7 Reasons to NEVER Extend Business Auto Coverage to an Employee-Owned Auto

Section II (Liability Coverage) of the Business Auto Coverage (BAC) form describes who qualifies as an insured (II.A.1.). Employees using their personally-owned vehicle to conduct business on behalf of the named insured’s business are specifically excluded from coverage.

However, employment relationships and/or job requirements may exist that prompt a business entity (the insured) to attempt to specifically include an employee-owned auto as a covered auto on its BAC. And in so doing, the entity may extend status as an insured in the BAC to the employee/driver for the use of the specified auto (even though owned by the employee). Short of transferring the title to the business, the insured/employer can accomplish these two goals by:

Determining the legitimacy of the insured’s desire and need to extend coverage to an employee-owned vehicle and insured status to the owner requires the agent and underwriter to:

• Understand how the employee’s PAP responds to the “business use” of a personally owned auto;
• Determine if sufficient reason exists to extend such insured status to the vehicle and the owner;
• Require an appropriate lease agreement;
• Understand how entity type affects this decision; and
• Attach the appropriate endorsement.

Unless the underwriter is satisfied with the legitimacy of the need, the formality of the lease agreement and understands the risks involved (for the carrier and the insured), he or she should not extend the requested protection. In fact, there are seven reasons such extension should not be granted:

This Thursday, the Academy of Insurance hosts a class to specifically detail the issues created when you are asked to extend protection to a vehicle not owned by the named insured. View more information here and register today.