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Overlooked Exposures Can Result In Unexpected Losses

Post written by Sandra Tarzanick, AU, Quality Assurance Analyst

WFI-Auto Since hired and non-owned auto coverage usually is not a big-ticket premium item, it could be easily overlooked during the risk assessment process. However, the potential for loss could be quite high. Careful assessment of an organization’s scope of operations and activities is needed to determine whether there is any increased risk or exposures in this area.

Analysis Process 

Hazard analysis for any risk begins with gaining an understanding of the operations and all activities associated with the risk, along with any potential hazards.  It’s essential to identify what aspects of the operations could result in a loss.

For hired and non-owned auto liability, proper exposure analysis starts with an understanding of the distinction between what is hired and what is a non-owned auto.

Hired Vehicles

If business operations involve the use of a hired or borrowed auto, the business can be held liable for injuries or damages to members of the public, as well as to the owner of the hired or borrowed car.

When the service of others is used to haul products or goods on behalf of the business, the risk assessment analysis needs to include a complete review of the drivers and the vehicles of the subcontractors. Also, the analysis should include verification that the subcontractors carry appropriate and adequate insurance coverage.

Non-Owned Vehicles

Some businesses have a liability exposure due to the use of non-owned autos. In these situations, employees are using their own personal vehicles on company business.

Examples include:

  • An employee uses his or her own auto or an auto owned by a co-worker to run an errand for the business.
  • Someone, other than an employee, using an auto to run an errand as a favor for an executive, for the executive’s benefit.
  • Sales personnel using their own vehicles on a daily basis to make sales calls and check on existing accounts

In certain cases, some businesses have no need to own autos for their every-day business activities, but do need the use of autos or certain business purposes. Examples include:

  • A retail store or delicatessen might need an auto to deliver items to customers, but the need may be incidental and not great enough to justify the expense of owning a vehicle.  In this situation, the use of employees’ cars fulfills the need.
  • A company may have officers or employees traveling to different states where they would need the use of rented or hired cars.
  • For operations such as hotels, restaurants or clubs, a major auto non-ownership exposure stems from valet services involving the driving of autos belonging to customers, members and other members of the public, to and from garages and/or parking places.

Exposure Considerations

While taking inventory of your risk, ask yourself the following questions.

  • How many employees regularly drive their personal autos on company business?
  • Is there a company policy requiring all employees who use their personal autos on company business to purchase personal auto insurance?  If yes, what limit of liability is required? Is compliance with company policy verified?
  • Does the company ever borrow, lease, hire or rent vehicles?  Are any vehicles leased from employees?
  • Are there a large number of drivers listed vs. the number of scheduled vehicles?
  • Are there any independent contractors used or drivers furnished?
  • Do employees ever rent cars from rental agencies?
  • Do operations involve pick up or delivery of customers’ vehicles?  Auto dealerships / repair shops driving autos belonging to customers?
  • Are valet parking services provided?
  • Is there delivery of items to customers (e.g. delicatessens, grocery stores, fast-food, pizza, etc.)?

Driver Analysis 

For operations that have substantial hired or non-owned exposures, the drivers should be evaluated the same as if they were driving company-owned vehicles.  A list of drivers, and copies of their Motor Vehicle Reports (MVR), should be obtained. The MVRs should be reviewed using the same driver criteria and requirements used for all other drivers.

In addition to a review of the employees’ driving records, the overall risk analysis for the non-owned exposure must include a review of the conditions of the vehicles, along with verification of a personal auto policy with adequate limits of insurance.

Note – Many personal auto policies exclude business use; therefore, employees should check with their personal auto carrier to be sure they have proper coverage to correspond with the intended use.

With an understanding of the degree of exposure involved, sound actions to mitigate risk can be determined to avoid unexpected losses.

Image credit via Flickr Creative Commons, David Guo

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