Business Auto Policy Coverage Guide (Commercial Lines)

If you or your employees are driving personal vehicles on business and relying on your personal auto policies, be sure you and they have sufficient liability coverage to protect your business in the event of a serious auto accident. Do not expect to rely on a personal umbrella policy for any claims that arise from business use of a vehicle. Typically, the personal umbrella excludes all claims occurring in the course of a business endeavor.

The scope of coverage in the business auto policy can be either broad or narrow, depending on your choice of options. It could, for example, be written to apply only to one specifically described auto. Or, as an example of very broad coverage, the policy could be written to apply to the named insured's liability exposures arising out of the use of any auto. Most businesses should buy the third type, since that is the only coverage that protects the business from liability when an employee or owner is driving a personal vehicle on business.

This will avoid problems if you need to file a claim or a claim is filed against you. The three types of physical damage coverage for motor vehicles are collision, comprehensive and specified perils. If your businesses has a large fleet of vehicles, over time, it may be more costly to insure the fleet for physical damage than it is to retain the risk, that is, pay for any physical damage directly rather than by insurance.

Regardless of how many vehicles your business has, it may be cost effective to carry physical damage coverage only on the newer or more valuable vehicles. The amount an insurer will pay on an auto physical damage or theft claim depends on the market value, known as Actual Cash Value ACV , of the vehicle at the time of the loss. The most that will be paid is the lesser of the ACV or the cost to repair or replace the vehicle with one of like kind and quality.

Thus, the older the vehicle and the worse its condition, the more its value has depreciated and the less the insurer will pay. The insurance company may pay you the value of the loss in money or, at its choice, it may repair or replace the damaged or stolen vehicle. In case of a theft, it may return the stolen vehicle to you with payment for any damage caused by the theft.

The liability portion of the BACF obligates the insurer to pay all damages the business is legally obligated to pay because of bodily injury or property damage caused by a covered vehicle, up to the policy limits. When there is an auto liability lawsuit against the insured business, where the loss is covered by the policy, the insurer is obligated to defend the business or settle the lawsuit.

By way of example, imagine that three people are injured in an accident in which you or one of your employees is at fault. The policy limit is exhausted in judgments or settlements for the first two claimants. That leaves your business liable to pay the award directly, should there be a judgment in favor of the third person. Punitive damages may be awarded in cases of gross negligence, such as drunk or reckless driving. By law in a number of states, a BACF cannot cover any punitive damages for which you may be liable.

Even in states where coverage for punitive damages is allowed, your policy may exclude them. The higher limit does not add a great deal to the premium, considering the amount of additional protection it provides. This creates higher limits for both bodily injury and property damage coverages, including per occurrence limits.

If you have a business umbrella policy, it would provide protection for owned, hired and non-owned autos, if the umbrella shows the auto liability policy as an underlying policy for which it provides coverage. Some businesses let employees drive company vehicles home and use them for personal purposes in the evenings or on weekends. Sometimes employees or executives of a company or other persons who are supplied with a vehicle owned by the company have only that vehicle.

They do not own a personal vehicle nor do they obtain personal automobile coverage. The BACF does not cover personal use of the vehicle in this situation. This provides insurance while the named individual or a member of his or her family is driving a car borrowed from a third party. If your employees drive their own cars for business purposes—to visit clients, for example—your business could wind up liable for property damage and bodily injuries resulting from a traffic accident for which an employee was at fault.

It provides coverage when employees drive their own vehicles on business. You are legally liable when you allow someone to drive one of your vehicles. If you fail to take reasonable steps to determine that the driver is qualified to drive or if you allow someone to drive whom you know has a poor driving record and that person causes an accident, you could be liable for negligent entrustment. The Department accomplishes these goals by conducting surveys to collect and make public information about the diversity efforts of insurers, as well as through outreach, partnerships, and Department-hosted events.

The first action of the Commissioner was a Voluntary Survey sent to the state's top insurers to understand the state of supplier diversity and governing board diversity in the industry. Since then, the Initiative has administered annual surveys to ensure transparency around these important issues of diversity. MIDS will now build on California's success by taking a look at diversity issues across the nation's insurance industry.

Supplier diversity, as seen in other industries, is a win-win for both diverse businesses and insurers. For insurers, increased partnerships with diverse suppliers can result in decreased costs and more competition for bids, in addition to enhanced quality, creativity, and innovation from those suppliers — giving insurers the edge they need in a competitive market with rapidly changing demographics. For the first time ever, information about insurer procurement practices is being collected and made available to the public. For more information about the Insurance Diversity Initiative, visit: The Fair Market Value of an item is the dollar amount that a knowledgeable buyer under no unusual pressure is willing to pay and a knowledgeable seller under no unusual pressure is willing to accept.

A licensed individual or organization authorized to sell and service insurance policies for an insurance company. The maximum dollar amount of coverage in force for a property damage policy or liability policy. This maximum amount can be figured on a per occurrence basis or as a general aggregate for the complete policy term. A method of loss valuation where the insured and the insurer list an agreed upon amount to be paid in case of loss. This valuation method is most common in property insurance when insuring valuable artwork, antiques, or classic autos. A professional appraisal is usually required.

A clause in an insurance policy that allows the insured and the insurer to each appoint an arbitrator if they cannot agree upon an appropriate claim settlement. Once the arbitrators have been selected, they in turn appoint an independent umpire. If the arbitrators disagree, then the umpire decides which claims settlement to support. The final decision is binding. A situation that occurs in a loss when an old piece of property is replaced by a brand new item. The insured is put in a better financial position than they were before the loss occurred, and consequentially may have to pay the difference in price for the betterment.

A short-term agreement that provides temporary insurance coverage until the policy can be issued or delivered. A licensed individual who can act as an agent representing one or more insurers, and also as a broker dealing with one or more insurers representing your interests. The termination of an in-force insurance contract by either the insured or the insurer before its normal expiration date.

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Notice to an insurance company that a loss has occurred that may be covered under the terms and conditions of the policy. The person who evaluates the damage caused by a covered loss and determines the amount to be paid under the policy terms. A liability insurance policy where coverage applies to claims filed during the policy period no matter when the loss occurred subject to a retroactive inception date. An insurance clause that defines the amount of each loss that the company pays according to the amount of insurance carried, divided by the amount of insurance required.

This basic formula relates to a contracted percentage of coverage that must be required to prevent a coinsurance penalty. When bodily injury liability and property damage liability is expressed as a single sum limit of coverage. Insurance coverages for businesses, commercial institutions, and professional organizations, as contrasted with personal insurance. Occurs when two or more perils cause a loss.

When only one of these perils is covered by the insurance policy, the court generally rules that the entire loss is covered. Many insurance companies have reworded their policies to clarify that only a loss attributed to a covered peril is indeed covered. The portion of an insurance contract that sets forth the rights and duties of the insured and the insurer. In Workers Compensation, special circumstances can arise when a work-related injury causes some sort of non-work related injury. Usually the first page of an insurance policy that contains the full legal name of the insurance company, the policy number, effective and expiration dates, premium payable, the amount and types of coverage, and the deductibles.

The amount of the loss that the insured is responsible to pay before benefits from the insurance policy are payable. The actual or accounting recognition of the decrease in value of property over a period of time according to a predetermined schedule. In Workers Compensation, an employer may be liable two ways to an employee who incurs bodily injury on the job as a result of using a product or service produced by that employer. The employee is eligible for Workers Compensation benefits and may also sue the employer because of the defectiveness of the injuring product or service. A written agreement that changes the terms of an insurance policy by adding or subtracting coverage.

A contractual provision in an insurance policy that denies or restricts coverage for certain perils, persons, property, or locations. The adjustment of premium resulting from the use of experience rating. Cancellation that takes place on the policy effective date. No premium charge is made; however, other charges i. An intentionally deceptive act committed to obtain an unfair or unlawful advantage. Fraud usually involves monetary gain. In a property and casualty contract, the objective is to restore an insured to the same financial position after the loss that the insured had prior to the loss.

In the most basic sense, indemnity is compensation for a loss. A person or organization that provides claim adjusting services to different insurers on a contract basis. Any interest most commonly ownership that a person, company, or corporation has in a subject of insurance such as a business, building, or auto, which can be damaged and may cause the person, company, or corporation financial loss or other tangible deprivation. Generally, an insurable interest must be demonstrated when a policy is issued and must exist at the time of loss. A method of shifting risk from a person, business, or organization to an insurance company in exchange for the payment of premium.

The insurance company commits to be responsible for covered losses. The insurance company who issues insurance and agrees to pay for losses and provide covered benefits. The portion of an insurance contract that describes what is covered. A rating modification either decrease or increase that is based on the underwriters experience, best judgment, and analysis in classifying and underwriting a particular type of risk.

In property and casualty insurance a lapse in the termination of a policy because of a failure to pay premium when due. A certificate of authority issued by the CDI to an insurer, agent, broker, or broker-agent to transact insurance business. The maximum amount of benefits the insurance company agrees to pay in the event of a loss. A potential situation in any bodily injury claim including Workers Compensation claims where a spouse contends that the bodily injury of their partner deprives them of the natural affection spousal duties , help, and companionship of said spouse.

A provision that authorizes the insurer to make a loss payment to a person, company, or organization loss payee other than the insured. The loss payee must have an insurable interest such as a lienholder for business personal property or a mortgagee on real property. An MGA can manage the marketing, underwriting, policy issuance, premium collection, appointing and supervision of other agents, claims payments, and reinsurance negotiations of an insurance company.

A factual falsification made in such a manner that the insurance company would have refused to insure the risk if the truth had been known at policy issuance. A material misrepresentation gives an insurance company grounds to rescind a contract. Failure by the policyholder to pay the premium on a policy or pay the installment premium payments due on a policy.

A liability insurance policy that covers claims arising out of occurrences that take place during the policy period, regardless of when the claim is filed. Insurance written on the personal and real property of an individual or individuals to include such policies as homeowners insurance and personal auto insurance, as contrasted with commercial lines.

The monetary payment that an insured makes to an insurance company in exchange for the contract indemnifying the insured against potential loss. Simply put this is the payment made by the insured to keep an insurance policy in effect. A cancellation of a policy by an insurance company that returns the unearned premium to the policyholder the portion of the premium for the remaining time period that the policy will not be in force.

A licensed person or organization that represents the policyholder by contract in property damage claims negotiations with an insurance company. An estimate of the cost of insurance based on the information supplied to the agent, broker, broker-agent, or the insurance company. The cancellation of an insurance policy back to its effective date resulting in a return of all premium charged. Requirements developed by the CDI that implement laws passed by the legislature.

Regulations go through a public comment process and must be approved by the state Office of Administrative Law. The continuation of an insurance policy offer of renewal into a new term from the same insurance company that issued the existing policy. The amount that it costs to replace lost or damaged property with new property of like kind or quality in the local market.

A method of pricing property and liability insurance. Schedule Rating uses debits and credits to modify a base rate figured by the special characteristics of the risk exposure. Insurers develop Schedule Rating because actuarial experience shows a direct relationship between certain physical characteristics and the possibility of loss.

Most schedule rating plans must be filed and approved by the CDI. A cancellation initiated by policyholder request in which the premium returned is subject to an administrative penalty. Exists when a manufacturer refuses to withdraw a product as ordered by a government agency or company management. Once a defective product has been identified and recalled, an insurance company excludes all other claims arising from the defective product due to the negligent failure of the company to take the product off the market.

The technique for expressing limits of liability coverage under a particular insurance policy by stating separate limits for different types of claims growing out of a single event or combination of events. Coverage can be split limited per person, per occurrence, between bodily and property damage, or in other ways. The process of recovering the amount of claim damages paid out to a policyholder from the legally liable party. An individual other than the policyholder or the insurance company who has suffered a loss and may be able to collect compensation under the policy due to the negligent acts or omissions of the policyholder.

The legal doctrine that involves an injured employee bringing suit against a third party who for one reason or another is able to bring an action against the employer. The process to evaluate the insurance application and independent sources in order to verify the information provided and to determine the acceptability of the risk. The person who performs the underwriting process to accept, reject, or modify risks on behalf of the insurer. The portion of the written premium applicable to the unexpired or unused part of the policy period for which the premium has been paid.

The total premium on all policies written by an insurer during a specified period of time, regardless of what portion has been earned. Do you have a question, comment or concern? There are several ways to talk to us:. The Department of Insurance is unable to guarantee the accuracy of this translation and is therefore not liable for any inaccurate information resulting from the translation application tool.

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Contacting a Broker-Agent One of the first steps in purchasing small business insurance is to contact a licensed insurance broker-agent who specializes in commercial coverages. The following commercial lines of insurance cover broad areas of exposure common to most business operations: Valuation Types Commercial property coverage will include a provision to determine what valuation method is to be used to pay the loss.

Coverage Forms and Endorsements There are various coverage forms and endorsements in addition to the basic property coverages already discussed that can customize coverage in a commercial property insurance policy. The following are the most common coverage forms and endorsements used in commercial property insurance: Builder's Risk — Added to a policy for a one-year minimum term to cover a new building or structure under construction or an existing structure undergoing additions, alterations, or repairs.

Cancellation is allowed on a pro rata basis upon project completion; however, midterm cancellation will result in a short rate penalty. A reporting form or renovations form allows coverage to be carried according to the stage of completion i. The loss or damage must be caused by a covered peril including loss of use. The loss must be accidental and the coverage most often is purchased for tenants in commercial buildings. Building Ordinance or Law — Provides coverage if the enforcement of any building, zoning or land use law results in loss to the undamaged portion of the building Coverage A ; demolition and removal costs of undamaged parts of the structure Coverage B ; or any increased cost of repairs or reconstruction Coverage C.

Replacement cost must be in effect for Coverage C to be applied. Improvements and Betterments — Usually added by a lienholder. Covers all permanently installed improvements and betterments, which cannot be removed when a tenant vacates the building. Glass — Basic specified perils for glass coverage include any resulting damage to other property from broken glass due to vandalism and also vandalism to glass building blocks. A glass form must be added for scheduled glass coverage when there is a significant glass exposure to insure. The glass form includes the number of panes, dimensions, location, lettering, and ornamentation.

A separate glass deductible may be scheduled as well.

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Peak Season — An endorsement that provides additional limits on personal property inventory during a designated period of time. This is specifically used to cover fluctuating inventory values before and during peak shopping seasons. Inflation Guard — Automatically adjusts the limits of insurance to keep up with inflation. The adjustment can be tied to the construction cost index in a regional area or a specified percentage per year. This endorsement can be very important in helping to maintain adequate coverage limits, which can protect against potential coinsurance penalties in a property loss.

Time Element — Insurance that covers other losses stemming from a direct loss by a covered peril to business property. Business interruption, extra expense, and loss of rents and rental value are the most common time element coverages. Business interruption coverage replaces lost business income after a covered loss.

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Certain key employees can be named, allowing the employer to continue to pay their salaries until the business restarts operations after a loss. Extra expense can pay for office space, equipment rental, advertising, or most costs considered reasonable for keeping the company operating after a covered loss. Loss of rents and rental value cover loss of rental income to the property owner caused by damage or destruction of a building rendering it unfit for occupancy. Covered Causes of Loss Standard perils in Inland Marine may include fire, lightning, windstorm, flood, earthquake, landslide, theft, collision, derailment, overturn of the transporting vehicle, and bridge collapse.

Boiler and Machinery Boiler and machinery insurance can add an important layer of coverage to an insurance policy. Crime Crime insurance provides protection for the assets of your business including merchandise for sale, real property, money and securities. Commercial Automobile Coverage, Classification and Limits of Insurance Commercial automobile coverage is similar to the coverage you may carry on your personal auto; however, commercial automobile exposures can be more complex requiring specialty coverages to be considered based on the individual needs of your business.

Commercial General Liability Coverage One of the key concepts of liability coverage is that it is comprehensive in nature. Classification The type of business you run determines how a CGL policy is classified. Limits of Insurance The CGL policy has separate limits of insurance for general liability, fire legal liability, products and completed operations liability, advertising and personal liability, and medical payments.

Commercial Umbrella When a liability claim goes above the aggregate limit of liability, the policy limits are exhausted. Workers Compensation When an employee suffers a work related injury or illness, workers compensation insurance steps in to provide benefits based on the type of illness or injury sustained.

Coverage Sections Workers compensation insurance is divided into two coverage sections. Back to Top Classification and Rating Classification of workers compensation insurance is based upon the specific duties that your employees perform in the course of their employment with your company.

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Claims It is important to note that workers compensation claims do not come under the jurisdiction of the CDI. What Is a Business Owners Policy? Deductible The deductible on a commercial policy is the part of the loss that you pay up-front before your insurance company pays a claim. Surplus Line Insurance When you have had three applications turned down from a licensed commercial insurance carrier and have written documentation of the declination to insure you can proceed to obtain insurance from the surplus line market.

In Summary Commercial insurance by its very nature is complex. Agent A licensed individual or organization authorized to sell and service insurance policies for an insurance company. Aggregate Limit The maximum dollar amount of coverage in force for a property damage policy or liability policy.

Agreed Value A method of loss valuation where the insured and the insurer list an agreed upon amount to be paid in case of loss. Arbitration Clause A clause in an insurance policy that allows the insured and the insurer to each appoint an arbitrator if they cannot agree upon an appropriate claim settlement. Betterment A situation that occurs in a loss when an old piece of property is replaced by a brand new item. Binder A short-term agreement that provides temporary insurance coverage until the policy can be issued or delivered.

Broker A licensed individual or organization who sells and services insurance polices on your behalf. Broker-agent A licensed individual who can act as an agent representing one or more insurers, and also as a broker dealing with one or more insurers representing your interests. Cancellation The termination of an in-force insurance contract by either the insured or the insurer before its normal expiration date. Claim Notice to an insurance company that a loss has occurred that may be covered under the terms and conditions of the policy.

Claim Adjuster The person who evaluates the damage caused by a covered loss and determines the amount to be paid under the policy terms. Claims Made A liability insurance policy where coverage applies to claims filed during the policy period no matter when the loss occurred subject to a retroactive inception date. Coinsurance An insurance clause that defines the amount of each loss that the company pays according to the amount of insurance carried, divided by the amount of insurance required. Combined Single Limit When bodily injury liability and property damage liability is expressed as a single sum limit of coverage.

Commercial Lines Insurance coverages for businesses, commercial institutions, and professional organizations, as contrasted with personal insurance.

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Concurrent Causation Occurs when two or more perils cause a loss. Conditions The portion of an insurance contract that sets forth the rights and duties of the insured and the insurer. Consequential Bodily Injury In Workers Compensation, special circumstances can arise when a work-related injury causes some sort of non-work related injury. Coverage Protection that is provided under an insurance policy. Declarations DEC Page Usually the first page of an insurance policy that contains the full legal name of the insurance company, the policy number, effective and expiration dates, premium payable, the amount and types of coverage, and the deductibles.

Deductible The amount of the loss that the insured is responsible to pay before benefits from the insurance policy are payable. Depreciation The actual or accounting recognition of the decrease in value of property over a period of time according to a predetermined schedule. Dual Capacity In Workers Compensation, an employer may be liable two ways to an employee who incurs bodily injury on the job as a result of using a product or service produced by that employer.

Endorsement A written agreement that changes the terms of an insurance policy by adding or subtracting coverage. Effective Date The starting date of an insurance policy: Exclusion A contractual provision in an insurance policy that denies or restricts coverage for certain perils, persons, property, or locations.

Experience Modification The adjustment of premium resulting from the use of experience rating. Expiration Date The termination date of coverage as indicated on an insurance policy. First Party The policyholder insured in an insurance contract. Flat Cancellation Cancellation that takes place on the policy effective date.

Fraud An intentionally deceptive act committed to obtain an unfair or unlawful advantage. Frequency The number of times a loss occurs. Hazard A circumstance that increases the likelihood or potential severity of a loss. Indemnity In a property and casualty contract, the objective is to restore an insured to the same financial position after the loss that the insured had prior to the loss.

Independent Adjuster A person or organization that provides claim adjusting services to different insurers on a contract basis. Insurable Interest Any interest most commonly ownership that a person, company, or corporation has in a subject of insurance such as a business, building, or auto, which can be damaged and may cause the person, company, or corporation financial loss or other tangible deprivation.

Insurance A method of shifting risk from a person, business, or organization to an insurance company in exchange for the payment of premium. Insured The policyholder s entitled to coverage under an insurance policy. Insurer The insurance company who issues insurance and agrees to pay for losses and provide covered benefits.

Insuring Agreement The portion of an insurance contract that describes what is covered. Judgment Rating A rating modification either decrease or increase that is based on the underwriters experience, best judgment, and analysis in classifying and underwriting a particular type of risk. Lapse In property and casualty insurance a lapse in the termination of a policy because of a failure to pay premium when due.

License A certificate of authority issued by the CDI to an insurer, agent, broker, or broker-agent to transact insurance business. Loss of Consortium A potential situation in any bodily injury claim including Workers Compensation claims where a spouse contends that the bodily injury of their partner deprives them of the natural affection spousal duties , help, and companionship of said spouse. Loss Payable Clause A provision that authorizes the insurer to make a loss payment to a person, company, or organization loss payee other than the insured.

Material Misrepresentation A factual falsification made in such a manner that the insurance company would have refused to insure the risk if the truth had been known at policy issuance. Misquote An incorrect estimate of an insurance premium. Nonpayment of Premium Failure by the policyholder to pay the premium on a policy or pay the installment premium payments due on a policy. Nonrenewal The termination of an insurance policy on its normal expiration date.

Occurrence A liability insurance policy that covers claims arising out of occurrences that take place during the policy period, regardless of when the claim is filed. Peril Cause of loss.

Personal Lines Insurance written on the personal and real property of an individual or individuals to include such policies as homeowners insurance and personal auto insurance, as contrasted with commercial lines. Policy A contract that states the rights and duties of the insurance company and the insured. Premium The monetary payment that an insured makes to an insurance company in exchange for the contract indemnifying the insured against potential loss.

Producer A term used by the insurance industry to refer to agent, brokers, broker-agents, and solicitors. Pro Rata Cancellation A cancellation of a policy by an insurance company that returns the unearned premium to the policyholder the portion of the premium for the remaining time period that the policy will not be in force.

Table of Contents

Provisions The statement of policy conditions in an insurance policy. Public Adjuster A licensed person or organization that represents the policyholder by contract in property damage claims negotiations with an insurance company. Quotation An estimate of the cost of insurance based on the information supplied to the agent, broker, broker-agent, or the insurance company. Recision The cancellation of an insurance policy back to its effective date resulting in a return of all premium charged. Regulations Requirements developed by the CDI that implement laws passed by the legislature. Reinstatement The restoration of a lapsed or canceled policy.

Renewal The continuation of an insurance policy offer of renewal into a new term from the same insurance company that issued the existing policy. Replacement Cost The amount that it costs to replace lost or damaged property with new property of like kind or quality in the local market. Schedule Rating A method of pricing property and liability insurance. Second Party The insurance company in an insurance contract. Severity The size of a loss.

Loss severity is used as a factor in establishing premium rates.