Comprehensive Study Notes: Commercial Auto Policies (BAP and Garage Insurance)

Chapter 5: Commercial Auto Policies Overview

5.1 Business Auto Policy (BAP) Overview

• Definition: The Business Auto Policy (BAP) is a specialized commercial insurance policy designed to protect business entities against liabilities and financial losses associated with the ownership, maintenance, and usage of vehicles.

• Target Audience: The BAP is essential for any company that owns, leases, or operates vehicles for business purposes. It differs from the Personal Auto Policy (PAP), which is intended for individuals and families.

• Losses Protected: Property damage, bodily injury claims, and varied financial losses related to vehicle operations.

Types of Covered Vehicles

• Private Passenger-Type Autos: These include station wagons, jeeps, and utility vehicles (pickups, panel trucks, and vans) that weigh under $1,500$ pounds and are not used commercially.

• Commercial Autos: This category covers larger assets essential for logistics and transport, including heavy trucks, truck tractors, semitrailers, and commercial trailers.

• Public Autos: Includes vehicles used for public conveyance, such as buses, taxicabs, and private passenger autos rented without a driver.

• Special Vehicles: Self-propelled vehicles equipped with permanently attached machinery. Examples include road maintenance trucks, cherry pickers (aerial lifts), and air compressors utilized in construction.

Primary Coverage Forms

1. Business Auto Coverage Form: Used for standard business vehicle risks across most industries, excluding garage or trucking-specific operations.

2. Garage Coverage Form: Tailored for businesses that sell, repair, service, park, or store vehicles (e.g., auto dealerships, body shops, repair garages).

3. Trucking Coverage Forms: Separate policies designed for businesses focused on freight transport and complex logistics operations.

5.2 Business Auto Coverage Form Structure

The policy is organized into five key sections, typically accompanied by a separate Business Auto Declarations Page.

• Section I – Covered Autos: Defines which vehicles are insured based on assigned symbols.

• Section II – Liability Coverage: Outlines protections for bodily injury and property damage liability.

• Section III – Physical Damage Coverage: Details coverage for direct and accidental loss to the insured's vehicles.

• Section IV – Business Auto Conditions: Lists policy responsibilities, claim handling procedures, and conditions.

• Section V – Definitions: Clarifies technical terms used throughout the policy.

Note: Personal Injury Protection (PIP), Uninsured Motorist (UM), and Medical Payments are added via endorsements.

Section I: Covered Auto Symbols

Symbols (numerical designations) determine which vehicles are insured for specific coverages. Choosing the correct symbol is vital for the scope of the policy.

• Symbol 1 – Any Auto: The broadest liability coverage. It covers any vehicle used for business operations, including those owned, hired, rented, borrowed, or employee-owned autos used for company business. It applies only to liability coverage.

• Symbol 2 – Owned Autos Only: Covers all autos owned by the insured. Newly acquired vehicles are automatically covered for the remainder of the policy period. It often includes trailers not owned by the insured when attached to owned power units.

• Symbol 3 – Owned Private Passenger Autos Only: Provides automatic coverage specifically for owned sedans, SUVs, and vans, excluding commercial trucks or buses.

• Symbol 4 – Owned Autos Other Than Private Passenger Autos Only: Covers owned commercial vehicles like trucks, buses, and trailers, excluding private passenger cars.

• Symbol 5 – Owned Autos Subject to No-Fault: Used in states requiring Personal Injury Protection (PIP). In Florida, this ensures compliance with No-Fault laws for all owned vehicles.

• Symbol 6 – Owned Autos Subject to a Compulsory Uninsured Motorists Law: Applies to states where UM coverage is mandatory. (Note: This is not applied in Florida, as UM can be rejected in writing).

• Symbol 7 – Specifically Described Autos: The most restrictive option. Only vehicles listed in the Declarations Page are covered. New acquisitions are covered only if the insurer is notified within $30$ days and the business already insures all owned autos or the new car replaces a covered auto.

• Symbol 8 – Hired Autos Only: Covers vehicles the business leases, hires, rents, or borrows. This specifically excludes vehicles owned by employees.

• Symbol 9 – Non-Owned Autos Only: Covers liability for vehicles the business does not own or rent but uses for business (e.g., employees using personal cars for sales calls). Physical damage is not provided for these vehicles under the BAP.

• Symbol 19 – Mobile Equipment Subject to Compulsory or Financial Responsibility Laws: Applies to specialized equipment (bulldozers, forklifts) that must be licensed and insured for public road use.

Key Definitions and Additional Coverages

• Trailers: Automatically covers trailers with a load capacity of $2,000$ pounds or less when used with a covered auto.

• Mobile Equipment: General Liability usually covers these, but if transported by a covered auto, coverage extends from the BAP.

• Temporary Substitutes: Covers autos used while a primary covered auto is being repaired.

• Accident: Includes continuous or repeated exposure to harmful conditions resulting in injury or damage.

• Loss: Direct and accidental damage to a covered auto.

Section II: Liability Coverage

The Insuring Agreement

• Scope: Covers bodily injury (BI) and property damage (PD) caused by a covered auto.

• Defense: The insurer pays for legal defense costs (court fees, settlements) even if the claim is groundless. Costs are paid in addition to the limits of liability.

• Who is an Insured:

  1. The named insured for any covered auto.

  2. Permissive users (employees or authorized drivers) using a company vehicle for business.

  3. Anyone liable for the conduct of an insured.

• Who is NOT an Insured:

  1. Employees operating their personal vehicles (unless Symbol 9/hired auto coverage is specific).

  2. Owners of borrowed/rented vehicles.

  3. Anyone in the business of selling, servicing, or parking autos (unless it is the named insured's business).

Liability Exclusions

• Contractual Liability: Excluded unless it is an "insured contract" (e.g., a lease agreement).

• Workers' Compensation: Injuries to employees are excluded as they fall under Workers' Comp.

• Care, Custody, or Control: Damage to property owned or transported by the insured is excluded.

• Pollution: Excluded unless the discharge originates from the vehicle's standard operating fluids (oil, gas).

• Racing: Includes professional racing, demolition contests, or stunt driving.

• Other: War, terrorism, nuclear hazards, and intentional acts.

Florida Legal Note: Businesses are vicariously liable for employee accidents during the scope of employment, regardless of the employee's level of fault.

Section III: Physical Damage Coverage

Coverage Types

1. Comprehensive (Other Than Collision): Covers fire, theft, vandalism, flood, hail, or hitting an animal.

2. Specified Causes of Loss: A limited/cheaper alternative to Comprehensive. Covers specifically named perils: fire, lightning, explosion, theft, windstorm, hail, earthquake, and vandalism.

3. Collision: Covers damage from colliding with another vehicle or object (e.g., hitting a tree or overturning).

Valuation and Rating

• Settlement: Most business vehicles are settled on an Actual Cash Value (ACV) basis.

• Rating Factors:

  • Territory: Urban areas usually have higher rates.

  • Radius of Operation: Local (up to $50$ miles), Intermediate ($51$ to $200$ miles), and Long-distance (over $200$ miles).

  • Size/Weight: Heavier trucks increase premiums.

  • Business Use: Classified as Retail (home delivery), Service (tradesmen), or Commercial (general transport).

Physical Damage Exclusions

• Sound systems/media (CDs, tapes) without endorsement.

• Wear and tear, mechanical breakdown, and tire damage from the road.

• Losses due to freezing, overheating, or lack of maintenance.

• Voluntary Parting: If the owner is tricked into handing keys to a person who steals the car.

5.3 Garage Insurance

Definition and Structure

• Purpose: Designed for automotive businesses (dealers, repair shops, valets). It combines General Liability and Auto Liability into one policy.

• Structure:

  1. Section I: Covered Autos (Symbols 21–31).

  2. Section II: Liability Coverage.

  3. Section III: Garagekeepers Insurance.

  4. Section IV: Physical Damage Coverage.

Garage Symbols (21–31)

• Symbol 21: Any Auto.

• Symbol 22: Owned Autos Only.

• Symbol 25: Owned Autos Subject to No-Fault (PIP).

• Symbol 29: Non-Owned Autos Used in Garage Business.

• Symbol 30: Autos Left for Service, Repair, Storage, and Safekeeping (Garagekeepers).

• Symbol 31: Dealers’ Autos & Autos Held for Sale.

Section II: Garage Liability

• Includes Premises & Operations (e.g., customer slips on oil).

• Includes Products & Completed Operations (e.g., liability for a faulty brake repair).

• Excludes auto rentals (unless temporary service loaners), racing, and defective workmanship/product recalls.

Section III: Garagekeepers Insurance

Protects customers' vehicles left in the insured’s care (care, custody, or control).

• Coverage Options:

  1. Legal Liability: Covers damage only if the business is proven negligent.

  2. Direct Primary: Covers damage regardless of fault. Recommended for businesses handling high-value/luxury vehicles.

  3. Direct Excess: Pays after the customer's personal insurance is exhausted.

• Deductibles: Typically range from $100$ to $500$ for collision or theft/mischief/vandalism.

5.4 Rating and Endorsements

Rating Methodologies

• For Dealers: Rating is based on "Rating Units." Insurers assign units based on the number of employees and their job roles.

• For Non-Dealers (Repair Shops): Premiums are calculated per $100$ of total annual payroll.

• Uninsured Motorist (UM): Charged as a flat rate per vehicle.

• Medical Payments: Calculated as a percentage of the liability premium.

• Physical Damage (Reporting Basis): Dealerships report inventory values monthly/quarterly. If they underreport, they face coinsurance penalties.

Key Endorsements

• Drive Other Car Coverage: Extends coverage for executives or employees when driving non-business vehicles (like rentals on vacation).

• False Pretense: Protects dealers if they are scammed into selling a car to someone with a fraudulent identity/no legal rights.

• Dealers Drive-Away Collision: Covers vehicles being transported from suppliers more than $50$ miles away.

• Broadened Garage Coverage: Adds advertising injury and incidental malpractice liability.

Questions & Discussion

1. Q: A construction company needs to cover its trucks. Which policy?

   • A: Business Auto Policy (BAP).

2. Q: A company rents trucks for peak seasons. Which symbol?

   • A: Symbol 8 – Hired Autos Only.

3. Q: A mechanic shop has customer vehicles stolen. Which coverage applies?

   • A: Garagekeepers Insurance.

4. Q: A dealership sells a car to a fraudster with a fake ID. What coverage handles the loss?

   • A: False Pretense Coverage.

5. Q: A shop fails to install brakes correctly and the customer crashes. What applies?

   • A: Garage Liability Coverage (specifically Products & Completed Operations).

6. Q: How is liability rated for a non-dealer repair shop?

   • A: Per $100$ of payroll.