commercial auto insurance for california businesses

(May, 2006)

It is difficult to imagine a commercial operation that does not have some type of automobile liability exposure. The source of possible loss may be from any of the following:

• owned autos

• leased vehicles

• hired (rented) automobiles or equipment or

• non-owned (borrowed) vehicles

• certain types of mobile equipment

Even if the exposure is as simple as the office secretary driving her car to pick up supplies, the liability exposure is major since automobiles are capable of such deadly results.

There are several different commercial automobile policies. The Business Auto Policy (BAP) is by far the type that is used most frequently. It is designed to respond to the needs of most commercial vehicle exposures and has numerous endorsements available to customize for special needs or situations.

The Business Auto Coverage Form—CA 00 01 is designed for general use. Any commercial operation can insure their vehicles using this form. However, one of the other four forms may be more appropriate and specific to the needs of the operation. This form also has the largest number of optional endorsements. These forms provide an additional alternative for sculpting the basic form to fit particular needs.

A Business Auto Policy contains five basic parts or forms:

• Common Policy Declarations Form (this may be combined with the business auto coverage declaration form)

• Common Policy Conditions Form (IL 00 17) containing the conditions that are common to all Commercial Lines of insurance. This form is a mandatory part of all monoline or multi-line simplified policies.

• Business Auto Coverage Declarations Form.

• Business Auto Coverage Form (CA 00 01)

• Policy Cover or Jacket, designed by companies individually and which may include a table of contents or an index, a requirement in some states.

The Business Auto policy is designed to address generic automobile exposures faced by a broad array of commercial operations. The available optional endorsements should be consulted to fine-tune the coverage in order to tailor the protection for a specific industry. The other basic coverage forms should also be considered if there is a trucking, motor carrier, or a garaging exposure.

The Business Auto Coverage Form consists of the following five sections:

• Section I - defines which autos will be covered based on symbols entered on the Declarations pages.

• Section II - provides the liability coverage including all extensions, exclusions and limits.

• Section III - provides physical damage coverage including all extensions, exclusions, limits and deductibles.

• Section IV - contains both the loss conditions and the general conditions.

• Section V - contains the definitions used in the Coverage Form.

These forms customize a policy to reflect specific situations. Some examples are the various state amendatory endorsements and those outlining terms for cancellation and suspension. Others are specific to certain types of businesses, such as farms or schools, while some include additional insureds and others with financial interests in the covered vehicle. Some endorsements add coverage, such as fellow employee or uninsured/underinsured motorists, while others redefine policy language or apply rating and premium calculation procedures. A final category clarifies or restates a provision or condition of the policy that applies to a specific insured.

Underwriting and rating business auto coverage involves understanding the insured's operation and properly classifying each vehicle. The make, model, age, value and radius of operations for each vehicle must be known. Vehicle maintenance programs must be evaluated and they should include periodic replacement of older vehicles. Vehicle safety devices and protection systems, such as theft alarms, and crime and environmental pollution issues must also be analyzed. Detailed loss history and related information is an important part of the underwriting and rating process. Loss frequency, severity and total losses help determine risk acceptability and the total premium.

The most important underwriting factor is evaluating the vehicle operators. Driving records, education and training, periodic motor vehicle reports and random drug and substance testing are some of the measures used by employers to screen drivers. The insured must be in control of the drivers and have incentive as well as remedial action procedures in place.