Casualty Insurance: Unit 4

December 10, 2012 by

Commercial Automobile Coverage

Overview

Commercial automobile insurance can be written as a monoline policy or as a part of the Commercial Package Policy. When issued as part of the Commercial Package Policy, the common Policy Declarations and Common Policy Conditions are joined by the Commercial Automobile Part, which consists of the following:

  1. One or more Commercial Automobile Declarations Forms.
  2. One or more of the following Commercial Automobile Coverage Forms:
    1. Business Automobile Coverage Form.
    2. Garage Coverage Form.
    3. Truckers Coverage Form.
    4. Motor Carrier Coverage Form.
  3. Any applicable endorsements that may apply.

Business Automobile Coverage Form

  1. The Business Automobile Coverage Form:
    1. Is divided into five sections (discussed after the Declarations).
    2. Is used to cover owned, leased, hired, rented, or borrowed private passenger automobiles, trucks, trailers, and semi trailers that are owned and used by businesses.
    3. Provides liability coverage for trailers being towed by a covered vehicle.
    4. Doesn’t provide automatic coverage for physical damage to trailers.
  2. Non-owned vehicles, including automobiles owned by employees while being used in the business of the insured, may be insured as a separate category.
  3. Rating of the Business Automobile Coverage Form includes the Personal Automobile Policy rating, the radius of operation, and vehicle weight.

Declarations

There are two business Automobile Declarations available:

  1. Business Automobile Coverage Form Declarations – This brief Declaration, which doesn’t duplicate information found in the Common Policy Declarations, is used when coverage is being written as part of the Commercial Package Policy.
  2. Business Automobile Declarations – This Declaration is used when the coverage is being written as a monoline policy.
    1. It includes information such as:
      1. Named insured and mailing address.
      2. Policy period.
      3. Coverages and limits of liability, including the premium for each coverage.
      4. Schedule of owed vehicles.
      5. Schedule of hired or borrowed automobiles.
      6. Non-ownership liability
    2. If a coverage doesn’t apply, that coverage’s section will be left blank.

Section I – Covered Automobiles

1. Description of Covered Automobile Designation Symbols

Symbol 1: Any automobile.
Symbol 2: Owned automobiles only.
Symbol 3: Owned Private Passenger Automobiles Only.
Symbol 4: Owned Automobiles Other Than Private Passenger
Automobiles only.
Symbol 5: Owned automobiles subject to No Fault.
Symbol 6: Owned automobiles subject to a Compulsory Uninsured Motorist Law.
Symbol 7: Specifically Described Automobiles – Automobiles described in Item Three (Schedule of Covered Automobiles the Insured Owns) of the Declarations for which a premium charge is shown.
Symbol 8: Hired Automobiles Only – Only those automobiles the insured leases, hires, rents, or borrows from an employee of the insured, or a member of the employee’s household, but only while used in the insured’s business or the insured’s personal affairs.
Symbol 9: Nonowned Automobiles Only – Only those automobiles the insured doesn’t own, lease, hire, or borrow, which are used in connection with the insured’s business. This includes automobiles owned by an employee of the insured, or a member of the employee’s household, but only while used in the insured’s business or the insured’s personal affairs.

Note: The main distinction between a hired and a Nonowned automobile is whether an employee owns the vehicle.

2.  Owned Automobiles Acquired After the Policy Begins

If symbols 1 – 6 are entered next to a coverage for automobiles in Item Two (Schedule of Coverages and Covered Automobiles) of the Declarations, then newly acquired automobiles are covered for the remainder of the policy period. If Symbol 7 is entered next to coverage, then newly acquired automobiles are covered only if the automobiles are replacing previously owned autos and the insurer is notified within 30 days of the acquisition.

3.  Certain Trailers, Mobile Equipment, and Temporary Substitute Automobiles

Trailers with a load capacity of 2,000lbs. Of less, is designated for travel on public roads, and mobile equipment, while being carried or towed by a covered automobile, are included. Also included are street sweepers, and self-propelled vehicles that have permanently installed equipment such as air compressors, cherry pickers, generators, pumps, and welding equipment. Power cranes wouldn’t be included.

Section II – Liability Coverage

  1. Coverage- is provided for bodily injury or property damage caused by an accident for which the insured is legally responsible. The insurer will also pay for any covered pollution cost or expense caused by an accident if there is either bodily injury or property damage caused by the same accident.
    1. Who is an Insured
      1. The insured for any covered vehicle.
      2. Anyone else while using an owned, borrowed, or hired vehicle with the insured’s permission, unless specifically excluded.
      3. Anyone liable for the conduct of an insured, but only to the extent of that liability.
    2. Coverage Extensions
      1. Supplementary Payments – In addition to the limit of liability, the insurer will pay, subject to specific limits, the cost of bail bonds, loss of earnings, interest on a judgment, etc.
      2. Out-of-State Coverage Extensions – The insurer will increase the limit of insurance for liability coverage to meet the compulsory limit of another jurisdiction where the covered automobile is being used.
  2. Exclusions – Liability coverages doesn’t apply to:
    1. Expected or Intended Injury.
      1. Contractual – Liability assumed under any contract or agreement.
      2. Workers’ Compensation – An employee that is injured in an automobile accident while on the company business would be covered under Workers’ Compensation.
      3. Employee Indemnification and Employers’ Liability.
      4. Fellow Employee – Bodily injury to a fellow employee of the insured arising out of the course of the fellow employee’s employment or while performing duties related to the conduct of the insured’s business.
      5. Care, Custody, or Control – Damage to property owned or transported by the insured, or in the insured’s care, custody, or control.
      6. Handling of Property- Before it is moved from the place where it is accepted by the insured, or after it’s moved to the place of final delivery by the insured.
      7. Movement of Property by Mechanical Device – Bodily injury or property damage resulting from the movement of property by a mechanical device, such as a conveyor belt, unless the device is attached to the covered automobile.
      8. Operations – Bodily injury or property damage arising out of the operation of mobile equipment.
      9. Completed Operations – Bodily injury or property damage arising out of the insured’s work, after that work has been completed or abandoned.
      10. Pollution.
      11. War.
      12. Racing.
  3. Limit of Liability – Regardless of the number of covered automobiles, insureds, premiums paid, claims made, or vehicles involved in the accident, the most the insurer will pay for the total of all damages and covered pollution cost or expense combined, resulting from any one accident, is the limit of liability shown in the Declarations.

Note: Section II – Liability Coverage is liability or third-party insurance; it won’t pay for damage to the insured’s own vehicle.

Section III Physical Damage Coverage

  1. Coverage
    1. The insurer will pay for a loss to a covered automobile or its equipment under:
      1. Comprehensive – Coverage includes physical damage to a covered automobile or its equipment from any cause, except colliding with another object or overturn. It doesn’t cover wear and tear, mechanical breakdown, or blowouts.
      2. Specified Causes of Loss – Coverage includes fire, theft, lightening, explosion, wind, hail, earthquake, flood, mischief, or vandalism, and derailment of a conveying vehicle. This coverage doesn’t include glass breakage.
      3. Collision – Coverage includes colliding with another object or overturn of an automobile.
    2. Towing – The insurer will pay, up to the limit shown in the Declarations, for towing and labor a covered passenger type automobile is disabled. Labor must be performed at the place of disablement.
    3. Glass Breakage – If an insured carries comprehensive (other than collision) coverage, the insurer will pay for glass breakage, loss caused by a falling objects or missiles.
    4. Coverage Extension – The insurer won’t pay up to $20 and up to a maximum of $600, for temporary transportation expenses. Transportation expenses begin 48 hours after the theft of the automobile. The insurer will also pay expenses for which the insured becomes legally responsible to pay for the loss of use of an automobile rented or hired as a result of physical damage to such automobile.
  2. Exclusions – The insurer won’t pay for loss caused by, or resulting from, any of the following:
    1. Nuclear hazard, war, or military action.
    2. Organized racing, demolition contest, or stunt activity.
    3. Wear & tear, freezing, mechanical or electrical breakdown, blowouts, punctures, or other road damage to tires.
    4. Tapes, records, CD’s, electric equipment, radar, or laser detectors. This exclusion doesn’t apply to permanently installed equipment and accessories used solely for the reproduction of sound.
    5. Loss due to diminution in value.
  3. Limit of Insurance – The most the insurer will pay for a loss, in any one accident, is the lesser of the actual cash value of the damaged or stolen property, or the cost of repairing or replacing the damaged or stolen property with property of like kind and quality.
  4. Deductible – The insurer’s obligation to pay will be reduced by the applicable deductible shown in the Declarations. Any Comprehensive deductible shown in the Declarations doesn’t apply to loss caused by fire or lightening.

Section IV – Business Auto Conditions

The following conditions apply in addition to the Common Policy Conditions:

  1. Loss Conditions – Appraisal, duties in the event of an accident, legal action against the insurer, loss payment, and transfer of rights of recovery.
  2. General Conditions – Bankruptcy; concealment, misrepresentation, or fraud; liberalization; on benefit to bailee; other insurance; audit; policy period, coverage territory; and two or more coverage forms issued by the insurer.

Section V – Garage Conditions

Glossary

  1. Automobile – A land motor vehicle, trailer, or semi trailer, designed for travel on public roads. Mobile equipment is only covered for liability when being carried or towed.
  2. Named Insured – An individual (example – employee), a corporation, or a partnership. A neighbor using a covered automobile with permission wouldn’t qualify as a named insured.

Garage Coverage Form

This form is designed to provide automobile liability and physical damage coverage, as well as general liability protection for business that are engaged in the sale, service, or storage of automobiles. Eligible businesses include automobile sales agencies, repair shops, service stations, storage garages, and public parking places. The Garage Coverage Form contains six sections:

Section I – Covered Automobiles

This section describes which automobiles are covered for each coverage. Automatic blanket coverage may be provided. Coverage is usually written on a blanket basis.

Section II Liability Coverage

This section provides bodily injury and property damage liability coverage for losses resulting from garage operations. In addition to Automobile Liability, this coverage includes Premises and Operations Liability, Product Liability, and Completed Operations Liability. This section doesn’t cover property in the care and custody of the insured, injuries covered by Workers’ Compensation, and liability arising from pollution or product recall. Completed Operations losses are subject to a mandatory $100 deductible.

Section III – Garagekeepers Coverage

This section provides coverage for physical damage to a customer’s care that is in the care of the insured. The insured may select the following coverages:

1. Comprehensive Coverage – This coverage is the same as Comprehensive Coverage under the Business Automobile Coverage Form.
2. Specified Causes of Loss – This coverage covers fire, lightening, explosion, theft, mischief, or vandalism.
3. Collision Coverage – This coverage is the same as Collision under the Business Automobile Coverage Form.
4. Garage keepers Co0verage on a Legal Liability Basis, Direct Excess Basis, or Direct Primary Basis – The insured may elect one of the following.
a. Legal Liability Basis – Coverage applies only if the garage is legally liable for damage.
b. Direct Excess Basis – Coverage applies regardless of liability, but only if the customer has no physical damage coverage of their own.
c. Direct Primary Basis – Coverage applies regardless of liability, and whether or not the customer has physical damage coverage of their own.
Note: Theft by an insured, employee, or stockholder thereof isn’t covered. This is no coverage in this section for defective parts or faulty work, which are covered in Section II – Liability Coverage.

Section IV – Physical Damage Coverage

This section provides Physical Damage Coverage for covered automobiles and their equipment specified in the Declarations. The coverage is for the insured’s own automobiles and is the same as physical Damage Coverage under the Business Automobile Coverage Form. When an automobile dealer has an auto inventory that fluctuates from month to month, they should cover the inventory on a Value Reporting Form basis.

Section V – Garage Conditions

These conditions apply in addition to the Common Policy Conditions and are essentially the same as conditions stated under the Business Automobile Coverage Form.

Section VI Glossary

1. Customer’s Automobile – A customer’s land motor vehicle, trailer, or semi trailer. It includes any customer’s automobile that is left with the insured for service, repair, storage, or safekeeping.

2. Garage Operations – The ownership, maintenance, or use of locations for garage business, and that portion of the roads, or other accesses, that adjoin those locations.

Truckers Coverage Form

This form is patterned after the Business Automobile Coverage Form with some modifications and is designed for those firms or persons that are in the business of transporting goods or commodities for another. The form is divided into six sections.

Section I – Covered Automobiles

This Section is similar to Section I of the Business Automobile Coverage Form, but also provides a symbol for trailers in the insured’s possession with a written agreement, and a symbol for the insured’s trailers while in the possession of anyone else under a written agreement.

Section II Liability Coverage

See the Business Automobile Coverage Form.

Section III Trailer Interchange Coverage

This is physical damage coverage for those trailers that the insured doesn’t own but has in their possession along with a written Trailer Interchange Agreement in which the insured assumes liability for loss to the trailer. Loss of use of such trailers isn’t covered.

Section IV Physical Damage Coverage

See the Business Automobile Coverage Form.

Section V Truckers Conditions

See the Business Automobile Coverage Form.

Section VI Glossary

1. Trailer – Includes a semi trailer or attachment used to convert a semi trailer into a trailer.
2. Trucker – Any person or organization engaged in the business of transporting property by automobile for hire.

Motor Carrier Coverage Form

This form is a variation of traditional trucker’s coverage developed to reflect certain changes in motor carrier regulation. It may, in some instances, provide a better coverage alternative for some carriers than the Truckers Coverage Form.

The main difference between this form and the Tuckers Coverage Form is the operating right granted by the Public Authority. For example, the Truckers Coverage Form says a trucker is someone engaged in the business of transporting property for hire, while a motor carrier is engaged in transporting property or passengers.

Selected Commercial Automobile Endorsements

Additional Insured – Lessor

1. This endorsement amends the insured to include persons or organizations shown as the lessor in the endorsement, but only with respect to liability arising out of the maintenance, operation, or use of leased vehicles.
2. Coverage excludes:
a. Any accident that occurs after the lease expires.
b. Coverage excludes losses arising out of the sole negligence of an insured or work performed in connection with leased vehicles.

Automobile Medical Payments Coverage

1. This endorsement allows the insured to purchase Medical Payments Coverage since the commercial automobile forms don’t automatically include this coverage.
2. Coverage is written with a limit per person, per accident, and pays up to the limit for necessary medical and funeral expenses resulting from bodily injury incurred within three years of an accident.

Uninsured Motorist Coverage

1. This endorsement allows the insured to purchase Uninsured Motorist Coverage since the commercial automobile forms don’t automatically include this coverage.
2. The coverage provides payment for bodily injury to the insured and vehicle occupants when struck by an uninsured driver who is legally responsible for the accident.

Deductible Liability

1. This endorsement imposes deductibles for bodily injury, property damage, or both.
2. This endorsement is sometimes chosen as a measure by the insured to help reduce liability premiums, or may be used as an underwriting requirement.

Drive Other Automobile Coverage

1. This endorsement is used when all of the named insured’s vehicles are covered under the Business Automobile Coverage Form, and therefore the carry no personal automobile coverage.

2. This endorsement extends coverage to the persons named thereon if they rent or borrow a nonowned automobile for personal purposes.

Employees as Additional Insureds

1. This endorsement provides coverage under the Business Automobile Coverage Form to protect employees as insureds.
2. This endorsement is primarily used in instances where employees use their own automobiles in the course of the insured’s business.

False Pretense Coverage

1. This endorsement covers the insured for loss caused by someone causing the insured to voluntarily part with a covered automobile by trick, scheme, or false pretense, or the insured acquiring an automobile from a seller who didn’t have legal title.
2. A covered automobile includes any automobile acquired by the insured.

Individual Named Insured

1. This endorsement is used to add family coverage to the Business Automobile Coverage Form.
2. This endorsement is commonly used where a sole proprietor or partner desires to their family members drive their business automobiles.
3. When purchased, this endorsement will apply to all family members who are residents of the same household.

Hired Automobiles Specified as Covered Automobiles You Own

1. This is an endorsement for insureds who hire automobiles on a long term basis.

2. The automobiles to be covered are specified in the endorsement, and there is no coverage for automobiles other than those specified.
3. The rates used for the hired automobiles insured are the same as though the insured who hires it.

Mobile Equipment

1. This is an endorsement that allows mobile equipment such as bulldozers, forklifts, and road construction equipment to be considered as covered automobiles.
2. This type of equipment wouldn’t be normally covered, except for liability arising while being carried or towed by a covered automobile.

Commercial Carrier Regulations

The Motor Carrier Act of 1980

The federal legislation authorizes the Department of Transportation (DOT) to enforce the financial requirements for motor carriers. The DOT has ruled that a motor carrier must either carry an insurance policy of certain minimum limits, or post a surety bond representing certain financial stability criteria when transporting passengers or cargo. The most common approach is the purchase of insurance.

1. Common carriers owe a higher degree of care to their passengers than other operators of motor vehicles do to their passengers.
2. Legal liability of a common carrier for damages or loss of goods in its custody makes the carrier liable for all losses except those caused by certain specified perils.

The Endorsement for Motor Carrier Policies of Insurance for Public Liability (Form MCS – 90)

This endorsement provides evidence of financial responsibility, on behalf of the motor carrier, to the Interstate Commerce Commission (ICC). The endorsement must be included in any policy, and the policy must meet the DOT financial responsibility requirements, including:
1. No condition, provision, stipulation, or limitation contained in the policy will relieve the insurer from liability (absolute liability for the insurer).
2. If the insurer is required to pay an excluded loss (under the policy), it may seek reimbursement from the insured.
3. Coverage is in effect until terminated (continuous).
4. An insurer must give notice at least 35 days’ advance notice of cancellation.

[mtouchquiz 22]

Filed Under: Casualty Insurance