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Non-Owned Auto Exposure

by Ron Pettit, MS, Loss Control Specialist, The Harry A Koch Co.

Did you know that you may be liable for accidents that occur in vehicles that your company doesn’t own?

Your receptionist goes out for lunch and on the way stops at the bank to make a deposit. Your plant foreman leaves to drive over to a supplier’s location to pick up a new part before heading home. If an accident occurs in any of these scenarios, your business automobile policy can be brought in to pay damages.

The term “non-owned auto” in an automobile policy refers to autos that you do not own, lease, rent or borrow that are used in connection with your business. It’s the use of an employee’s personal vehicle by the employee to conduct business activities for their employer under the approval and/or knowledge of the employer.

If an employee causes an accident in their own vehicle, the Auto Liability Insurance policy on the employee’s vehicle is the first line for liability coverage. After the limits of liability on the employee’s personal automobile policy are exhausted, the injured party may look to the company to pay damages. In some states the minimum required Financial Responsibility limits of a personal automobile insurance policy can be as low as $10,000 for property and $20,000 for bodily injury. The employee may not wish to purchase higher limits than what is required in the state. Should damages resulting from an at-fault crash result in damages greater than that amount, the employer could be held liable for those damages under the theories of negligence or vicarious liability.

It’s important to note that Non-Owned Auto Liability insurance does not cover the driver or damage to their vehicle; it only covers the business that is the named insured on the commercial auto policy. The driver will have to rely on their own Personal Auto Insurance policy to provide liability and physical damage protection.

The most effective means to reduce and control non-owned auto losses is to establish a policy to not allow employees to operate their personal vehicles for business purposes. If errands need to be run, have the employee use a company-owned vehicle. Require a current Certificate of Insurance of the employee’s personal automobile insurance policy for the driver’s file. Recognize that an employee’s personal vehicle may not be maintained as well as a company-owned vehicle and might not be road ready when needed. The employee could also be uninsured, underinsured, not have a valid driver’s license or have a poor driving record.

By understanding how non-owned auto operations may impact your business, you can implement consistent policies and procedures to manage, control and reduce the potential for accidental loss.