Like many small companies, your firm has probably purchased a commercial auto policy. Perhaps you have wondered who is covered under your liability coverage. That is, what persons or entities are considered insureds?

Most insurers that issue commercial auto policies utilize standard ISO forms. The Business Auto Coverage Form is the backbone of the ISO auto policy. It contains key elements of the policy, including the Coverages (liability and physical damage), Exclusions, Conditions, Definitions, and a section entitled Covered Autos.

Three Categories of Insureds
The parties covered as insureds under Liability Coverage are outlined in a paragraph entitled Who Is An Insured. This section describes three categories of insureds.

• You, meaning the named insured. The named insured is the person or entity listed in the declarations.
• Anyone else who is driving a covered auto you own, hire or borrow with your permission. That is, if you allow someone to drive a vehicle you own, rent or borrow, the driver is an insured. Drivers in this category are called permissive users because they are using the car with your permission.
• Anyone who is liable for your conduct or for the conduct of a permissive user. Often referred to as the omnibus clause, this wording covers anyone who may be held legally responsible for an accident caused by a named insured or a permissive user.

Named Insured Has Broadest Coverage

Of the three types of insureds, you are afforded the broadest level of coverage. You are covered for any covered auto. Which autos are “covered” depends on the types of autos you have elected to insure.

For example, if you have elected to insure only autos you own, then you are covered for claims arising out of owned autos. Likewise, if you have chosen to cover owned, hired and non-ownedautos, you are covered for claims arising from any of those autos.

Note that you (the named insured) are covered even if you are not driving the auto when the accident occurs. This is important because you, as an employer, are vicariously liable for negligent acts of your employees. The auto policy protects the employer named in the declarations against suits arising from auto accidents caused by negligent employees.

Employees Covered as Permissive Users

Most permissive users are employees driving company-owned vehicles. These individuals are covered while driving autos you own, hire or borrow, but only if such vehicles are covered autos. (Borrowed vehicles are covered in conjunction with hired autos.) If you have purchased liability coverage only for autos you own, employees are covered while driving those autos. Suppose that your firm rents an auto and an employee of yours inadvertently causes an accident while driving the vehicle. If the accident results in a claim against you or the employee, the claim will not be covered. You have not purchased coverage for hired autos, so the auto is not a covered auto.

The coverage afforded for permissive users does not apply to partners and employees while driving vehicles owned by them. Such vehicles are considered non-owned autos because they are not owned by the named insured. Partners and employees are not insureds while driving non-owned autos, even if they are driving the vehicles on company business.
Employee-owned Vehicles
What if your firm requires employees to drive their personal vehicles on the job? Maybe your sales workers use their own cars to call on customers. In this case, you may wish to include the employees as insureds. An endorsement called Employees as Insureds covers employees who use their personal vehicles on behalf of their employer. The endorsement covers the employees on an excess basis. If an accident involving an employee-owned auto results in a claim against the employee, the employee's policy will apply first. The endorsement pays after the employee's coverage has been used up.

Omnibus Insureds

The third category of insureds includes anyone that may be held vicariously liable for an auto accident caused by you or a permissive user. For example, Capital Construction is a general contractor that has been hired to construct a new office building. Capital has hired two subcontractors, Prime Painting and Luxurious Landscaping. Prime Painting has purchased a commercial auto policy that provides liability coverage for owned autos. The painting contractor has signed an agreement promising to insure Capital Construction against claims arising out of Prime Painting's work on the project.

One day, Paul, a Prime Painting employee, is moving one of Prime Painting's trucks at the job site when he accidentally hits Lenny, an employee of Luxurious Landscaping. Lenny sues Capital Construction. His suit claims that the general contractor is liable for his injury because it hired an incompetent painting subcontractor. Capital Construction forwards the claim to Prime Painting and demands coverage. To the extent Capital Construction is liable for the painting contractor's negligence, it should be covered for the claim as an insured under Prime Painting's commercial auto policy. As an insured under the policy, Capital Construction will be entitled to a defense.