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Construction Insurance Bulletin


By September 1, 2009No Comments

Businesses have their employees travel on company business every day. A sales manager spends three days on the road visiting key customers. A hardware store employee drives to a wholesaler’s warehouse to pick up parts on order. An architect drives to a client’s location to review drawings for a proposed building renovation. Often, the employees drive their own vehicles on these trips. The business probably has its own Auto insurance to cover it should an employee have an accident while traveling on company business. What coverage does the policy provide for the employee?

If an employee causes injuries or damage to someone else while driving on company business, his own Personal Auto insurance policy will actually be first in line to pay the bills. A standard Personal Auto policy covers on a “primary” basis liability for accidents involving vehicles owned by the policyholder. This means that, if two or more policies cover the same loss (for example, a Personal Auto policy and a Business Auto policy), the personal policy pays for the loss until its insurance limits are exceeded. For example, if the amount of the loss is $500,000 and the Personal Auto policy provides Liability insurance for bodily injuries of up to $250,000 per person, the personal policy will pay all of its $250,000. The Business Auto policy will pay the remaining $250,000.

The personal policy covers the business as well as the employee. The standard personal policy covers any person or organization with respect to their legal responsibility for the employee’s acts or omissions. Suppose an employee, while driving on business, gets in an accident and severely injures the other driver. The court awards the other driver $500,000 and decides that the employee and the employer share responsibility, 50% each. The employee’s Liability insurance has a limit of $250,000 for injuries to one person. It will pay the full $250,000 — $125,000 each for the employee and the business.

Now coverage shifts to the Business Auto policy. Assume that this policy’s Liability insurance has a limit of $1 million for all injuries and damages from any one accident. It will pay $125,000 to cover the business’s liability for the accident (the business’s $250,000 share of the verdict minus the $125,000 paid by the employee’s policy). However, it will not pay the remaining $125,000 the employee owes. The policy’s terms state that it does not cover an employee if the auto involved in the accident is owned by the employee or a member of his household. The employee will be forced to pay the remainder out of pocket.

An employer that wants to protect its employees from situations like this can buy coverage for an additional premium based on the number of employees. A policy change (also called an “endorsement”) titled Employees As Insureds does just what the title implies: It insures employees for their liability while using their own cars. Even with this endorsement on the policy, the Business Auto policy will still pay only after the employee’s own insurance is used up. However, the employee will have coverage under the business policy for larger losses.

Any organization whose employees use their own cars in the business should discuss buying this additional coverage with our agency. Buying the endorsement will protect employees but might also hurt the organization’s loss record, which could result in higher premiums in the long run. Each organization must decide whether the benefits outweigh the risks. Regardless of the decision, this is coverage every organization should consider.