Summary: Prior to the 1987 introduction of the simplified commercial auto coverage forms, whenever a business auto policy (BAP) covering nonowned auto liability was issued to a partnership, the Insurance Services Office (ISO) guidelines called for an alteration to be made to the policy. This consisted of a mandatory endorsement to exclude the partnership's vicarious liability coverage for use of an individual partner's auto on partnership business; the coverage was excluded with the proviso that the insured partnership could buy it back for additional premium. Under the simplified program introduced in 1987, this procedure was replaced by nonowned auto liability coverage if symbol 9 is chosen on the business auto coverage form, CA 00 01. Symbol 9 automatically gives the named insured partnership liability coverage for autos owned by the partners while used in the business of the named insured. A question remains, though, as to coverage for the partners themselves. Does the partnership's BAP extend coverage to the partners while they are driving their own cars? This article explores the issue.
Topics covered: Nonownership exposure Partnership coverage Buy or not? Miscellaneous notes
The relevant exposure here is the partnership's auto nonownership liability exposure. Like any business, a partnership can become liable for bodily injury or property damage that results from the operation of a nonowned auto on the partnership's behalf. For example, say a partner drives his or her own car on partnership business. If a member of the public is injured by the partner's driving, it is entirely possible that the partnership itself could be sued and ultimately held liable for the injured person's damages. A partnership can cover this exposure under the business auto coverage form by purchasing nonowned autos coverage under symbol 9. (Symbol 1—any auto—would also apply to auto nonownership liability, but that symbol is not the subject matter of this article; for more information on the symbols for covered autos, see Business Auto Form.)
The Insurance Services Office (ISO) determined that the nonownership liability exposure with respect to partners' cars is considerable enough that extra premium should be charged. Consequently, the ISO premium development procedure for covering the nonowned auto exposure of individual partner's cars is as follows: multiply the private passenger type rates in the state company rates/ISO loss costs by .10 for each active or inactive partner for the territory in which the partnership is located. This rating base is applied regardless of the type of autos being used.
Note that the coverage afforded through the use of symbol 9, nonowned autos, is for the named insured partnership. The partnership, as the named insured under the BAP, is an insured for any covered auto and symbol 9 makes a nonowned auto (for example, an auto owned by one of the partners) a covered auto. As for the individual partner who is driving his own car on the partnership's business, it has always been assumed that the partnership's BAP does not consider the partner as an insured. After all, under the who is an insured provision, it states that a partner is not an insured “for a covered auto owned by him or her or a member of his or her household.” However, consider the wording of the who is an insured provision.
The provision declares that anyone while using with the named insured's permission a covered auto you own, hire, or borrow is an insured, except a partner for a covered auto he owns. But, symbol 9 states that a nonowned auto is one that the named insured does not own, lease, hire, rent or borrow used in connection with the named insured's business. It follows then that the who is an insured provision dealing with autos that the named insured owns, hires, or borrows does not pertain to a nonowned auto. And, an auto owned by a partner is specifically included in the nonowned auto category. Therefore, how can the idea that a partner is not an insured for a covered auto he owns while using a covered auto owned, hired, or borrowed by the named insured be relevant when a partner uses his own car on partnership business?
Instead, look at paragraph c. of the who is an insured provision. It states that “anyone liable for the conduct of an insured” is an insured to the extent of that liability. A partner is liable by law for the conduct of the partnership. The partnership is the named insured. And so, paragraph c. has to pertain to the partner driving his car on partnership business. If a partner is driving his own car on partnership business and causes an accident, the partnership's BAP should consider both the partnership and the individual partner as an insured for coverage purposes as long as symbol 9 has been chosen to designate covered autos.
The BAP does declare that, for any covered auto not owned by the named insured, the insurance provided is excess over any other collectible insurance. So, if the partner has a personal auto policy (PAP) for his own car, that policy will provide primary coverage for the partner; but, the partner does have excess coverage under the partnership's BAP if needed. On the other hand, the partnership has primary coverage under its BAP as the named insured and can have coverage under the partner's PAP as an organization that has legal responsibility for the acts of the partner.
It seems that, when it comes to the relationship between a partner and his partnership, legal responsibility and insurance coverage run on a two way street.
Can the partnership forego general nonownership liability coverage? How willing is the partnership to rely entirely on the partners' personal automobile insurance? As noted previously, the liability insurance a partner buys on his own car under a personal auto policy covers any person or organization held legally responsible for the acts or omissions of the insured. The partnership, therefore, is protected under the partner's insurance policy in the event that the partner is involved in an accident while driving his or her own car on partnership business.
This approach alone, perhaps feasible in some situations, definitely has drawbacks.
First, there is always the possibility that a partner's insurance will lapse or be canceled without the partnership's becoming aware of the development. Obviously, this would leave the partnership without coverage for liability arising out of that partner's using his car on the firm's business. Also, if separate judgments are entered against the partner and the partnership for one accident, the partner's limits of liability might not be sufficient to protect both the parties.
As noted previously, there is no need for an endorsement making a partner an insured for the use of his own car on partnership business. But, considering that the wording of the who is an insured clause is not crystal clear, there is an endorsement insureds and insurers may consider if the goal is to make a partner an insured for the use of nonowned autos under the partnership's BAP. CA 20 48, designated insured, states that each person indicated on the schedule is an insured for liability coverage. Each partner can be listed on this endorsement if that is the desire of the insured partnership.
ISO's commercial auto program has an endorsement that specifically lists employees as insureds, CA 99 33. This endorsement changes the who is an insured provision of the BAP to include employees of the named insured as insureds while using a covered auto that the named insured does not own, hire, or borrow; in other words, a nonowned auto, symbol 9. But, since employees are considered separate entities from partners, that employee endorsement can not be applied to partners.
And remember, based on the other insurance clause of CA 00 01, the insurance provided for nonowned autos is excess over any other collectible insurance, hired auto physical damage coverage to the contrary notwithstanding. The key term here is “collectible”; if there is no other collectible insurance for the nonowned auto, the partnership's business auto form will drop down and become primary. Therefore, it is important that the individual partner have primary coverage and adequate limits for his or her owned auto.