Commercial Auto Insurance – Protecting Your Company On The Road

With the increasing realization of the importance of insurance, many business owners opt to purchase various policies to safeguard their company. Business owners, as well as businesses, are vulnerable to different risks and financial losses. Therefore, if your company uses vehicles for business purposes, you’ll need commercial auto insurance. 

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What is Commercial Auto Policy?

Auto insurance safeguards you against financial losses in the event of an accident, damage or theft. Primarily, there are two types of auto insurance: Personal car insurance as well as commercial auto insurance. Personal auto insurance covers passenger cars whereas commercial auto provides coverage for business vehicles in the event of an accident.

For instance, commercial auto insurance will cover:

  • Work vans
  • Delivery trucks
  • Food truck insurance
  • Company cars
  • Forklifts
  • Service utility trucks and many more
Infographics Commercial Auto Insurance
what-is-commercial-auto-insurance

Why is Commercial Auto Coverage Necessary?

According to Statista, the US produced approximately 8.4 million commercial vehicles in 2019. Any business that uses vehicles—for whatever reasons they may be–, should have commercial auto insurance. The insurance is mandatory as per the law except in New Hampshire as well as in Virginia. However, coverage amount varies according to each state laws and business owners policy (BOP) also includes a commercial auto policy.

Insureds are required to specify the vehicles they want to include in the Business Auto Policy (BAP).  The BAP determines which vehicles qualify as “covered autos”. Covered autos can be identified by one or more numerical symbols that can be found in the Declarations. They are also known as “covered auto designation symbols.” BAP includes a section of numbers 1 through 9 and 19. Each of these numbers represents a section of covered autos.

Any Auto: It provides the broadest coverage. It includes automobiles owned by the business, rented, leased, or borrowed autos, as well as non-owned autos.

All owned auto

It includes all-owned private as well as commercial automobiles.

Owned private passenger auto

It includes automobiles owned by individuals but used for business operations.

Owned commercial vehicle auto

It includes automobiles owned by businesses used for commercial purposes.

No-fault coverage for all owned auto

Regardless of who is responsible for an accident, this policy covers all owned autos. Majority of the states use a tort system but it is mandatory in 12 states, such as Florida, Michigan, New Jersey, New York, Hawaii, Kansas, Kentucky, Massachusetts, Minnesota, North Dakota, Pennsylvania, and Utah.

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Uninsured motorist coverage for all owned autos

It provides property damage as well as bodily injury coverage for motorists who do not have their own auto insurance. It is also mandatory in few states.

Scheduled autos

It is the most restrictive as it only covers automobiles specified in the Declaration.

Hired autos

As the name suggests, it includes hired, rented, leased as well as borrowed automobiles by the business.

Non-owned autos

It includes automobiles that employees or partners of the business own and use for business purposes.

Mobile equipment

It includes equipment but not limited to, such as forklifts, machinery, tractors, construction equipment and farm machinery.

What Are the Coverages?

Commercial auto insurance is an extensive policy that covers:

Accident liability

Business owners have to deal with unexpected financial loss. It provides liability coverage that will help to pay for damages in the event of an accident.

Repair costs

For example, while delivering flowers, a florist meets with an accident on their van. They worry that they might not be able to pay for the immediate repair cost. However, her agent reminds her that her commercial van insurance will provide coverage for the resulting expenses i.e., the cost of repairing damages of automobiles following the accident.

It provides cost for repairing property damage caused to the insured’s covered auto as well as third-party damage costs. In 2018, the average automobile accident repair cost was $3,058 claims Motus in their 2019 driver safety report.

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Medical costs for bodily injuries

This coverage pays for the medical costs for any bodily injuries (including third-party injuries) caused by the covered autos in an accident.

For example, when a car and truck collide, the driver and the passenger incur severe injuries. Commercial auto insurance covers medical expenses for the injured. As per the Bureau of Labor Statistics data driver/ sales workers and truck drivers have the most casualties compared to any broad professional group.

Uninsured motorists

The coverage pays when the policyholder meets with an accident and sustains injuries due to the fault of someone who does not have insurance. It covers the cost for bodily injuries as well as property damage. Hit-and-run drivers are also regarded as uninsured motorists.

According to the Insurance Research Council (IRC), study shows that about one in eight drivers were uninsured in 2019. The study was measured based on the ratio of uninsured motorists claims to bodily injury claims.

Defense costs

Commercial auto insurance provides coverage for the cost of defending when a third-party file a lawsuit against the policyholder for injury or damage sustained in an accident.

When a third-party is injured or suffers severe damages, commercial automobiles tend to be targets for lawsuits. The insurance pays for the cost of defending the company when there is a liability claim.

Physical damage

You can get physical damage coverage as a part of the BAP. It usually includes two options: collision and comprehensive insurance.

Vehicle theft

The National Insurance Crime Bureau shows an estimated 873,080 vehicle thefts all over America. Comprehensive coverage includes vehicle theft as well as robbery.

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Vandalism

Comprehensive commercial auto insurance also covers acts of vandalism that causes unexpected financial losses to a business.

In early 2020, more than 50 vehicles suffered shattered windows overnight and was reported to be one of the most expensive vandalism cases by NBC Los Angeles.

Collision

It pays for the damages caused by the crash such as collides with an animal or object. It will also cover the costs of damage caused to your automobile if you hit a vehicle, another vehicle hits you or your automobile rolls over.

A study by the Federal Motor Carrier Safety Administration found top 10 causes resulting in commercial automobile crashes:

  • Brake problems
  • Traveling too fast for conditions
  • Unfamiliarity with roadway
  • Roadway problems
  • Over-the-counter drug use
  • Inadequate surveillance
  • Fatigue
  • Felt pressure from carrier
  • Illegal maneuver
  • Inattention

Standard Exclusions

Commercial auto insurance provides broad coverages but does not include risks that other policies cover. Some of the exclusions are:

Contractual liability insurance

It excludes any liability that is assumed under an agreement. However, this exclusion comes with an exception. When the assumed obligations fall under a policyholder’s contract, it covers the claims filed. Contractual liability insurance is indeed a good investment.

Workers compensation insurance

Since workers compensation insurance provides coverages for injured workers, commercial auto insurance is not required to provide cover for the workers.

Employment practices liability insurance

Commercial auto insurance is not subject to cover claims for the employers filed by the employees. This exclusion is not applicable under two exceptions. Commercial auto insurance covers claims arising from injuries to workers while driving. However, this is only acceptable when the liability assumed falls under an insured agreement. The second exception is that it provides coverages for either the injured workers who cannot afford or are not qualified to receive benefits under workers compensation. Employment practices liability insurance comes in handy to cover lawsuits filed by employees.

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Fellow employee injuries

It removes commercial auto policy to provide coverages for the claims made by an injured employee against a fellow employee for causing injuries on the job.

Expected or intended injury

The basic principle of commercial auto insurance applies if the policyholder intentionally injuries someone or causes damage to their property. Also, commercial auto insurance will also not cover claims for the insured, if the injured driver sues the insured for bodily injury.

Handling of property

It does not cover for bodily injury or property damage that happened before loading off onto the auto and after unloading the property.

Movement of property by a mechanical device

Unfortunately, commercial auto insurance will not provide coverage for an injury or damage that results from the movement of property by a mechanical device.

Racing or stunt incidents

Racing or stunt activities can cause any form of bodily injury and property damage. If accidents occur while racing, BAP does not cover the incurred costs.

Operations of mobile equipment

The insurance policy does not provide coverages for claims that result from the operations of mobile equipment, such as wear and tear, freezing etc.

Completed operations

Commercial auto insurance does not cover the claims that arise from completed products or operations.

Pollution

Commercial auto insurance excludes any third-party pollution claims. It considers cases of the release or disposal of pollutants when it was transported, loaded auto, unloaded from, stored by a covered auto. One of the best ways to prevent facing lawsuits on claims related to pollution–opt for pollution liability insurance.

Leased or personal vehicles

Commercial auto insurance does not provide coverage for damage to owned or rented automobiles. The “Care, Custody, and Control” exclusion also applies to the property damage caused due to its transportation on the vehicle.

Nuclear hazards, contamination and war

If claims arise due to specific causes of loss such as war activities, commercial auto insurance is not applicable to cover such claims.

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Common Endorsements for Commercial Auto Insurance

Businesses are exposed to various risks; hence business auto insurance may not provide coverage for all hazards. But there are few common endorsements that will help you extend the protection for your commercial vehicle.

Uninsured Motorist (UM) and Underinsured Motorists (UIM) coverage

This coverage helps to pay for car repairs and medical costs incurred in the event of an accident where the at-fault drivers does not possess car insurance or coverage amount is less than the damage inflicted.

Rental reimbursement coverage

It provides costs to cover rental car repair expenses incurred from the damages.

Towing reimbursement coverage

Towing reimbursement coverage helps to reimburse the cost of towing and minor roadside repairs.

How Much Does Commercial Auto Insurance Cost?

Several aspects determine the costs of commercial auto insurance. It includes:

Number of vehicles

Commercial auto insurance cost depends on the number of vehicles that is covered in the policy.

Vehicle type and value

The value of your business and the type of auto also determine the premium accordingly. Various traits of the vehicle are taken into consideration, such as model number, manufactured date, and identification number.

Claims history

Various aspects lead to increased claims such as increment in distracted driving or increased number of truck accidents. Therefore, claims history also have an influence over your commercial insurance rates.

Employee driving records

Each day, approximately 9 people are killed and more than 1,000 are injured in crashes that involved a distracted driver as stated by the Centers for Disease Control and Prevention. Commercial auto policy rate varies based on the employee’s driving record.

Policy deductibles and limits

The amount of policy limits and deductibles also impacts commercial auto insurance rates.

Drivers’ demographics and experience level

The rate of commercial auto policy also depends on the drivers’ demographics. If less experienced drivers pose a higher risk, then the rates will be higher automatically.

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