What are Non-owned Autos?
Under the standard commercial auto policy, non-owned autos are defined in terms of what they are not. Non-owned autos means "autos you do not own, lease, hire, rent or borrow that are used in connection with your business". Autos that you lease, hire, rent or borrow are considered hired autos. Thus, non-owned autos are vehicle other than those you (the named insured) own or hire. Non-owned autos include vehicles used in your business that are owned by your employees, partners, members (if you are a limited liability company) or members of their households.
Some businesses make extensive use of vehicles owned by employees. For instance, a company may employ a large sales force and require all sales employees to drive their own autos when making sales calls on clients. Other businesses rely on employee-owned vehicles only occasionally. No matter how often your company uses them, it is important to make sure that non-owned autos are covered under your commercial auto policy.
The term non-owned auto may include a vehicle owned by virtually anyone as long as it is used in your business. For example:
- Volunteers for your charitable organization use their personal autos to ferry elderly people from their homes to doctor appointments.
- Members of your company, a professional association, use their personal autos to conduct association business.
- An employee of yours drives to work using his neighbor's car because the employee's car is in the shop. Later that day, you send the employee on a business-related errand (buying stamps at the post office) and the employee complies, using the vehicle he borrowed from his neighbor.
- A customer of yours will soon arrive at the airport but neither you nor your business partner is available to meet him; thus, your partner asks his friend (Bill) to pick up the customer using Bill's vehicle.
How could you be liable for accidents involving autos that don't belong to you? The answer has to do with vicarious liability. As an employer, you may be held vicariously liable for negligent acts committed by your employees. This liability extends to auto accidents your employees inadvertently cause while performing their jobs. You may also be held liable for accidents caused by people who are not employees (such as the partner’s friend in the above example), if they are driving a non-owned vehicle for the benefit of your business.
Who is an Insured?
You may elect to insure non-owned autos for liability under your commercial auto policy. If you have purchased this coverage, only you (the named insured) are covered for claims arising out of auto accidents involving non-owned autos. No one else is covered. This means that your employees are not insureds under your policy while driving their personal autos on your company’s behalf.
For example, suppose that Barbara, an employee of yours, is running an errand for you using her personal auto. Barbara has completed the task and is on her way back to your office when she runs a stop sign. Barbara broadsides another car, injuring its driver. The driver later sues both Barbara and your company. Assuming your commercial auto policy covers non-owned autos, the claim against your company should be covered. However, Barbara will have to rely on her own personal auto policy to cover the claim against her.
Employees as Insureds
You can elect to cover your employees under your policy as insureds for their use of non-owned autos. An endorsement called Employees as Insureds is available for this purpose. The endorsement will cover employees of yours for claims arising out of accidents that occur while employees are driving their personal vehicles on company business. Unfortunately, the endorsement applies as excess coverage over the employee’s personal auto policy. Why isn’t the endorsement primary?
The standard ISO commercial auto policy states that it provides excess liability coverage for any auto you don’t own. The endorsement does not affect this provision, so the coverage it affords applies on an excess basis.