By Donald S. Malecki, CPCU
It is probably the exception, rather than the rule, that a bread winner who is furnished an auto for his or her business and personal use does not have other autos in the household. In these modern times, it seems as though all members of the household are becoming more dependent on the use of vehicles to meet all of their needs.
However, there are still some people, a single person or a young married couple with no children, or with children under driving age, who do not see the need, or cannot afford to purchase an auto, and instead feel that a company-furnished auto for business and personal uses will suffice.
In these latter situations, a question that needs to be considered is how the employer prefers to handle the matter of insurance. Sometimes the employee who is furnished the auto is required to purchase his or her own personal auto insurance. However, it is not unusual for the employer to take responsibility for covering all autos under its commercial auto policy.
Assuming that the employer is going to handle the insurance, another question needs to be raised as to whether the employee has unrestricted use of the furnished auto along with his or her spouse. Many employers are generous in this regard and permit the employee and spouse unrestricted use. It is a "perk," or employee benefit.
Another employee benefit purchased by employers for their employees who are furnished autos is "drive other car" coverage. The standard ISO endorsement for use with the business auto, garage, motor carrier, or truckers coverage forms is titled "Drive Other Car Coverage--Broadened Coverage for Named Individuals," CA 99 10. It is designed to cover the employee and his or her spouse while using autos of others (other than the furnished auto) which may not be covered for insurance, or where the limits may be inadequate.
This endorsement can be used to obtain all of the coverages common to motor vehicle policies, i.e., liability, medical payments, uninsured and underinsured motorists, and physical damage coverages. When no-fault coverage is desired, it requires an additional endorsement. However, coverage is restricted solely to the individual named and his or her spouse. No coverage is extended to family members, except for medical payments and uninsured and underinsured motorists coverage if purchased.
Is DOC necessary?
Some people say DOC coverage is not necessary because most responsible people who drive vehicles carry insurance. The answer nonetheless hinges on the circumstances in each case.
If the employee to whom the auto is furnished drives no other vehicle, DOC is not necessary. The reason is that the employer's business auto form should apply. Drive other car coverage is only necessary when that employee drives an auto belonging to another person who may not maintain insurance or whose insurance limits are inadequate. (Remember that permissive users are covered on a primary basis under the auto being driven. The more insureds seeking coverage, the faster the limits may be exhausted.)
The DOC coverage endorsement makes it clear that coverage is meant to apply only to an auto other than the furnished one--a neighbor's or friend's auto, for example. The appropriate provision of this endorsement regarding liability coverage states: "Any auto you don't own, hire or borrow is a covered auto for LIABILITY COVERAGE while being used by an individual named in the Schedule or Declarations...except: a. Any auto owned by that individual...." Remember the "you" referred to in the above quote is the named insured (employer). Thus, this endorsement applies only to liability arising from the use of any auto the employer does not own, hire or borrow while being used by the employee identified in this endorsement.
The next question that needs to be answered is whether the employee to whom the auto is furnished has a spouse and what impact the DOC coverage endorsement has on the spouse's protection. A review of the DOC coverage endorsement reveals that it not only applies to the individual (employee) named in the schedule, but also his or her spouse, while a resident of the same household, and while using any covered auto, i.e., any auto the named insured (employer) does not own, hire, or borrow.
So, it is clear that the DOC coverage endorsement also will protect the spouse who is using an auto of another (not the furnished auto). However, the question that also needs to be answered is whether the spouse is covered while using the furnished auto. Only the employer can answer that question.
If the employer views the spouse as a permitted user of the furnished auto, then there is no problem.
But suppose the employer decides that only the employee and no one else in the employee's household is to be a permitted user. Interestingly, the spouse would be protected by the DOC coverage endorsement for the use of an auto belonging to others but would not be protected under the employer's policy while using the furnished auto.
A quick summary
Just so there is no confusion, let's summarize what has been discussed as follows:
(1) An employee (with no other auto in the household) who is furnished an auto by an employer who maintains the commercial auto insurance would be protected by that policy.
(2) If the occasion arises where this employee might use the auto of another, DOC coverage is intended to apply (depending on the coverage[s] selected), if no insurance is maintained on the borrowed auto, or the limits are inadequate to protect both the borrower and owner.
(3) The employee's spouse also is an insured under the DOC coverage endorsement, if he or she is a resident of the household and while using other than the auto furnished to his or her spouse.
(4) If the spouse is considered to be a permitted user of the furnished auto, he or she should be protected under the employer's auto policy. However, if the spouse is not considered to be a permitted user of the furnished auto, the DOC coverage endorsement would be of no significance, since this endorsement only applies for the use of autos other than the furnished one.
The court in the case of Colver v. The Travelers Insurance Companies, 685 So.2d 179 (La.App.1st Cir.1996) held that for a DOC coverage endorsement to apply to an employee's spouse while using a stranger's auto, but not when the spouse operates an insured (furnished) auto, leads to "an absurd result." It seemed at first blush that the court was right. But a closer observation of the facts reveals that the court did not understand the limited application of this endorsement.
Briefly, the facts are as follows: A company car leased to the employer was furnished to an employee who had no other autos in the household. An accident occurred when the employee's spouse was operating the furnished auto. The employer's auto insurer filed a motion alleging that its business auto policy issued to the employer did not apply to the spouse because the spouse did not have the employer's permission to use the furnished auto.
Insofar as company-owned autos were concerned, the Who Is An Insured provision of the BAP policy quite clearly explains that apart from you (the named insured), those who also are insureds includes "Anyone else while using with your permission a covered auto you own, hire or borrow...."
Moreover, it turned out that (a) neither the employee nor his spouse had permission to use the auto for personal reasons; in fact, such use was prohibited by the employer, (b) no one other than an employee was permitted to operate the company auto, (c) the employee did not give his spouse permission to use the auto, and (d) the spouse was aware of the employer's prohibition of the auto's use for personal reasons.
Despite the above circumstances, and the purpose for the DOC coverage endorsement, the insurer lost its argument, even though it was right on point. The conclusion of an "absurd result," in the words of the court, was only possible because the employer did not permit personal use of the furnished auto by its employee and spouse. Had that not been a restriction on use, this argument of the insurer probably would not have been raised.
It is probably unusual for an employer to furnish an auto but to also prohibit its use for personal reasons and also by an employee's spouse. It may also be unusual for families with one furnished auto not to have another auto in the household. Yet, it is uncertain how many persons and families fit this category and employers who impose such rules, unless they are queried on this point. As mentioned earlier, these kinds of cases may be infrequent, but still possible.
Given the fact that there may be other like situations, the next question is how to handle the matter of the person or family in the like case as in the one discussed above. If an employee cannot afford another auto and the employer prohibits use by the spouse and personal uses by both the employee and spouse, then it would make good risk management sense to avoid prohibited uses and it may be necessary to purchase "named nonowner" coverage.
This coverage is available with the Personal Auto Policy. Whether an underwriter is willing to provide it is another matter. However, it is deemed to be less expensive than for a person who owns an auto because named nonowner coverage applies on an excess basis.
Named nonowner coverage applies only to the persons listed in the endorsement. While it can be purchased subject to liability, medical payments, uninsured and underinsured motorists coverages, physical damage coverage is not available. Insureds in this category therefore need to be very careful since the liability coverage precludes damage to property (the auto) in his or her care custody or control. Given all the pitfalls, it might be cheaper in the long run to purchase a second auto for the family and to purchase insurance on it.
The author
Donald S. Malecki, CPCU, is chairman of Donald S. Malecki & Associates, Inc. During his 37-year career in insurance and risk management, he has worked as a broker, a consultant, an underwriter, and an editor. He is the author of nine books, including Commercial General Liability: Occurrence and Claims-Made Forms, The Additional Insured Book, and three textbooks used with the CPCU curriculum. He is chairman of the Senior Resource Section of the CPCU Society, serves on the Examination Committee of the American Institute for CPCU, and is an active member of the Society of Risk Management Consultants.
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