Author: Chris Boggs
Four business-use exclusions are found within "Part A – Liability" of Insurance Services Office's (ISO's) personal auto policy (PAP). The first is a workers' compensation exclusion not related to the subject of this article. However, the three remaining exclusions specifically relate to the business use exposure that is the subject of this article. The three relevant exclusions read (emphasis provided):
5. For that "insured's" liability arising out of the ownership or operation of a vehicle while it is being used as a public or livery conveyance. This Exclusion (A.5.) does not apply to a share-the-expense car pool.
6. While employed or otherwise engaged in the "business" of:
a. Selling;
b. Repairing;
c. Servicing;
d. Storing; or
e. Parking;
vehicles designed for use mainly on public highways. This includes road testing and delivery. This Exclusion (A.6.) does not apply to the ownership, maintenance or use of "your covered auto" by:
a. You;
b. Any "family member"; or
c. Any partner, agent or employee of you or any "family member".
7. Maintaining or using any vehicle while that "insured" is employed or otherwise engaged in any "business" (other than farming or ranching) not described in Exclusion A.6.
This Exclusion (A.7.) does not apply to the maintenance or use of a:
a. Private passenger auto;
b. Pickup or van; or
c. "Trailer" used with a vehicle described in a. or b. above.
In practical application, the PAP extends coverage for the business use of a "your covered auto" provided it's not used to carry people or property for a fee (i.e., Uber or Lyft). Absent material misrepresentation in the application regarding the use of the vehicle, the PAP responds to an incident arising from business use.
So then, what constitutes covered "business use" of a personal auto? I almost hesitate to answer for fear that the responses be viewed as a full list of possibilities. Note that these are only examples of "business use":
- An insured using his or her personally-owned auto in a Mary Kay, Avon, Rainbow Vacuum or other direct sales type business;
- A contractor using his personally-owned vehicle to go from job site to job site;
- An officer of a closely-held corporation or member/manager of an LLC using his/her personally-owned auto on company business;
- An individual using his or her personally-owned vehicle on behalf of a non-profit organization; or
- An employee using his or her personal auto on behalf of his employer to conduct business, run errands, or otherwise benefit the employer.
As previously stated, this is but a sample of the possible business uses of a personally-owned auto. Further, all of these examples of "business use" are covered by ISO's unendorsed PAP. In fact, no special steps are required to garner protection for business use.
Wait, you say, what about the Business Use classification? Isn't the insured required to apply the "Business Use" classification to the policy? Use class affects premium, not coverage. Provided the insured does not attempt to misrepresent the use of the vehicle, the use classification does not affect protection – in the ISO world.
Notice that I highlighted "in the ISO world." A recent claim denial highlights why buying the cheapest insurance and not understanding the policy's gaps are detrimental to your insured's financial health. Agents should trumpet denials like the one following in every newspaper story, radio ad, and conversation they have.
Allow me to layout the story as it was related to the VU. The insured was using her personal vehicle for her employer's benefit (to run errands or something else), like many employees do. During her errand, she was involved in an at-fault accident. In the ISO world, this is a covered incident (provided no other exclusions apply). However, this driver was insured with SafeAuto, the carrier that prides itself on keeping you legal for less. Evidently, protecting its insureds financial wellbeing isn't as big a goal.
Following is the wording from the actual denial letter (emphasis added is mine):
Dear :
We have investigated the circumstances surrounding this claim, and reviewed all available documentation and factual material associated with this matter. Unfortunately, we will be unable to afford any coverage for the referenced loss, as the loss involved an impermissible business, commercial or employment use of an insured vehicle.
The following policy provisions represent those portions that are applicable to the basis for denial referenced above. Your policy may or may not include all of the coverages referenced, and their inclusion does not indicate that such coverages are, in fact, included in your policy, that your policy was otherwise applicable to this loss, or that any particular individual was insured for this loss. The Declarations Page, if any, in effect at the time of the loss reflects those coverages for which a premium was paid.
GENERAL PROVISIONS
GENERAL EXCLUSIONS
Coverage and our duty to defend under Part 1- Liability to Others, Part II- Excess Medical Expense Coverage, Part Ill- Uninsured/Underinsured Motorist Coverage, and Part IV - Physical Damage Coverage do not apply to a loss:
8. arising out of the ownership, maintenance or use of any motor vehicle during the course of any business or employment, unless you have paid a specific premium for business 1.m coverage;
Our coverage determination is based upon the facts and circumstances of which we are presently aware, as revealed in the course of our investigation. If you are aware of other facts you believe to be material to our coverage decision, please feel free to bring these to our attention.
There may exist other coverage issues of which we are presently unaware, and SafeAuto® reserves the right to raise such additional issues as their applicability may become apparent. No conduct on our part shall be deemed a waiver or estoppel of any of our rights with respect to such issues.
This will acknowledge receipt of your notice of claim on the above-referenced matter.
So, if an insured EVER uses his or her car to run errands for the employer or for any other "business" purpose, he/she is required to tell the carrier about it and pay an additional premium. What employee doesn't use his or her car for these kinds of "business purposes"? Remember, in the ISO world, the "Business Use" class is for true business use when it's the insured's business or the car is regularly used for business, not when used to run errands.
When I was an agent, I classed my car as business use even though I didn't own the agency; I did so because as a producer most of my time was spent on the road. But even if I hadn't, there was nothing in the policy that would have precluded coverage. The premium was a function of the use class, coverage was not related to use.
Don't misunderstand, the carrier appears to have interpreted and applied the policy wording correctly; I'm not questioning the basis of the denial. My outrage springs from the allowance of such policy language; but maybe that's not where my anger should lie since the policy language had to be approved by some regulatory authority before it could be used.
Maybe it's not even anger; maybe this is frustration because consumers are duped into believing auto insurance is all about price. But you can't blame the consumer; auto insurance carriers spend between $6 and $7 BILLION a year preaching price over coverage.
I don't want to end on such a downer note. We as independent agents can't necessarily compete against a $6 - $7 billion advertising spend; but we can compete on knowledge. As was mentioned above, every time you are given the opportunity to use claim denials like the one above (and how you could have kept the insured out of trouble), take it. Shout it loud, coverage is important; and consumers need a regular dose of reality.
Last Updated: August 4, 2017