Author: Chris Boggs
Agents field dozens of questions from unknowing clients every week; that's just part of the job. We don't and shouldn't expect our clients to know anything about insurance, and they don't disappoint us in this regard (which makes it all the weirder that so much coverage is purchased on line).
This article, the first in a series of articles intended to help agents be ready for the coming questions, focuses on three personal auto coverage questions.
- If a child owns a vehicle in his/her personal name, can or should their vehicle be listed on the parent's PAP?
Technically - NO! To be eligible for a PAP, the vehicle must be owned by the named individual or jointly by spouses. And if the PP 03 34 is attached, one of the owners must still be a named insured.
Because the child is not a named insured on the policy, their auto cannot technically be included as an auto on the PAP. The child must have a separate PAP if the vehicle is owned solely by him or her.
But if the vehicle is listed on the policy, there may still be coverage. Here is relevant policy language contained in the parent's policy that must be considered:
B. We do not provide Liability Coverage for the ownership, maintenance or use of:
3. Any vehicle, other than "your covered auto", which is:
a. Owned by any "family member" or
b. Furnished or available for the regular use of any "family member".
However, this exclusion (B.3.) does not apply to you while you are maintaining or "occupying" any vehicle which is:
(1) Owned by a "family member" or
(2) Furnished or available for the regular use of a "family member".
Vehicles listed on the policy qualify as a “your covered auto" even if it is not owned by the you because the policy partially defines a “your covered auto" to mean one that is listed in the declaration. So, by default, the vehicle owned by the child appears to qualify as a “your covered auto."
Although there may be coverage, this is in violation of all eligibility rules. And for this to get past the underwriter (or the underwriting system), the agent would have to incorrectly (or fraudulently) answer the application question, “WITH THE EXCEPTION OF ANY ENCUMBRANCES, ARE ANY VEHICLES FOR WHICH INSURANCE IS REQUESTED NOT SOLELY OWNED BY AND REGISTERED TO THE APPLICANT?"
Don't assume the answer for the insured, the question must be asked. Once it is discovered that the named insured (individually or jointly) does not have an ownership interest in the vehicle, a separate policy must be written.
- How does the policy respond to insureds involved in ridesharing activities (Uber, Lyft, Curb, etc.)
The industry seems to collectively agree that the public or livery conveyance exclusion in the personal auto policy (PAP) applies to ridesharing.
But the unanswered (or unclear) question is (or was), at what point was the vehicle being used as a public or livery conveyance? Was it:
- When the driver turned on the app and made himself "available" to those needing a ride?
- When the driver accepted a request for the ride? or
- When the driver actually picked up the passenger?
Insurance Services Office (ISO), in an attempt to clarify the application of the public and livery conveyance exclusion and offer options, created three endorsements to address when the PAP ceases to provide coverage. Depending on the endorsement attached, PAP coverage may cease:- When the driver turns on the app;
- When the driver has logged in to the app but has NOT accepted a request;
- When the driver accepts a request but has NOT picked up the rider; or
- When the driver picks up the rider.
| If the Carrier Wants to End Coverage When… | They attach the… |
| When the driver turns on the app… | Public or Livery Conveyance Exclusion (PP 23 40) |
| When the driver has logged in to the app but has NOT accepted a request… | Limited Transportation Network Driver Coverage (No Passenger) (PP 23 93) |
| When the driver accepts a request but has NOT picked up the rider | Transportation Network Driver Coverage (No Passenger) (PP 23 92) |
ISO has filed a revised personal auto policy to be effective September 1, 2018. When the new policy wording becomes effective, the exclusionary wording found in the PP 23 40 is being incorporated into the base policy wording leaving only the Limited Transportation Network Driver Coverage (No Passenger) and the Transportation Network Driver Coverage (No Passenger) endorsements.
- My insured uses his/her auto for business purposes (can be his own or for someone else's), are there coverage gaps created by such use?
Four business-use exclusions are found within "Part A – Liability" of Insurance Services Office's (ISO's) personal auto policy (PAP). The first is a workers' compensation exclusion not necessarily relevant to the reason for the question. However, the three remaining exclusions specifically relate to the business use exposure that is the purpose for the question. The three relevant exclusions read (emphasis provided):
5. For that "insured's" liability arising out of the ownership or operation of a vehicle while it is being used as a public or livery conveyance. This Exclusion (A.5.) does not apply to a share-the-expense car pool.
6. While employed or otherwise engaged in the "business" of:
a. Selling;
b. Repairing;
c. Servicing;
d. Storing; or
e. Parking;
vehicles designed for use mainly on public highways. This includes road testing and delivery. This Exclusion (A.6.) does not apply to the ownership, maintenance or use of "your covered auto" by:
a. You;
b. Any "family member"; or
c. Any partner, agent or employee of you or any "family member".
7. Maintaining or using any vehicle while that "insured" is employed or otherwise engaged in any "business" (other than farming or ranching) not described in Exclusion A.6.
This Exclusion (A.7.) does not apply to the maintenance or use of a:
a. Private passenger auto;
b. Pickup or van; or
c. "Trailer" used with a vehicle described in a. or b. above.
Exceptions to these exclusions give back necessary protection so in practical application, ISO's PAP extends coverage for the business use of a "your covered auto" provided it's not used to carry people or property for a fee (i.e., Uber or Lyft) (see question #2). Absent material misrepresentation in the application regarding the use of the vehicle, the PAP responds to an incident arising from business use.
So, then, what constitutes covered "business use" of a personal auto? I almost hesitate to answer for fear that the responses be viewed as a full list of possibilities. Note that these are only examples of use that can be considered "business use":
- An insured using his or her personally-owned auto in a Mary Kay, Avon, Rainbow Vacuum or other direct sales type business;
- A contractor using his personally-owned vehicle to go from job site to job site;
- An officer of a closely-held corporation or member/manager of an LLC using his/her personally-owned auto on company business;
- An individual using his or her personally-owned vehicle on behalf of a non-profit organization; or
- An employee using his or her personal auto on behalf of his employer to conduct business, run errands, or otherwise benefit the employer.
As previously stated, this is but a sample of the possible business uses of a personally-owned auto. Further, all of these examples of "business use" are covered by ISO's unendorsed PAP. In fact, no special steps are required to garner protection for business use.
Wait, you say, what about the Business Use classification? Isn't the insured required to apply the "Business Use" classification to the policy to have coverage for business use? Use class affects premium, not coverage. Again, provided the insured does not attempt to misrepresent the use of the vehicle, the use classification does not affect protection – in the ISO world.
But be warned, if the insured is not covered using an ISO form, different business-use policy language may apply. Following is an example of a proprietary form that is much more restrictive than ISO's language:
Coverage and our duty to defend under Part I- Liability to Others, Part II- Excess Medical Expense Coverage, Part Ill- Uninsured/Underinsured Motorist Coverage, and Part IV - Physical Damage Coverage do not apply to a loss:
8. arising out of the ownership, maintenance or use of any motor vehicle during the course of any business or employment, unless you have paid a specific premium for business coverage;
If your insured is subject to this kind of language, there is no business use coverage unless an additional premium is paid. This is just one example why the coverage language must be reviewed.
Conclusion
As mentioned initially, this is the first of a series of articles intended to help agents prepare for the questions they are sure to receive. Be on the lookout for this ongoing series.
Last Updated: May 25, 2018