Summary: This is an article written by Don Malecki, consulting FC&S editor, on the subject of symbol 1, which is used to denote coverage on the business auto policy for any auto. This covered auto designation symbol can be broad and troublesome to insureds, insurers, and producers. Of particular note is the question of whether auto coverage can ever be eliminated when insurance is written on an “any auto” basis for liability insurance, even when the commercial auto policy is amended with an endorsement deleting or suspending the coverage on one or more vehicles.

Topics covered:

How broad is the scope of symbol 1?

The “any auto” issues

Coverage suspension

Auto leasing

Conclusion

How Broad Is the Scope of Symbol 1?

Those who are insurance history buffs may be interested to know that it was in 1978 that symbols were first used to designate certain covered autos on the standard ISO business auto coverage form, truckers coverage form (withdrawn in 2013), motor carrier coverage form, and garage coverage form (withdrawn in 2013). At that time, there were nine such symbols with symbol 1, any auto, being the broadest, since it encompasses owned, non-owned and hired autos. While the use of symbols was new, the idea of covering any automobile was a carryover from the comprehensive automobile liability policy that was introduced in 1943 and replaced in 1978 with the introduction of the business auto policy.

What makes symbol 1 attractive (and which, incidentally, is limited to liability coverage) is that coverage applies from the time of an auto's acquisition to the end of the policy period without having to notify the insurer. This is made clear by section I, part B. of the BAP, Owned Autos You Acquire After the Policy Begins. This provision reads: If Symbols 1, 2, 3, 4, 5, 6 or 19 are entered next to a coverage in Item Two of the Declarations, then you have coverage for “autos” that you acquired of the type described for the remainder of the policy period.

The advantage of symbol 1 becomes apparent when it is compared to symbol 7, which applies to specifically described autos. With symbol 7, acquisitions after the policy begins are covered only if (1) the insurer already covers all autos that the named insured owns for that coverage, or it replaces an auto the named insured previously owned that had that coverage; and (2) the named insured tells the insurer within thirty days after the named insured acquires the auto that it wants the insurer to cover the auto for that coverage.

It is probably safe to say that as soon as a named insured acquires ownership of an auto, its acquisition is reported to the insurer via the producer simply because insureds seldom read their policies and are not familiar with the policy provisions dealing with acquisitions, among other requirements, or they simply report developments automatically, as a matter of practice. However, in the event an oversight occurs regarding notice, symbol 1, unlike symbol 7 provides a safe haven against possible denial of coverage in the event of an accident.

The “Any Auto” Issues

The fact that symbol 1 and symbols 2 through 6 provide a distinct advantage having to do with newly acquired autos is not without its disadvantages, particularly with regard to symbol 1, any auto. One example and two actual court cases may be helpful in clarifying these disadvantages.

In the example, assume the named insured has a large fleet of vehicles and a business auto policy using symbol 1 for liability insurance. The driving history of one operator is so bad that the underwriter insists coverage be placed in the substandard market or the entire policy will be non-renewed. Based on that ultimatum, the business auto policy is amended with a named driver exclusion and the particular vehicle operated by that person is likewise deleted from the policy. Assume now that the operator is involved in a serious accident which depletes the limit of that special auto policy. The plaintiffs then file suit against the employer (named insured) for excess coverage. The question here is whether the insurer of the business auto policy has any obligation to pay any part of the excess damages. The plaintiffs (and named insured who is confronted with a high monetary demand) argue that the business auto policy should pay the damages because the policy was written for “any auto”. This is particularly the case, since the auto involved in the accident was still owned by the named insured even though written under a separate policy by a different insurer. The question here is: does the insurer of the business auto policy have any obligation to pay those damages sought?

Coverage Suspension

It is probably easier for an insurer to deny coverage of an accident involving a deleted vehicle when the business auto policy is written on symbol 1 basis, than it is when liability coverage is merely suspended. Suspending auto liability coverage is popular among those businesses where the use of certain vehicles is seasonal. Instead of simply garaging certain vehicles with all coverages intact, the owner suspends the liability coverage, since on-road exposures do not exist. Physical damage coverage, however, is not suspended, since there is always the chance of physical loss from the weather or acts of violence even when the vehicles are being garaged.

While it is advantageous to suspend liability coverage, it also creates a potential problem of making sure that before the vehicles are once again put to use, the insurer by way of the producer (if there is a producer) is notified, so that coverage exists in the event of an accident. It is not unusual for the owner of suspended vehicles to simply forget that insurance has to be reinstated, if coverage is to apply.

A case on point is Acadia Ins. Co. v. American Crushing & Recycling, LLC, 475 F. Supp.2d 168 (2007), where the insurer issued both a commercial auto policy and an umbrella policy to the business (ACR) for a one year period commencing in 2004.

During the policy period, the producer received a request from ACR to suspend liability coverage under its auto policy for twelve of its dump trucks. The producer, in turn, sent the ACR representative a letter confirming their telephone conversation and stating that certain dump trucks will be suspended from coverage, and that what coverage would remain would be for comprehensive cause of loss. The letter also requested that the ACR representative sign the letter confirming this understanding and return it to the producer. The letter was signed, dated and returned. A change request was then activated which produced a refund credit, issued by the insurer, in the amount of $39,976.

Seven months after the suspension, an accident occurred with one of the dump trucks on July 29, and coverage, not unexpectedly, was denied by the insurer. While ACR (named insured) agreed that at no time between the inception of the suspension period and the time of the accident did it request reinstatement of any suspended coverages, it disputed whether the liability coverage was actually suspended. After the accident had taken place, moreover, the producer made a request to the insurer to reinstate coverage for that vehicle, including the other tri-axle dump trucks, whose coverage had been suspended, requesting that reinstatement be retroactively effected on July 1. The insurer refused. Later that same day, the insurer received a revised reinstatement request from the producer that the suspended coverages be reinstated effective July 29, the day of the accident. Neither of the producer requests mentioned the early-morning accident, and coverage was not reinstated.

In light of the insurer's denial to amend the liability coverage retroactively, litigation ensued. With regard to the policy, the two claimants raised the following issues: (1) the policy provided liability coverage for all of the named insured's (ACR's) vehicles designated with a symbol 1, and that symbol 1 vehicles were defined as “all autos”; and (2) whether ACR actually and properly requested suspension of liability coverage for the vehicle in question was disputed. Both of these arguments failed and the insurer's motion for summary judgment was granted by the U.S. District Court. As a result, the insurer was not obligated to defend or indemnify ACR under either its auto policy or umbrella policy, which, for auto insurance, applied on a “follow form” basis, which is customary practice.

The Case of Auto Leasing

Instead of writing insurance on certain vehicles with other insurers, or suspending liability coverage for a certain period, another situation where a potential problem can arise is when the named insured of a commercial auto policy leases one or more of its vehicles and requires the lessee to maintain the insurance. The question, in other words, is: Can an owner of autos covered under a commercial auto policy on an “any auto” basis still be answerable for excess liability coverage, despite contractual transfer of its insurance obligation to the lessee, if one of its (lessor's) autos, while under lease and insured elsewhere, is involved in an accident?

A case on point is Bituminous Casualty Corp. v. The Travelers Indemnity Co., No. 3:12-CV-0935-D (2013), which was a declaratory judgment action in which the insurer maintained that another insurer provided liability insurance on a truck-tractor and trailer involved in an accident.

Briefly, the facts are as follows: Travelers Indemnity Company (Travelers) issued a commercial auto policy to Big D Concrete, Inc. (Big D), which covered five tractors and five trailers. Big D leased these units to Frontier Mining and Materials, LLC (Frontier), which had a policy with Bituminous Casualty Corporation (Bituminous). It was one of these tractors and trailers leased to Frontier that was involved in an accident leading to a lawsuit. Under this lease, Frontier was required to insure against “all risks of loss or damage from every cause whatsoever”, and to bear the entire risk of loss or damage. After Big D executed the lease, it submitted to Travelers through an agent, a policy change request asking that Travelers delete these five tractors and trailers from the policy. In response, Travelers issued a change endorsement that amended the commercial auto policy to delete the five tractors and trailers from the policy. The endorsement also specified that “LIABILITY COVERAGE IS DELETED” for all ten vehicles.

Two weeks after the endorsement was issued, a Frontier employee was operating a Big D tractor and trailer in the course and scope of his employment and was involved in an accident with an automobile occupied by four persons. Frontier's insurer, Bituminous, provided defense to both Frontier and its employee involved in this accident. When the claimants sent a demand letter to Bituminous for the claims, arising from the accident, it, in turn, sent the letter to Travelers demanding that it defend and indemnify both Frontier and employee under the terms of the policy issued to Big D. After Travelers denied coverage a second time, Bituminous settled the claims on behalf of its named insured, Frontier and employee. Bituminous then filed a declaratory judgment action that the tractor and trailer operated by Frontier's employee (under lease) were covered by the policy and that the policy issued by Travelers was said to provide primary coverage.

Both Bituminous and Travelers agreed that, because Frontier was not a named insured on the Travelers policy, Travelers would only be liable if the tractor and trailer were to be considered a covered auto, and its use at the time of the accident was permissible. The following were considered to be insureds under the policy of Travelers: “a. You for any covered auto. b. Anyone else while using with permission a covered auto you own. . . .”

Bituminous moved for summary judgment, maintaining that the Travelers commercial auto policy provided primary coverage for the tractor and trailer, and that Frontier and its employee were permissive users of the tractor and trailer at the time of the accident. Travelers, on the other hand, moved for summary judgment on three grounds: (1) the tractors and trailers were not covered autos because the endorsement eliminated them from coverage; (2) Frontier and its employee were not permissive users; and (3) regardless of liability under the policy, it had no duty to defend, because the underlying suit was never tendered to it (Travelers).

The first thing the U.S. District Court decided to do was to determine whether the tractor and trailer involved in the accident were covered autos under the policy. The Travelers policy identified autos that were covered by liability insurance by using the covered auto symbol 1. The Travelers policy stated, furthermore, that coverage applied only to “those autos shown as covered autos by entry of one or more symbols from Section I – Covered Auto of the Business Auto Coverage Form”. The policy's business auto coverage form defined symbol 1 as any auto.

The court explained that Big D leased five tractors and five trailers to Frontier pursuant to an equipment lease that required Frontier to insure the vehicles and bear all risk of damage or loss. Big D then requested that Travelers delete these five tractors and five trailers from the policy. Travelers issued an endorsement, which provided in pertinent part: “The Commercial Automobile Coverage Part is amended as follows: Delete Vehicle Number(s) (the list of the five tractors and trailers subject to the equipment lease with Frontier). Liability coverage is deleted as per attached schedule for vehicle number(s): (list of five tractors and trailers).”

Bituminous maintained that the endorsement issued by Travelers did not remove liability coverage for the five tractors and five trailers, because (1) the endorsement did not expressly amend either the policy's declaration that liability coverage applied to symbol 1 vehicles, or (2) because of the business auto coverage form's definition of symbol 1 as any auto. Because neither Big D's policy change request (to the Travelers policy) nor the endorsement mention symbol 1 or its definition, Bituminous contended that liability coverage continued to apply to symbol 1 vehicles, and that symbol 1 still meant any auto. Bituminous acknowledged that the Travelers endorsement deleted the five tractors and five trailers from the policy, but maintained that the endorsement merely deleted the premiums charged on the vehicles, instead of also removing them from liability coverage.

It also was asserted by Bituminous that, because the term “any auto” had no qualifications, liability coverage continued to apply, regardless of whether a vehicle was deleted from the policy or whether a premium was still being charged. This insurer proposed that, to remove liability coverage from the policy, it was necessary for the endorsement to change the definition of symbol 1. Construing the policy and endorsement together, as it must, the court held that they could be reconciled to mean that liability coverage applied to any symbol 1 auto, except the ones for which liability coverage was specifically deleted by the endorsement.

The court declined to adopt Bituminous' interpretation of the endorsement, i.e., that it merely deleted the premiums for the listed vehicles because this interpretation, at the very least, failed to account for the provision in the endorsement that stated that “liability coverage is deleted as per attached schedule.”

Bituminous contended that, although Travelers may have intended to terminate liability coverage, the failure specifically to amend symbol 1 created an ambiguity. The court responded, however, that there was no ambiguity here, because the policy and endorsement were not susceptible to more than one reasonable interpretation. To the extent there were to be a conflict between symbol 1's broad definition of any auto, and the endorsement's deletion of five tractors and five trailers, the court explained, the endorsement superseded the policy.

The court also stated that Bituminous cited no authority that supported its proposition that the endorsement needed to specify that it was amending symbol 1. In fact, the court added, the case Bituminous cited, Acadia Ins. Co. v. American Crushing & Recycling, LLC (discussed earlier), approved the same interpretation the court applied here.

The court also explained that the circumstances surrounding the endorsement further supported Travelers' interpretation. Big D requested the policy change for the five tractors and five trailers it leased to Frontier. The lease required Frontier to insure these vehicles and bear the risk of loss. Big D, the court added, likely asked Travelers to delete the five tractors and five trailers from liability coverage, because it was no longer necessary for Big D to bear the expense. The endorsement, the court added, also had the effect of returning some of the premiums to Big D, which further indicated—from the court's perspective—that the endorsement was intended to remove the vehicles from coverage. These circumstances surrounding the endorsement, the court said, corroborated that the intent of Big D and Travelers was to remove the listed vehicles from liability coverage.

In the final analysis, the court held that Bituminous failed to demonstrate that the tractor and trailer operated by the employee of the lessee (Frontier) at the time of the accident were covered by the policy issued by Travelers for Big D. The court found that the tractor and trailer had been deleted from liability coverage and, therefore, were not covered autos at the time of the accident.

Conclusion

It was not clear from Bituminous whether any argument was raised over the insurance requirement imposed upon Frontier having to do with “all risks of loss or damage from every cause whatsoever”. This is a phrase commonly associated with property or physical damage. In other words, what might have been intended here was for Frontier to obtain auto physical damage coverage, rather than coverage for liability as well. It is, of course, too late now, but it is worth keeping in mind and considering carefully what parties request, since clarity sometimes is missing.

It appears to make good sense that whenever vehicles are deleted from the business auto policy (or other commercial auto policy using the same symbols), to assume that coverage no longer exists, even though the policy is written subject to symbol 1 liability insurance. Otherwise, coverage on autos could never end as long as a policy is in force on a symbol 1 basis.

The fact that liability coverage is suspended on one or more vehicles on a policy still in existence should also be viewed as though the autos have been deleted by the policy if, for no other reason, liability coverage should not apply if the vehicle is used during the period of suspension. This has been the traditional way, in fact, that coverage has been suspended and the use of symbols to connote covered autos should not appear to change anything.

The idea that a commercial auto policy using the symbol system of 1 through 9 still should apply to accidents when covered autos are suspended or deleted from the policy is somewhat far-fetched.

It is has been suggested by some people that to avoid these kinds of arguments, what the underwriter should do when coverage is suspended or deleted for one or more autos when a policy is written subject to symbol 1 basis is to amend the policy by replacing symbol 1 with symbols 7, 8, and 9. One of the major disadvantages of this kind of change is that the policyholder no longer will have the opportunity to enjoy the newly acquired auto aspect that applies when the policy is written subject to symbol 1. The reason is that with symbol 7, a newly acquired auto is automatically covered (1) if the insurer already covers all autos that the named insured owns for that coverage or (2) the newly acquired auto replaces an auto already owned by the named insured for that coverage. Moreover, in either case, the insurer must be notified within thirty days of the vehicles acquisition. Changing from a symbol 1 to coverage subject to symbols 7, 8, and 9 may be viewed as a disadvantage by some people, but when one considers the cost and expense of litigation over the issue of whether a policy still applies to a vehicle whose coverage has been suspended or deleted, this amendment of coverage may have some merit.

Not to be overlooked with this kind of change from symbol 1 to symbols 7, 8, and 9, however, is the additional burden on the producer to make sure newly acquired autos are properly reported to the insurer. This is something that a producer does not have to be concerned with when the policy is written on a symbol 1 basis. Thus, producers, to the extent they have any influence on how the policy is written, may have to take this disadvantage into consideration. The problem is that no matter which way the auto policy is written, when an insured is found without coverage for some reason, the producer and its insurer will be viewed as another deep pocket, even though these fault-shifting attempts often are not justified.

Finally, one has to wonder what repercussions may befall those insurers who argue in litigation that coverage still applies on an auto where coverage has been suspended or deleted in order to make other insurers pay first. (See, for example, the Bituminous v. Travelers case where the insurer maintained that the endorsement deleting the autos merely deleted the premium charge, rather than removing the liability coverage altogether.) It would appear that insurers in this category cannot have it both ways. It is likely to hurt those insurers that argue this way and then need to take the opposite argument to keep from having to pay a claim.

Claims people, therefore, should ponder these kinds of matters before taking a stand for or against coverage.