Topics covered:

Need for coverage

How written

Covered autos

Employees and who is an insured clause

Special property damage exposure

Excess insurance

Rating information

Social service agencies

Need for Coverage

The coverage is best introduced by examining the principal purpose for which it is designed. Under the common law doctrine of respondeat superior, employers can be held liable for the negligence of employees or agents using automobiles on behalf of the employer even though such autos are not owned by the employer. If the employer carries hired autos coverage (see Insuring Hired And Borrowed Autos), the employer is covered for any liability arising out of employees' use of autos hired or borrowed by the employer. If, however, an employee-driven auto is owned by the employee or, perhaps, a member of the employee's household, the employer is not protected by hired autos coverage.

There is, of course, the possibility that the employer will be protected by the employee's auto insurance. Personal auto insurance covers not only the named insured and resident relatives but also any other person or organization legally responsible for the use of the insured automobile. However, even if the employee carries auto liability insurance with this provision, the employer cannot be certain of adequate protection in every case. The car driven by the employee at the time of loss may not be covered by the employee's policy; the employee's coverage may be voided by some action of the employee; or the employee's limit of insurance may be inadequate to properly cover the loss.

Nonownership liability insurance under the employer's policy assures the employer of having coverage for this nonowned auto exposure. Essentially, the insurance protects the named insured against its liability for bodily injury or property damage resulting from the use of nonowned autos other than those covered under hired auto coverage.

How Written

In the business auto coverage form, nonownership liability can be arranged through either of two coverage symbols. (See "Business Auto Form", Casualty & Surety, Auto section for a general explanation of the coverage symbols.) When symbol "1″ is used to signal liability coverage, the named insured is covered for its liability for bodily injury or property damage arising out of the use of "any auto." Coverage on "any auto" encompasses nonownership liability coverage without any further elaboration.

The other symbol for nonownership liability coverage is symbol "9″, which is designated "nonowned autos" coverage. In any instance in which symbol "1″ is not used, nonownership liability insurance can be arranged only through symbol "9″. An insured, for example, may have coverage on specifically described autos through symbol "7″ and on hired autos through symbol "8″; if, in addition, nonownership liability coverage is desired, symbol "9″ must be indicated alongside the other symbols chosen for liability coverage.

As a practical matter, many agents emphatically urge all of their insureds to purchase nonownership liability coverage, whether the company's employees (or others) are in the practice of driving their autos on company business or not. Virtually any business, even the smallest of firms, has a potential nonownership exposure which, however remote, can result in a devastating liability. Even an action so innocent, and random, as asking customer A to drop off a package at customer B's place can end with the insured facing a nonownership claim.