The company reports that in their investigation of the claim it was determined that the employee was using their car, but the car was not being used in business. The employee after a sales call went to a nearby casino to satisfy their addiction to gambling.

27. Claim #4 – Employees As Insureds – Not As Broad As You May Think Question 1 – Do you agree with the adjuster’s assessment of the claim? Question 2 – Isn’t the Employee As Insured Endorsement designed for this exposure? Question 3 – What do you tell the owner when you find out the employee did not have a Personal Auto policy because you assured them they were now insureds under the Business Auto policy?

28. Claim #4 – Employees As Insureds – Not As Broad As You May Think Review: CA 99 33 Employee As Insureds Will this endorsement help?

29. Claim #5 – BAP + DOC = PAP I Am Confused Jane Thompson is the managing partner of Thompson & Shaw, Inc., which is a large engineering firm that your agency insures. Jane is a very detailed business person and is very thorough before she makes a business decision. She has called your office with the following information:

30. Claim #5 – BAP + DOC = PAP I Am Confused Jane has been advised by her accountant and her attorney to title her personally owned vehicles in the name of the business and allow the business to pay for all expenses associated. Jane is concerned that her insurance may not adequately protect her. She currently has a Business Auto policy (Symbol 1 – Liability) for her office, which owns three other vehicles. She also has a Personal Auto policy covering the three vehicles she is considering moving to her BAP. She has been advised by her accountant and her attorney that this is a very common occurrence and that her insurance agency should be able to handle this request with no problems. The attorney even explains to her that this is the way he handles his insurance.

31. Claim #5 – BAP + DOC = PAP I Am Confused Questions you may want to ask: 1. Who in your agency would handle a request of this nature? 2. Could she title the vehicles in her businesses name but insure them under a PAP? 3. If she decides to move her personally owned vehicles to the businesses BAP, what would need to be done?

32. Claim #5 – BAP + DOC = PAP I Am Confused Questions you may want to ask: 4. What impact, if any, would this have on her Personal Umbrella policy? 5. What advice, if any, would you give her before making this change? 6. Let’s take a look at a few endorsements that you may want to consider.

33. Claim #5 – BAP + DOC = PAP I Am Confused Will any of these endorsements help? CA 99 17 Individual Named Insured CA 99 10 Drive Other Car Broadened Coverage For Named Individuals PP 03 06 Extended Non-Owned Coverage – Vehicles Furnished Or Available For Regular Use

34. BUSINESS AUTO CLAIMS THAT CAUSE PROBLEMS Terry L. Tadlock, CIC, CPCU, CRIS Independent Insurance Agents and Brokers of South Carolina