​​Commercial Auto Liability Insurance: Ensuring Coverage in a Hard Market​

Auto claims today simply cost more money than ever to adjudicate. Medical inflation and rising healthcare costs mean the average bodily injury claim from an auto accident will be more costly than in prior years. Enhanced in-vehicle technology, coupled with supply chain issues, have led the physical damage portion of claims to rapidly rise due to higher costs and longer repair times. This also affects supplemental claim costs like rental car reimbursement. As organizations with fleets of all sizes face potential shock loss exposure and the effects of the hard auto liability market, it’s essential for them to understand the auto coverage they currently have, any coverage gaps, and options for extra protection.

Auto Liability: Determining Coverage

Automobile liability insurance, a core component of the commercial automobile insurance policy, covers businesses for at-fault accidents that cause bodily injury or property damage to third parties. While it has a very broad coverage trigger that boils down to being held legally responsible for the automobile, the commercial auto policy is complex and often misunderstood. In determining coverage, there are four questions to review:

• Are you legally responsible? 

• Is the person seeking coverage an Insured? 

• Is the auto involved a Covered Auto? 

• Do any policy exclusions apply?

To determine if a vehicle is a covered auto, one must refer to the auto symbols. You’ll need to discuss the selection of coverage symbols with your broker to best match coverage to your exposures and avoid any coverage gaps.

Breaking Down Auto Symbols

Auto symbols are numeric codes used to specify the types of vehicles covered. These symbols help define the scope of protection for businesses that use vehicles for commercial purposes. The coverage symbols are defined in the Description of Covered Auto Designation Symbols section, and the symbols covered in the policy can be found on the declaration page.

The declaration page will therefore tell you what vehicles are covered via the associated coverage symbol, if the coverage includes liability only or physical damage (comprehensive/collision), the policy limits, the premium, and if there is personal injury protection (PIP) and/or auto med pay. Let’s define the coverage symbols:

Hired & Non-Owned Auto (HNOA) Coverage: An Explainer

Two of the most misunderstood coverages are hired auto and non-owned auto, or Symbols 8 and 9. This coverage is an excess coverage, meaning it applies excess of other valid and collectible insurance. For example, it could sit excess of the employee’s personal auto coverage or the rental car counter insurance, which would respond on a primary basis.

In its unendorsed form, the coverage only responds to protect the first named insured, which in a commercial policy is the business. To fill some of the coverage gaps inherent to the commercial business auto policy, we highly recommend that any commercial auto liability policy be endorsed with two coverage enhancements: “Employees as Insureds” and Employee Hired Auto.”

• Employees as Insureds extends liability coverage to the individual—still in an excess capacity—while using their own personal auto on behalf of their employer and in the course and scope of their job duties.
• Employee Hired Auto extends liability coverage on vehicles being used for business but rented in an employee’s name—a common practice. It can also provide primary physical damage coverage on rented vehicles by treating them like a covered auto owned by the insured.

With increased loss activity on hired and non-owned autos, underwriters are treating the coverage with more scrutiny, and premiums associated with the coverage have begun to increase. It is more important than ever to double-check coverage symbols on the declaration page to ensure your business is receiving the coverage it needs to adequately protect against hired and non-owned auto exposures.

Contingent Auto Liability: Providing Extra Protection

One non-owned exposure that has become an industry buzzword is contingent auto liability.

In the evolving world of insurance exposures, many companies have had to navigate new insurance issues, and contingent auto liability is no exception. 

Companies that use third-party haulers and non-owned autos have historically relied on the insurance maintained by those contracted drivers. However, given nuclear verdicts and a litigation environment where all parties tend to be named in a lawsuit stemming from an accident, those policies are not always sufficient in protecting the hiring company. This is where contingent auto liability policies can come into play.

Contingent auto liability coverage is specifically designed to provide legal liability protection to a third party relating to the use of a commercial vehicle where they are not the driver. Compared to a traditional auto liability policy, which covers the vehicle owner, contingent auto liability applies to a vicarious liability—where one party is held legally responsible for the actions of another. It is typically triggered when the owner’s auto liability limit is insufficient and acts as excess coverage.

In a recent case, a large lumber company faced a significant claim after a trucker, hired through a third-party trucking company, was involved in a fatal accident while hauling its products. The company had secured contingent auto liability coverage for its third-party hauling exposures, and as the broker, we placed the insurer on notice to protect the company.

Although the most common scenario we see is with third-party trucking companies, contingent auto liability can apply in other areas as well. For one of our transportation clients that uses technology to connect those seeking transportation with subcontracted drivers, we have seen a rise in auto claims and lawsuits. In most cases, the subcontractors/drivers have their own auto insurance, but the transportation firm can still have its own exposure for vicarious liability and/or negligent hiring. In addition, if the subcontractors’ limits are not adequate and are exhausted, the firm could have excess exposure. Our client does not own or operate the vehicles, so the corporate auto liability program doesn’t apply. This is where contingent auto liability comes into play.

There can be some coverage overlap between standard commercial general liability (CGL) policies and contingent auto liability policies. Standard CGL policies intend to exclude auto accidents, but these types of claims don’t fit squarely into the exclusionary language. This is because in most cases, the auto involved is not “owned or operated by or rented or loaned to any insured” as required for the auto exclusion in the standard policy language to apply. However, relying on a standard CGL policy to cover contingent auto liability claims can be detrimental as these policies are not specifically designed to address auto accidents involving third-party vehicles.

Given that this exposure continues to evolve, there is increased scrutiny by underwriters, and the resulting claims can be tricky. Involve your Woodruff Sawyer team early in the claims process to help you navigate them.