Methods of insuring

Coverage symbols

Covered autos

Persons insured

Covering lessor's interests

Contractual liability

Other insurance

Rating information

General Information

As a matter of convenience, the provisions for coverage on hired and borrowed autos are built into the Business Auto Coverage Form (BAP), . Coverage is activated by indicating the appropriate numerical symbols and completing the necessary schedules of hired auto coverages and premiums found in the Business Auto Declarations, CA DS 03 11 20.

As a matter of convenience, the provisions for coverage on hired and borrowed autos are built into the Business Auto Coverage Form (BAP), CA 00 01 11 20. Coverage is activated by indicating the appropriate numerical symbols and completing the necessary schedules of hired auto coverages and premiums found in the Business Auto Declarations.

However, the BAP's treatment of hired autos coverage is complicated by the fact that there is no one symbol for insuring hired and borrowed autos that is always correct for each and every situation. The correct treatment may also depend on the terms of any applicable lease or rental agreement.

Methods of Insuring

There are two basic approaches to insuring hired and borrowed autos under the Business Auto Coverage Form.

The more obvious approach, utilizing coverage symbols for either "any auto" (symbol 1) or "hired autos only" (symbol 8), provides blanket insurance on any autos leased, rented, hired, or borrowed by the named insured, other than an auto belonging to an employee or partner of the named insured. (The symbols can be used to signal liability insurance; liability coverage for the hired auto is excess over any other collectible insurance on the hired auto; for hired auto physical damage coverage, any covered auto hired or borrowed by the named insured is deemed to be a covered auto owned by the named insured and thus, insured on a primary basis.)

The other approach is to insure hired/leased autos as though they were owned autos. This approach is usually reserved for leased autos upon which the insured is required to provide primary insurance. Coverage is effected by describing the leased auto in the Lessor—Additional Insured and Loss Payee endorsement (CA 20 01 11 20), which states that the described auto is to be considered a covered owned auto, thus making coverage primary. Additionally, the endorsement provides owned auto status to any substitute, replacement or extra auto needed "to meet seasonal or other needs" that is subject to a lease or rental agreement that requires primary insurance be on the part of the named insured.

Another endorsement, CA 99 16 10 13, can be used in place of CA 20 01 for purposes of designating hired, borrowed, or leased autos as owned autos. However, endorsement CA 99 16 has no provision for substitutes or replacements for described autos. Other differences between the two endorsements are discussed later under the heading "Covering Lessor's Interests".

These two approaches of insuring hired autos are not mutually exclusive. A firm that insures a leased auto as an owned auto can also purchase blanket hired autos coverage (using symbol 8) to insure hired or borrowed autos that are not subject to an agreement that calls for the insured to carry the primary insurance on the hired autos.

Coverage Symbols

As noted above, blanket liability coverage on hired and borrowed autos can be arranged through the use of either symbol "1″ ("any auto") or symbol "8″ ("hired autos only"). Most insureds would probably prefer to have their auto liability coverage through symbol "1″, even though symbol "1″ carries a higher premium than the other designation symbols. Because symbol "1″ covers "any auto," there is no artificial separation of coverage for owned autos, hired or borrowed autos, and other nonowned autos, as there is when owned autos are insured through symbol "2″, hired autos through symbol "8″, and nonownership liability through symbol "9″. Consequently, the possibility of any gaps between these coverages is eliminated. Moreover, symbol "1″ insures owned autos on a fleet automatic basis—newly acquired autos are considered covered autos and need not be reported for the remainder of the policy period.

Even though the ISO commercial lines manual imposes no ironclad restrictions on the use of symbol "1″, many company underwriters limit the availability of the symbol in the coverage of physical damage; these underwriters prefer the use of symbol "8″. For example, an insured desiring liability and physical damage coverage on hired and borrowed autos might have symbol "1″ for liability coverage and symbol "8″ for collision and comprehensive. In any case, the symbols used to identify the coverages under the auto form have to be the result of an agreement between the insured and the insurer.

Covered Autos

When liability insurance is arranged on an "any auto" basis through symbol "1″, hired and borrowed autos are included as covered autos without requiring any specific reference to them. When symbol "8″ is used for either liability or physical damage coverage, a definition of "hired autos" determines what autos qualify as covered autos. The definition includes any auto leased, rented, hired, or borrowed by the named insured, except for an auto hired or borrowed from an employee or partner or members of their households. (The named insured's liability for use of employees'  or partners'  autos is insured through either symbol "1″ or symbol "9″.)

Hired autos coverage using symbol "1″ or symbol "8″ provides blanket coverage. Meaning, any vehicle fitting the policy definition of "auto" that the named insured hires or borrows is automatically covered without being described in the policy. The policy definition of "auto"—a land motor vehicle, trailer, or semitrailer (other than mobile equipment) designed for travel principally upon public roads—is quite broad.

Even when an insured does not carry hired autos liability coverage using symbol 8, the BAP extends covered auto status for purpose of liability insurance only to any trailer (including a hired trailer) with a load capacity of 2,000 pounds or less and designed for travel on public roads, and to mobile equipment (including hired equipment) while being carried or towed by a covered auto. Coverage is extended further to any auto not owned by the named insured while used with the permission of the owner as a temporary substitute for a covered auto that is owned by the named insured and that is out of service. The only condition is that the policy must provide liability insurance of one kind or another—not necessarily hired autos liability insurance.

It can be noted that the named insured's liability arising out of the operation of hired or borrowed mobile equipment, apart from the coverage described above for mobile equipment in tow, is not covered under the basic provisions of the BAP, because mobile equipment is excluded from the definition of "auto." Liability due to the ownership or use of mobile equipment, whether owned, hired, or borrowed, is ordinarily covered under the general liability coverage form.

Persons Insured

The persons insured for "hired autos" are the same as for covered autos owned by the insured (as long as there are no endorsements attached that change the "Who Is An Insured" section of the BAP): the named insured; other permissive users, such as employees; and persons or organizations responsible for the conduct of the named insured or a permissive user. The exclusions applicable to persons insured are discussed elsewhere in this tab; see Business Auto Form—Liability Coverage. 

Especially relevant to hired autos coverage is an exclusion that applies to "the owner or anyone else" from whom the named insured has hired or borrowed a covered auto. "Anyone else" could be a lessee of an auto who in turn sublets or loans it to the named insured. There is one exception; the owner or anyone else from whom the named insured has hired or borrowed a covered auto is an insured if the covered auto is a trailer connected to a covered auto owned by the named insured.

Covering Lessor's Interests

Because of the exclusion just discussed, the owner or anyone else from whom the named insured has hired an auto (e.g., a lessor) cannot rely upon the named insured's auto coverage form for liability insurance protection. However, a lessee's coverage form can be amended by either of two endorsements to make the lessor an insured. These are the same endorsements used to insure hired autos as owned autos, CA 20 01 10 13 and CA 99 16 10 13, discussed above. In the special situation where the named insured leases an auto from one of its employees, there is a third endorsement, CA 99 47 10 13, Employee as Lessor, that can be used to make the employee an insured.

Endorsement CA 20 01 gives insured status to the lessor named in the endorsement, but only with respect to any leased auto covered by the endorsement; however, the definition of leased auto is expansive. It includes the auto listed in the endorsement, or an unlisted substitute or replacement auto or an extra auto needed to meet seasonal needs, under a lease or rental agreement that requires the named insured to provide direct primary insurance for the lessor. Endorsement CA 99 16 declares that the owner or lessor from whom the named insured rents or leases the auto scheduled in the endorsement is an insured, but only for bodily injury or property damage resulting from the acts or omissions by the named insured, its employees or agents, or any person (except the owner or lessor) operating an auto with the permission of the named insured or its employees. And, unlike CA 20 01, endorsement CA 99 16 makes no provision for the leased auto to include a substitute or replacement for the scheduled auto.

When a lease requires the lessee to provide direct primary insurance, there is usually also the requirement that the lessor be named as loss payee in the lessee's insurance. Endorsement CA 20 01 includes a loss payable clause for that purpose. The clause stipulates that insurance for physical damage to a leased auto will be paid to the named insured and the designated lessor, as their interests may appear. The clause also notes that the insurance covers the interest of the lessor unless the loss results from fraudulent acts or omissions on the named insured's part; and, if the insurer makes any payment to the lessor, the insurer obtains the lessor's rights against any other party.

There is also a cancellation clause in which the insurance company promises to mail notice to the lessor if the policy is cancelled by either the company or the named insured.

Endorsement CA 99 16 does not contain a loss payable clause or a cancellation clause.

Once a lessor obtains insured status under its lessee's coverage form, the lessor's own auto insurance is customarily endorsed either to exclude autos covered by the lessee's insurance or to make the lessor's coverage contingent upon failure of the lessee's policy to cover a claim against the lessor. The various endorsements used to tailor the auto coverage form to the needs of auto leasing and rental concerns are discussed elsewhere in this tab. See  Automobile Leasing or Rental Concerns.

If the insured leases a car from one of its employees, the employee can be made an insured under the employer's policy through endorsement CA 99 47 10 13. The endorsement also states that the leased car is considered a covered auto that the named insured owns, and not one that the named insured hires or borrows, resulting in the leased car as being covered on a primary insurance basis.

Contractual Liability

Many automobile leases and rental agreements contain hold harmless agreements whereby the lessee agrees to indemnify and hold harmless the lessor against all claims arising in connection with the vehicle's use. The coverage for such liability assumed under contract is discussed elsewhere in this tab. See Business Auto Definitions; and Business Auto Form—Liability Coverage.

The insured's assumptions of the lessor's liability to others is not to be confused with contractual obligations to return the leased auto in the same condition as when leased, less ordinary wear and tear. In the latter type of agreement, the insured has not assumed the lessor's liability to others but has only agreed to be responsible for any extraordinary damage done to the vehicle while it is in the lessee's care. Consequently, contractual liability insurance is inappropriate for that exposure, but rather such obligations are insured through the purchase of hired autos physical damage coverage. As discussed earlier, that coverage can be arranged by entering symbol "8″ next to whatever physical damage coverages are desired, or by scheduling the hired auto as an owned auto under endorsement CA 20 01 or endorsement CA 99 16.

Other Insurance

Liability insurance on hired or borrowed autos, whether signaled by symbol "1″ or symbol "8″, is excess over any other collectible insurance, unless the auto is a trailer connected to a covered auto owned by the named insured, in which case the coverage on the entire unit is primary. If a hired or borrowed trailer is attached to a hired or borrowed auto, the unit has excess coverage. If primary liability insurance is desired on hired autos, the hired autos must be specifically insured as owned autos, as described earlier.

For hired auto physical damage coverage, any covered auto hired or borrowed by the named insured is deemed under the BAP to be a covered auto owned by the named insured. This status as an "owned" auto means that the hired or borrowed auto has primary insurance coverage under the business auto form. Thus, if the named insured borrows a friend's auto and damages it, any amounts paid for that damage will be on a pro rata basis with the insurance of the friend.

The business auto form's liability coverage is primary for any liability assumed under an insured contract. Insured contract is a defined term that closely tracks with the definition found on the commercial general liability coverage form. However, note that an insured contract under the BAP includes a contract or agreement entered into, as part of the named insured's business, pertaining to the rental or lease by the named insured or any employees, of any auto; but, if a driver in included along with the leased or rented car, the agreement is not an insured contract.

Rating Information

The Business Auto Declarations describes in Item Four how the premium is arrived at for both liability coverage and physical damage coverage.

For liability coverage, the cost of hire rating basis for autos used in the motor carrier operations of the named insured is based on the estimated annual cost of hire for all states. For autos used in the named insured's motor carrier operations, cost of hire means the following: the total dollar amount of costs incurred by the named insured for the hire of automobiles, including trailers and semitrailers; and, if not included in part one, the total remuneration of all operators and drivers' helpers of hired autos whether hired with a driver by lessor or an employee of the lessee, or any other third party; and, the total dollar amount of any other costs (for example, repair, maintenance, fuel) directly associated with operating the hired autos whether such costs are absorbed by the insured, paid to the lessor or owner, or paid to others.

For liability coverage for the autos not used in the named insured's motor carrier operations, the cost of hire rating basis is the estimated annual cost of hire for each state. In this instance, the cost of hire means the total amount the named insured incurs for the hire of autos not owned by the named insured (not including autos the named insured borrows or rents from partners or employees of their family members). Cost of hire does not include charges for services performed by motor carriers of property or passengers.

For physical damage coverages, the cost of hire rating basis for all autos is the estimated annual cost of hire for each state. The cost of hire means the total amount the named insured incurs for the hire of autos not owned by the named insured (not including autos the named insured borrows or rents from partners, employee, or their family members). The cost of hire does not include charges for any auto that is leased, hired, rented, or borrowed with a driver.

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