Commercial Auto Insurance: the Basics
Does your company own, lease, or rent a car or other vehicle for any purpose related to your business?
If yes, then you definitely need Commercial Auto insurance. It covers the financial responsibility if you or an employee is at fault in an accident involving injury to people or property.
Commercial Auto is also referred to commercial vehicle insurance, commercial car insurance, truck insurance, or fleet insurance.
What if I already have personal auto insurance?
Most personal auto insurance policies do not cover commercial claims, which means no duty to defend the claim in court and no indemnification of damages.
In other words, without coverage you’d have to pay for your own lawyer and damages out of pocket. (Keep in mind that in most states, it’s illegal for corporations to represent themselves.)
As outlined below, these policies address a variety of areas in risk management. Most policies are strong in some areas and weak in others, so it’s important to partner with an experienced broker who understands your business and can point you in the right direction.
Why do I need Commercial Auto insurance?
Respondeat superior (“let the master answer”) is the primary liability theory in vehicle collisions, premises liability, assault, and other tort claims. It basically means an employer is liable for the actions of an employee when the actions take place within the scope of employment.
Respondeat superior has three components:
- Employee - defined as any paid or unpaid worker, including regular employees, contractors, and volunteers
- Scope of employment - usually anything that furthers the employer’s interests in any way. This could even mean driving a car with the company logo triggers respondeat superior, since the employer benefits from the unpaid advertising.
- Foreseeability - determines whether the person causing the injury should have reasonably foreseen the general consequences that would result from their action
The term is narrowly defined as far as the IRS is concerned — “employee” really means any paid or unpaid worker. The Department of Labor defines “employ” as “suffer or permit to work,” a definition that incorporates almost any regular employee, independent contractor, or owner operator. The phrase also includes unpaid interns and volunteers, in most cases.
Scope of employment is also very broadly defined and encompasses almost anything that furthers the employer’s interests in any way. Many courts have held that merely driving a car with the company logo triggers respondeat superior, since the employer benefits from the unpaid advertising.
It’s no surprise, too, that foreseeability is broad as well. Back in the day, when the “frolic and detour” exception applied, the doctrine was largely inapplicable to anything other than delivery drivers on their assigned routes. But now, about the only event that’s unforeseeable is a worker who steals a vehicle from the company, and many judges would side with the plaintiffs in these situations as well.
Even if respondeat superior doesn’t apply, employers may still be liable for damages under negligent hiring or another doctrine.
What does Commercial Auto insurance cover?
In short: if one of your employees causes a car crash, your business will most likely be liable for damages, unless the wreck had no relationship whatsoever to any aspect of your business.
Fortunately, most commercial auto insurance policies provide a wide range of coverage, including:
- Collision insurance - pays for property damage to the company vehicle in collisions with nonmoving and/or non living objects
- Comprehensive insurance - covers costs in any other type of collisions
- Liability / personal injury insurance - pays for victim’s damages
In addition to monetary coverage, Commercial Auto insurance companies also have a fiduciary duty to defend their policyholders against tort (wrongdoing) and other claims. A lawyer would represent your company in all phases of the case, from initial demand letter through discovery and mediation to final trial.
Because the duty is fiduciary, the insurance company must do what it takes to protect your interests and not just provide the cheapest defense possible.
Commercial Auto insurance examples:
- The California state appeals court reversed that judgment In Sumrall v. Modern Alloys, in which an employee driving a company vehicle from his home to the company’s “yard” collided with a motorcycle rider. The court decided that an Employer May Be Liable for Accident Caused by Commuting Employee on ‘Business Errand.’
- A Coca-Cola truck collided with a van and slammed into scaffolding outside a Bronx apartment building Monday. In this case the Coca-Cola company is liable for the damages caused by the accident and a commercial auto insurance policy would cover the damages to the victims, the property and all other types of costs.
- It is also important to be insured even if the car drive itself: in this case Uber’s self driving car was involved in an accident in Arizona. Fortunately, Nobody was seriously injured in the incident.
How much does Commercial Auto insurance cost?
Your rates will depend on the driver, type of vehicle, and coverage amount, but ultimately — the insurance company determines your risk.
One good way to manage your risk is to hire drivers with clean driver’s Motor Vehicle Reports, also known as abstracts. Drivers with good driving records between 30 and 65 are usually seen as the lowest risk to insurance companies. During the hiring process, it’s usually not illegal to check an applicant’s driving history.
Private passenger vehicles are usually the least expensive, while heavy-duty vehicles like semi trucks are usually the most expensive. You control the coverage amount and maximum payout amount. Be mindful of cutting corners, though — a catastrophic injury claim like wrongful death could easily add up to several million dollars. (Many business owners invest in a commercial umbrella policy with coverage in $1 million increments).
If you’re self-employed, you can usually deduct your Commercial Auto premiums on Schedule C.
Commercial Auto insurance - conclusion
Commercial Auto insurance is one of the best risk management moves you can make, because it completely protects your business from respondeat superior and other vicarious liability claims.
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