Hired Auto Coverage - Liability for Rented Vehicles
Imagine your employee renting a vehicle on account of the company for a business trip. They hit another vehicle causing significant damages. Who is liable for the costs? This is where hired auto coverage plays a vital role.
TL;DR
- Hired auto coverage is an additional coverage for rented vehicles used for business purposes.
- It is pivotal in daily agency work as it supplements the existing commercial auto policy, addressing potential gaps in coverage.
- A common pitfall is assuming that personal auto policies or rental car insurance will cover business use.
- Adopt thorough documentation habits; recording the purpose of vehicle use can help clarify coverage needs.
What Is Hired Auto Coverage in Insurance?
Plain-language definition: Hired auto coverage is a type of insurance coverage that protects a business when an employee causes an accident while driving a rented vehicle for work-related purposes.
Technical definition: Within business insurance policies, hired auto coverage usually exists as an endorsement. It plugs in coverage gaps that might exist if an employee rented a vehicle for business use. It typically falls within the policy’s declarations as it modifies the commercial auto insurance policy’s basic terms.
Key Related Terms to Know
- Auto Liability Insurance – Coverage for damages to another person’s property or injuries when you’re at fault in an accident.
- Non-owned Auto Insurance– Covers liability for a vehicle used for business purposes that the business does not own, like an employee’s vehicle.
- Commercial Auto Policy – Coverage for businesses that includes property damage and liability insurance for company vehicles.
- Respondeat Superior – A legal doctrine making an employer responsible for the actions of their employees in the course of employment.
- Negligent Entrustment – A legal concept where the vehicle owner is held liable if they allowed someone (an employee) who isn’t fit to drive to use their vehicle.
Common Questions About Hired Auto Coverage
How does hired auto coverage differ from owned auto insurance?
Though they are part of the commercial auto policy, they cover different risks. Owned auto insurance covers company-owned vehicles, while hired auto coverage extends protection to rented vehicles for business purposes.
For instance, your company rents a van for a trade show, and on the way, the employee driving it gets into an accident. The hired automotive coverage would step in to cover the damages.
When is non-owned auto coverage needed?
Non-owned auto coverage is crucial when employees use their vehicles for business-related activities. An example is when a salesperson uses their car to meet a client, and while parking, they accidentally sideswipe another car causing damage.
Can HNOA policy cover personal use of rented vehicles?
An HNOA policy primarily covers business use of rented, non-owned, or hired autos. If an employee rents a car during a business trip but uses it for sightseeing off-hours, personal use might not be covered.
If a business has commercial auto insurance, is hired auto coverage necessary?
Even with commercial auto insurance, hired auto coverage remains important as commercial auto policies generally only cover owned autos. So, if an employee rents a car for business and gets into an accident, hired auto coverage is what will safeguard against liabilities.
Hired Auto Coverage vs. Non-Owned Auto Coverage
Although they can sometimes be bundled together as HNOA, these coverages apply to different scenarios. Hired auto coverage is for rented or leased cars for business, while non-owned auto coverage protects the company when employees use their vehicle for business purposes.
Comparison Area | Hired Auto Coverage | Non-Owned Auto Coverage
|
Primary use case | Covers company liabilities for rented, hired, or leased vehicles | Covers company liabilities for employees’ vehicles used for business |
Coverage type | Liability coverage | Liability coverage |
Typical exceptions | Personal use of rented vehicles | Owned business vehicles, personal use |
Who is most affected by errors | Businesses that frequently rent cars for business use | Businesses where employees use personal vehicles for work |
Common mistakes | Assuming personal rental insurance covers business use, mistaking it with an owned auto insurance | Assuming the business’s general liability or owned auto covers employee’s vehicles |
Real Claim Examples Involving Hired Auto Coverage
Scenario 1: A business rented a van to transport equipment to a trade event. En route, their employee accidentally rear-ended another vehicle, causing significant damage. Their hired auto coverage paid for the damage costs, saving the company from facing a hefty out-of-pocket expense.
Scenario 2: An employee rented a car on a business trip. They caused an accident that led to property damage and personal injury to the other driver. The hired auto liability coverage protected the company from the liability claims the injured party could bring against the business.
Scenario 3: A business rented a truck to deliver products following a surge in demand. The hired vehicle accidentally rammed an overhead structure, damaging both the structure and the vehicle. The hired auto coverage catered to the damage costs to third-party property and repair to the rented truck.
Limitations and Common Mistakes
- Hired auto coverage does not apply to company-owned vehicles.
- It does not cover personal use of rented vehicles.
- Misconception that business’s general liability insurance or the employee’s personal automotive insurance will provide coverage for business use of rented vehicles.
- Not documenting the use of rented vehicles, which can create misconceptions about risk and possibly leave businesses uncovered.
How to Explain Hired Auto Coverage to Clients
To Personal Lines Client: “Think of hired auto coverage like an extension of your business insurance. It helps cover the costs if your employee gets in an accident when driving a rented car for work.”
To Small Business Owner: “Hired auto coverage is a type of business insurance. It helps to cover liability expenses if your employee causes an accident while driving a car your business rented, hired, or borrowed for business use.”
To CFO or Risk Manager: “Hired Auto Coverage is an essential component of your commercial auto policy. It fills a critical gap by covering liability costs if an employee is involved in an accident while driving a vehicle the company has rented for business purposes.”