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Non-Owned Auto Exposure

For many business owners, asking employees to use their personal vehicles to perform errands on behalf of the business, such as taking mail to the post office, is a regular part of the operation. These vehicles are considered non-owned autos and require separate insurance coverage to protect the business.

The term “non-owned auto” means vehicles used to provide a benefit to a business that are not owned, leased, hired, rented, or borrowed by the business (named insured). These may include vehicles owned by employees, partners, or members of an LLC. Examples of non-owned auto use may include sales or consultant employees who are given an allowance to use their own vehicles for company business or an administrative assistant running errands in their personal vehicle.

Non-owned auto exposure presents a unique risk to businesses. Crashes can occur due to several factors, including poor mechanical vehicle condition, driver inexperience, and failure to adhere to local laws and regulations. If a non-owned auto is involved in a crash, the business may be held vicarious liable, meaning the business is responsible for the conduct of the employee or entity representing it.

It’s important to remember that non-owned autos may be insured for liability only. They cannot be insured for physical damage. The liability coverage only applies to the named insured and does not extend to the vehicle owner. This means that if an employee is involved in a crash while operating a personal vehicle for company business, the employer’s policy may not cover the employee. In the event of a crash, the employee’s auto coverage is applied first. Often personal auto coverage excludes business activities, especially with respect to delivery services. Therefore, ensure an employee has appropriate coverage.

Controls
Employees operating personal vehicles for company business should be held to the same safety and performance standards as employees operating company-owned vehicles. Consider the following controls:

  • Provide training on safety policies, such as seatbelt use, defensive driving practices, avoiding distracted driving, and vehicle care and maintenance. Regular safety training should be provided to all employees who operate vehicles for company business.
  • Motor vehicle records (MVRs) should be reviewed for each driver upon initial assignment and annually thereafter.
  • All moving violations, incidents, and crashes should be reported to the company.
  • Certain types of vehicles should be prohibited from use for business purposes. These vehicle types may include two- and three-wheeled motorized vehicles, UTVs and ATVs, bicycles or other manual transportation modes, extreme high-profile SUVs, vehicle-trailer combinations, or any other vehicle that presents unnecessary risks.
  • Verify that the employee carries a personal auto policy and, where applicable, liability limits greater than the minimum requirements.

Remember to identify any gaps in your business insurance. If your employees operate their own vehicles to benefit the company, consider purchasing non-owned auto coverage.

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