Author: Chris Boggs
Q. As we begin to implement the guideline that all Business Auto Policies should have all vehicles titled in the insured business's name, we have hit a bump. A number of our small businesses (LLC's and corporations) can only obtain bank financing for vehicles if the business owner's individual name is on the loan and on the title along with the business name.
Our question now is, will the dual name on the title limit the BAP's coverage for our individual business owner?
Our fear is that the CA 00 01 10 13, Section II, A.1.b.(2) or (5) might trigger exclusion of that individual as an “insured" just because his name appears on the vehicle's title along with the business name. (Applicable policy wording:
1. Who Is An Insured
The following are "insureds":
b. Anyone else while using with your permission a covered "auto" you own, hire or borrow except (which means no coverage is extended to the following):
(2) Your "employee" if the covered "auto" is owned by that "employee" or a member of his or her household.
(5) A partner (if you are a partnership) or a member (if you are a limited liability company) for a covered "auto" owned by him or her or a member of his or her household.
A. Yes, this has become a common issue. The fact that there is dual ownership by two persons (the officer or member) and the corporation or LLC negates some if not all the issue. In essence, the natural person is still an employee of the legal person and is not using her/her solely personally-owned auto for company business, he or she is using a vehicle owed (at least partially) by the employer for the employer's business and is covered.
But there is a way to get around any issues. It's not perfect, but it is an option. Create a leaseback agreement between the employer and the employee that addresses the situation of dual ownership. The leaseback agreement should state:
- The title is in the name of both the individual and the named insured (corporation or LLC);
- The individual leasing the vehicle back to the corporation is listed as an owner due to finance requirements; and
- The employer intends and agrees to assume liability for use of the vehicle and extends liability to all permitted users of the vehicle (including the co-owner).
As always, get a legal opinion on the agreement, maybe even having the lawyer draft it.
Once the agreement is in place, the CA 99 47 – Employee as Lessor endorsement should be attached to the policy listing the vehicle and the co-owner. The underwriter should have no problem with this and fully understand the need and reasoning.
Although this is not the reason this endorsement exists, it's the best way to manage this situation. Having the agreement and the endorsement removes any question of coverage for the owner/member.
Last Updated: September 13, 2019