What is Commercial Auto Insurance?
Commercial Auto Insurance is a policy that covers all vehicles used by the business or organization. This includes vehicles owned, leased, hired, and borrowed. It provides coverage for liability exposure as well as damage to the vehicle.
In an insurance policy, all covered vehicles are classified as one of three types: Owned, Non-owned, and Hired.
Owned vehicles are those vehicles that the company or organization has paid for; the organization’s name would be on the title for the vehicles.
Non-owned vehicles are those vehicles that are owned by an employee or volunteer, but are used some or all of the time for business purposes.
Hired vehicles includes vehicles that are rented, leased, or borrowed.
With over 10,000,000 motor vehicle accidents occurring each year in the United States, auto insurance is integral to the financial security of any business.
Do I need it?
Commercial auto insurance is required at some level in every state; however, the legal required minimums for auto insurance are not adequate coverage when the risks are considered. With the high expense of medical care for serious injury, and the severity of injuries an automobile accident is capable of producing, an organization cannot afford to skimp on auto insurance. The risk of financial damage is too high.
Even if an organization doesn’t own vehicles, it’s important to have policies in place for Non Owned and Hired Auto coverage. In most states, there are three different entities who can be sued for damages resulting from a car accident. These three entities are the driver of the vehicle at fault, the owner of the vehicle at fault, and the business or organization that the vehicle was being utilized for at the time of the accident.
Considering this, it’s easy to understand why commercial auto is so critical for an organization to have. Not only is any vehicle owned by the organization covered, as well as any drivers who have permission to drive under the insurance policy, but the organization can also be protected for borrowed, leased, or hired vehicles if their policy has Non-Owned and Hired coverages available.
What protection does it offer?
A typical Commercial Auto Insurance policy has the following coverages and limits for owned vehicles:
Coverage: Auto Liability
Standard Limit: $1,000,000 combined single limits
The auto liability portion of your insurance policy covers damages arising from bodily injury or property damage. This includes injury to passengers of the vehicle covered under the policy, injury to passengers of other vehicles involved in the incident, injury to pedestrians, damage to personal property, and damage to commercial property.
“Combined single limits” refers to the manner in which the $1,000,000 in coverage can be divided among the areas listed above. In a single incident, the bodily injury and property damage claims can be covered at any amount, provided they are not over the coverage limit as a combined total.
NOTE: This is important, especially for organizations that transport more than one person in a vehicle at a time. In situations where more than one person is severely injured, medical expenses can quickly accumulate into the hundreds of thousands of dollars.
Coverage: Uninsured Motorists
Standard Limit: $1,000,000
This portion of the insurance policy reimburses the policy holder for amounts they have to spend for medical expenses or property damage, when those expenses would normally have been paid by an insurance company had the other vehicle at fault carried auto liability insurance.
It’s recommended that the limit for this coverage be the same as the auto liability limit on the policy. The coverage limit is the maximum that the policy will reimburse the policy holder, regardless of the total amount spent on medical and property expenses.
Coverage: Underinsured Motorists
Standard Limit: $1,000,000
Similar to the Uninsured Motorists portion of an auto insurance policy, the Underinsured Motorists coverage provides reimbursement for expenses the policy holder must pay due to an inadequacy in the liability carried by the insurance policy of another at fault vehicle.
Coverage: Personal Injury Protection/Medical Payments (no fault)
Standard Limit: $2,500
This coverage pays for medical expenses and lost wages due to an accident, without regard to fault. This coverage goes by various other names in different states and may be required by state law.
Coverage: Collision
Standard Limit: Actual cash value of the vehicle
The limit on collision coverage is typically the same amount as the actual cash value of the vehicle. This coverage pays for expenses related to repairing the insured vehicle due to damages arising from a collision with another object or from overturning.
The term “totaled” – frequently used to describe a vehicle that cannot be repaired after an accident – describes a situation where the expenses to repair the car would cost more than the value of the car; in these cases the insurance company will not pay for repair, but rather will reimburse the policy holder for the actual cash value of the vehicle (usually the Kelley Blue Book value).
Coverage: Comprehensive
Standard Limit: Actual cash value of the vehicle
Like collision coverage, comprehensive coverage pays for expenses related to the repair of damages to the insured vehicle. However, where collision coverage is related to the vehicle overturning or colliding with another object, comprehensive is coverage for any other incident. Comprehensive is also known as “Other Than Collision” coverage.
Coverage: Non Owned Auto Liability
Non Owned Auto Liability provides coverage when the organization that is benefiting from the use of the vehicle at the time of the incident is sued for damages, even if they do not own the vehicle. If, for example, an organization’s employee or volunteer is driving their personal vehicle on company business when an accident occurs, the company they were operating on behalf of can be sued.
In this case, because the organization does not own the vehicle, their standard Commercial Auto insurance would not provide protection without Non Owned Auto Liability on the policy.
A Non Owned Liability policy typically covers the organization, but does not cover the driver of the vehicle. The driver would need to look towards his or her own Personal Auto policy for protection.
Hired Auto Liability, on the other hand, can protect both the organization commissioning the use of the vehicle as well as the driver. This coverage is needed when a car this is borrowed, rented, or hired is involved in an accident or causes damages or bodily injury to a third party. It’s important to note, however, that this type of coverage does not cover damages to the vehicle itself. Coverage for damage to the vehicle can be purchased through the insurance company with a Hired Car Physical Damage endorsement, or from the rental company when a car is rented.
How much does it cost?
An insurance company will typically review the use of the vehicle, the weight of the vehicle, original cost of the vehicle, driving radius of the vehicle, make and model and year of the vehicle, and other factors to determine a cost for the policy.
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