Commercial versus Personal Auto Policy

[BrookeFranchiseeTX]

I've researched the web extensively including paid publications such as IRMI's (International Risk Management Institute's) Commercial Auto and Personal Lines manuals. I've also read both the commercial and auto personal lines policies to understand coverage intent.

I can't find any information specifically discussing the use of a commercial auto policy versus a personal auto policy.

Does anyone have compelling reasons to use a commercial auto instead of a personal auto policy for a small business? In this case, I have a service industry risk (an individual) that owns three cargo vans. The current agent has written a personal auto policy with the appropriate named insured (individual, name of business) with business use classifications. The risk does not use any vehicles larger than a van, so I'm not concerned with the owner using a flatbed truck that wouldn't be covered under the non-owned provision of the personal auto.

But, I'm stumped on why I should recommend a commercial auto policy for an individual over a personal lines policy. Any thoughts?

[CATHIEA]

Personal auto policies will exclude certain business operations such as delivery. But it would be best to see the specific personal auto policy to determine if there is a coverage issue. That said, limits are your biggest issue. No personal auto policy is going to give $1,000,000 limits or non owned / hired coverage. What's the actual use of the vehicles?

[tsorrels]

Some personal lines companies will write SOME business use on a personal auto policy when there are NO employees involved, such as an artisan contractor that has no employees.

Sounds to me like you have a BUSINESS with three vans, so, you SHOULD use a commercial auto policy.

Sure would hate to have the company deny coverage and have to fall back on your E&O policy. I bought a small agency one time that had a septic company's commercial trucks (1T doolies mostly) insured on a personal auto policy. He called wanting to have a 40' trailer added to haul small equipment on......and it was only THEN that we found out this it was written wrong...

And depending on the agency owner of your shop PRIOR to it becoming a Brooke franchise....you might have a LOT of exposures like this.

[BrookeFranchiseeTX]

tsorrels - Thanks for the reply. However, I didn't buy anyone's book of business, so this isn't an issue. And, this is a prospect that I'm looking at where a direct writer has the current policy written on a personal auto using a business class.

CATHIEA - The is a locksmith business. So, they are using the vehicles to go to the jobsite (customers' locations) to work. Their current agent has them at $50/$100/$50 which (to me) is way too low. I think I'm getting a little closer to a reason. In the TX Personal Auto Policy, I've just found an overview that states: "The PAP is the only approved poilcy form in Texas for covering the following situations:...(2) Individually owned or leased "utiity" vehicles which are not used for the delivery or transportation of goods, materials or suplies other than samples, unless such use is not the primary usage of the vehicle. Farm and ranch use is also permitted." Now, I just need to find some "plain English" analysis that I can give the prospect.

[CATHIEA]

I agree that the limits are too low and this risk definately needs to be on a commercial policy with $1 mil limits. Unfortunately I've seen this far too many times with direct writers. I once had a customer who had a taxi written on a personal auto policy by a direct writer. Some of them either don't know any better or don't care because the company is required to pay the claim either way. As far as your client - be as direct as possible - restraining yourself from calling their current agent a moron (thinking it is ok)!!! You might show them the wording in their policy (look to the exclusions in their policy) and gently explain what it means in plain english - there is no coverage if (direct writer name) decides they don't want to pay for a claim - even though their agent knew what they were doing when the policy was written. In essence the customer is paying for nothing. Realistically the carrier will at least pay the BI / PD claim but deny the Collission or UM/UIM portion. Sometimes it works sometimes the client chooses to take their chances. Usually it's a matter of cost. Unfortunately if they don't want to pay for a commercial policy there isn't much you can do except walk away.

[Porter]

A small fleet such, as this needs to be put on a commercial policy. The personal lines company will deny any claims from this risk. You might want check with an u/w or claims rep with one of the companies you write with to get specific policy verbiage.

[BrookeFranchiseeTX]

Since yesterday, I've found some really interesting information related to the personal auto and the use of commercial vehicles.

First, here's St. Paul Travelers requirements on the personal auto policy:

Vehicle Eligibility
1. Vehicles must be private passenger automobiles owned or leased by an individual, husband or wife resident of the same household or jointly owned by two or more resident relatives.

2. Pickups rated greater than 1 ton, vans and utility type vehicles used only as a private passenger vehicles are also eligible provided such vehicles may not be used in the occupation, profession, or business of the insured other than farming ranching and sales. If the business use consists solely of carrying tools and supplies between the named insured's residence and a job site, an Artisan risk, is acceptable provided:

a. The vehicle is individually owned, and;
b. The vehicle is operated solely by the named insured and covered family members, and;
c. The named insured has no more than one vehicle in this category, and
d. The vehicle visits no more than 3 job sites per day.
e. The vehicle has no visible signs or business logos.

3. All vehicles must be garaged in the state of Texas at least 10 months of every year.

Next, I sent an email to IIAT for their opinion. Here's part of the commentary:

Since [Texas] Personal Auto is deregulated, it is possible that the direct writer is not using the Texas Automobile Manual rules and may have filed their own manual. Manual rules have nothing to do with the policy contract, they are just rules and are not found in the policy as it relates to coverage. The carrier could have also filed their own policy form. It is unusual to name a business on a [Texas] PAP policy.

Can the insurer deny coverage if an accident were to occur? In this situation, would the direct writer typically pay the claim and then cancel the insured's policy? If there is an exclusion in the exclusion section that applies.

How does having business signs on the vehicles affect the coverage on a personal auto policy? NONE

Hope this info helps in the writing of your business too.

[mlynmartin]

One point that was mentioned, in passing, by one of the other responders but which should be emphasized is that the Personal Auto Policy does not provide hired/non-owned auto coverage and any business with employees needs these coverages. Give your prospect a hypothetical claim situation involving an employee using their personally owned vehicle on company business and demonstrate how there is no protection for the business owner under the direct writer's Personal Auto policy.

[BrookeFranchiseeTX]

You are absolutely correct about the non-owned and hired exposure. In this particular case, the insured has a BOP with this coverage on it. That's why I didn't address this in the scenario.

Thanks for all the replies.

[darnovak]

Get the complete policies (all of the dec pages, coverage parts, forms, and endorsements) and read them. All else is mere "speculation". Very few insurance people read policies anymore. Have they memorized all of the zillions of coverage parts, forms, and endorsements out there (not to mention carrier exceptions to standard forms, etc) ? Baloney. There is no substitute for examining and analyzing a complete policy/contract. If you come across something you can't figure out, find someone who can. Unless you are very familiar with the policies of another state, you are blowing smoke. If possible, ask carriers for specimen copies, get access to them (by internet or forms services), or scavenge them from actual policies. Networking can yield sources too.

[BrookeFranchiseeTX]

darnovak:

I have read the insured's policy and I am one of the few insurance people that do read policies - particularly endorsements; and, even more importantly, endorsements from non-std. companies on quotes. The MGAs I deal with don't like it, but I've trained them to send me the policy form and copies of all attached endorsements when they send the quotes to me.

Since I'm in Texas, my comments are limited to Texas. However, a similar analysis will apply in other states.

Thanks for the reply.

[darnovak]

T0: "Brooke" Way to go. Another way to annoy them is to ask for copies of the rating worksheets. I usually get "Why would you want those?"

[BrookeFranchiseeTX]

darnovak: If they don't have a rating schedule and come up with a composite rate, I'm right there with you.

I only wish that other agents/brokers would bring up the level of knowledge and client service to our apparent levels.

[Wash Broker]

and if any of the insured practices on conditions apply you will have your answer, and one heck of good sales point why the other agent failed to address your prospects real needs and was simply attempting to sell on price.