Automobile Exposures

Automobiles may be a source of potential loss

to the business or organization in three ways.
• Legal liability arising out of the operation of
autos by the organization’s employees.
• Losses arising out of injury to employees.
• Loss to the organization’s vehicles, which
may be demolished in a collision, stolen,
burned, or otherwise damaged.

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 Overview of Automobile Coverages

1. Automobile liability coverage

2. Medical payments coverage

3. Physical damage coverage, comprehensive

and collision

4. Uninsured motorists coverage

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 Vicarious Liability

• For the organization, the significant doctrine

is respondeat superior, which holds a
principal responsible for the acts of an agent.

• An organization is vicariously responsible for

injuries or damage caused by employees or
other agents, both when they are operating
the organization’s vehicles and when they
drive their own cars on company business.

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 Vicarious Liability

• An organization may also be vicariously liable

as the owner of a vehicle that is not being
operated on behalf of the organization.
• Some states have enacted permissive use
statutes, which impose liability on the owner
of an auto for liability arising out of someone
operating it with the owner’s permission.
• A firm that gives employees permission for
personal use of company cars is exposed to
vicarious liability as owners in these states.

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 Auto Liability Insurance Requirements

1. As late as 1971, only three states had

compulsory auto liability insurance laws.

2. Currently, 40 states and the District of

Columbia have compulsory auto liability
insurance laws.

3. All states have Financial Responsibility

Laws, sometimes called “free-bite” laws,
because proof of financial responsibility is
required only after an accident.

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Criticisms of the Automobile Tort System

1. Many persons who are injured remain

uncompensated.
2. Amount of compensation depends more on
the attorney’s skill than on the injury.
3. The traditional system is inequitable,
overpaying and underpaying.
4. The traditional system is too expensive,
spending more on legal costs than on
compensating victims.

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 No-Fault Concept

1. Under the no-fault concept, no attempt is

made to fix blame.

2. Each party collects for injuries sustained

from his or her own insurance company.

3. Under a pure no-fault system, the right to

sue would be abolished.

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 Types of Auto Reform Laws

1. Pure no-fault

2. Modified no-fault

3. Expanded first party

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 Typical No-Fault Benefits

1. Medical Expenses up to specified maximum

2. Loss wages up to specified dollar maximum

3. Loss of services (e.g., by homemaker) up to

specified dollar maximum

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Department of Transportation Insurance
Requirements

• Historically, carriers for hire have been highly

regulated, with restrictions on entry by the
Interstate Commerce Commission (ICC) at
the interstate level, and by state agencies
with respect to intrastate trucking.

• Besides regulating entry into the field, the

ICC and state agencies have also regulated
the financial responsibility of carriers for hire
by specifying the limits of auto liability
insurance carriers for hire must carry.

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 DOT Insurance Requirements

• Current DOT insurance requirements

originated in the deregulation of the trucking
industry, but the requirements apply not only
to carriers for hire, but to some private
carriers as well.
• Trucks with a gross vehicle weight rating of
10,000 pounds or more were separated into
three categories for different levels of
financial responsibilities which must be met
with insurance policies or surety bonds.

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 DOT Insurance Requirements

Type 1 vehicles are trucks operated for hire

and engaged in interstate commerce but
which do not carry hazardous cargo, as
defined in the law. $750,000
Type 2 vehicles include both for-hire and
private trucks engaged in interstate or
intrastate commerce and carrying defined
hazardous substances. $5 million
Type 3 vehicles include for-hire and private
trucks engaged in interstate commerce and
carrying specified substances other than
"defined" hazardous substances. $500,000
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 Motor Carrier Act Endorsement

MCS-90
Policies issued to comply with these insurance
regulations must include endorsement MCS-90,
which provides that
"no condition, provision, stipulation, or
limitation contained in the policy ... shall
relieve the company from liability."
This means that the insurer's liability as
respects claimants under the endorsement is
absolute, subject only to the limit of coverage.
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 Motor Carrier Act Endorsement

• If the insurer pays a loss excluded by the

policy or for which it would not be
responsible except for the provisions of the
mandatory endorsement, it may seek
reimbursement from the insured.
• The endorsement is, in effect, a surety bond
guaranteeing payment of certain types of
losses by the insured.
• Cancellation by the insurer requires 35 days
written notice.
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 Fleet Safety

• Like the other business exposures, the risks

related to the ownership and operation of
vehicles in a business should be addressed
by loss prevention and control measures.

• Fleet safety measures will include both the

engineering approach and the human
behavior approach.

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 Vehicle Maintenance

• Inspections by vehicle drivers should be a

standard operating procedure, conducted in
the same way as pre-flight check by pilots.
• The driver-inspection program should be
supported by scheduled inspections and
maintenance by qualified mechanics.
• Inspections should verify not only that the
vehicles are in good condition mechanically,
but that they are equipped with appropriate
vehicle safety kits, with first aid kits, safety
vests, and fire extinguishers.
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 Selection of Drivers

• Individuals selected as drivers for an

organization’s vehicles may vary widely in
their physical and mental abilities.
• Driver qualifications may be tested through
written and road or driving tests.
• These tests are useful in the selection of new
drivers and can also be used in determining
faults of existing drivers.

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 Accident Database

• Driver performance should be continually

monitored.

• A database of vehicle accidents, by driver,

should be maintained and analyzed on a
regular basis to identify drivers with a high
accident frequency.

• A properly designed database can also

indicate accident patterns that may be useful
in designing loss control measures.

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 Driver Training and Safety Education

• Because driver error is responsible for the

vast majority of accidents, driver training and
safety education programs are also key
elements in a fleet safety program.

• The drivers’ training program focuses on

driving skills.

• It may include seminars and workshops,

videotaped instruction, instruction in dual
control vehicles and simulator training.

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 Driver Training and Safety Education

• Safety education aims at creating safety

awareness on the part of the employee.

• Whereas the vehicle maintenance program

emphasizes the engineering approach, safety
education represent the human behavior
school or safety.

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 Load and Unloading Vehicles

• Proper loading of the vehicle is necessary to

insure against damage to freight and to
facilitate safe operation of the vehicle
enroute.

• When drivers do not supervise the loading,

they should be advised of any unusual or
hazardous cargo.

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 Fire Prevention and Fire Fighting

• Fire losses to cargo, vehicles, and garages

amount to millions of dollars annually.

• Proper precautions should be taken to

prevent fires, but personnel should also be
taught how to act quickly in case of a fire in a
garage, warehouse, or on the road.

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 Omnibus Transportation Employee
Testing Act

• The Omnibus Transportation Employee

Testing Act of 1991 requires employers to
adopt, issue, and enforce a policy forbidding
illegal drug use at all times by employees
who hold a commercial drivers license and
who perform safety sensitive activities.

• Safety sensitive functions include driving,

waiting to be dispatched, inspecting,
servicing or conditioning any commercial
motor vehicle.

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 Alcoholic Beverages

• The required policy prohibits use of illegal

drugs at all times.

• The policy must also prohibit use of

alcoholic beverages by drivers while
operating a vehicle and within four hours of
performing a safety-sensitive function.

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 Testing Requirements

• Employers must require pre-employment

tests for controlled substance and alcohol to
drivers.
• Tests are required at the time of an accident.
• Employers must randomly test 50 percent of
their drivers for drugs and 25 percent of the
drivers for alcohol annually.
• The employer must test any employee if a
trained supervisor or official observes
behavior or appearance characteristic of drug
or alcohol misuse.
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 Penalties

• A driver who is found to have engaged in

prohibited activity must immediately be
removed from duty.

• Penalties for violation of the rules are defined

by federal statute and include disqualification
and other penalties for conviction.

• Employers and drivers who violate the rules

are subject to civil penalties up to $10,000.

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 Commercial Automobile Insurance

Commercial Auto Coverage is written under

one of four forms that reflect unique exposures
in different automotive fields.
Business Auto Coverage Form
Garage Coverage Form
Truckers Coverage Form
Motor Carrier Coverage Form

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 Business Auto Coverage Form

• The standard form for insuring commercial

autos is the Business Auto Coverage Form.

• It may be used to provide liability coverage,

medical payments, physical damage
coverage, and uninsured motorist coverage.

• It can also be endorsed to provide no-fault

benefits in states where such coverage is
required.

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 Auto Liability Insuring Agreements

1. Agrees to pay damages the insured legally

obligated to pay for bodily injury and
property damage, caused by an accident and
resulting from the ownership, maintenance
or use of a covered “auto.”

2. A second insurance agreement promises to

pay for “Covered Pollution Cost or
Expense.”

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 Covered Pollution Cost or Expense

• Covered Pollution Cost or Expense is

defined as a claim or suit by or on behalf of
the government, demanding that the insured
clean up pollutants.

• Coverage for pollution cleanup cost or

expense applies only in the case of
accidents that cause covered “bodily injury”
or “property damage.”

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 Covered Auto Symbol Designations

1. Any Auto
2. Owned Autos Only
3. Owned Private Passenger Autos Only
4. Owned Autos Other than Private Passenger
Autos Only
5. Owned Autos Subject to No-Fault
6. Owned Autos Subject to Compulsory
Uninsured Motorists Law
7. Specifically Described Autos
8. Hired Autos Only
9. Nonowned Autos Only
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 Owned, Hired, and Nonowned

• Historically, auto insurance for commercial

insureds has recognized three classes of
autos: owned autos, hired autos, and
nonowned autos.
• Hired autos include those that are leased,
hired, rented, or borrowed, excluding autos
that are owned by employees.
• Autos leased, hired, rented, or borrowed
from employees are considered nonowned
autos.

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 Persons Insured

• The Business Auto Coverage Form includes

coverage for the named insured, permissive
users, and persons or organizations
vicariously liable for acts or omissions of the
named insured or permissive users.

• Coverage for those held vicariously liable

does not apply to the owner of a nonowned
vehicle.

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 Business Auto Coverage Form
Exclusions

1. Expected or intended injury

2. Contractual assumptions
3. Workers compensation
4. Employers liability
5. Fellow employees
6. Care, custody and control
7. Handling of property
8. Movement of property by mechanical device
9. Operation of mobile equipment
10. Completed operations
11. Pollution
12. War

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 Physical Damage Coverage

The insured may select from among three

options with respect to the perils insured
against, and different classes of vehicles may
be insured for different perils.
Comprehensive Coverage
Specified Perils Coverage
Collision Coverage

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 Specified Perils Coverage

• The Specified Perils Coverage is an

alternative to the Comprehensive Coverage

• It provides protection against the perils of

fire or explosion, theft, windstorm, hail,
earthquake, flood, vandalism and malicious
mischief, and the perils of transportation
(sinking, burning, collision, or derailment of
any conveyance transporting the covered
auto).

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 Garage Coverage Form

• The Garage Coverage form provides

comprehensive liability coverage for
businesses commonly known as garages,
and other auto firms such as auto sales
agencies, repair shops, service stations,
storage garages, and public parking places.

• The Garage form combines auto liability

insurance with premises and operations and
products and completed operations in a
single contract.

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 Garagekeeper's Insurance

• The Garage Coverage Form includes a

coverage called Garagekeeper's insurance,
which provides coverage for damage to
customers' autos in the care of the garage.
• The insured may choose from among
Collision, Comprehensive, or Specified Perils
coverage.
• Loss to the customer's automobile must fall
within the definition of the coverage or
coverages selected.

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 Truckers Coverage Form

1. The Truckers Coverage Form is designed to

address practices in the trucking industry.
2. Truckers authorized to function as common
carriers often lease vehicles from
independent “owner-operators” who use
their trucks to carry goods under the
authorized trucker’s certificate of authority.

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 Truckers Coverage Form

• The Truckers Coverage Form is a modified

version of the Business Auto Coverage form,
designed to meet the special needs of
truckers.

• Because the certified trucker must provide

insurance on vehicles operating under its
authority, the Trucker’s policy is designed to
provide coverage for the owner-operators.

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 Trailer Interchange Coverage

• The loan of trailers between truckers is

usually accomplished under a "trailer
interchange agreement" that requires the
borrower to assume responsibility for
damage to the trailer.

• The Truckers Coverage Form includes a

special type of contractual liability coverage,
Trailer Interchange Coverage, which provides
protection for losses involving damage to
leased or rented trailers for which liability is
assumed under contract.
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 The Motor Carrier Coverage Form

• The Motor Carrier Coverage Form was

introduced in response to the changing
regulatory environment in the trucking
industry which was introduced by The Motor
Carrier Act of 1980.
• The Motor Carrier Coverage form addresses
the needs of both ICC-regulated motor
carriers and private motor carriers.
• The Motor Carrier Form may eventually
replace the Truckers Coverage Form.
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 Uninsured Motorist Coverage

• Uninsured motorists coverage represents

something of a dilemma for the risk manager.

• The coverage does not protect the

organization against loss.

• It protects employees or other occupants of a

vehicle insured for uninsured motorists, if
injured by an uninsured or hit-and-run
drivers.

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 Uninsured Motorist Coverage

• It can be argued that the employer has no

legal or moral obligation to provide
uninsured motorists coverage to occupants
of the firm’s vehicles.
• Some authorities have suggested that an
employee who is injured by an uninsured
motorist might sustain an action against the
employer for failure to provide the coverage.
• Obviously, no employer wants to be the
landmark case that sets this precedent.
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 Automobile Physical Damage Coverage

• Collision losses tend to be isolated events

and it is unlikely that a large enough number
of vehicles would be demolished in a given
period to created a financial catastrophe.

• Comprehensive losses can involve

simultaneous damage to a large number of
vehicles (by flood, tornado, and other
catastrophe perils).

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 Aviation Insurance

• Aviation insurance has features that are

similar to those of automobile insurance.
• The most common aviation coverages are:
Aircraft Liability Insurance
Hull Insurance
Airport Liability Insurance
Hangarkeepers Legal Liability Insurance

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 Aviation Liability Insurance

Aircraft liability coverage is uniquely different

from auto liability in that Bodily Injury Liability
is divided into two coverages:
1. Passenger Liability
2. Bodily Injury Excluding Passengers

Admitted Liability, also called Voluntary

Settlement Coverage may be written as a
supplement to Passenger Liability Coverage

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 Aviation Hull Coverage

Hull insurance provides physical damage

coverage on the aircraft itself, and is the
equivalent of comprehensive and collision
coverage of auto insurance policy.
There are two basic forms of Hull coverage.
• All-risk on Ground and in Flight.
• All-risk on Ground, Limited Coverage in
Flight, provides more limited coverage (no
coverage for crash or collision in flight).

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