Summary: The conditions section of the business auto coverage form had only one minor change in the coverage territory with the 11 20 edition of the business auto coverage form; however we have provided some additional explanation of the conditions in this updated analysis.
SECTION IV – BUSINESS AUTO CONDITIONS
The following conditions apply in addition to the Common Policy Conditions:
Analysis:
The Business Auto Coverage Form (BAP) conditions are not the only conditions that apply. As with most ISO forms, the Common Policy Conditions apply first and foremost to the coverages, and the auto conditions are applied in addition to the common policy conditions. The insured must adhere to all conditions contained within the entire policy.
Common Policy Conditions
Like the Insurance Services Office coverage forms for other commercial lines, the business auto coverage form does not make a complete coverage part or policy unless the common policy conditions form, IL 00 17, is added. The common policy conditions discuss policy cancellation procedures, changes in the terms of the policy, examination of the named insured's books and records, inspections and surveys that the insurer has the right to make, who is to pay premiums and who is to receive any return premiums, and the transfer of the rights and duties of the insured. For a discussion of the common policy conditions, see Common Policy Conditions.
A. Loss Conditions
1. Appraisal For Physical Damage Loss
If you and we disagree on the amount of "loss", either may demand an appraisal of the "loss". In this event, each party will select a competent appraiser. The two appraisers will select a competent and impartial umpire. The appraisers will state separately the actual cash value and amount of "loss". If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will be binding. Each party will:
- Pay its chosen appraiser; and
- Bear the other expenses of the appraisal and umpire equally.
If we submit to an appraisal, we will still retain our right to deny the claim.
Analysis:
There are two major points to the appraisal condition. First, either party may demand an appraisal of the loss; neither the insured nor the insurer has the ability to force a settlement on the other party and neither the insured nor the insurer has to get the other party's permission in order for an appraisal to be put into motion. Second, the insurer's acceptance of an appraisal does not act as a waiver on the part of the insurer; a claim can still be denied if warranted due to an exclusion or some other relevant part of the auto form.
2. Duties In The Event Of Accident, Claim, Suit, or Loss
We have no duty to provide coverage under this Policy unless there has been full compliance with the following duties:
a. In the event of "accident", claim, "suit" or "loss", you must give us or our authorized representative prompt notice of the "accident" or "loss". Include:
(1) How, when and where the "accident" or "loss" occurred;
(2) The "insured's" name and address; and
(3) To the extent possible, the named and addresses of any injured persons and witnesses.
b. Additionally, you and any other involved "insured" must:
(1) Assume no obligation, make no payment or incur no expense without our consent, except at the "insured's" own cost.
(2) Immediately send us copies of any request, demand, order, notice, summons, or legal paper received concerning the claim or "suit".
(3) Cooperate with us in the investigation or settlement of the claim or defense against the "suit".
(4) Authorize us to obtain medical records or other pertinent information.
(5) Submit to examination, at our expense by physicians of our choice, as often as we reasonably require.
c. If there is "loss" to a covered "auto" or its equipment, you must also do the following:
(1) Promptly notify the police if the covered "auto" or any of its equipment is stolen.
(2) Take all reasonable steps to protect the covered "auto" from further damage. Also keep a record of your expenses for consideration in the settlement of the claim.
(3) Permit us to inspect the covered "auto" and records proving the "loss" before its repair or disposition.
(4) Agree to examinations under oath at our request and give us a signed statement of your answers.
Analysis:
This condition points out the importance that the insurer puts on the prompt notification of a loss and the cooperation of the insured in handling or settling a claim. Also of importance is the "assume no obligation and make no payment" phrase. The insured should not try to settle a claim on his or her own and then bring the insurer in at the end of the process; if, for example, an insured makes a payment on his or her own and then wants compensation from the insurer, the insurer has every right to deny coverage based on the violation of this loss condition.
If there is a loss to a covered auto, a physical damage loss, the named insured has additional duties. Notifying the police if the auto is stolen is the most important duty of the named insured. Obviously, the sooner the police are notified of the theft of a car, the sooner they can make some progress in retrieving the car. Also, the named insured must take all reasonable steps to protect the covered auto from further damage. Now, just what constitutes "reasonable steps" is an open question; and the use of the phrase "for consideration" in this part of the condition gives the impression that if the insurer doesn't approve of the steps taken by the named insured as being reasonable, the insurer may not approve the expenses paid out by the insured. To preclude any dispute over this particular duty, the named insured should keep the insurer informed of his or her actions and make sure such actions are approved by the insurer in advance. Finally, the insurer wants to inspect the auto before its repair and that certainly is a condition that both the insured and the insurer can accept; such an inspection helps set the appropriate amount of payment for the loss and prevents any possible fraud on the part of the insured.
3. Legal Action against Us
No one may bring a legal action against us under this Coverage Form until:
- There has been full compliance with all the terms of this Coverage Form; and
- Under Liability Coverage, we agree in writing that the "insured" has an obligation to pay or until the amount of that obligation has finally been determined by judgment after trial. No one has the right under this Policy to bring us into an action to determine the "insured's" liability.
Analysis:
This condition underlines the intent of the insurer to control the processing of a claim, in that the insurer does not want to allow the insured to try to force the payment of a claim before legal liability has been established or before the actual cost of physical damage to a covered auto has been determined. Furthermore, the insurer makes the point that the coverage form is for the benefit of the insured and that any claim or lawsuit should be filed against the insured. The insurer pays sums that the insured becomes legally liable for, but the insurer is not supposed to be a party to any lawsuit that determines the legal liability of the insured. Some jurisdictions have statutes allowing a third party claimant to name both the insured and the insurance company in a lawsuit; where applicable, such statutes invalidate this condition.
4. Loss Payment — Physical Damage Coverages
At our option we may:
- Pay for, repair, or replace damaged or stolen property;
- Return the stolen property, at our expense. We will pay for any damage that results to the "auto" from the theft; or
- Take all or any part of the damaged or stolen property at an agreed or appraised value.
If we pay for the "loss", our payment will include the applicable sales tax for the damaged or stolen property.
Analysis:
This condition carries on the spirit of the previous condition in that it gives the insurer control over the handling of a physical damage claim. The insurer has the option of deciding how a physical damage claim is to be settled and the insured has to accept the option chosen by the insurer (or, of course, file a lawsuit).
If the insurer pays for the loss to the covered auto, the payment will include the applicable sales tax for the damaged or stolen property. Questions have been raised in past years as to whether payment for a loss to a covered auto should include sales tax, whether actual cash value should include taxes, an item that cannot be valued or depreciated based on its physical condition. This clarification should help to settle the question.
5. Transfer of Rights of Recovery against Others to Us
If any person or organization to or for whom we make payment under this Coverage Form has rights to recover damages from another, those rights are transferred to us. That person or organization must do everything necessary to secure our rights and must do nothing after "accident" or "loss" to impair them.
Analysis:
Regardless of how this condition is titled, the subject matter is subrogation. If the insurance company makes a payment under the coverage form and the person to or for whom payment was made has a right to recover damages from another, the insurance company is subrogated to that right. The insured must cooperate with the insurer in assisting the insurer in the subrogation process.
B. General Conditions
- Bankruptcy
Bankruptcy or insolvency of the "insured" or the "insured's" estate will not relieve us of any obligations under this Coverage Form.
Analysis:
The bankruptcy condition states that the bankruptcy or insolvency of the insured or the insured's estate will not relieve the insurer of any of its obligations under the coverage form. In other words, if the insured is protected by the bankruptcy laws from a legal obligation to pay a claimant, the insurer is not similarly protected. So if a claim is outstanding and the insured becomes bankrupt before loss payment is made, the insured will still receive the loss payment.
2. Concealment, Misrepresentation, or Fraud
This Coverage Form is void in any case of fraud by you at any time as it relates to this Coverage Form. It is also void if you or any other "insured", at any time, intentionally conceal or misrepresent a material fact concerning:
- This Coverage Form;
- The covered "auto";
- Your interest in the covered "auto"; or
- A claim under this Coverage Form.
Analysis:
The concealment condition states that the coverage form is void in any case of fraud by the named insured at any time as it relates to the coverage form. The form is also void if the named insured or any other insured intentionally conceals or misrepresents a material fact concerning the coverage form, a covered auto or the named insured's interest in a covered auto, or a claim under the coverage form. For example, if an insured is involved in a scheme whereby an accident is faked and injuries and damages are claimed, the coverage will be void if the insurer can prove the fraud. A fact is basically material if it would change the insurer's position in any way – whether it be a change in price due to the exposures, or if the insurer would not have taken on the risk had it known about the undisclosed or misrepresented fact.
3. Liberalization
If we revise this Coverage Form to provide more coverage without additional premium charge, your policy will automatically provide the additional coverage as of the day the revision is effective in your state.
Analysis:
The liberalization condition gives the insured the benefit of any betterment policy provisions that take place during the policy term, as of the date the policy revision is approved in the insured's state. For example, if a supplementary payment amount is increased but the insured's policy document does not show that increased amount, should there be a loss affecting the supplementary payment then the insured will automatically be granted the higher amount without requiring any additional premium payment for the better coverage.
4. No Benefit To Bailee — Physical Damage Coverages
We will not recognize any assignment or grant any coverage for the benefit of any person or organization holding, storing, or transporting property for a fee regardless of any other provision of this Coverage Form.
Analysis:
This condition is for the physical damage coverages only. "No benefit to bailee" means that the insurer will not recognize any assignment or grant any coverage for the benefit of any person or organization holding, storing, or transporting property for a fee. This is so regardless of any other provision of the coverage form.
5. Other Insurance
a. For any covered "auto" you own, this Coverage Form provides primary insurance. For any covered "auto" you don't own, the insurance provided by this Coverage Form is excess over any other collectible insurance. However, while a covered "auto" which is a "trailer" is connected to another vehicle, the Liability Coverage this Coverage Form provides for the "trailer" is:
(1) Excess while it is connected to a motor vehicle you do not own; or
(2) Primary while it is connected to a covered "auto" you own.
b. For Hired Auto Physical Damage Coverage, any covered "auto" you lease, hire, rent, or borrow is deemed to be a covered "auto" you own. However, any "auto" that is leased, hired, rented, or borrowed with a driver is not a covered "auto".
c. Regardless of the provisions of Paragraph a. above, this Coverage Form's Covered Autos Liability Coverage is primary for any liability assumed under an "insured contract".
d. When this Coverage Form and any other Coverage Form or policy covers on the same basis, either excess or primary, we will pay only our share. Our share is the proportion that the Limit of Insurance of our Coverage Form bears to the total of the limits of all the Coverage Forms and policies covering on the same basis.
Analysis:
The other insurance condition on the business auto coverage form confirms that coverage with respect to a covered auto that the named insured owns is primary; coverage with respect to a covered auto that the named insured does not own is excess over any other collectible insurance.
In spite of the foregoing, liability coverage for covered autos that are trailers follows the status of the vehicle to which the trailer is attached. If the auto doing the towing is owned by the named insured, the trailer — whether owned by the named insured or not — is also covered on a primary basis. If the towing vehicle is not owned by the named insured, the trailer is covered on an excess basis. The trailer exception applies only for purposes of liability coverage. Physical damage coverage on an owned trailer, for example, is primary whether the trailer is being towed by an owned or a nonowned vehicle.
Further, under hired auto physical damage coverage, any covered auto hired or borrowed by the named insured is deemed to be a covered auto owned by the named insured. As such, coverage is primary under this form. The condition goes on to state that any auto hired or borrowed with a driver is not a covered auto. This part of the condition incidentally parallels the wording and reasoning found in the definition of insured contract that states emphatically that an agreement pertaining to the rental of an auto with a driver is not considered an insured contract.
The other insurance condition also states that when two or more policies provide coverage on the same basis, either excess or primary, the insurer will pay its pro rata share only. That is, it will pay the proportion of the loss that its limit of liability bears to the total of all limits of all policies that apply to the loss on the same basis.
6. Premium Audit
- The estimated premium for this Coverage Form is based on the exposures you told us you would have when this policy began. We will compute the final premium due when we determine your actual exposures. The estimated total premium will be credited against the final premium due and the first Named Insured will be billed for the balance, if any. The due date for the final premium or retrospective premium is the date shown as the due date on the bill. If the estimated total premium exceeds the final premium due, the first Named Insured will get a refund.
- If this policy is issued for more than one year, the premium for this Coverage Form will be computed annually based on our rates or premiums in effect at the beginning of each year of the policy.
Analysis:
The premium audit condition has two parts. The first part simply puts into writing the fact that the coverage is being written on an estimated premium basis. That is, the initial premium for the coverage was based on exposures the named insured estimated when the policy began. A final premium will be computed when the actual exposures are determined by the insurer at an audit. If any premium is to be returned, the first named insured will receive it; if any additional premium is needed, the first named insured will be billed for it. So, even if an insured has symbol 1 on the policy and can add newly acquired autos without the reporting requirement, the insurer will still be able to collect on the additional premium when the policy is audited at the end of the policy term.
The second part to this condition is for policies issued for more than one year. In such a case, the premium is to be computed annually based on rates in effect at the beginning of each year of the policy. This is not to be confused with the idea that the premium will stay the same each year of the policy; only that the rates used to compute the premium will remain the same. The exposures subject to the rate could change the annual premium if they differ from the prior year.
7. Policy Period, Coverage Territory
Under this Coverage Form, we cover "accidents" and "losses" occurring:
- During the policy period shown in the Declarations; and
- Within the coverage territory.
The coverage territory is:
(1) The United States of America ;
(2) The territories and possessions of the United States of America;
(3) Puerto Rico;
(4) Canada; and
(5) Anywhere else in the world if a covered "auto" of the private passenger type is leased, hired, rented or borrowed without a driver for a period of 30 days or less,
provided that the "insured's" responsibility to pay damages is determined in a "suit" on the merits, in the United States of America, the territories and possessions of the United States of America, Puerto Rico or Canada, or in a settlement we agree to.
We also cover "loss" to, or "accidents" involving, a covered "auto" while being transported between any of these places.
Analysis:
This condition deals with both the policy period and the coverage territory. Under the coverage form, accidents and losses occurring during the policy period shown in the declarations and within the coverage territory are covered by the form.
Coverage territory includes the United States of America, its territories and possessions, Puerto Rico, and Canada. New with the 11 20 edition of the form, the word 'else' was added to clarify that the coverage territory can extend to anywhere other than the described coverage territory, as long as the two parameters are met of being a private passenger auto leased/hired/rented/borrowed without a driver for no more than 30 days, and the insured's agreement to pay damages is determined in a suit based on United States laws, or by settlement that the insurer otherwise agrees to. With many companies having global operations that may take employees out of the country, this provision becomes extremely important. What is not stipulated here is that the insured should be notifying the insurer if there is anticipated exposure beyond the standard coverage territory where this potential exists, so that such exposure may be properly underwritten by the insurer.
The form also covers loss to, or accidents involving a covered auto while being transported between any of the places included under the coverage territory. For example, if a covered auto is being transported by ferry from one state to another, there will be coverage while the auto is on the ferry. Or if the covered auto is being moved by vehicle transport from one location to another, there will be coverage during that transport for a covered loss.
8. Two Or More Coverage Forms Or Policies Issued By Us
If this Coverage Form and any other Coverage Form or policy issued to you by us or any company affiliated with us apply to the same "accident", the aggregate maximum Limit of Insurance under all the Coverage Forms or policies shall not exceed the highest applicable Limit of Insurance under any one Coverage Form or policy. This condition does not apply to any Coverage Form or policy issued by us or an affiliated company specifically to apply as excess insurance over this Coverage Form.
Analysis:
The two or more coverage forms condition comes into play when the same accident is covered by two or more policies issued by the insurer or any company affiliated with it. The most that the named insured can collect under all policies is the highest applicable limit under any one policy. This condition, in other words, is the insurer's attempt to prohibit stacking of limits of multiple policies issued by the same insurer or group. The condition has no applicability when another policy applying to the same loss is issued by a second insurer not affiliated with the first. The condition is also stated not to apply when any other policy is issued by the same insurer or an affiliated company to apply as excess coverage.
Includes copyrighted material of Insurance Services Office, Inc., with its permission.