Drivers vs. Insureds

When analyzing coverage under an auto policy it’s very common to hear someone say, “Just list them as a driver and that way they are always covered.” Considering the number of times this statement is made, perhaps it’s warranted to look at what listing someone as a driver does, and more importantly what it does not do.

When someone is listed as a driver on an auto policy it’s done purely as an underwriting tool to allow the company to obtain the motor vehicle report (MVR)of the person listed. For example, on a personal auto policy (PAP), most companies want to list all household residents and any other regular operators of the vehicle. On a business auto policy (BAP), most companies want to list all employees who regularly drive insured vehicles. Listing the drivers allows the company to properly underwrite the risk, surcharge for violations or accidents, and where warranted cancel or non-renew the risk.

To determine coverage under an auto policy, the “who is an insured”section of the policy must be examined. With an ISO PAP, “who is an insured” includes the person named, the resident spouse, family members who reside in the household, and anyone using the covered auto with permission. Note that nowhere does the “who is an insured” section state “those listed as a driver are also insured.” For example, Henry’s PAP names him as named insured and his daughter Samantha as a driver. Henry loans the car to his friend Mary, who is in an at-fault accident. Since Mary is a permissive user she is “an insured” under Henry’s PAP even though she is not(and does not need to be) listed as a driver. As another example, Samantha goes out of town and borrows a friend’s car, is negligent, and injures a pedestrian . Samantha is “an insured” under Henry’s PAP, not because she is listed as a driver, but because she is a “family member.” Thus Samantha is covered by the Henry’s PAP.

As an example of how listing someone as a driver does not provide coverage, consider the situation where Henry and Mary are not married and living together with Henry owning the only car in the household and having a PAP in his name. Since Mary would regularly drive Henry’s car, his PAP carrier should be notified since they will want to list her as a driver. When Mary is driving Henry’s car she is “insured” because she is a permissive user. The fact that she happens to be a listed driver does not affect coverage. However, having Mary go out of town, rent or borrow a car and have an at-fault accident will not be covered by Henry’s PAP, even though she is listed a driver. She is not covered because she is not the named insured, the spouse, a family member, or driving Henry’s auto. The only time Mary is “an insured” under Henry’s PAP for liability, med-pay, PIP, UM, and physical damage is when she is occupying Henry’s auto. This presents a significant gap for Mary and she is a candidate for the Named Non-Owner policy under which she can purchase liability, med-pay, and uninsured motorist coverage.

A recent court case in Louisiana illustrates this point very well. The insurance company issued a PAP to Robert, who was the only named insured. His fiancée, Jennifer, lived with him and was listed as a driver on the declarations page. Jennifer was driving a non-owned auto owned by her sister-in-law and caused bodily injury to a third party who brought suit against Jennifer and others. Jennifer sought coverage under Robert’s PAP, claiming that she was covered by virtue of being listed as a driver. The Louisiana Supreme Court found no coverage under the policy stating,”…being listed as a driver on the declarations page does not transformthat person into a named insured.” The court also found that Jennifer was not a “family member” as defined by the policy. (Lemoine v.Illinois National Insurance Company, March, 2004)

The same principles apply to the business auto policy. Employees listed as drivers would have coverage while driving an auto covered under the BAP, but not while borrowing or renting another vehicle for pleasure use. They would find coverage for those situations under their own PAP or Named Non-Owner policy should they have one, or possibly by adding the Drive Other Car endorsement to the BAP.

Remember, “Listing as a driver does not affect coverage.”

Note: This analysis is based on ISO forms and rules. There are carriers that might condition coverage on being listed as a driver, further proof that auto insurance is not a commodity. Other carriers may exclude household residents who moved in after policy inception, but the carrier was never notified. Please be aware that there are auto policies in the marketplace with serious deficiencies compared to “ISO standard” auto policies. Heed the words of John Ruskin:

“There is hardly anything in the world that some man cannot make a little worse and sella little cheaper, and the people who consider price only are this man’s lawful prey.”