PRIVATE PASSENGER LIABILITY INSURANCE AND BUSINESS EXPOSURES
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INTRODUCTION TO THE PRIVATE PASSENGER LIABILITY INSURANCE AND
BUSINESS EXPOSURES COVERAGES COURSE
Welcome to the Private Passenger Liability Insurance and Business Exposures Coverages course.
The purpose of this course is to arm you, the insurance adjuster and insurance agent, with the
relevant and adequate knowledge on matters pertaining to Private Passenger Liability Insurance
and Business Exposures Coverages. At the end of this course, you should be capable of
understanding the basics of the course.
Please be guided that the contents of this course should only serve as guidance and an overview
of the course. All the materials covering Private Passenger Liability Insurance and Business
Exposures Coverages cannot be exhaustively covered under the course due to its dynamic nature.
You are therefore encouraged to use supplementary materials on the topic to equip yourself
further.
Our reference on Private Passenger Automobile Insurance in the United States is based on the
ISO PAP Form. The ISO PAP form begins with the declarations page, general insuring
agreement, and list of essential definitions. These are followed by the policy’s six primary
components, which are:
Part A—Liability coverage
Part B—Medical payments coverage
Part C—Uninsured motorists coverage
Part D—Coverage for damage to your auto
Part E—Duties after an accident or loss
Part F—General provisions
The declarations page. It will identify the insured by name and address, as well as display the
duration of the policy, the premiums that will be charged, the coverages that will be offered, and
the liability limits that will be associated with the coverages. Included is also a description of the
automobile (or automobiles) that are covered, including the year, name, model, identification or
serial number, and date of purchase. The loss payee for physical damage to the automobile is
stated to protect the lender who has financed the purchase of the automobile, and the garaging
address is displayed. Both the frequency and severity of losses differ from one territory (what
rate makers refer to as "territory") to another. Both the frequency and severity of losses differ
from one territory (what rate makers refer to as "region") to another. For instance, losses are
typically higher in urban areas than they are in more rural areas. Even though many people travel
across the country by car, the majority of driving is done within a very close proximity to the
garage where the vehicle is normally taken. As a result, the cost of the premium is impacted by
the location of the garage.
The insuring agreement. The insuring agreement is that part of the insurance policy in which the
insurer makes a guarantee to either make a payment directly to or on behalf of the insured. The
ISO PAP form begins with a general insuring agreement that states “In return for payment of the
premium and subject to all the terms of this policy, we agree with you as follows:” There is
however an insuring agreement for each of the first four parts (Part A-D) listed above. In most
cases, the Insuring Agreements constitute the most significant portion of the policy. They specify
who and what is covered by the policy, as well as what the insurer agrees to do and not do in
exchange for the premium that is paid by the policyholder. In the event of a covered car accident,
this could entail footing the bill for medical expenses, repairs to damaged property, and legal
fees up to the limits of the policy. There is a possibility that an Insuring Agreement will be
referred to as "Policy Coverage" or another name indicating that it pertains to the insured’s
coverage. Each component of coverage can require its own individual insuring agreement.
Insuring Agreements frequently begin with a high-level summary that provides a broad overview
of the extent of coverage before proceeding to the Exclusions and Definitions sections, which
provide further specificity.
The definitions. The meaning of a phrase can be used to establish whether or not you are covered
by an insurance policy in a given scenario, making definitions an essential component of
insurance plans. Any term that appears in the policy in the form of a quotation is defined. Some
are defined in the section titled "definitions," while others are defined in the separate coverage
sections. Some of the examples of those that can be found in the definitions section are; when we
talk about "you" and "your," we are referring to the "named insured" that is indicated on the
declarations, as well as the spouse if they live in the same household. The spouse will be
considered ‘you’ and ‘your’ under the policy if the spouse ceased to be a resident of the same
household during the policy period or prior to the inception of the policy, but only until the
earlier of: (1) the end of 90 days following the spouse’s change of residency, (2) the effective
date of another policy listing the spouse as a named insured, or (3) the end of the policy period.
The insurance firm is referred to as "we," "us," and "our" in the policy. If a private passenger
automobile is leased to a person in accordance with a written agreement for that person for a
continuous term of at least six months, then that person is considered to be the owner of the
automobile viz;
“A. Throughout this policy, "you" and "your" refer to:
1. The "named insured" shown in the Declarations; and
2. The spouse if a resident of the same household.
B. "We", "us" and "our" refer to the Company providing this insurance
If the spouse ceases to be a resident of the same household during the policy period or prior to
the
inception of this policy, the spouse will be considered "you" and "your" under this policy but
only until the earlier of:
1. The end of 90 days following the spouse’s change of residency;
2. The effective date of another policy listing the spouse as a named insured; or
3. The end of the policy period.
C. For purposes of this policy, a private passenger type auto, pickup or van shall be deemed to be
owned by a person if leased:
1. Under a written agreement to that person; and
2. For a continuous period of at least 6 months.”
Our discussions are mainly based on the first four sections (Part A-D) as they relate to specific
courses but in each course, we endeavor to address section (s) that apply to the entire policy in
detail, these are the declarations page, the general insuring agreement, the definitions, Part E and
Part F. The first four sections each have their own insuring agreement, exclusions, and other
insurance restrictions. Each of the first four sections can be seen of as (nearly) a separate policy,
and the PAP can be thought of as a package that combines all of these policies together.
However, the majority of the conditions can be found in Parts E and F. Declaring in the
declarations that the required premium has been paid for a particular Part of the policy and that it
is covered by the policy makes each Part effective.
In this course, we will look into the declarations page as the section that applies to the whole
policy, before narrowing it down to the course topic. The content of the course shall be as
hereunder:
a) The Declarations page
b) The Course Topic- Private Passenger Liability Insurance and Business Exposures
Coverages
c) Case law
The Declarations Page
On the declarations page of an auto insurance policy, one will find an explanation of both the
cost of their insurance and the coverage they will receive in exchange for that payment. The car
insurance declarations page is the initial page of an auto policy. On this page, one will find an
explanation of all the fundamental aspects of their policy, such as the amount of their car
insurance premiums and the types of coverage that are included in the policy. Consider the
declarations page to be a synopsis of the entire auto insurance policy that one has purchased. The
premium, how frequently the insured is required to pay it, and the deductibles that they are
expected to pay for each coverage component are all listed on the declarations page, which is
also referred to as the dec page. If the insured leases the vehicle, it will also display the name of
the lienholder on their vehicle, as well as the make, model, and vehicle identification number of
their vehicle.
The declarations page is typically attached to the front of the auto insurance policy. The insured
could also be able to access it online by way of the website or mobile app operated by their
insurance company. An insurance provider should give an insured a new declarations page
whenever they make a change to their coverage or whenever they renew their policy. A
declarations page, summarizes the auto insurance policy and provides a list of the policy’s
essential details. This document will not go into exhaustive detail.
One can locate the policy number at the very top of the dec sheet; this is important for the
insured to have this in handy in case they ever need to make a claim. On certain dec sheets, you’ll
also see the number of the insured’s previous insurance policy; however, given that they might
need to purchase a new policy every six months to a year, this might shift frequently.
The vehicle insurance policy term is a span of months beginning from one date, the effective
date, and finishing on the other date, the end date. The dec page will have this information.
Every one of these dates will be written down with the day, month, and year provided for. Some
insurance policies even specify the exact time the coverage will take effect, which is typically
one minute after the stroke of midnight on the policy’s effective date.
The declarations page of an auto insurance policy will provide information about all of the
essential parties to the policy. These individuals are going to be:
The named insured party. In most cases, that will be the one who will be purchasing the
insurance to insure their vehicle. It’s also possible that it is someone else, such the insured
husband or children, when they are behind the wheel of the vehicle. Each person who is
protected by the insurance policy will have their names, ages, and the residences that
belong to them stated. There are times when the dec sheet will also include a list of
drivers that are not permitted to use the vehicle.
Excluded drivers. There is a possibility that the names of any household drivers who are
expressly disqualified from coverage will be listed on a dec sheet.
The agent. The dec page may also include the contact information for the company’s
representative, if one is available, including their phone number.
The insurance company. The insurance company’s physical location and a phone number
at which the company may be reached should be listed on the declarations page of the
policy.
The lienholder. If one purchased their vehicle with a car loan or leased it, the
organization that holds the lease on the vehicle. This will most likely be a financial
institution, such as a bank or credit company; the address of this institution may be listed
on the dec sheet.
On the declarations page, you will also find information on each and every vehicle that is
covered by the policy. This gives informaton on: The year the automobile was manufactured, the
vehicle’s make and model, and the Vehicle Identification Number, or VIN, which is a special
code consisting of 17 digits that is assigned to every new car. On the declarations page of the
policy, you’ll find information on your premiums as well as the payment terms that apply to them
(monthly, bi-annually, annually). The insurance premium is based not only on the insured’
personal characteristics, such as their age, gender, and location, but also on their driving history,
including whether or not they have received a DWI “driving while intoxicated” or DUI “driving
under the influence” or racked up other traffic violations, as well as the type of car they drive and
the number of miles they put on it. The amount of coverage the insured will require is the single
most critical aspect considered when calculating the cost of their auto insurance premium.
When the insured files a claim for their auto insurance, they will be required to pay a sum known
as the deductible out of their own pocket before the insurance company pays the remaining
balance. A deductible will be shown on your dec page next to the applicable car insurance policy
types; however, the insureds are not required to meet a deductible for every component of car
insurance coverage that they have purchased. The typical range for deductibles is between $100
and $500, and sometimes even up to $1,000. When one acquires a vehicle insurance policy, what
they are actually purchasing are the coverages, and the declarations page of their policy will
identify all of the different coverage categories that are included in their auto insurance plan. The
dec sheet will not only indicate each type of coverage that they purchase, but it will also list the
total amount of coverage that they paid for each category. This is what is meant when reference
is made to the vehicle insurance company’s liability to the insured and it is referred to as "the
limits of liability." If the insured has $100,000 worth of coverage for one type of coverage, then
it is the maximum amount, also known as the limit, that the vehicle insurance company is
required to pay out in the event of a claim for that type of policy.
The declaration sheet will state the policy limitations in terms of per person limits and per
accident limits, often both for the same coverage type. For instance, there may be $100,000 per
person and $300,00 per accident. After the insurance company has paid out its limits of liability,
the insured shall have to settle any outstanding amounts from their pocket. If the insured has
more than one vehicle, each one will be itemized, with the amount of coverage indicated for each
vehicle. The insured may obtain a lower level of coverage for one of the insured cars while
purchasing a higher level for another. If the vehicle is older and would not cost as much to
replace, the insured might think about purchasing a lower level of coverage for it; nonetheless,
they should always make sure that they have the coverage they require.
Coverages for car insurance include:
Liability insurance. Protection in the event that the insured causes bodily injury or
property damage to another driver while they are behind the wheel.
Personal injury protection (PIP). Insurance that will pay for medical bills if the insured or
their passengers are injured as a result of an accident that the insured causes.
Collision coverage. Coverage for the costs of repairs incurred by the insured’s vehicle in
the event that it is involved in a collision with another vehicle.
Comprehensive coverage. Coverage for the costs of repairs incurred when your vehicle is
damaged or destroyed as a result of an event that is non-car-related such as severe
weather or a riot, or when it is stolen.
Underinsured/uninsured motorist coverage. Coverage for situations in which the other
motorist is legally responsible for the insured’s medical or repair expenditures but does
not have auto insurance or does not have sufficient coverage.
Gap insurance. Protection in the event that your vehicle is stolen or entirely destroyed
and the comprehensive reimbursement is less than what you still owe on the lease or loan
for the vehicle.
The insured has the option to buy coverage for some of the optional parts of auto insurance
policy. These factors can result in a rise in their premium. There is a possibility that some of the
types of automobile insurance described above will be considered optional by an auto insurance
provider and will be denoted as such on the declarations page for the policy. Where the insured
leases a car, the lienholder may force them to buy collision and comprehensive insurance. Some
optional coverages include: Roadside assistance, Towing and labor reimbursement, Rental car
reimbursement, and Extra equipment attached to the car but not covered by the base policy.
Endorsements, also known as riders, are additional policy terms that are added to the insured’s
base auto insurance policy as an optional add-on to strengthen certain aspects of the coverage.
On the declarations, any riders that have been added may be included. When this occurs, the
endorsement may be indicated by a one-of-a-kind code that serves as a point of reference for
both the auto insurance provider and the title of the rider.
There will be situations when endorsements are not included on the declarations sheet. One will
need to look in the terms of the rider in their policy to find out how much they are paying for
each endorsement and how it will impact their coverage. Sometimes they are tacked on at the
very end of the policy, but other times they are already a part of the provisions of the policy
throughout its entirety. Discounts on auto insurance are made available by every auto insurance
provider. These discounts will be listed on the declarations sheet of the policy, sometimes
although not always, together with the amount by which the premiums will be reduced as a result
of receiving them.
Below are some examples of popular discounts seen in auto insurance policies:
Bundling discount. In most cases, an insured will be eligible for a discount for bundling
their insurance coverage if they purchase their auto insurance as well as their
homeowners insurance or renters insurance from the same insurance provider.
Multiple vehicle discount. When one insures numerous vehicles under one policy, they
will be eligible for a discount.
Safe driving discount. For motorists who have maintained a record of faultless operation
throughout the course of a predetermined number of years. This indicates there were no
accidents, DWI/DUI charges, or moving offenses during the event. Participation in a
driver’s education program might also be required for eligibility.
Complete payment made on the premium. If the insured pays their premiums all at once
rather than doing so on a monthly basis, they are eligible for a discount.
Price reduction for security measures. It’s possible for the insured to get a price break on
their auto insurance by installing safety features like an alarm and anti-lock brakes.
Discount for loyal customers. If the insured has been a loyal customer to an insurance
provider for a predetermined number of years, they may be eligible for a premium loyalty
discount when it comes time to renew your policy following the end of their policy
period.
Discounts available with membership in an organization. If one belongs to a participating
organization, they might receive a discount. This could include attending a certain
university, having graduated from that university, or being a member of a specific
university-affiliated fraternity or sorority. An insured’s place of employment might
potentially provide them with discounts on their auto insurance.
Where the insured decides to renew their auto insurance coverage, they will be given a fresh
declarations sheet. All of the information will be updated to reflect the modifications that have
been made to their policy. These modifications may include a new premium and policy period,
new discounts (for instance, if they have been a more careful driver), new or increased coverage,
any newly insured cars or drivers, and any new endorsements, among other modifications. In the
event that their premium has been adjusted, the declaration sheet may not only show the new
premium but also specify the percentage or dollar amount by which it has been altered.
The Course Topic- Private Passenger Liability Insurance and Business Exposures
Coverages
There are various different kinds of auto insurance for private passenger automobile coverage
(where natural individuals are the named insureds and the vehicle is not operated as a livery or
rented to others), viz;
•Private Passenger Auto No-Fault (Personal Injury Protection or PIP)
•Private Passenger Auto Liability (Liability of the insured for Bodily Injury or Property Damage
inflicted and other coverages that do not involve damage to the vehicle itself)
•Private Passenger Auto Physical Damage (Comprehensive, Collision, and miscellaneous other
coverages that involve damage to the vehicle itself)
Automobile insurance also covers commercial entities/ businesses. These include policies that
insure vehicles with load capacities greater than 1,500 pounds, policies that insure more than
four vehicles, and policies that insure garages, automobile dealers, repair shops, service stations,
and public parking places viz;
•Commercial Automobile Liability (Liability of the insured for Bodily Injury or Property
Damage inflicted, Medical Payments, other coverages that do not involve damage to the vehicle
itself)
•Commercial Auto Physical Damage (Comprehensive, Collision, and miscellaneous other
coverages that involve damage to the vehicle itself)
The insuring agreement regarding liability that is contained in the PAP can be summarized as;
any "insured" person who is found to be legally responsible for "bodily injury" or "property
damage" as a result of an auto accident will have the damages paid by the insuring company. The
prejudgment interest ordered against the "insured" is included in the damages. Any claim or suit
that asks for these damages will be defended or settled by the insuring company, depending on
which option they deem more appropriate. In addition to their liability of limit, they will be
responsible for paying any and all defense costs incurred. According to the liability coverage,
Section A of Part A, the provision of legal defense does not fall under the umbrella of the
liability limits. The liability section is found under Part A (Liability Coverage) of the ISO PAP
form and has been covered in our courses on Bodily injury and Property Damage.
The open perils liability coverage is stipulated in the language of the Part A insurance policy’s
insuring agreement. Therefore, all incidents that result in automotive liability are covered, unless
they are expressly prohibited in the policy. Some exclusions apply to individuals who are not
covered by the policy, while others pertain to cars that are not included in the coverage. On the
exclusions to coverage, the ISO PAP Form just as is the case with homeowner’s insurance,
damage that was not accidental and was willfully caused is never covered by insurance. A
number of exclusions are in place to prevent instances of duplicate coverage, which would lead
to excessive indemnity. We will look at a few of them, for instance, property damage to owned
or used property needs to be protected through other property insurance contracts, such as a
homeowner’s policy; as a result, this type of loss is not covered by the PAP.
As stated in the policy for homeowners, any bodily injury sustained by an employee of the
insured person who is qualified to receive workers’ compensation payments is not covered. Also,
someone who operates a motor vehicle in the capacity of a taxi poses a larger threat than
someone who does not. Therefore, people who use their vehicles for public livery or conveyance
are not eligible for coverage under this policy. People who work in the automotive industry are
excluded as well since doing so poses a considerable risk while they are doing their jobs. It is
customary for businesses in the automobile industry to maintain their own auto insurance
policies, with premiums that adequately compensate for the risks specific to their line of work.
Other types of jobs necessitate the operation of dangerous vehicles, which can be risky
regardless of who is behind the wheel. To give just one example, controlling large garbage trucks
might be challenging. While one is driving one of these vehicles, they will not receive liability
protection from their insurer under the policy. However, insurers do not exclude out all business
uses of motor vehicles under their policies. Private passenger automobiles, such as those used by
traveling salespeople, owned pickups or vans, trailers that are pulled behind any of these
vehicles, and any vehicle that is put to use in a farming or ranching enterprise are specifically
exempt from the exclusion.
The exclusion part of the policy reads:
“A. We do not provide Liability Coverage for any "insured":
1. Who intentionally causes "bodily injury" or "property damage".
2. For "property damage" to property owned or being transported by that "insured".
3. For "property damage" to property:
a. Rented to;
b. Used by; or
c. In the care of;
that "insured".
This Exclusion (A.3.) does not apply to "property damage" to a residence or private garage.
4. For "bodily injury" to an employee of that "insured" during the course of employment. This
Exclusion (A.4.) does not apply to "bodily injury" to a domestic employee unless workers’
compensation benefits are required or available for that domestic employee.
5. For that "insured’s" liability arising out of the ownership or operation of a vehicle while it is
being used as a public or livery conveyance. This Exclusion (A.5.) does not apply to a share-the-
expense car pool.
6. While employed or otherwise engaged in the "business" of:
a. Selling;
b. Repairing;
c. Servicing;
d. Storing; or
e. Parking;
vehicles designed for use mainly on public highways. This includes road testing and delivery…”
The purpose of this course is to note the relation between the Private Passenger Liability
Insurance and Business Exposures. Business exposure refers to the losses or risks associated with
the conduct of a business.
The private passenger vehicle vs commercial motor vehicle
As explained by the Florida Department of Financial Services, in Florida, personal automobile
insurance covers private passenger vehicles. It offers protection against economic loss that may
be incurred by an insured as a result of bodily injury or property damage that may be caused to
others as a result of the operation, maintenance, or use of an automobile that is covered by the
policy.
As per section 627.732 of the Florida Code, we get the definition of motor vehicle, private
passenger motor vehicle, and commercial motor vehicle. From the definition we note that a
motor vehicle is defined in accordance to how it is operated, the number of wheels, the type of
wheels, and trailers and semitrailers used with the vehicle are also considered motor vehicles.
Vehicles that are used as mobile homes or any vehicle used for mass transit (other than public
school transportation) that is designed to carry more than five people (excluding the driver) and
is owned by a municipality, a transit authority, or a political subdivision of the state are not
considered “motor vehicles”. Moreover, according to the Code, motor vehicles are divided into
private passenger motor vehicle and commercial motor vehicle.
A private passenger motor vehicle includes a sedan, station wagon, or jeep-type vehicle and also
pickup, panel, van, camper, or motor home type vehicles where such a vehicle is not used mainly
for occupational, professional, or business purposes. The term “business” has been defined in the
definitions part (Section E) of the ISO PAP Form as “includes trade, profession or occupation”.
The commercial motor vehicle is simple defined as any motor vehicle that is not covered under
the private passenger motor vehicle definition. The provision of section 627.732 does not define
commercial motor vehicle by stating what it is; rather, it defines it by specifying what it is not,
which is “not a private passenger motor vehicle”.
In the majority of states however, a vehicle is considered to be commercial if it has a Gross
Vehicle Weight Rating (GVWR) that is of or greater than a particular amount of pounds. The
same thing holds true for the state of Florida, where the definition of a "commercial motor
vehicle" include any vehicle with a GVWR that is higher than 26,001 lbs.
Another definition of commercial motor vehicles can be found in the section of the Florida
statutes (Section 320.01(25)) that states in part that, a commercial motor vehicle is any vehicle
which is not owned or operated by a governmental entity, which utilizes special fuel or motor
fuel on the public highways, and which has a gross vehicle weight of 26,001 pounds or more, or
has three or more axles irrespective of weight, or is used in combination when the weight of such
combination exceeds 26,001 pounds gross vehicle weight.
The fact that 320.01(25) can be found under the section of the Florida statutes titled "Motor
Vehicle Licenses" dictates that the section should be applied in circumstances under which a
license to operate a commercial vehicle is required whereas in other matters such as subrogation,
§ 627.7405 will be applied. If a vehicle weighs more than 26,001 pounds, it will almost certainly
be considered a "commercial vehicle" in accordance with the provisions of section 627.7405.
However, in accordance with section 627.7405, there are several vehicles that weigh less than
26,001 pounds but are still considered "commercial vehicles."
In the case of City of New Port Richey v. State Farm Auto. Ins. Co., the truck in consideration
did not call for a commercial driver’s license because it only weighed 24,500 pounds. A question
that needed to be answered by the court was whether or not the dump truck, which was owned by
the City, qualified as a commercial motor vehicle for the purposes of granting the plaintiff (State
Farm) PIP subrogation rights under section 627.7405. According to the argument taken by the
City, the Mack dump truck owned by the City was not a "commercial motor vehicle" for the
purposes of the PIP subrogation statute as per the multiple statutory definitions for "commercial
motor vehicle." The defendant’s insurance company said that because the PIP statute’s definition
of "commercial motor vehicle" and/or "commercial vehicle" was vague and ambiguous and
simply used the definition of "any motor vehicle that is not a private passenger motor vehicle" (
627.732 (3)(b)), it was essential to look at the statutory rules for motor vehicle insurance
requirements under those PIP statute for further clarification or definition of the PIP statute in
question.
Private Passenger Liability Insurance and Business Exposures
Let us briefly touch on the course topic as explained by the Insurance Information Institute. The
majority of states require one to acquire liability insurance in the event that a vehicle accident
occurs while the insured or a member of their organization is driving for business purposes. This
insurance covers injuries to people and damage to property that may be caused by the accident.
In the majority of states, having uninsured/underinsured motorists’ coverage and/or medical
payments coverage (Personal Injury Protection (PIP) in some jurisdictions) is a requirement that
one must fulfill in order to drive legally. In addition, people have the option of purchasing
physical damage coverage for vehicles that their company owns, leases, or rents.
When it comes to providing coverage for commercial vehicles, the Business Auto Coverage
Form (BACF) is the standard insurance form that the majority of insurance companies utilize.
Even though the form simply mentions "autos," the term "autos" refers to a wide range of
vehicles, including cars, trucks, trailers, vans, and other conveyances created for use on public
highways.
Because of the liability coverage provided by the BACF, the insurer is liable to pay all damages
that the company is legally required to pay as a result of bodily injury or property damage caused
by a covered vehicle, up to the limits of the policy. When an auto liability lawsuit is filed against
an insured company and the loss is covered by the policy, the insurer is compelled to defend the
company or settle the claim. The insurer has complete discretion over whether or not to contest
the claim or reach a settlement with the party. When the limitations of the insurance coverage
have been reached, the insurer is no longer obligated to defend or settle the claim.
It is against the law in a number of states for a BACF to pay for any punitive damages for which
an insured might be responsible. It’s possible that a policy won’t cover punitive damages even if
an insured lives in a state that allows insurance for them. In contrast to personal auto insurance,
which often have divided limits for bodily injury liability and property damage liability, i.e., split
limits, the BACF typically has a Combined Single Limit for both types of liability (CSL). Due to
this, the limits for bodily injury and property damage coverages, as well as the limitations for
each individual event, are increased. Although different limits are available for purchase, the
Combined Single Limits (CSLs) for commercial automobiles most frequently used by small
businesses are $500,000 and $1,000,000. If a business umbrella policy lists the auto liability
policy as one of the underlying policies for which it provides coverage, then it will protect
owned autos, hired autos, and non-owned autos.
It is possible to individually schedule or put on the insurance policy each vehicle that is used in
the operation of a company and the coverages that are associated with it. To put it another way,
the insured has the option of selecting multiple coverages for each of their vehicles. These
coverages might vary according to the characteristics of the vehicle, including its age, size, theft
rating, and safety rating, as well as the type of protection required for it. An insurance agent will
ask the insured a series of in-depth questions regarding the manner in which they use vehicles in
their business, including who will be operating the vehicles, whether the vehicles are owned,
rented, or leased, and whether the insured and their employees are likely to use their own
vehicles for business-related purposes. The forms of insurance protection that will be required
can be deduced from the responses to these questions.
In most cases, a BACF is the only type of liability protection that can offer the amount of
security that a company requires. Even a small company needs at least $500,000 worth of
business auto coverage, which is the minimum amount recommended by the majority of insurers
in today’s litigious environment. This amount is the amount needed to cover potential losses in
the event of a significant accident. The recommended business auto coverage is however $ 1
million. A personal auto policy will cover the insured in the event that they use their vehicle for
some business purposes. In a same vein, the personal auto policies that workers of the insured
have cover certain business use of their vehicles as well. This will be dependent on the type of
business.
In the context of a personal auto policy, the manner in which one operates their vehicle might not
be considered an acceptable risk to the insurance provider even if it is not expressly excluded.
When the "business usage" in question provides an unacceptable level of risk, the insurance
provider may refuse coverage or revoke existing policies, as well as levy a higher premium. In
circumstances like these, obtaining a commercial auto policy is likely to be the most effective
course of action for the insured. It is quite unlikely that a personal auto policy will provide
coverage for a vehicle that is used primarily for business purposes. If one occasionally uses their
vehicle for work, their personal insurance provider may be able to modify their coverage to
reflect this usage. No coverage will be provided by a personal auto policy if the vehicle in
question is owned by a business, and purchasing a policy that covers commercial vehicles will be
therefore be need.
A personal auto policy, either the insured’s or that of one of their employees, may not provide
sufficient coverage to safeguard the insured’s company. Take for instance a scenario in which the
insured is on their way to a business meeting in their automobile while simultaneously having an
in-depth conversation on their mobile phone with one of their sales representatives. When they
finally become aware that the van in front of them has stopped in order to make a left turn, it is
now too late to prevent an accident from occurring. The crash results in injuries for the driver as
well as for the other five passengers, and they intend to sue the insured as well as the insured’s
firm. If the insured simply has a personal auto policy, their insurance company will most likely
defend them personally and pay the claim on their behalf, up to the extent of the policy.
However, the insurer for the personal auto coverage will not defend or compensate the insured’s
business on the insured’s behalf following the accident.
Where the insured or any of their workers drive vehicles owned by the company, it is quite likely
that their company need commercial auto insurance coverage. If the insured uses their own
vehicle for work-related activities, such as client meetings, company errands, or delivery
services, they could be required to purchase hired and non-owned auto insurance (HNOA). An
insured should also not count on being able to rely on a personal umbrella policy to cover any
claims that result from using a car for commercial purposes. In most cases, claims that arise out
of the operation of a business are not covered by a person’s personal umbrella insurance policy.
A personal auto insurance policy might not be sufficient to cover the damages if the accident was
very severe or if it involved a large number of persons who were hurt.
The extent of the coverage provided by the commercial auto insurance policy might either be
extensive or limited, depending on the options that one selects. For instance, it might be written
so that it applies to only a single automobile that is precisely defined. Alternately, the policy
could be worded so that it applies to the named insured’s liability risks that arise out of the usage
of any auto.
In general, the insured can choose from one of three different types of coverage for the vehicles;
• Automobiles that are owned by their company;
• Every vehicle that their company either owns, rents, or leases; and
• All automobiles that are driven for the purpose of the company, including those that the
company does not own, hire, or lease
The third kind of insurance is the only one that will shield a company from legal action in the
event that an employee or an owner uses their own vehicle for work-related purposes. Therefore,
the vast majority of companies should purchase this kind of protection. It is customary for an
insurance policy to stipulate that the "primary insured" designation be given to the vehicle’s
registered owner on the "Declarations" page of the policy. If the insured uses the same vehicle
for both work and pleasure, they need to be sure that their insurance agent knows whether they
personally or their business holds the title to the vehicle. If this is done, there will be avoidance
of any complications in the event that the insured needs to file a claim or if someone files a claim
against them.
If a company owns a large fleet of vehicles, it is possible that, over the course of time, it will be
more expensive to insure the fleet against physical damage than it will be to retain the risk,
which means to pay for any physical damage directly rather than by insurance. This is also
known as self-insurance. It may be more cost beneficial for the insured’s company, regardless of
the number of vehicles it owns, to just carry physical damage coverage on the more recent or
more valuable vehicles in its fleet.
Some companies allow their workers to take company vehicles home with them and use them for
errands or other personal business after business hours or on weekends. People have coverage for
owned automobiles brought home by employees as long as these vehicles are scheduled on their
business auto policy and the proper "coverage auto symbols" are listed on the "Declarations"
page of their policy. Unless the employee has specifically borrowed the corporate automobile to
serve as a temporary replacement for their own vehicle while it is unavailable, the employee’s
personal auto insurance policy will not cover the employee’s usage of a company car.
In addition, workers who borrow, hire, lease, or rent automobiles for their own personal use are
not covered by the business auto coverage provided by their employer. Sometimes employees or
executives of a firm, or other personnel who are supplied with a vehicle owned by the company,
have only that vehicle. They do not have a personal vehicle, and they do not purchase insurance
for a personal automobile coverage either. In this scenario, the BACF does not provide coverage
for the driver’s personal use of the vehicle. In order to fill in this coverage gap, there is need to
make sure that the BACF has the Drive Other Car Coverage Endorsement. This provides
coverage in the event that the listed individual or a member of his or her family is involved in an
accident while driving a vehicle that has been borrowed from a third party.
If an insured’s workers use their own vehicles for business activities, such as traveling to meet
with clients, the insured’s company may be held liable for any property damage or injuries
sustained as a consequence of an automobile accident that was caused by one of their employees.
Sometimes the owners of businesses are unaware that they are vulnerable to this risk. Liability
can be added to the BACF either under "any auto" or "non-owned autos," which offers coverage
when employees use their own vehicles on business errands in order to protect your company
from these liability concerns. One or more numeric symbols may be found in the declarations,
and these symbols are used to designate the categories of automobiles that are covered. The
name for them is covered auto designation symbols. The numbers 1 through 9 and 19 are
incorporated into the policy, these are land vehicles. Each number denotes a distinct class of
automobiles that are covered.
This BACF coverage exceeds the limitations that are provided by the employee’s personal auto
insurance. If the employee’s limits are low—for example, only enough to satisfy the state’s
financial responsibility restrictions—then it is vitally crucial for the company to have this
protection for non-owned vehicles. It is recommended for business owners to mandate that all
employees have commercial auto insurance on their personal automobiles at all times. Obtain
proof of their coverage on an annual basis and ask employees to sign Motor Vehicle Report
(MVR) authorization forms so that the firm can access their motor vehicle data on an annual
basis. This will help their business avoid any potential problems with privacy laws.
Case law
In Raymond Anthony Monday V. Canal Insurance Company; On August 2, 1999, a car
driven by Jada Montgomery collided with the truck that Monday was operating for his employer,
Alygar Trucking, Inc. Monday was injured as a result of the collision. He sustained life-
threatening injuries as a result of the accident, and as a result, he racked up more than $40,000 in
medical bills. Monday was successful in collecting the maximum amount of liability insurance
coverage available from Montgomery, which was $25,000. Monday did make a claim with Canal
for underinsured-motorist benefits because to the fact that the amount of his damages that were
recovered from Montgomery was not enough to meet the remaining costs. Due to the fact that
Alygar’s policy did not provide underinsured-motorist coverage, Canal was able to refute the
claim that was submitted by Monday. Following that, Monday filed a lawsuit in the circuit court,
asserting that Alygar was obligated to be offered underinsured-motorist coverage by Canal in
accordance with section 23-89-209 of the Arkansas statute. Since Canal had not done so,
Monday argued that such coverage ought to be implied as a matter of law and that Canal ought to
be obliged to pay his claim.
Both parties filed applications for summary judgment, stating that the only issue was a legal one
involving the interpretation of section 23-89-209. According to Canal’s interpretation of § 23-89-
209(a), an insurer is only required to provide underinsured-motorist coverage when it is selling
"private passenger automobile liability insurance." Due to the fact that the policy that was
provided was a commercial insurance, it covered nine trucks and tractors that were utilized in
Alygar’s business, Canal argued that it was not compelled to extend such coverage to Alygar. In
support of its request, Canal submitted an affidavit written by Carleton Dunn, who served as the
company’s senior vice president. According to Dunn, Canal was a commercial transportation
specialty insurer, and the policy that they provided to Alygar was a standard commercial truck
liability coverage. Dunn also noted that Canal was not permitted to insure private-passenger
automobiles since the company did not have private-passenger rates that had been filed with any
of the nation’s insurance departments.
On the other hand, Monday contended that the primary concern of section 23-89-209 is not the
kind of policy that is sold but rather the kind of vehicle that is insured. He contended that the
dual-wheeled pickup truck, which is the kind of vehicle he was operating at the time of the
collision, qualifies as a private passenger automobile under the law. He differentiated these
private passenger automobiles from public-owned, common-carrier vehicles, such as buses and
other kinds of mass transit. Because of this, he contended that Canal was obligated to provide
Alygar with underinsured-motorist coverage regardless of whether the policy was a commercial
one or a personal one because the insurance offered to Alygar covered pickup trucks.
The lower court agreed with Canal’s assessment and came to the conclusion that the legislature
did not intend for the underinsured-motorist act to apply to commercial automobile liability
policies that cover vehicles that are utilized for commercial purposes. The lower court interpreted
the provision to mean that it only applied to liability policies that were sold to private persons for
their own personal autos. Therefore, the trial court agreed with Canal’s interpretation of § 23-89-
209 and awarded the company a summary judgment.
The appellate court observed that; to give effect to the intent of the legislature is the foundational
norm of statutory construction. [Case in point:] Madden v. Aldrich, 346 Ark. 405, 58 S.W.3d 342
(2001); Fewell v. Pickens, 346 Ark. 246, 57 S.W.3d 144 (2001). When the court is trying to
figure out what a statute means, it takes it literally and give the terms the meanings that are
conventionally and generally understood for them in common language. The statute needs to be
interpreted in such a manner that no term is rendered meaningless or redundant, and in such a
way that, if at all feasible, meaning and effect are given to each and every word contained within
the statute. There is no reason to turn to rules of statutory interpretation where the wording of a
statute is clear and unambiguous and conveys a clear and definite meaning.
If, on the other hand, the meaning of a statute is not entirely clear, the court will look to the
language of the statute itself, the subject matter, the object to be accomplished, the purpose to be
served, the remedy provided, the legislative history, and any other appropriate means that shed
light on the subject. Statutes that deal with the same topic are referred to as being "in pari
materia," and they are to be construed in a way that is harmonious where feasible. The appellate
court stated that the question at hand was whether or not an insurer is required by section 23-89-
209 to provide underinsured-motorist coverage to its customers when issuing a commercial
automobile liability policy. The Act stipulates, among other essential provisions:
“(a)(1) No private passenger automobile liability insurance covering liability arising out of the
ownership, maintenance, or use of any motor vehicles in this state shall be delivered or issued in
this state or issued as to any private passenger automobile principally garaged in this state unless
the insured has the opportunity, which he may reject in writing, to purchase underinsured
motorist coverage.”
The appellate court noted that the provision in question was initially made law by the General
Assembly in the form of Act 335 of 1987. "AN ACT to Require that Insurers Offer Underinsured
Motorist Coverage to Insureds Purchasing Private Passenger Automobile Liability Policies; and
for Other Purposes" was its full title. Act 335’s original codification did not include a provision
that restricted its applicability to just companies that provide "private passenger automobile
liability insurance. Instead, the requirements of the legislation were at first applicable to "any
insurer writing automotive liability insurance. See Section 23-89-209(a) of the Arkansas Code
Ann (Supp.1987). In 1993, the General Assembly, amended section 23-89-209(a) that made it so
that it applies exclusively to insurers that issue "private passenger automobile liability insurance.
The question that arose before the appellate court therefore was, what exactly does it imply when
someone says they have "private passenger automobile liability insurance"? The court come to
the conclusion that the language describes a specific kind of automobile liability insurance by
taking this term literally and giving the words the ordinary and generally accepted meaning that
is found in common language. Specifically, the language describes the type of insurance that is
sold to individuals or families and covers their personal automobiles. According to the court, it
should go without saying that the word "insurance" is modified in some way by the phrase
“private passenger automobile liability”.
Therefore, the court concurred with the trial court’s conclusion that the primary concern of the
Act is the particular kind of insurance coverage or policy that is being offered by the insurer,
rather than the specific kind of vehicle that is being insured. There is a distinction between
"private passenger automobile liability insurance" and "commercial automobile liability
insurance," and the latter refers to policies that cover vehicles that are driven for the purpose of
delivering goods or for other business-related activities. Therefore, the fact that the vehicle that is
insured in this scenario, which is a pickup truck with dual wheels, might be utilized by an
individual as a personal vehicle is irrelevant and of no significance. In addition, the intention that
the legislature stated it had when it passed Act 335 gave credence to the conclusion that the court
arrived: "[T]o Require that Insurers Offer Underinsured Motorist Coverage to Insureds
Purchasing Private Passenger Automobile Liability Policies." The court took this to be a clear
indication that the applicability of the underinsured-motorist act is dependent on the type of
insurance policy that is being acquired, and not on the particular type of vehicle that is being
insured.
Moreover, the court pointed out to other statutes that were relevant to its investigation that lend
even more credence to its findings. For instance, the legislature differentiated between
commercial policies and those purchased by individuals and families in Ark.Code Ann. 23-89-
301(5) (Repl.1999). This section, which is included in the subchapter related to cancellation and
nonrenewal, stipulates, in pertinent part that:
“(5) “Policy” means an automobile liability, automobile physical damage, or automobile
collision policy, or any combination thereof delivered or issued for delivery in this state insuring
a single individual or husband and wife resident of the same household, as named insured, and
under which the insured vehicles therein designated are of the following types only:
(A) A motor vehicle of the private passenger or station wagon-type that is not used as a public
or livery conveyance for passengers, nor rented to others; or
(B) Any other four-wheel motor vehicle with a load capacity of one thousand five hundred
pounds (1,500 lbs.) or less which is not used in the occupation, profession, or business of the
insured, provided however, that this subchapter shall not apply to any policy:
(i) Issued under an automobile assigned risk plan;
(ii) Insuring more than four (4) automobiles; or
(iii) Covering garage, automobile sales agency, repair shop, service station, or public parking
place operation hazards.”
Similarly, the court stated that from Ark.Code Ann, it is clear from reading Section 23-89-202
(Repl.1999) that the legislature intended to provide specific minimum safeguards that vary
according to the type of coverage or policy that is sold. Therefore, the focus of this section is on
the type of policy or coverage that is issued, rather than on the nature of the vehicle that is being
insured. That section lays out the minimum requirements for medical and hospital benefits,
income-disability benefits, and accidental-death benefits that must be provided by an insurer
issuing any "automobile liability insurance policy covering any private passenger motor vehicle."
The court have arrived at the conclusion that the legislature intended to require insurers to offer
underinsured-motorist coverage when issuing "private passenger automobile liability insurance"
policies covering personal or private vehicles. This conclusion was reached by construing the
plain language of section 23-89-209(a)(1) in conjunction with the stated purpose of the
underinsured-motorist statute. The Act was held not mandate that insurance companies that
provide commercial auto liability policies also provide underinsured motorist coverage to their
customers.The unchallenged evidence in this case demonstrated that the policy that Canal
provided to Alygar, Monday’s employer, was a standard commercial truck liability policy. This
policy covered a fleet of vehicles that were utilized in Alygar’s business. This is not the kind of
insurance plan that the provisions of section 23-89-209 was held to apply to. As a consequence
of this, the court agreed with the lower court’s decision to award Canal summary judgment as the
company was not compelled by law to provide Alygar with underinsured-motorist coverage in
combination with its commercial automobile liability policy.
The court dismissed Monday’s reliance on previous decisions from both the subject court and the
court of appeals, in National Life & Accident Ins. v. Abbott, 248 Ark. 1115, 455 S.W.2d 120
(1970), Horn v. Imperial Cas. & Indem. Co., 5 Ark.App. 277, 636 S.W.2d 302 (1982), and
Coleman v. MFA Mut. Ins. Co., 3 Ark.App. 7, (1981). This is due to the fact that those cases
dealt with determining the meaning of the terms "private passenger automobile" and
"automobile" according to how those terms were utilized and defined in insurance contracts.
They did not involve the meaning of the word "private passenger automobile liability insurance,"
as that term is used in the statute concerning uninsured motorists. In point of fact, each of those
cases had already been decided before the underinsured-motorist Act was adopted by the
legislature. The reliance that was placed on the decision of the court of appeals in Columbia Mut.
Ins. Co. v. Estate of Baker, 65 Ark.App. 22, 984 S.W.2d 829 (1999) was also rejected. The
conclusion that was reached in that case was held to be inapplicable in that scenario.
Finally, the court held that Monday’s argument that reversal was required by subsection (b) of
23-89-209 was not valid. Monday stated that this clause mandates an insurer to make available
underinsured coverage if the insured chooses to go with uninsured overage.
This argument was held to be misplaced since, uninsured motorist coverage is required to be
made available in conjunction with all forms of automobile liability insurance coverage;
however, underinsured motorist coverage is required to be made available in conjunction with
just one form of automobile liability insurance, namely private-passenger coverage. As a result,
the court took the position that this provision requires nothing more than the provision of
underinsured motorist coverage in those situations where it is required to be offered, i.e., when
issuing "private passenger automobile liability insurance," and if the insured chooses uninsured
motorist coverage, the insurer is obligated to offer underinsured coverage in conjunction with
that choice. As a consequence of this, the court agreed with the lower court’s decision to award
Canal a summary