Section 2 lesson 3 Comprehensive Guide to Business Auto and Garage Insurance Policies

Overview of the Business Auto Policy (BAP)

  • Definition and Purpose: Just as a personal auto policy is designed for individuals, the Business Auto Policy (BAP) is designed for commercial businesses, people, or entities engaged in the conduct of business.
  • Scope of Vehicles: The policy typically covers:
    • Private passenger vehicles, trucks, and trailers used in business conduct.
    • Commercial vehicles such as larger trucks, tractor-trailer rigs, semi-trailers, and commercial service trailers.
    • Public transport vehicles including taxi cabs and buses.
    • Vehicles rented to others without a driver (e.g., rentals from Hertz or Enterprise).
    • Special commercial units with permanently attached equipment, such as snow blowers, road maintenance equipment, cherry pickers, or boom trucks.
  • Framework: The BAP provides a common framework of coverage to address three different types of business exposure.

Policy Variations and Specialized Coverage

  • Standard Business Auto Policy: The standard coverage form designed to ensure auto exposures for all types of businesses except garage or truckers.
  • The Garage Policy: Designed for anyone in an automobile-related business, including car dealers, repair or service shops, or businesses involved in parking or storing automobiles.
    • This policy adds Garage Keepers Coverage, specifically for those selling, servicing, repairing, parking, or storing automobiles.
    • It combines two specific coverage types: Business Auto for the company's own automobiles and General Liability for vehicles left in the company's care (care, custody, or control).
  • The Trucker’s Policy: Designed for businesses hired to transport goods for others.
    • It includes coverage for hazards faced by businesses holding goods for others.
    • It extends physical damage coverage to trailers used by the insured that the insured does not own.
    • It covers hazards of short and long-haul trucking and the towing of trailers and goods belonging to others.

Structure of the Business Auto Policy

The standard business auto policy is comprised of five specific sections:

  1. Section I: Covered Autos.
  2. Section II: Liability Coverage.
  3. Section III: Physical Damage Coverage.
  4. Section IV: Conditions.
  5. Section V: Definitions.

Section I: Covered Autos and Numeric Symbols

  • Identification of Coverage: Vehicles and the specific coverages applied to them are defined through a series of numeric symbols. This is often the first place an adjuster looks (alongside the declarations page) to confirm coverage.
  • Standard Business Auto Symbols:
    • Symbol 1: Any auto (the broadest coverage).
    • Symbol 2: Owned autos only.
    • Symbol 7: Specifically described autos (only specific vehicles listed on the policy).
    • Symbol 9: Non-owned autos only.
  • Garage Policy Symbols: These mirror the standard BAP symbols but use 20-series numbering:
    • Symbol 21: Any auto (corresponds to Symbol 1).
    • Symbol 22: Owned autos only (corresponds to Symbol 2).
    • Symbol 27: Specifically described autos (corresponds to Symbol 7).
    • Symbol 29: Non-owned autos only (corresponds to Symbol 9).
    • Symbol 30: Autos left with the insured for service, repair, storage, and safekeeping. This is unique to the garage policy and adds back coverage for customer property normally excluded.

Insured Parties and Liability

  • Named Insured: The policy covers the business entity or person named on the policy.
  • Permissive Users: Anyone using a covered vehicle with permission (e.g., an employee or partner) is covered.
  • Hired or Borrowed Vehicles: The policy does not cover the owner of a hired or borrowed vehicle. The owner of that vehicle must seek coverage from their own individual policy.
  • Vicarious Liability: The policy covers anyone who might be liable for the conduct of the named insured or a permissive use driver.

Key Exclusions in Business Auto Policies

  • Employee Injuries:
    • If an employee is injured while working, injuries are covered under Workers' Compensation (which is primary).
    • Personal Injury Protection (PIP) does not apply in these cases.
    • Uninsured Motorists (UM) coverage may apply if the employee's injuries exceed Workers' Compensation benefits.
    • Personal Use Exception: If an employee is driving a covered vehicle for permitted personal business (outside the scope of employment), all medical benefits, including PIP, would apply.
  • Pollution: Liability for pollution is excluded, except for fluids required for normal vehicle operation (e.g., oil, fuel).
  • Mobile Equipment:
    • Definition: Off-road and unlicensed vehicles like bulldozers, forklifts, vehicles on crawler treads used on the insured's premises, and vehicles providing mobility to permanently attached specialized equipment (e.g., truck cranes).
    • Liability arising from mobile equipment is excluded because it is covered under a General Liability policy.

Case Study: Garage Liability and Garage Keepers Coverage

  • Scenario 1: Liability (Frank’s Auto Mart):
    • Connor (18) test drives a Mustang at Frank's Auto Mart.
    • Frank’s policy has Symbol 21 (Any Auto).
    • Connor runs a red light and hits Steve and Linda Downs.
    • Frank's Auto Mart is held responsible. Because Connor was a permissive user and the vehicle is covered under Symbol 21, the dealership's BAP responds to the Downs' injuries and property damage.
    • Dealer Exception: Customers are not insureds under a garage policy if they have their own liability coverage for at least state minimum limits. If they are uninsured (like Connor), the garage policy provides coverage.
  • Scenario 2: Garage Keepers (Joe’s Body Shop):
    • The Downs' vehicle is sent to Joe's Body Shop.
    • An employee drops a cigarette in gasoline; a fire destroys the shop and the Downs' car.
    • Joe's policy includes Symbol 30 (Garage Keepers).
    • Adjuster Johnny Good (representing Frank's Mart/Downs) and the USA Insurance adjuster (representing Joe's Shop) split payments:
      • Johnny pays the original repair amount expected.
      • USA Insurance (Joe's insurer) pays the remaining total loss value of the vehicle.
      • Loss of use claims are shared between the two insurers.
  • Scenario 3: Workmanship (Saul’s Quality Automotive):
    • Jesse (mechanic) fails to replace oil during a tune-up for Walt's Mustang.
    • Walt's engine seizes 15 miles later.
    • Damage Claim: Purchase and installation of a new engine and parts totaling 2,513.562,513.56.
    • Service Claim: Refund of the original oil change and tune-up totaling 245.00245.00.
    • Outcome: The policy covers the 2,513.562,513.56 in property damage caused by the work. It does not cover the 245.00245.00 for the work itself, as that is a business expense/refund for Saul to handle directly.