Do you really need it?
Our home builder clients often ask if they really need to pay $225 a year for Non-owned and Hired Auto Liability coverage. They reason that this coverage is not needed if they don’t have many employees or if their subs have their own auto liability insurance.
What is Non-Owned Auto Liability?
Non-owned Auto Liability protects the named insured (home builder) in the event that they are sued as a result of an accident involving a vehicle that is not owned by the company. For example, such accidents could arise from vehicles that are owned by employees to run errands on behalf of the company. Such errands could be a trip to the post office or supply house. Under the law, the home builder has vicarious liability under these circumstances.
In addition, it is possible that similar liabilities could arise from auto accidents involving vehicles owned by subcontractors while running an errand for the home builder. It is possible that under some circumstances that the sub would be reclassified as an employee by the court, which would result in vicarious liability for the home builder.
Even if the employee or sub does carry his or her own liability insurance, their limits of coverage may be inadequate to cover the amount of the damages. The result could be the home builder being shotgunned into the lawsuit.
It is important to note that Non-owned Auto Liability does not cover the driver himself. It only covers the business entity that is a named insured.
What is Hired Auto Liability?
Next, let’s look at Hired Auto Liability. A hired auto is one that is rented, leased, or borrowed by the named insured. For example, a home builder may fly into an airport for a business trip and rent a vehicle. If this is the case, the Hired Auto Liability will respond to auto accidents arising from the negligence of the insured driver. Unlike Non-Owned Auto, Hired Auto Liability does cover the driver. Hired Auto Liability does not cover damage to the vehicle itself.
Another critical issue is whether or not the home builder should purchase the Collision Damage Waiver from the rental car company? This issue will be explored in a subsequent posting.