Summary: To be eligible for a personal auto policy, the applicant must either own or lease a private passenger automobile. Anyone who does not own, but might occasionally borrow or use an auto still needs personal auto coverage for the maintenance or use of such nonowned autos. This coverage is available by attaching the named nonowner coverage endorsement (PP 03 22 01 05) to a personal auto policy. Under the rules of Insurance Services Office (ISO), the endorsement may be used to schedule liability, medical payments, uninsured, and underinsured motorists insurance for the individual, or the individual and family members indicated in the endorsement.
Topics covered: General features Liability coverage Medical payments coverage Uninsured and underinsured motorists coverage Rating
General Features
Named nonowner coverage is appropriate for any person who does not own a car but drives nonowned autos, either borrowed or rented. One common application of named nonowner coverage is where an executive officer or other employee of a corporation is provided a company car for private use, yet owns no cars and is ineligible for a personal auto policy. In this situation, the corporation's auto insurance customarily covers the officer's use of the company car but does not cover the officer's use of other autos. The named nonowner endorsement can be used to provide this coverage. Of course, this exposure can also be insured by extending the corporation's policy with a drive other car endorsement (see Drive Other Car Coverages).
The endorsement can also be used to provide some coverage for a family member whose driving record makes him or her ineligible for coverage under the family's auto policy. The family member would have coverage in the event he or she drove a borrowed or rented vehicle, and, as will be discussed, the endorsement can be tailored to exclude coverage for vehicles furnished or available for regular use. However, extending coverage to an excluded driver might not be acceptable to the family's auto insurer, so the excluded family member would have to seek coverage through alternative means.
Another common use for named nonowner coverage is to provide underlying auto coverage to meet the requirements for a personal umbrella policy. Many companies will not issue an umbrella policy unless the proper underlying coverage is in place. Umbrella insurers insist on underlying coverage even for those who do not own a personal auto or have one furnished to them. The exception, of course, is if the potential insured has no drivers license, and no intention of ever obtaining one.
Although the primary purpose of named nonowner coverage is to cover the named insured for the use of nonowned autos, the form also provides fourteen days' coverage on newly acquired private passenger autos, pickups, or vans. A newly acquired pickup or van must have a gross vehicle weight rating of 10,000 pounds or less (in accordance with the 2005 PAP definition) and not be used for the delivery of goods and materials. (Exceptions to this exclusion are the incidental delivery of goods and materials, and farm or ranch use.) The named nonowner endorsement stipulates that if other insurance applies to the newly acquired vehicle, all coverage under the named nonowner policy ceases with respect to that vehicle.
A new feature of the 2005 form is that, unlike the previous form, coverage may be provided either to the individual named in the endorsement, or to the named individual and "family members." Previously, each individual to whom coverage was to be extended had to be specifically named. Now, if the box for "family members" is checked, resident relatives, including the named individual's spouse, are covered. A "family member" is defined as "a person related to you by blood, marriage or adoption, including a ward or foster child, if: 1. [t]he person is a resident of your household; and 2. [t]he Schedule or Declarations indicate that coverage is provided for the named individual and 'family members.'"
Liability coverage applies to any person or organization with respect to vicarious liability for the named individual's use of "your covered auto." This provision is in the personal auto policy. Any person or organization is also covered for vicarious liability for the named insured's use of any nonowned vehicle (as long as that vehicle is not owned by the person or organization seeking vicarious liability coverage). For example: "A" and "B" work for the "XYZ Company." "B" does not own a car, but has purchased a named nonowner policy. If "B" were to use "A's" car to run an errand for the company, XYZ would have vicarious liability protection under "B's" named nonownership policy.
The fourteen day limit is included in this endorsement for two reasons. It recognizes that someone who does not own a car may, at some time, purchase a car. It gives that person a little "breathing room," a little time to secure a standard personal auto policy, but still provides that person with liability protection. It also keeps the nonownership just that—nonownership. Since the pricing of a nonownership policy is considerably less than a standard policy, the insurers cannot afford to give owner's coverage at nonowner's rates.
The same other insurance provisions govern named nonowner coverage as apply to the various parts of the standard personal auto policy. Named nonowner coverage, then, is usually always excess over other like insurance. The only time it is not is when the auto involved is "your covered auto," as narrowly defined in the endorsement. Naturally, if there is no "other insurance" on a nonowned auto, the named nonowner coverage provides primary coverage.
Looking forward, the potential for autonomous vehicles being on the road by 2020 exists and cars being available for general transportation, similar to a taxi but without a driver, is also a possibility. While it has yet to be determined where the liability for such vehicles will lie in event of an accident, this policy would provide coverage to users of driverless autonomous vehicles in the future.
The endorsement covers the persons indicated in the schedule "for the maintenance or use of any auto or trailer." (Trailer takes on the same definition as used in the standard personal auto policy to which the endorsement is attached.) Inclusion of trailers avoids the necessity of arranging separate insurance for an owned or nonowned trailer that the individual may use with a nonowned auto. The applicability of "any auto," of course, is restricted by the exclusions of part A of the personal auto policy (see Personal Auto Policy—Part A), except as the exclusions are altered in the endorsement.
One of the most important exclusions eliminates coverage for any vehicle owned by the named insured, other than "your covered auto." ("Your covered auto," as explained earlier, takes a much more limited definition in this endorsement than in the regular personal auto policy.) This reinforces the purpose of the policy to cover only nonowned autos or certain autos acquired during the policy period. The current PP 03 22 has been revised in accordance with the change allowing optional coverage for the named individual's spouse and family members. The prior endorsement declared that the insurer would not provide liability coverage for the "ownership, maintenance, or use of any vehicle, other than 'your covered auto', which is owned by any 'family member'. However, this Exclusion (B.3.) does not apply to you while you are maintaining or 'occupying' any vehicle which is owned by a 'family member'." But in the current endorsement, coverage for vehicles furnished or available for regular use must be indicated on the schedule. The endorsement will then provide liability coverage the insured's use of a family member's auto or for a company car furnished for regular use. As mentioned earlier, this coverage would be excess over any provided as to that car by the family member's or corporation's auto policy.
In the previous endorsement, the personal auto exclusions (A.6. and A.7.) regarding the use of an auto in an auto business or any other business was replaced with an exclusion stating that the insurer would not provide liability coverage for any insured maintaining or using any vehicle in that insured's business with the exception of an auto operated or occupied by the named individual. But because the unendorsed PAP already provides coverage for maintenance or use of a nonowned auto, pickup or van for business (other than the auto business), it was deemed unnecessary to delete the exclusions for purposes of the named nonowner coverage. Consequently, exclusions A.6. and A.7. remain. Also, in the prior endorsement, the exception to exclusion A.3. concerning property damage to a residence or private garage was replaced with an exception stating the exclusion did not apply to damage caused by a private passenger auto insured under the endorsement. But because the exception in the PAP does not limit the exception to a specific type of vehicle, the exception is no longer replaced in PP 03 22.
Under the current edition of the personal auto policy, the named insured has coverage for damage to someone else's car under section D, damage to your auto. But if an individual (including a spouse and family members as defined) is insured on PP 03 22, and borrows or rents a car and becomes liable for damage to that auto while it is in his or her custody, the named nonowner endorsement will not respond. The personal auto policy does respond under these circumstances, but only if the insured carries physical damage on one of his or her owned autos. For this reason, if someone purchases a named nonowner policy to provide coverage for rented vehicles, the person should be advised to purchase the physical damage coverage offered by the rental company. For example, a corporate executive might own no personal vehicle, and work for a company with no business auto coverage. The executive might, however, regularly fly out of town for business, renting a vehicle to make sales calls. The named nonowner policy will provide liability coverage, medical payments coverage, and uninsured- and underinsured motorist coverage, but not physical damage coverage for the rented vehicle. Liability coverage will not respond to a loss because of the exclusion of coverage for property rented to, used by, or in the care of the insured.
The person(s) indicated on the endorsement are covered while occupying a motor vehicle designed for use mainly on public roads or a trailer of any type. He or she or they are also covered as pedestrians, when struck by such a vehicle. Any other person is covered only while occupying "your covered auto", as defined on the endorsement. There is no coverage whatsoever for anyone other than those indicated on the endorsement while occupying a nonowned auto. Any passenger in the nonowned auto would therefore have to claim medical payments coverage under his or her own personal auto policy.
Under the current 2005 form, unlike the previous named nonowner form, there is now an exclusion of medical payments coverage while an insured is occupying or is struck by an auto furnished or available for the named individual's regular use. For example, if an insured is using a company car and is hit by another vehicle, there is no coverage for the insured for medical payments unless the exclusion has been lifted. The company car is regularly available for the insured's use. This includes a vehicle owned by or furnished to a family member. The exclusion will not apply if the schedule indicates that the exclusions for vehicles furnished or available for regular use under part A – Liability and part B – Medical Payments do not apply.
The previous form also replaced exclusion 8. (bodily injury sustained while occupying a vehicle used in the business of an insured) with an exclusion stating that there was no coverage for any insured for bodily injury sustained while occupying any vehicle used in the business of that insured except for a vehicle operated or occupied by the named individual. But in the current form, exclusion 8.remains. The named individual (or family members, if indicated), though, has medical payments coverage in accordance with the PAP while operating or occupying an auto, pickup, van, or trailer used with one of these vehicles in any business, including his own. However, if workers compensation benefits are available or required for an injury, then PP 03 22 would provide no coverage under these circumstances.
Uninsured and Underinsured Motorists Coverage
The named nonowner endorsement covers the following persons for uninsured and underinsured motorists coverage: the named individual; family members if indicated on the endorsement; any person occupying "your covered auto," if applicable; and any person entitled to recover damages because of injury to one of these covered persons. This final category of insured is often called a derivative insured. Examples of derivative insureds are: a husband claiming loss of consortium for an injured wife; a parent claiming medical expenses for an injured child, etc.
The definitions of "uninsured motor vehicle" and "underinsured motor vehicle" are amended so that any reference to the state in which "your covered auto" is principally garaged becomes "the state in which you reside." If the endorsement does not indicate coverage for family members, then uninsured motorist provision C.3. concerning hit and run vehicles will apply only to the named individual.
The schedule of form PP 03 22 contains the option for the purchase of uninsured and underinsured motorists property damage. Thus, the holder of a named nonowner policy can be protected for loss to a nonowned car, if struck by an uninsured motorist.
The named nonowner policy rule of the personal auto manual outlines the rating procedure for this coverage. The charge for liability and medical payments coverages for a named individual only is 40 percent of the premium that would apply if the individual owned an auto, and if coverage is to include the named individual and resident relatives including spouse the charge is 60 percent. However, these charges apply only if the exclusions for vehicles furnished or available for regular use apply. If the exclusions are not to apply—that is, the insured elects to extend coverage to vehicles available or furnished for the regular use of an insured or family member—the charges are 60 percent of the premium that would apply if the named individual owned an auto, and 80% if coverage is to include named individual and family members. The charge for uninsured and underinsured motorists coverage is what auto owners pay for their "first auto." The rating information appears in the appropriate state rate or exception pages of the state in which the individual resides.