Employer's Non-Owned Auto Liability Endorsement
By: Brett Aaron
Employees frequently use their personal vehicles for business purposes. When an accident occurs in such situations, the employer’s insurance may provide coverage despite the fact the employer does not own the employee’s vehicle.
The employer’s non-owned auto liability endorsement modifies a commercial general liability (CGL) policy to include “non-owned auto” in the definition of “insured auto.” The endorsement also defines non-owned auto as an “auto that you do not own, lease, hire, rent, or borrow, and that is used in connection with your business.” The endorsement extends coverage provided by other provisions of a CGL policy rather than reducing coverage. Similar language in commercial auto policies can also provide non-owned auto coverage.
The endorsement provides a limited extension of coverage beyond the general CGL insuring agreement. It applies only to “non-owned autos . . . used in connection with your business.” Unfortunately, policies do not define the phrase “used in connection with your business,” leaving a very important clause open to interpretation by the courts. In turn, this leads to different interpretations and application by courts analyzing the same policy language under similar factual circumstances.
Generally, courts liberally construe the endorsement in favor of the insured. A large majority of courts have construed the endorsement language as unambiguous as a matter of law. Courts also generally hold the clause valid, enforceable and not against the public policy of the state where the court sits. Issues arising with the endorsement typically involve questions of law. For these issues, courts use two major tests to interpret the endorsement: the two-prong test formulation and the respondeat superior formulation.
Under the two-prong test, courts look to two factors to determine whether the endorsement applies. The first prong considers the extent to which the vehicle at issue was used in the course and scope of the insured’s business. See, e.g., Nuvell Nat. Auto. Fin., LLC v. Monroe Ins. Co., 736 S.E.2d 463, 407 (Ga. App. 2012). The second prong considers the extent to which the insured held or exerted control over the vehicle and its driver. Id.
To determine the extent to which an insured held or exerted control over the vehicle and its driver, courts utilize many factors, including whether:
- the insured dictated from where and to where the loads were being hauled, that is, the right to designate the route to be taken to the ultimate destination;
- the insured used its own employees to drive the vehicle;
- the insured paid any rental fees on the vehicle;
- the insured dictated a specific timetable for hauling the items in question;
- all hauled items belonged to the insured;
- the insured required the owner of the vehicle and its driver to carry their own insurance;
- the driver’s company carried its own workers’ compensation insurance;
- the driver’s company always used its own trucks and trailers to haul items;
- the driver’s company paid for all maintenance and repairs for the vehicle, paid its own insurance for the vehicle, paid the driver and paid employment taxes for the driver;
- the insured made employment-related deductions from the payments it made to the driver’s employer; and
- the driver’s employer was the primary source of hauling items for the insured, or whether the driver’s employer did other hauling business without informing the insured or obtaining its consent.
CMH Homes, Inc. v. U.S. Fid. & Guar. Co., 2007 WL 595606, at *4 (E.D. Tenn. Feb. 21, 2007).
The respondeat superior formulation proves simpler in concept but provides narrower coverage than the two-prong test. Under the respondeat superior test, if the insured is vicariously liable for the actions of the driver of the non-owned auto, then the endorsement provides coverage. See, e.g., Hudson Spec. Ins. Co. v. Brash Tyer, LLC, 769 F.3d 586, 590-91 (8th Cir. 2014). Courts reason that if the insured is vicariously liable under the tort theory of respondeat superior, then the non-owned auto was “used in connection with” the insured’s business. Thus, cases will turn on whether the driver was an independent contractor of the insured. If the driver is an independent contractor, then the endorsement provides no coverage because the insured would not be vicariously liable.
Some insurers have attempted to argue that non-owned vehicle operators are dual employees of both the owner of the vehicle and the insured. For example, under Alabama law, a person can be the employee of the company paying the person (i.e., a general employer) and an employee of a company who has reserved the right of control over the person (i.e., a special employer). Star Ins. Co. v. Progressive Specialty Ins. Co., 2017 WL 2469958, at *4 (M.D. Ala. June 7, 2017). If someone other than the insured employs the driver and the insured has not reserved the right to control the driver, then the endorsement does not apply. Id.
While jurisdictions differ on the interpretation of the employer’s non-owned auto liability endorsement, this endorsement should be carefully analyzed in the event an insured faces potential liability for its employees driving personal or other non-owned vehicles. As the endorsement makes clear, a non-owned vehicle may be a covered auto to the extent the endorsement applies.
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