Posts Tagged ‘non owned and hired auto liability’

Controlling the Non-owned Auto Exposure in Sports

Coverage for a serious risk

It’s a must for most sports and recreation organizations to carry Non-owned and Hired Auto Liability insurance, which can be a stand alone policy or part of the General Liability policy. Very few sports administrators understand the importance of this coverage and what they should be doing to protect their insurance carrier from ever having to pay a claim.

A non-owned auto is one that is not owned by the sports or recreation organization, but is instead owned by an employee or volunteer or borrowed from an organization such as a church. If a non-owned vehicle is involved in an accident while on association business, the following parties can normally be sued: the vehicle owner, the driver, and any organization for whose purpose the errand is being run. In other words, the sports organization can be sued for their vicarious liability of their staff member.

Its important to note that Non-owned Auto Liability insurance does not cover the driver or damage to the vehicle. It only covers the association that is the named insured on the policy. The driver will have to rely on his or her own Personal Auto Insurance olicy to provide liability and physical damage protection.

I came across some excellent loss control material from Philadelphia Insurance Company on the topic of controlling the Non-owned Auto Liability risk in the sports and recreation context. This exposure represents an infrequent but high severity risk where damages can easily exceed $1 million. The insurance carriers that insure sports and recreation organizations are concerned about this exposure because it’s difficult to collect the proper premium for a low frequency/high severity risk. Sports organizations need to take this risk very seriously and implement the recommended controls.

Here are some links that you will want to check out:

Case studies on actual Non-owned Auto Liability losses in the non profit association context where damages exceeded $1 million

Personal vehicle usage precautions

Driver eligibility criteria

Driver training and motivation

Source: Philadelphia Insurance Company, Hired And Non-owned Automobiles, Large Loss Lessons Learned

Simplifying Rental Vehicle Insurance

The devil is in the details

Many sports and recreation organizations require short term vehicle rentals organization purposes such as when flying into an airport and renting a vehicle to drive to a nearby meeting, transporting equipment to a tournament, and transporting athletic participants.

Due to the complexities of rental car contracts and varying insurance policy coverage forms, it not an easy task to decide the best way to handle the insurance on these rentals. As a matter of fact, neither insurance carriers nor rental car companies offer a complete solution, and many insurance experts are in disagreement over how to advise their clients.

The choices are as follows:

  • Buy Non-owned and Hired Auto Liability and Hired Car Physical Damage from your commercial insurance provider. (Typically $350 a year)
  • Purchase the the rental car company’s offering for both Liability and Collision Damage Waiver. (Typically $15 to $40 a day)
  • Pay for the rental with a credit card and rely on the credit card rental car insurance benefit.
  • Rely on your personal auto policy.

Each option has disadvantages

The disadvantages for liability insurance (bodily injury to passengers or occupants of other cars or property damage to other cars) are:

  • Non-owned and Hired Auto Liability under a commercial auto insurance policy may have an exclusion for the transportation of athletic participants or the use of 15-passenger vans. Of course, it is best to not get involved in either of these situations.
  • A personal auto policy may not provide coverage if the rental is for a business purpose.
  • The Liability coverage offered by the rental car company may be voided if an unauthorized driver is driving the vehicle. An unauthorized driver is one who was not added to the list of authorized drives at the time of the rental. The rental car company will make a charge for each driver who is added to the list. Furthermore, the limits of liability that are offered may not be sufficient.

Each of these choices has disadvantages for physical damage insurance (damage to rental vehicle itself) as follows:

  • Hired Car Physical Damage under a commercial auto insurance policy will only pay for the actual cash value (deduction for depreciation) of the car if totaled, will not pay for reduced resale value if not totaled, and will not pay for loss of profits while vehicle is out of fleet being repaired. Unfortunately, most rental car contracts through the national carriers require the following damages be paid: replacement cost value if the car is totaled, reduced resale value if not totaled, and loss of profits while the vehicle is out of the fleet being repaired. Therefore, if the sports/rec organization relies on the Hired Car Physical damage, they would be out of pocket for these amounts.
  • Comprehensive/Collision under a personal auto policy will have the same limitations as Hired Car Physical Damage.
  • The credit card company will likely have the same limitations.
  • The Collision Damage Waiver from the rental car company may void coverage if the damage to the vehicle occurs while an unauthorized driver is driving the vehicle, if a traffic violation is committed during the rental, if the driver is under the influence, or if the vehicle is being used off a paved road.

Suggested solutions:

An organization with rental exposures should always purchase Non-owned and Hired Auto Liability and Hired Car Physical Damage from its commercial auto insurance provider. These coverages will take care of the biggest exposure, auto liability, and will pay the lion’s share of any physical damage losses to the vehicle itself. However, understand that the organization could be forced to pay out of pocked for what is not covered.

  • If the out-of-pocket exposure is a concern, the Collision Damage Waiver should be purchased from the rental car company (but not the liability).
  • Never use 15-passenger vans and avoid transporting participants if at all possible.

Every rental situation is unique and the insurance policy forms and rental car contracts vary. As a result, organizations should review their options with their insurance agent prior to the rental.

Hired Car Physical Damage Insurance

What is and isn’t covered

Sports organizations occasionally rent vehicles for transporting athletes to out-of-town games and tournaments or officers to travel out of state on business. If a Non-owned and Hired Auto Liability policy is in place, it will not respond to damage to the rented vehicle itself.

There are three options available for insuring damage to the rental vehicle:

  • Purchase Collision Damage Waiver from the rental car company. This is the safest course of action to follow as it will often pay for 100 percent of the damages. The cost of this coverage typically ranges from $15 to $30 a day.
  • Purchase Hired Car Physical Damage from the sports organization’s insurance agent. Coverage typically costs $250 per year. However, this policy will not pay the following damages that are triggered by many rental car contracts:
  1.  The difference between actual cash value and replacement cost in the event the vehicle is totaled.
  2. Loss of profits to the rental car company while the vehicle is out of the fleet being repaired.
  3. Diminution in resale value.
  • Rely on credit card benefits for physical damage. The terms of credit card benefits vary greatly.

This is a complex area and consultation with an insurance professional is recommended prior to vehicle rental.