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November 19, 2019
Requiring employees to use their personal vehicles for business errands or daily business transportation is a tried and true method of reducing organizational overhead. Some employers opt to pay allowances or mileage to employees, avoiding the considerable cost of owning a fleet of vehicles and associated maintenance, insurance, registration, and fuel costs. Both employers and employees need to understand their respective responsibilities and the potential risks involved in this operating model.
Organizational policies regarding employee use of personal autos should be thoughtfully considered; auto risk exposures are significant and can result in very severe claims. Employers transfer some of these risks to their employees when they require or allow them to utilize personal vehicles for business use. It is crucial for employers to educate employees on the responsibilities they are assuming, and the potential implications to their personal lives.
Although similar in some ways, business auto policies (held by the company) and personal auto policies (held by the employee) are meant to cover different exposures. The business auto policy (BAP) is designed to protect an organization and does not provide complete protection when employees use their own vehicles for work. The personal auto policy (PAP), on the other hand, is intended to provide coverage for individuals driving for personal use; some PAPs specifically exclude business use.
A vehicle that is owned and driven by an employee in the course of business is considered a “non-owned auto” under a BAP. Regarding non-owned autos, the BAP’s coverage is excess over any other collectible insurance; this means the employee’s policy would be the first to respond to a loss resulting from a claim – even if the loss occurs while the employee is driving for work.
In the event of an injury, accident, or collision, where an employee is driving their personal vehicle for work purposes:
The BAP will not provide any physical damage (comprehensive or collision) coverage for employee-owned autos being used for business purposes. This exclusion is common to all BAPs. Employees must understand that the BAP will not cover any physical damage loss that occurs while they are driving their personal autos, and they must instead go through their PAP, provided there is no exclusion for business use.
The BAP explicitly provides coverage for third party liability losses arising from the use of non-owned autos – excess over any other collectible insurance, and up to the policy limit. However, this coverage is intended to protect the organization, and may not cover claims against the employee if their PAP (responding on behalf of the employee) is inadequate. Once the BAP is engaged, the employee may receive some benefit from the insurer’s defense of the organization by association, but the insurer’s duty is only to the organization.
Ultimately, the decision whether or not to provide coverage for personal auto use is up to each employer. Regardless of the final policy decision, there are several other considerations that companies and employees should bear in mind when discussing personal auto usage:
Allowing employees to use their personal vehicles for work may be the logical choice for your organization, but it is important to consider your company’s risk profile and communicate openly with your employees. If you still have questions, reach out to an experienced risk manager or insurance broker to discuss your strategy.
The views and opinions expressed within are those of the author(s) and do not necessarily reflect the official policy or position of Parker, Smith & Feek. While every effort has been taken in compiling this information to ensure that its contents are totally accurate, neither the publisher nor the author can accept liability for any inaccuracies or changed circumstances of any information herein or for the consequences of any reliance placed upon it.