Personal Auto Policy with employees

[AZDave]

Was going over some insurance requirements for one of my contractors today. I control the GL and WC. The Vendor was requiring that plus owned, hired and non owned auto with $1 million limits. So he needs to add commercial auto, right?

Find out his personal lines agent has been filling out a certificate that provides the owned auto with limits at $1,250,000/person $1,500,000/occurrence because the guy has a personal umbrella policy.

News to me, this general contractor has four trucks with four employees driving, all insured under a personal auto policy, with all trucks titled in his personal name. The Agent told him all will be covered for the business use, and the umbrella will give him the $1 mill limits that this Vendor requires.

So I'm trying to point out the problems with this, and all he wants is to make sure I can endorse the hired and non owned.

What personal lines carriers do not have a problem with this? Other agent is telling him that it is all good. If these units are strictly used for business with employees usage, I'm seeing a problem with that umbrella responding...

 

[VolAgent]

Does your agent have E&O with 1.5 million limits? Because that is the only way you're getting that kind of coverage here. I suppose anything is possible, but I'd want to see something from the company saying that he is covered on the PAP and PUP.

I'd love someone to prove me wrong, but I can't see how a company could do this on a personal policy with personal auto premiums.

 

[adjusterjack]

The Vendor was requiring that plus owned, hired and non owned auto with $1 million limits. So he needs to add commercial auto, right?

Not necessarily. Hired and non-owned auto liability is often added by endorsement to the GL coverage.

this general contractor has four trucks with four employees driving, all insured under a personal auto policy, with all trucks titled in his personal name. The Agent told him all will be covered for the business use, and the umbrella will give him the $1 mill limits that this Vendor requires.

Whether or not there is a problem with that depends on what types of trucks they are.

The ISO personal auto policy form PP 00 01 has the following liability exclusion or words to that effect:

"Maintaining or using any vehicle while that "insured" is employed or otherwise engaged in any "business." This exclusion does not apply to the maintenance or use of a private passenger auto, pickup or van, or trailer used with those vehicles."

"Insured" is defined by the policy to include "any person using your covered auto."

So, theoretically, if the vehicles are an auto, pickup or van, and rated for business use then there is no problem with what he is doing, either on the primary policy or on the umbrella policy.

However, from an underwriting standpoint, I suspect that a personal lines underwriter could take issue with the day to day use of the vehicles by employees. Could go the other way, too.

What kind of "trucks" are they?

Might not be any problems for you to point out.

 

[adjusterjack]

I'd love someone to prove me wrong, but I can't see how a company could do this on a personal policy with personal auto premiums.

I think I just explained how the personal auto policy would permit it. You got your post in before I hit the reply button.

It's possible that the personal lines underwriter doesn't know about the employee use. And THAT could create a problem if that usage is material to the underwriting of the policy.

 

[VolAgent]

I think I just explained how the personal auto policy would permit it. You got your post in before I hit the reply button.

It's possible that the personal lines underwriter doesn't know about the employee use. And THAT could create a problem if that usage is material to the underwriting of the policy.

That is what I was thinking about. It would be one thing if he was using the truck personally. But having employees run around it them all day?

Also, wouldn't there a be a driver/vehicle mismatch on his personal policy? I admit I am assuming, but presumably he has several "work truck" vehicles on the policy and probably several more vehicles than drivers in the household. You'd think the system would flag it for underwriter review.

 

[Andle]

It sounds like a mess to me. The personal lines agent is going to have some explaining to do when a claim happens.

Should your client have a commercial auto to separate the liability from his personal? Yes
Does a 250/500 bi limit with a 1 mil umbrella equal $1,250,000 auto liability? Maybe, depends on the language of the auto and umbrella policy.

Is your client operating as a sole prop or does he have a pass through? LLC, Corp?

I would document everything, heavily and make sure to explain in writing why mixing personal lines with business is not a good idea.

 

[InsCommentary]

I don't know any way to do this without misrepresentation on the part of someone and it sounds like it might be the agent. If so, his E&O policy won't do him much good if it includes this exclusion:

INTENTIONAL ACTS. Any CLAIM for intentional acts, including but not limited to, acts of dishonesty, fraud, criminal conduct, malice, or assault and battery, or intentional BREACH of PERSONAL DATA by any INSURED. CLAIM EXPENSES are recoverable by us against those INSUREDS who, by final judgment, order or determination in a SUIT are found to have committed such intentional acts. CLAIM EXPENSES are also recoverable by us against those INSUREDS who, by their written or oral admission, committed such intentional acts. However, this exclusion does not apply to those INSUREDS who do not personally participate in or ratify the acts identified above and who notify us once such act has been discovered.

 

[AZDave]

They are all light trucks and insured has LLC for the business.

Biggest problem I'm seeing is PAP policy has no duty to defend the LLC, and why would he risk the personal exposures? What else....

This personal lines agent probably doesn't want to lose him and has terrible commercial auto rates to offer.

The commercial auto rates I'm getting for insureds are really not much more than their current personal policy. Hoping he will listen to me.

 

[adjusterjack]

You'd think the system would flag it for underwriter review

Yes, you would think so. But let's look at it another way. The business use rate could be as much as 25% to 35% above the base rate, is applied to each vehicle, and anticipates business use all day, every day. It's also possible that each employee is assigned the same truck every day and that list is on record with the insurance company and motor vehicle record of each driver is checked on every renewal or replacement employee. It's entirely possible that the underwriters know exactly what is going on are approving the situation possibly because the customer's commercial insurance generates enough premium and is profitable enough to warrant the accommodation.

Back in my agent days I had plenty of those accommodations between the personal lines and the commercial lines department.

The personal lines agent is going to have some explaining to do when a claim happens.

It's possible that the agent has already explained it and the company underwriters have accepted the client that way.

Does a 250/500 bi limit with a 1 mil umbrella equal $1,250,000 auto liability?

Yes, per person, and $1,500,000 per occurrence. And there is likely a PD limit (probably $100,000) so the PD coverage would be $1,100,000.

However, umbrella policies also have aggregates, so you aren't likely to have an additional $3,000,000 for any one accident, probably just $1,000,000. Though you could buy as large an aggregate as you want to pay for.

mixing personal lines with business is not a good idea.

It's generally not a good idea but sometimes it's not a bad idea depending on the circumstances as long everybody is up front about it and underwriters approve and price it accordingly.

 

[adjusterjack]

I don't know any way to do this without misrepresentation on the part of someone

You hit the reply button before my last comment that explained how it is possible and not uncommon for it to be done without misrepresentation.

So far we only know how the policy is written. We don't know what the arrangement is between the agent and the underwriters. Could very well be legit.

Biggest problem I'm seeing is PAP policy has no duty to defend the LLC, and why would he risk the personal exposures?

May have a lot to do with the cost of insurance. And I'm guessing that the LLC has little or no assets to risk.