By LeRoy Utschig, CPCU, CLU, ARM
In the last issue, we reviewed the Drive Other Car coverage (DOC) endorsement. This month we will look at the Individual Named Insured endorsement and compare it to the DOC.
Let's use a hypothetical example of Joe who runs a sporting goods store under the name of Joe's Sporting Goods. As he is not a partnership, corporation or limited liability company, he operates his business as an individual. There are no other owners besides himself. His Doing Business As (DBA) name, "Joe's Sporting Goods," is not registered with the county in which he operates, the state in which he lives, or with the federal government. He has a number of vehicles, and several are actively used in his business. One Business Auto Policy (BAP) insures all of his vehicles.
Joe's son, Mike, lives with him. Mike leased a sports utility vehicle for a weekend camping trip with his friends. On the way to the campground, Mike caused an auto accident. Upon returning home, this loss was reported to Joe's insurer.
Within a couple of days of receiving the notice of loss, Joe's insurer denied coverage for the loss. Covered Auto Symbols 7, 8, and 9 were on Joe's declaration page. Symbol 7 covers scheduled autos only, so that did not apply to the loss. Hired Auto, Symbol 8, seemed to apply. However, this is what the adjuster quoted from Insurance Services Office's (ISO) Form CA 0001, Business Auto Coverage Form:
HIRED "AUTOS" ONLY. Only those "autos" you lease, hire, rent or borrow. This does not include any "Auto" you lease, hire, rent or borrow from any of your employees or partners or members of their household.
The "you" in this case is Joe. Had Joe rented the vehicle, there would have been coverage. However, it was Joe's son who leased the vehicle, so Joe's policy did not provide any coverage.
Joe asked his insurance agent if there was some way to cover this exposure. His agent said that coverage Symbol 1 could have been used. Joe asked how much additional premium Symbol 1 would have cost and why he had not been told about its availability. The agent responded that there was no difference in cost, and he did not use Symbol 1 because the underwriter preferred not to use Symbol 1 on any commercial auto policy.
Because there was no difference in premium and they had not told the agent about the coverage options, the insurer agreed to backdate a change in the coverage Symbol to 1. Now the definition of covered auto read, ANY AUTO.
Again the claim department looked at the loss. The definition of any auto would include the leased vehicle. However, the claim was not against Joe as Joe's name was not shown anywhere on the leasing documents. Joe's son was the one against whom the claim was presented. Normally, coverage is checked out by reading the insuring agreements and then the exclusions. In this loss example, we need to look at the definition of "WHO IS AN INSURED?" Here is the policy wording that applies:
WHO IS AN INSURED
The following are "insureds":
a. You for any covered "auto".
b. Anyone else while using with your permission a covered "auto" you own, hire or borrow...
The definition of Who Is An Insured would give protection to Joe had he leased the car. But, the car was rented in the son's name. Based on the wording in the Who Is An Insured clause, Joe's policy does not cover the son's loss.
As he had used ISO's Form CA 9910, Drive Other Car (DOC) Coverage with several of his other insureds, the agent now asked to have DOC added to the contract. As you may recall from the last article, DOC provides coverage while the person(s) named in the endorsement is driving nonowned vehicles in personal use situations. The agent's underwriter had just completed the insurer's underwriting training course. As she was unfamiliar with DOC, she looked it up in her ISO Commercial Lines Manual, Division One Automobile, Rule 88, Drive Other Car Coverage which states:
For an individual named insured who owns a private passenger auto, refer to Rule 91. Use Individual Named Insured Endorsement CA 99 17.
Rule 91, Individual Named Insured reads as follows:
Endorse a policy covering an individually owned auto with the appropriate individual named insured endorsement.
A. Family drive other car coverage is provided at no additional charge if the policy covers:
1. A private passenger auto not used for public transportation or rented to others without a driver.
2. A pickup, panel truck or van that is not customarily used in the business of the insured other than for farming or ranching.
3. Use Individual Named Insured Endorsement CA 99 17.
Essentially the ISO rules state that Form CA 9917 is to be attached if there is a private passenger auto or pickup truck covered on a policy insuring an individual. The rule also states that there is no charge for attaching this endorsement to the contract.
The Individual Named Insured endorsement does several things. There is coverage for fellow employee claims against the insured or the insured's family members. In addition, all of the insured's family members are covered as insureds while driving nonowned private passenger vehicles.
Here is the applicable wording from Form CA 9917, Individual Named Insured endorsement:
The FELLOW EMPLOYEE exclusion does not apply to "bodily injury" to you or any "family member's" fellow employees.
While any "auto" you own of the "private passenger type" is a covered "auto" under LIABILITY COVERAGE:
a. The following is added to WHO IS AN INSURED:
"Family members" are "insureds" for any covered "auto" you own of the "private passenger type" and any other "auto" described in paragraph 2.b. of this endorsement.
b. Any "auto" you don't own is a covered "auto" while being used by you or by any "family member"...
Physical damage coverage also can be provided by Form CA 9917. The physical damage coverage on the Individual Named Insured endorsement will track almost exactly with that of a personal auto policy. In other words, if a private passenger car(s) is insured on the Business Auto Policy, physical damage also will be provided when any member of the family is driving a nonowned private passenger car. This is what the endorsement says:
CHANGES IN PHYSICAL DAMAGE
PERSONAL AUTO COVERAGE
While any "auto" you own of the "private passenger type" is a covered "auto" under PHYSICAL DAMAGE COVERAGE, a "non-owned auto" will also be considered a covered "auto."
Perhaps you have noticed that this endorsement refers several times to "private passenger type" of "auto." This is done so the form will also, in this regard, track very closely with a private passenger auto policy (PAP). Private passenger auto policies provide no coverage while an insured is driving a truck. (It would, however, cover the sports utility of the type described in our earlier example as being rented for a weekend camping trip.)
It makes sense that PAP would not cover while an insured is driving rigs such as an 18-wheeler or a quad-axle dump truck. The Individual Named Insured endorsement does not cover while any of the insured's family is driving nonowned trucks.
This does not override the hired and nonowned auto provisions of the BAP. If an insured has Symbol 1 or 8 for liability coverage, there is always coverage for the insured who has hired a truck for his or her business. Likewise, with Symbol 1 or 9, the BAP covers the exposure of an employee driving the insured's car on behalf of the business.
It bears repeating, the Individual Named Insured endorsement is to be attached only when the policy is covering one or more autos of the private passenger type. For example, Mac's Trucking is owned by Mac as an individual. There are five dump trucks (one tri-axle and four quad-axle) on Mac's insurance policy. The Individual Named Insured endorsement would not be added to Mac's contract. As Mac was insuring no private passenger autos, Form CA 9917 is not added.
A reminder for underwriters
Pricing of the Individual Named Insured endorsement is not an issue as there is no premium charge. Unless an insurer has filed an exception to the ISO rules, it should automatically attach Form CA 9917 to every BAP that is insuring an individual where one or more private passenger autos are scheduled on the contract.
Our experience is that sometimes underwriters prefer not to attach Form CA 9917. We suggest reminding these underwriters of two facts. One is that this coverage is provided on each of the thousands of personal auto policies they have in force. So, why not also provide similar coverage on the auto insurance for the business? The other point is that by not attaching it, they might have a problem when an insurance department conducts a compliance audit.
Most insurance departments will not fine an insurer for missing an endorsement, as the insurance departments are usually looking for much more serious violations when they conduct a department audit. Nevertheless, sometimes insurance departments will fine an insurer for relatively insignificant errors. I know of an insurer that, as part of an overall two-week-long insurance department audit, was fined for missing one surcharge point on one non-standard auto contract.
These are the differences between the Drive Other Car endorsement and the Individual Named Insured endorsement. DOC requires everyone, except a spouse living with the insured, to be listed and a premium charge to be made. The Individual Named Insured endorsement has no premium charge, and there is automatic coverage for all of the members of the insured's household. There is no need to show anyone's name.
* Coverage while driving nonowned private passenger cars is provided by both the Drive Other Car coverage and the Individual Named Insured endorsement.
* Drive Other Car coverage can be added, as an option, to Business Auto, Garage, Motor Carrier and Truckers policies.
* Drive Other Car coverage covers the people named on the endorsement. A spouse living with the insured is the only exception to this rule.
* Drive Other Car coverage makes a premium charge for each covered person(s). The only exception to this is a spouse living with a person listed on the DOC.
* Individual Named Insured endorsement must be attached to a Business Auto, Garage, Motor Carrier, or Truckers policy insuring an individual, and there is at least one private passenger auto covered on the policy.
* Individual Named Insured endorsement automatically covers all of the family members who are living with the insured.
* There is no premium charge for the Individual Named Insured endorsement.