Hired and Non-Owned Auto Insurance in Healthcare - An Often Misunderstood Coverage

September 18, 2018

Any commercial entity that uses (i.e. allows employees to operate) vehicles that are not owned by the company, but are leased, hired, or borrowed should consider the enterprise risk transfer strategy of insurance to address potential liabilities and losses.

Having a good understanding of the different types of hired and non-owned auto (HNOA) policies or endorsements to other policies available, which coverage is primary vs secondary, included exclusions and when coverage is triggered is a good first step in ensuring that the healthcare business’ needs are met and there are no gaps in coverage for this risk exposure. Insurance producers, insurance carrier underwriters and risk managers with experience in this type of coverage can help healthcare businesses navigate this often misunderstood coverage.

Types of Auto Insurance Coverage

  • Business Auto Policy provides a method for commercial entities to cover their exposure to loss out of ownership, maintenance, or use of various categories of autos depending on which type of coverage is chosen. These can include vehicles that are owned by the business and are used for company business and can extend to rented vehicles or non-owned autos.  
  • Personal Auto Policy - There are several different types of standard and optional coverages for drivers and their personal vehicles, which may include liability, personal injury, collision, medical payments, uninsured/underinsured motorists and physical damage.
  • Hired and Non-Owned Auto Coverage covers liability expenses for loss  involving vehicles that are not owned by the business, but are leased, hired, or borrowed (e.g. may include an employee’s personal vehicle) and used for company purposes. This type of coverage can be an endorsement to a General Liability insurance policy or a separate business auto policy.

Hired and Non-Owned Auto Coverage as an Endorsement to the General Liability Policy

When a healthcare organization does not own or lease vehicles a business auto policy may not be required and often the HNOA endorsement is chosen to address this exposure. The HNOA endorsement to the General Liability coverage part is intended to cover the employer’s vicarious liability for employee conduct that occurs within the scope of employment. These endorsements do not contain standard wording so definitions and exclusions must be carefully reviewed. Our discussion here is based on standard business auto definitions and common language seen in industry HNOA endorsements.

Definitions

A "hired auto" as defined in the endorsement will be any auto leased, hired, or borrowed by the insured. Autos leased, hired, or borrowed from employees or members of their households, partners, or executive officers do not qualify as hired autos. An automobile leased by an executive while traveling on company business is an example of a hired auto.

A "non-owned auto" is defined as an auto not owned, leased, or borrowed by the insured that is used by someone other than the named insured in connection with the insured's business. An employee's car used by the employee to run company errands or to travel to or from a business meeting is an example of a non owned auto used in connection with the insured's business. Non owned auto coverage protects the insured business against lawsuits arising from use of employee-owned vehicles on company business. However, employees do not benefit from this protection as the owner of the auto is not an insured for “non owned auto”. An employee (including a partner or an executive officer) using his or her own car on company business must rely on his or her personal auto policy, both for liability to others and for any damage to the employee-owned vehicle.1

Some Key Considerations for Choosing HNOA Coverage

  • Determine who in the company will be driving and/or be in the vehicle while it is being driven on company business, including a statement on transporting clients/patients and whether that requires approval from management.
  • Define what “while on company business” means for auto insurance, workers compensation and any other applicable insurance coverages. Company policy should be clear to ensure that employees understand that accidents resulting from running personal errands or occurring during nonworking hours are outside of scope.
  • Determine what types of costs related to autos, insurance and driving will/will not be covered by the company, e.g. paying fines employees receive while driving on company business; paying bail for employees who are arrested while driving on company business; cost of employee’s personal auto insurance policy and/or deductible; cost of a driver’s license and/or any fees or penalties incurred related to the driver’s license; driver training; fuel; loss of use/car rental/towing; vehicle maintenance or repairs etc.
  • Determine what the personal auto insurance coverage statutory requirements are for the state in which the employees will be driving, including the type of coverage required, policy exclusions (e.g. business use of a personal auto) and limits (states differ on whether there is a requirement to carry insurance).
  • Personal Auto Policies: Requirements vary by state. If an employee is using their own vehicle for work on a regular basis, their personal policy may not cover work related accidents and damages. Therefore it is very important for employees and the business owner to understand the specific terms of the personal auto policy. This will assist in determining an employee’s eligibility to use their personal vehicle for company business and/or determine minimum requirements for an employee’s personal auto policy. This is especially important to determine and confirm since the employee’s personal auto policy is expected to be the primary coverage in the event of a loss when operating their own vehicle.
  • If an employee doesn’t own an automobile, the individual employee could be required to carry a Named Non-owner policy and a Personal Umbrella as backup to that or the individual could purchase just a Personal Umbrella policy that provides step down coverage.
  • Non-Owned Auto Coverage: Non-owned auto coverage protects the insured business against lawsuits arising from use of employee-owned vehicles on company business. However, employees do not benefit from this protection as the owner of the auto is not an insured for “non owned auto.” An employee (including a partner or an executive officer) using his or her own car on company business must rely on his or her personal auto policy, both for liability to others and for any damage to the employee-owned vehicle.
  • Hired Auto Coverage: Cars rented by employees to be used on company business are a common exposure. The employee’s personal auto policy will be the primary coverage for liability and physical damage to the rented vehicle but this varies by state regulations, depends on the breadth of coverage that the employee carries, as well as how the rental agreement is entered into.  It is important to realize that hired auto liability coverage does not cover damage to a vehicle leased by the insured. Coverage applies only to liability for injury to others and liability for damage to other vehicles (and other property).2 
  • Credit Card Coverage: Some credit cards include a travel protection benefit for car rental insurance but how the rental is booked and paid for are important factors. The type of credit card (personal vs corporate) used to pay for the rental can also significantly impact the coverage afforded and likely includes exclusions. Knowing what the personal or corporate/business card coverage includes and more importantly excludes is a critical piece of developing the Company’s policies and procedures on rental cars being used for company business. Risk identification, or in this case literally “reading the fine print” is an important first step in the process. Banks and other card issuers often change these terms by notifying the card holder so there must be a process to revalidate this benefit. Credit cards typically offer secondary coverage that includes collision damage and theft protection, but does not include damage to any other cars, personal property or injury to any party. A few credit card companies may offer primary coverage when using the rental car for business purposes, or there may be different types of coverage models available, usually for purchase. Credit card companies typically have certain requirements for the rental car agreement and payment in order to afford coverage. These may include:
    • Having the renter’s name on the rental agreement
    • Declining the rental car agency’s collision damage waiver (CDW/LDW)
    • Paying for the rental in full with the credit card that has the coverage
    • Will a Loss of Use fee be assessed?
    • What is the timeframe for filing a claim? Must law enforcement be notified in all cases and a police report filed? Are photos required?
    • Is towing and/or roadside assistance covered?
    • Is there a cap on the benefit amount available for physical damage to the rented vehicle? A common maximum is $75,000.  
    • Check the exclusions! This list may include but is not limited to:
      • Is everyone who will be driving required to be listed on the rental agreement? *What is the Company policy on additional drivers?
      • What is the max length of the rental? Most credit cards have a limit of 30 days or less, and the rental agreement may not be able to be extended or even re-booked as a new rental agreement.
      • Which types of vehicles are excluded e.g. trucks, motorcycles, bigger sized/multi passenger, large SUVs, luxury or high priced?
      • Is the vehicle/driver covered outside of the U.S.?
      • Use on unpaved, gravel or off-road?

Conclusion

Having adequate auto insurance coverage without gaps in place for healthcare entities that allow or require employees to operate vehicles that are not owned by the company, but are leased, hired, or borrowed is an important enterprise risk management strategy for protecting the company from losses and liability. This type of insurance coverage however, is not well understood in the insurance industry.

Following the selection of the type of insurance coverage(s) that the business needs, the next step in the enterprise risk management process is to develop organizational policies and procedures for employees driving on company business. Managing the ongoing risk exposures of employee drivers requires a thoughtful, multidisciplinary risk analysis and implementation of a risk control plan.

To accomplish both goals, partner with knowledgeable and experienced insurance producers, carriers and risk management professionals.

 

1. International Risk Management Institute, Inc., accessed 2018, https://www.irmi.com/
2. International Risk Management Institute, Inc., accessed 2018, https://www.irmi.com/

 

Information is provided for general informational purposes only and does not constitute legal, risk management, or other advice. Viewers should consult their own counsel or other advisors for such advice. OneBeacon Insurance Group, and its parents and affiliates (“OneBeacon”), and consultants, contractors, and vendors of OneBeacon assume no responsibility or liability for the discovery or elimination of risk that possibly could cause accidents, injuries, or damages. Compliance with any strategies or opportunities for improvement provided does not assure elimination of risk or the satisfaction of requirements of applicable law. Any reference to “insurance or insurance coverage” does not necessarily apply to the OneBeacon HNOA coverage. The client should consult with their agent/broker for questions on their policy.

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