The Business Auto Policy, AKA The Commercial Auto Program
Warning! Warning! A plain vanilla Business Auto Policy (BAP) does not serve as a substitute for a Personal Auto Policy (PAP). Unless you're in a company car on business, the BAP doesn't cover liability and medical payments. This is not a cruel trick; it protects your company from liability for non-business accidents. So you borrow my car to pick up your child at soccer. No coverage.
If you insure your auto under a PAP, you and your family have liability coverage and medical payments for non-business accidents.
Can the BAP be endorsed to function like a PAP? Yes, there are two drive other car (DOC) endorsements to effect this change. One is for corporations and the other is for unincorporated businesses. Your agent can arrange the proper endorsement for your needs. However, don't avoid a PAP just to save premiums or for tax reasons.
Generally, a PAP can suffice for a sole proprietor with private, passenger-type vehicles only. A private passenger vehicle owned or leased by a corporation, partnership or other business organization is a different story. You must use a BAP.
Business Auto Coverage Forms
Most businesses carry the ISO Commercial Auto Program liability coverage along with a CGL. The auto policy and the CGL may be packaged together; however, they remain separate policies. The auto risk and the premises risk are not combined into one policy. The Business Auto Policy (BAP) has three close relatives:
- the Truckers policy
- the Garage policy
- the Motor Carrier form
These policies are very similar to the BAP. They are altered to meet the differing needs of those in a garage business and those in a trucking business.
A Garage policy is used for service stations, public parking facilities, trailer dealers and others involved with auto activities.
The Truckers policy is for those who offer for-hire trucking.
The Motor Carrier form is used for organizations that haul their own goods and the goods of others. This form also covers the interchange of semi-trailers. The federal act regulating motor carriers can make certain insurance coverages and limits mandatory. We'll look at basic business auto coverage.
Note. Auto here is used to mean a land motor vehicle, trailer, or semi-trailer designed for travel on public roads.
* Tip. It's not simple to insure business autos. Be sure to give your agent all the details of your business vehicle use. IMPORTANT: Don't forget to report any changes that occur.
Symbols & The BAP
No longer are we dealing with special, standard, and the like. The Business Auto Policy uses symbols 1 through 8 to indicate vehicle coverage for claims. Symbol 1 gives any auto coverage. The insured is covered for owned, rented, borrowed autos and an auto just used by the insured. This is the most common coverage.
Symbol 7, the other most common symbol, covers only specifically described autos. Newly acquired ones, under 7, are given coverage only if the insurer insures all owned autos. Symbol 7 also covers a new vehicle that replaces a covered one. This feature only works if the acquired auto is identified to the insurance company within 30 days.
Symbol 8 covers only hired, leased, rented or borrowed autos and not owned autos. That's good for a business that doesn't own an auto.
Symbols may be combined to serve certain coverage needs. Now, if the coverage symbol insures the auto, is the driver insured?
Who Is Insured Under A BAP?
You or the firm, as the named insured, is an insured for any covered auto. Anyone else using a covered auto you own, hire, or borrow with your permission is an insured. Exceptions? Of course.
the owner or anyone else from whom you hire or borrow an auto an employee if the covered auto is owned by that employee or his family persons working in an auto business that is not yours a partner if he or she owns the auto
These exclusions appear complex. In reality, they confirm that your policy doesn't cover other auto owners; in other words, get your own insurance for your own car or coverage for your garage business. WAIT, you and your business are still covered!
Employees as a category are covered as insureds by a BAP; however, they may not collect as claimants from the policy if:
- they are entitled to Workers Compensation benefits, or
- they are covered by Employer's Liability Insurance
This prevents double recovery and keeps Workers Comp the exclusive means of compensating an injured employee. As mentioned, we'll cover more later on Workers Compensation. Leased employees, but not temporary employees, are covered as drivers of a covered auto.
Some Answers For "When & Where Covered"
The coverage territory includes:
- the United States, its territories and possessions
- Puerto Rico
- transportation between those places
Special coverage exists for the growing business with Mexico. For you travelers, the BAP gives coverage anywhere in the world. This covers private passenger type autos leased, hired, rented, or borrowed without a driver. The time constraints on this are 30 days or less.
Note. The policy only pays if a lawsuit is held in the basic policy coverage territory.
One other territorial factor is covered by the BAP. This is the variation in auto insurance required by the 50 states and the other territory covered. The BAP automatically adapts to the financial requirements beyond the borders of your home state. United we stand—until it comes to drivers licenses, license tags and financial responsibility laws.
Expect to see three exclusions when you deal with commercial autos:
- intentional acts
Insurance excludes intentional acts almost universally. Insurance is not for helping people who have intentionally caused others bodily injury or property damage. Racing insurance coverage is available from what we call specialty markets. These markets specialize in providing insurance for unusual risks.
War acts are too great a risk for private insurance companies. After the World Trade Center disaster in 2001, insurance companies attempted to exclude terrorist acts. Why? Because they realized one event could be too costly for any insurance company. To insure these acts would require premiums to drastically increase. Some states have allowed a terrorist exclusion. Others have not. Perhaps the federal government will create a reinsurance pool to support private insurance companies. Maybe then insurance can offer you coverage for terrorist acts.
Coverage: One For You, One For Them
Two matters of coverage may surprise you. One regards property in your care, custody, and control. This property is not covered. Liability insurance pays for damages to others' property, not property you control. Items in your hands are rightfully a property, not a liability risk. Your property, bailee's and transportation insurance cover items in your care, custody, or control.
A person making a liability claim against you may be surprised to find out they cannot collect on "diminishing value."
Example. Say your truck negligently hits my brand new Belchfire 8, a car I just love. I claim that even though the car can be repaired, it will never be worth what it was before the accident. A number of jurisdictions do not allow diminishing value damages. This subjective loss of value does not affect the use value of the car.
A Little Pollution Coverage
The Commercial General Liability (CGL) coverage strictly limits pollution coverage. This is true with the BAP as well. Awareness of pollution problems has led to a dramatic rise in claims against polluters. The insurance industry was not prepared to support these claims. No premium had been collected and the extent of the losses was unknown. Thus, separate pollution coverage was developed. This meets the need of firms involved with polluting materials.
What pollution coverage does the BAP offer us?
Example. There's an accident on a road and gas or other vehicle fluids leak out. You are covered for cleanup charges required by government. This doesn't include claims arising from the spill of cargo or trash.
Example. Your truck is on the property of another to collect pollutants. It hits a pollutant container, spilling its contents. You are covered by the BAP. No coverage for pollutants on or in the truck. A little confused? When in doubt, get pollution coverage.
Supplementary Payments & Your Duties
Supplemental payments are what the insurance company will spend. They don‘t reduce the limits you use to pay claims. The insurer will pay the following:
- all of the court costs
- some money for taking time off of work to help
- the cost of a bail bond related to an accident covered by the policy. The limit on bail bonds is $2,000. The insurance company won't acquire the bond for you.
Your Duties Under The BAP
Give prompt notice of accidents that fall under BAP. Include whatever details you can about other people and property involved. Don't assume responsibility for an accident. Be sure you cooperate fully with the insurer. Part of this cooperation is forwarding legal papers from the other side immediately to the insurer. Another part is notifying the police of stolen property.
* Tip. Never admit liability to anyone. You may lose your coverage. Fault is a legal decision for the courts.
Medical Payments Coverage
Contrary to your PAP's Medical Payments section, BAP Medical Payments is an endorsement. This is because few businesses take medical coverage. Workers Comp usually takes care of that. It can be a good idea in these cases:
- if you are an individual named insured
- if your firm carries passengers
- if your business allows customers to drive your autos
How Do I Cover Vehicle Damage?
The BAP includes coverage for damage to your property, not just liability. Therefore it's not a monoline policy. The physical damage coverage is referred to as first party coverage. The liability coverage is referred to as third party coverage. The third party claimant is not a party to the insurance policy. So it's logical.
The physical damage coverage for your autos and their equipment is available. With this, you've got a choice of collision/overturn and comprehensive coverage for six named perils. The Specific Causes of Loss coverage includes:
- Fire, lightning, or explosion
- Windstorm, hail or earthquake
- Mischief or vandalism
- Sinking, burning collision, or derailment of any conveyance transporting a covered auto
Comprehensive coverage costs more but covers many more situations, like glass breakage and hitting an animal. If you want to save premium, take the six perils above. Or purchase a few of them.
The physical damage coverage has its own restrictions and conditions. One is the exclusion of tapes and records, speed measuring equipment, and other electronic equipment not used solely for the reproduction of sound.
* Tip. In this day of loads of electronic equipment in vehicles, consider carefully and specifically what items need insurance.
After Auto Damage: What Now?
As you stand looking at your wrecked vehicle you may say, "Give me the cash." But that is not your choice. The insurer has the option under the policy of paying, repairing, or replacing the damaged property. You can't abandon your damaged property to the insurance company. Does the insurer normally pay in cash? Sure, but unusual circumstances may call for a different settlement.
Subrogation is a common law doctrine. It says if someone pays for damage to your property, that person has the right to seek recovery from the other party. So if your insurance company pays for your damage caused by a third party, it has the right to have your help in going against them.
How To Choose BAP Endorsements
Boy, are there plenty of BAP endorsements. Remember also, there are the Garage form and the Trucker forms. The endorsements are designed to fit common situations. Here are some endorsement examples:
- Limited Mexico Coverage
- Rolling Stores
- Employee Hired Autos
- Auto loan/lease gap
Check with your agent for proper BAP insurance.