Author: Mike Edwards
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One of our commercial insureds called this morning with an unusual question and we’d like your view on how coverage would apply, or if there is a coverage gap we need to address. He owns a large construction company, and we write all of his insurance except worker’s comp. He plans on loaning his 25-year-old (non-resident, not an employee) daughter one of his company’s large pickup trucks (F-350) for a week so she can pull her horse trailer to Texas. She is getting married next month, and wants to go ahead and move her two horses to her fiance’s ranch.
“Our insured wants to know if his company is covered if there is an accident involving his daughter’s horse trailer while it’s being towed by one of his company pickup trucks. She just bought the second horse and the new, larger horse trailer, and this will be the first time she’s pulled it on a trip. The Dad is understandably a little nervous.
“Two issues we’re not clear on: (1) Would the BAP of the construction company apply for a liability claim, since the pickup truck is being used by a non-employee for non-business? Or should we add the construction company as an additional insured to the daughter’s auto policy? (2) Since the trailer is large enough to hold two horses, it certainly is over the 2,000 lb. limit in the BAP.
Interesting situation. As they say, kids are like boomerangs. They may go away, but they keep coming back, one way or another. If Dad thinks he is “a little nervous” about his daughter’s trip, just wait until he walks her down the aisle next month! Now that will make him nervous!
For the sake of discussion, let’s assume the Dad’s construction company is Smith Construction, Inc. (SCI), and the daughter is Jill. Assume the coverage forms discussed below are all ISO-based forms. Here’s how I see the coverage issues.
SCI Business Auto Policy
Issue #1: Who is an insured.
Excerpt from the BAP (CA 00 01 03 10) [see comments inserted]:
SECTION II – LIABILITY COVERAGE
1. Who Is An Insured
The following are "insureds":
a. You [SCI] for any covered "auto".
b. Anyone else [Jill] while using with your permission a covered "auto" you own, hire or borrow except:
[Ed. note: none of the exceptions listed applies to this situation.]
Comments: So long as Jill is operating the pickup with the permission of SCI, there is no requirement in the BAP that limits coverage only to SCI-related activities. Both SCI and Jill are insureds.
SCI Business Auto Policy
Issue #2: The 2,000 lb. trailer.
The 2,000 lb. trailer seems something of a 2,000 lb. gorilla, but is really just a misunderstood 200 lb. chimp. Here is the pertinent excerpt from the BAP for what might be called the “freebie coverage” for certain small trailers:
SECTION I – COVERED AUTOS
C. Certain Trailers, Mobile Equipment And Temporary Substitute Autos
If Liability Coverage is provided by this coverage form, the following types of vehicles are also covered “autos” for Liability Coverage:
1. “Trailers” with a load capacity of 2,000 pounds or less designed primarily for travel on public roads.
Comments: This freebie coverage for small trailers applies if the BAP provides any liability coverage under any symbol. It is important to note that while the freebie coverage only applies to small trailers, the coverage itself is very broad. Liability coverage would therefore apply for a small trailer with a load capacity of 2,000 pounds or less, regardless if the trailer is owned or non-owned, attached to any power unit or detached.
However, this isn’t the only place in the BAP with a reference to trailers. For starters, look at the definition of “auto”:
SECTION V – DEFINITIONS
B. “Auto” means:
1. A land motor vehicle, “trailer” or semitrailer designed for travel on public roads;
P. “Trailer” includes semitrailer.
In short, when the term “auto” appears in the BAP, it includes “trailers.” With that in mind, let’s review the BAP auto symbols as they apply to trailers. Here is a synopsis with [commentary].
Symbol 1 = Any “auto” [or trailer].
Symbol 2 = Owned “autos” [or trailers].
Excerpt: “Only those “autos” [or trailers] you own (and for Liability Coverage any “trailers” you don’t own while attached to power units you own).”
Symbol 4 = Owned “autos” [or trailers] other than private passenger.
Excerpt: “Only those “autos” [or trailers] you own that are not of the private passenger type (and for Liability Coverage any “trailers” you don’t own while attached to power units you own).”
Symbol 7 = Specifically described “autos” [or trailers].
Excerpt: “Only those “autos” [or trailers] described in Item Three of the Declarations for which a premium charge is shown (and for Liability Coverage any “trailers” you don’t own while attached to any power unit described in Item Three).”
Comments regarding trailer coverage:
Symbol 1 covers for any owned or non-owned trailer, declared or undeclared, attached to any power unit, or detached.
Symbols 2 and 4 cover any owned trailer, and any non-owned trailer while attached to an owned power unit. No coverage for a non-owned trailer if detached.
Symbol 7 covers specifically declared trailers, and any non-owned trailer while attached to a declared power unit. No coverage for a non-owned trailer if detached. Also, no coverage for an owned but non-declared trailer (except for those newly acquired, as provided in the BAP). Here is the provision in the BAP:
SECTION I – COVERED AUTOS
B. Owned Autos You Acquire After The Policy Begins
2. But, if Symbol 7 is entered next to a coverage in Item Two of the Declarations, an "auto" you acquire will be a covered "auto" for that coverage only if:
a. We already cover all "autos" that you own for that coverage or it replaces an "auto" you previously owned that had that coverage; and
b. You tell us within 30 days after you acquire it that you want us to cover it for that coverage.
Comment: Note the dual requirements in B.2.a. and b. which must be met in order for any newly acquired auto or trailer to be covered under symbol 7.
So in general, where does the 2,000 lb. trailer issue come up? With symbols 1, 2, 4 or 7 – it doesn’t. Nowhere in the above excerpts which describe these symbols is there any reference to a trailer with a load capacity of 2,000 lbs. or less. But here are some situations where the freebie coverage for a small trailer with a load capacity of 2,000 lbs. or less applies.
Symbol 3 = Owned Private Passenger Autos Only.
Excerpt: “Only the private passenger “autos” you own.”
Comments: Most experts believe that no coverage is provided for any trailer under symbol 3. Thus, the freebie coverage for a trailer with a load capacity of 2,000 lbs. or less is very important. Note also that the freebie coverage applies both for owned or non-owned small trailers, whether they or attached or detached.
Back to symbol 7. As discussed above, symbol 7 does provide coverage for a trailer of any size, under certain situations. First, symbol 7 applies to any declared trailer, or any trailer which is within the newly acquired provision. Second, symbol 7 applies for any non-owned trailer while attached to a declared power unit. The freebie coverage would fill some of the gaps, by providing coverage for a trailer with a load capacity of 2,000 lbs. or less, owned or non-owned, attached or detached.
In addition, the freebie coverage also fills one small gap for symbols 2 and 4. These two symbols only apply to owned (autos and) trailers (attached or detached), and to non-owned trailers when attached to an owned power unit. The gap is for a detached non-owned trailer. The freebie coverage applies for a trailer with a load capacity of 2,000 lbs. or less, owned or non-owned, attached or detached.
Jill’s Personal Auto Policy
Issue #1: Who is an insured.
Excerpt from the PAP (PP 00 01 01 05) [see comments inserted]:
PART A – LIABILITY
Insuring Agreement
B. "Insured" as used in this Part means:
1. You [Jill] or any "family member" for the ownership, maintenance or use of any auto [including the SCI pickup truck] or "trailer" [applies to trailers owned or non-owned, declared or undeclared, attached or detached, of any size].
3. For "your covered auto", [see Definitions below] any person or organization [SCI] but only with respect to legal responsibility for acts or omissions of a person [Jill] for whom coverage is afforded under this Part.
4. For any auto or "trailer", other than "your covered auto", [the SCI pickup truck] any other person or organization [SCI] but only with respect to legal responsibility for acts or omissions of you [Jill] or any "family member" for whom coverage is afforded under this Part. This Provision (B.4.) applies only if the person or organization [SCI] does not own or hire the auto or "trailer" [SCI owns the pickup truck].
DEFINITIONS
J. "Your covered auto" means:
3. Any "trailer" you own.
Comments:
Under B.1. above, Jill’s PAP provides liability coverage (on an excess basis) for her while she is using the SCI pickup truck. Her PAP also applies to her ownership of the horse trailer.
Coverage for SCI under Jill’s PAP depends on the facts of causation in the accident. Under B.3. above, her PAP provides vicarious liability for third parties which arise out of a “your covered auto.” In the typical scenario, if Jill is driving her personal vehicle on an errand for a third party such as her employer (remember that she is not an employee of SCI), and her actions make a third party liable, that third party is an “insured” in Jill’s PAP under B.3. In the situation at hand, the trailer qualifies as a “your covered auto,” thus the vicarious liability protection provided to SCI would apply only to the extent that there is a nexus between the trailer and SCI’s vicarious liability. In other words, B.3. would provide “insured” status to SCI for its liability (if any) related only to the horse trailer.
If the facts in the accident indicate there was liability for SCI’s ownership of the truck (brake failure, etc.), section B.4. in Jill’s PAP specifically does not apply to cover SCI, since the pickup truck is “other than your covered auto” which Jill is driving. The fundamental rule in insurance is generally meant to avoid covering owners of vehicles for their own liability (vicarious or sole), which should be the subject of their own insurance.
Jill’s Personal Auto Policy
Issue #2: The 2,000 lb. trailer.
The ISO Personal Auto Policy makes no reference to the weight or load capacity of a trailer. There is, however, one reference to a vehicle with a GVWR of 10,000 lbs. See following.
Jill’s Personal Auto Policy
Issue #3: The F-350 pickup truck
Excerpt from the PAP (PP 00 01 01 05) [see comments inserted]:
DEFINITIONS
K. "Newly acquired auto":
1. "Newly acquired auto" means any of the following types of vehicles you become the owner of during the policy period:
b. A pickup or van, for which no other insurance policy provides coverage, that:
(1) Has a Gross Vehicle Weight Rating of 10,000 lbs. or less;
Comments: Since the F-350 which Jill is driving has a GVWR of around 13,000 lbs., concern might arise about the so-called 10,000 lb. GVWR “limitation” or “exclusion.” This issue has two components. First, the relevance of the10,000 lbs. GVWR is often misunderstood. Note the context of the usage: it is applicable only if the vehicle needs to qualify for the automatic coverage for a “newly acquired auto.” But in Jill’s case, she hasn’t “acquired” the truck, she has only borrowed it. Therefore, the fact that the F-350 has a GVWR over 10,000 lbs. is of no consequence in this case.
Second, there are some non-ISO-based auto policies which actually exclude coverage for any vehicle which is over 10,000 lbs. GVWR. So if Jill’s PAP is written by an insurer who has that restrictive, non-ISO provision, she would have no coverage for even the occasional use of a vehicle that size. Now that’s a 10,000 lb. gorilla!
Hope this helps. Thanks for a great question.
Last Updated: November 7, 2015