AU 62 Chapter 4 - Underwriting Business Auto
Employee Emilia uses a company car that has a scheduled limit of $28,000 on a Stated Amount Insurance endorsement to a business auto policy. Immediately before an accident, the actual cash value of the company car is $15,000. If repairs to the car amount to $35,000, how much will the insurer pay?
$15,000 With the Stated Amount Insurance endorsement, the maximum insurer's liability is scheduled on the endorsement. The insurer, then, is only responsible to pay the least of these values: ACV at the time of loss, the cost to repair/replace, or the limit of insurance stated in the endorsement schedule.
All of the following are covered for prompt medical expense reimbursement after an accident under an Auto Medical Payments Coverage endorsement:
-An employee of the named insured while occupying a covered auto -A customer of the named insured being transported in a covered auto -A family member of the named insured when struck by an auto as a pedestrian The driver of an uninsured auto that strikes the names insured as a pedestrian will not be covered under the Auto Medical Payments Coverage endorsement.
Any of these optional endorsements can be attached to the Business Auto Coverage Form:
-Employees as Insureds endorsement -Employee Hired Autos endorsement -Rental Reimbursement Coverage endorsement -Stated Amount Insurance endorsement -Uninsured and underinsured motorists coverage endorsements -PIP (no-fault) endorsements -Auto Medical Payments Coverage endorsement -Individual Named Insured endorsement -Drive Other Car - Broadened Coverage for Named Individuals endorsement
BACF Definition
1. A land motor vehicle, "trailer" or semitrailer designed for travel on public roads; or 2. Any other land vehicle that is subject to a compulsory or financial responsibility law or other motor vehicle insurance law where it is licensed or principally garaged. However, "auto" does not include "mobile equipment". Usually covered under CGL (Commercial General Liability) form.
Zone rating
A CLM commercial vehicle measurement of exposure that applies to trucks, truck-tractors, and trailers, other than light trucks and trailers used with light trucks, regularly operated beyond a 200-mile radius of the principal garaging location.
Special industry classification or secondary classification
A CLM subclassification that applies to trucks, tractors, and trailers for listed categories of use that have unusual hazards.
Commercial use
A commercial auto use classification that applies to vehicles that do not fall into service or retail use classifications.
Business Auto Coverage Form
A coverage form, filed by ISO, that covers liability arising out of the ownership, maintenance, or use of autos and physical damage to autos owned, leased, or hired by the named insured. Forms includes optional provisions for insuring physical damage to autos owned, leased, or hired by the named insured. Other auto coverages, such as no-fault, uninsured/ underinsured motorists, and auto medical payments, can be added by endorsement.
Radius of operation
A measurement of road exposure used to classify commercial vehicles. It is measured on a straight line from the street address of the vehicle's principal place of garaging to the furthest point the vehicle operates.
Stated amount
A method of valuing property often described in an insurance policy as the least of (1) the actual cash value, (2) the cost to repair or replace, or (3) the applicable amount of insurance for the property.
Which one of the following businesses would likely not be eligible for coverage under the business auto coverage form?
A motor carrier that transports the property of others. A company that ships goods purchased online to consumers would be excluded from a business auto coverage form because it is a motor carrier (or business that transports property of others).
Class rating
A rating approach that uses rates reflecting the average probability of loss for businesses within large groups of similar risks; the predominant method used for rating commercial properties.
Declarations
A separate declarations form is available for use with each of the commercial auto coverage forms: -Business Auto Declarations -Auto Dealers Declarations -Motor Carrier Declarations The commercial auto declarations forms are longer and more detailed than the declarations forms for most other lines of business. In addition to the usual information contained in any declarations form, the commercial auto declarations forms include various schedules for recording applicable coverages, covered autos, applicable limits, deductibles, premiums, and rating and classification information.
Original cost new
A valuation method for property based on the retail cost the original purchaser paid for the auto and its equipment.
Coverage Auto Symbols 1 - Any "Auto"
Any auto, including autos owned by the name insured, autos the named insured hires or borrows from others, and other nonowned autos used in the insured's business. Symbol 1 provides the best protection for the insured. Ordinarily this symbol is used for liability coverage only.
Automobile liability exposures can result from
Automobile liability exposures can result from hiring or borrowing an automobile.
Liability Loss Exposures
Because liability arise from the use of owned, hired, or borrowed autos or from employees' operation of their own autos on behalf of a business, most organizations are exposed to auto liability. Liability can also arise when one organization assumes the auto liability of another organization by contract.
Bilo Manufacturing is weighing whether to lease vehicles for its employees or have them drive their own autos while on company business. Which one of the following exposures is created if Bilo decides in favor of employee-owned autos?
Bilo has neither hired nor borrowed the employee's auto but they could still be held liable if the employee negligently injures a third party.
Rating Methods
Business auto policies use class rating, but a policy that develops a large enough premium can also be eligible for experience rating. Schedule rating is used to modify the premium to better represent characteristics not reflected in class rates.
Differences in Loss Exposures
Considerable differences can exist in loss exposures between two similarly classed insureds. Most of these differences relate to the drivers, vehicles' condition, and any fleet safety program.
Business Auto Coverage Form
Consists of five sections: Section 1 - Covered Autos Section 2 - Covered Autos Liability Coverage Section 3 - Physical Damage Coverage Section 4 - Business Auto Conditions Section 5 - Definitions
Actual cash value (ACV)
Cost to replace property with new property of like kind and quality less depreciation.
Transportation expenses
Coverage extension for substitute transportation costs incurred when a private passenger type auto has been stolen.
Loss of use expenses
Coverage extension that pays for loss of use of a rental auto when an insured becomes contractually obligated to make such payments.
Garagekeepers coverage
Coverage for damage to customers' autos left in the named insured's care while the insured is attending, servicing, repairing, parking, or storing them.
Specified causes of loss coverage
Coverage for direct and accidental loss caused by fire, lightning, explosion, theft, windstorm, hail, earthquake, flood, mischief, vandalism, or loss resulting from the sinking, burning, collision, or derailment of a conveyance transporting the covered auto.
Comprehensive coverage
Coverage for direct and accidental loss or damage to a covered auto by any peril except collision or overturn or a peril specifically excluded.
Collision coverage
Coverage for direct and accidental loss or damage to a covered auto caused by collision with another object or by overturn.
All of the following accurately describe underwriting considerations relevant to underwriting business auto physical damage:
Desirable accounts usually keep records on vehicle use and the service their autos receive. Underwriters can limit exposure to unexpected high values by providing physical damage on a stated amount basis. By garaging autos within a building, the insured usually reduces the chance of loss by a number of perils but increases the risk of catastrophic fire. Insureds might legitimately request physical damage coverage on older vehicles because of their high values and in an effort to reduce retentions.
Which one of the following is a true underwriting consideration relevant to business auto physical damage?
Exposure to unexpected high values can be limited by providing physical damage on a stated amount basis.
Other covered items
If the BACF provides liability insurance, trailers with a load capacity of 2,000 pounds or less are covered automatically for liability insurance. Mobile equipment is automatically covered for liability while being carried or towed by an auto that has liability coverage. An auto used as a temporary substitute for a covered auto that is out of service because of its breakdown, repair, service, loss, or destruction is also covered for liability insurance only.
The insured should evaluate the cost of physical damage coverage relative to the current value of an aging vehicle before deciding to purchase the coverage. In which one of the following situations might the insured choose to cancel physical damage coverage?
If the cost is greater than the benefit, the insured might choose to cancel physical damage coverage.
In order to provide liability insurance for employees who drive their personal cars on company business, which one of the following endorsements should be added to the Business Auto Coverage Form (BACF)?
In order to provide liability insurance for employees who drive their personal cars on company business, an organization will add the Employees as Insureds endorsement (CA 99 33).
Gross vehicle weight (GVW)
Maximum loaded weight for which a single vehicle is designed, as specified by the manufacturer.
All of the following statements are correct with respect to business auto liability coverage:
Much of the underwriting analysis of a business auto account closely follows the characteristics used to rate the policy. Business auto policies are class rated, although policies with large enough premiums may also be experience rated which might either raise or lower the insured's premiums. Schedule rating is used for business auto coverage to modify the premium for characteristics not reflected in the class rates. Many types of business autos for liability insurance pricing purposes are classified based on weight and type of vehicle, vehicle use, radius of operations, and special industry classifications, but not all are classified this way.
Coverage Autos Symbol 3 - Owned Private Passenger "Autos" Only
Only the private passenger "autos" you own. This includes those private passenger "autos" you acquire ownership of after the policy begins. Does not include trucks or buses owned by the insured or any kind of auto not owned by the named insured.
Coverage Autos Symbol 7 - Specifically Described "Autos"
Only those "autos" described in Item Three of the Declarations for which a premium charge is shown (and for Covered Autos Liability Coverage any "trailers" you don't own while attached to any power unit described in Item Three).
Coverage Autos Symbol 19 - Mobile Equipment Subject To Compulsory Or Financial Responsibility Or Other Motor Vehicle Insurance Law Only
Only those "autos" that are land vehicles and that would qualify under the definition of "mobile equipment" under this policy if they were not subject to a compulsory or financial responsibility law or other motor vehicle insurance law where they are licensed or principally garaged.
Coverage Autos Symbol 8 - Hired "Autos" Only
Only those "autos" you lease, hire, rent or borrow. This does not include any "auto" you lease, hire, rent or borrow from any of your "employees", partners (if you are a partnership), members (if you are a limited liability company) or members of their households. Commonly used for AL and PD coverage.
Coverage Autos Symbol 6 - Owned "Autos" Subject To A Compulsory Uninsured Motorists Law
Only those "autos" you own that because of the law in the state where they are licensed or principally garaged are required to have and cannot reject Uninsured Motorists Coverage. This includes those "autos" you acquire ownership of after the policy begins provided they are subject to the same state uninsured motorists requirement.
Coverage Autos Symbol 5 - Owned "Autos" Subject To No-fault
Only used on the Personal Injury Protection (PIP) or added PIP line of the declarations. Provides PIP coverage only for those autos that are required by law to have it. Only those "autos" you own that are required to have no-fault benefits in the state where they are licensed or principally garaged. This includes those "autos" you acquire ownership of after the policy begins provided they are required to have no-fault benefits in the state where they are licensed or principally garaged.
The premium for physical damage coverage is based the age group of the vehicle and the
Original cost new
Monoline policy
Policy that covers only one line of business.
Commercial package policy (CPP)
Policy that covers two or more lines of business by combining ISO's commercial lines coverage parts.
The Rental Reimbursement Coverage endorsement pays the cost to rent a temporary substitute auto when a covered auto has been damaged by any covered cause of loss. Coverage begins
Rental Reimbursement Coverage begins 24 hours after the auto was damaged.
Which one of the following statements is correct with respect to business auto liability coverage?
Schedule rating is used to modify the premium for characteristics not reflected in the class rates.
Which one of the following would be the most appropriate symbol to show on the schedule of coverages and covered autos of the Business Auto Coverage Form (BACF) if the insured wants to cover only autos owned at policy inception and any others that might be acquired later?
Symbol 2—Owned Autos Only
Which one of the following correctly indicates the three Business Auto Coverage Form (BACF) symbols that combined are equivalent to symbol 1?
Symbol 2—Owned Autos Only, Symbol 8—Hired Autos Only, Symbol 9—Nonowned Autos Only When Symbol 1 is used, it is not necessary to have Symbols 2, 8, and 9 on a policy.
Which one of the following symbols in the Business Auto Coverage Form (BACF) indicates personal injury protection (PIP) coverage is provided for those autos that are required by law to have it?
Symbol 5—Owned Autos Subject to No-Fault. Symbol 5 is for PIP (No-Fault) coverage.
The Butler Corporation provides one of its executives with a company car. The executive does not own any vehicles of his own and would like to have coverage for himself and his wife if either of them rent or borrow vehicles from others. Butler can provide this coverage to the executive by adding which one of the following endorsements to its Business Auto Coverage Form (BACF)?
The Drive Other Car—Broadened Coverage for Named Individuals endorsement is the appropriate endorsement to add such coverage.
Motor Carrier Coverage Form
The coverage form filed by ISO that can be used to insure a person or an organization providing transportation by auto in the furtherance of a commercial enterprise. This includes for-hire carriers of property or passengers, as well as commercial insureds that use autos to transport their own property or to transport passengers.
Baker Company's salesperson negligently injures a pedestrian while driving a Baker Company vehicle on a sales call. Under which one of the following legal doctrines could the pedestrian hold Baker Company responsible for injury caused by the negligence of its employee?
The doctrine of respondeat superior states that an employer may be held liable for the acts of an employee as long as those acts are within the scope of his or her employment.
Joe Motors is an automobile repair shop. Which one of the following would be the best way for the owner to maintain the goodwill of its customers?
The main purpose of garagekeepers insurance is the protection of customer's goodwill.
Aggregate limit
The maximum amount an insurer will pay for all covered losses during the covered policy period.
When the named insured under a Business Auto Coverage Form is a sole proprietor, the policy can be amended by endorsement to provide the same liability coverage to the named insured and family members that he or she could obtain under a Personal Auto Policy by using the
The policy can be amended by using the Individual Named Insured (CA 99 17) endorsement.
Reinsurance
The transfer of insurance risk from one insurer to another through a contractual agreement under which one insurer (the reinsurer) agrees, in return for a reinsurance premium, to indemnify another insurer (the primary insurer) for some or all of the financial consequences of certain loss exposures covered by the primary's insurance policies.
If an employee rents a car in his or her own name and uses the auto to conduct his or her employer's business, which one of the following endorsements of the Business Auto Coverage Form would ensure that there is coverage if the employee is in an accident?
This endorsement states that an employee of the named insured is an insured while operating an auto rented in that employee's name, while performing duties related to the conduct of the named insured's business and with the named insured's permission.
Classification and Rating Factors
Trucks, tractors, and trailers are classified and rated using four factors: -Vehicle weight and size -Vehicle use -Radius of operation -Special industry classifications
Commercial auto insurance
can be used to cover liability loss exposure, property loss exposures, and personal loss exposures arising out of the ownership, maintenance, or use of autos. A common format for insuring these loss exposures is the commercial auto coverage part of the Insurance Services Office, Inc. (ISO). Consists: declaration form, coverage form, and any applicable endorsements.
Common Law
the law that is made and applied by court decisions
commercial auto loss exposures
the ownership, maintenance, or use of autos creates liability loss exposures, property loss exposures, and personal loss exposures.
Employers nonownership liability
An employer's liability for its employees' operation of their autos in the employer's business.
Drive other car coverage
Coverage for named individuals who do not have a PAP for liability, medical payments, uninsured motorists, comprehensive, and collision coverages.
Kenneth, the named insured under a Business Auto Coverage Form (BACF) with symbol 1 shown for liability coverage, causes an automobile accident while driving a rental car on a business trip. Which one of the following correctly indicates whether Kenneth is covered under the liability insuring agreement of his BACF for this accident?
Kenneth is covered because Kenneth, the named insured, is an insured for any auto. Symbol 1 covers the insureds use of any auto, including rented ones.
Doctrine of Respondeat Superior
Let the Master Answer - this rule of placing liability on the employer, is based on the fact that the employee was acting on behalf of the employer at the time of loss. The employees liability in this situation is also referred to as vicarious liability.
Coverage Autos Symbol 2 - Owned "Autos" Only
Only those "autos" you own (and for Covered Autos Liability Coverage any "trailers" you don't own while attached to power units you own). This includes those "autos" you acquire ownership of after the policy begins. Does not cover hired or borrowed autos or other autos the names insured does not own.
Coverage Autos Symbol 4 - Owned "Autos" Other Than Private Passenger "Autos" Only
Only those "autos" you own that are not of the private passenger type (and for Covered Autos Liability Coverage any "trailers" you don't own while attached to power units you own). This includes those "autos" not of the private passenger type you acquire ownership of after the policy begins.
Which one of the following symbols used in the Business Auto Coverage Form (BACF) is correctly described?
Symbol 9 covers Nonowned autos only while Symbol 1 applies to any auto, Symbol 2 applies to any owned auto, and Symbol 7 applies to specifically described autos.
Which one of the following is the best way for a business auto underwriter to limit an account's catastrophic loss potential due to a concentration of values?
The best was for a business auto underwriter to limit an account's catastrophic loss potential due to a concentration of values is to include an aggregate limit endorsement.
Drive Other Car—Broadened Coverage for Named Individuals endorsement
The endorsement that can be used to extend the coverages of the Business Auto Coverage Form to the individuals named in the endorsement (and their spouses) while using autos they do not own and that do not qualify as covered autos under the policy.
Reid Kimbrell owns a fleet of tractor-trailer units insured for both liability and physical damage coverages. Mr. Kimbrell devotes time and effort into maintaining his auto fleet, the average age of which is fifteen years old. Each vehicle is inspected once a month. Mr. Kimbrell has his own garage for preventive maintenance on the vehicles. Mr. Kimbrell believes that regular oil changes and new tires have kept his fleet on the road despite their high mileage. When not in use, the vehicles are kept in a fenced area behind the business. Which one of the following is the business auto physical damage underwriting concern most likely to have a negative effect on the decision to accept this account?
The fact that the fleet is not kept in a garage is the business auto physical damage underwriting concern most likely to have a negative effect on the decision to accept this account.
A truck's gross vehicle weight (GVW) is
The maximum loaded weight for which the manufacturer designed a single vehicle.
Retail use
A commercial vehicle use classification that applies to vehicles that are used principally to make deliveries to households.
Endorsements
A variety of endorsements are available for modifying the terms and conditions of the commercial auto coverage forms. Endorsements are commonly used to add coverages, to designate additional insureds, to add or omit exclusions, and to bring standard coverage forms into conformity with state insurance regulations.
Age group
A classification of vehicles based on the vehicle's model year. The current model year changes Oct 1, regardless of the actual model introduction date. When vehicle has been rebuilt or structurally altered, the age of the chassis determines the age group.
Service use
A commercial vehicle use classification that applies to vehicles that are used principally to transport personnel and material to job sites.
Experience rating
A rating plan that adjusts the premium for the current policy period to recognize the loss experience of the insured organization during past policy periods.
Schedule rating
A rating plan that awards debits and credits based on specific categories, such as the care and condition of the premises or the training and selection of employees, to modify the final premium to reflect factors that the class rate does not include.
Specialty underwriters might limit an account's catastrophic physical damage loss potential by:
Adding a nonstandard endorsement with an aggregate limit on any one loss at any one location.
Underwriters must consider the following factors as they relate to vehicles and considering physical damage coverage:
Age and value; use and maintenance; concentration of values.
Big Corporation leases automobiles for its employees to drive on business. In addition, a few employees use their own cars in performing their job duties. Which one of the following automobile loss exposures exists for Big Corporation?
An employer may be held liable for the acts of employees within the scope of their duties such as operating an employee-owned vehicle while on the job.
Bailee Loss Exposures
Any business that services, repairs, or otherwise attends to customers' autos can become liable for damage to cars temporarily left in its custody. Such businesses are said to face bailee loss exposures. A bailee is legally liable for damage to customers' property only if the damage occurs as a result of the bailee's negligence. However, in order to maintain good customer relations, many bailees choose to make "goodwill" payments for customers' losses even when not obligated to do so.
Insurers base commercial auto classifications on the size and weight of a vehicle because these characteristics
Insurers base commercial auto classifications on the size and weight of a vehicle because these characteristics relate to the damage likely to result from an accident.
Gross combination weight (GCW)
The maximum loaded weight specified by the manufacturer for a combination truck-tractor and semi-tractor or trailer for which the manufacturer designed a truck-tractor.
Emma runs a painting and wallpapering business. She owns a pickup truck that she uses primarily to transport workers and materials to clients' homes. The most appropriate use class for Emma's pickup truck is
The most appropriate class is service use.
The rental reimbursement endorsement to the Business Auto Coverage Form
A. Covers rental reimbursement expenses incurred after the policy expiration date. Reimbursement ends regardless of when the policy expires when the lesser of these periods is reached: (1) the number of days reasonably required to repair or replace the covered auto; and (2) the number of days shown in the schedule of the endorsement.
Towing and labor coverage
Coverage for necessary towing and labor costs (for labor performed at the place of disablement) due to the disablement of a covered private passenger auto.
Lime Green Paper Company owns three cars and a pickup truck. Lime Green's sales employees use their own vehicles for business. Lime Green is insured under a Business Auto Coverage Form (BACF) form with symbol 1—Any Auto for liability coverage and symbol 2—Owned Autos Only for physical damage and medical payments coverages. One of Lime Green's employees caused an accident while driving his own car on company business, damaging another auto and injuring the driver and two passengers. Lime Green's employee was injured in the accident, and his car was damaged.Which one of the following correctly indicates the coverage that Lime Green's BACF provides for this loss?
Liability coverage for the damage to the other auto and injuries to the other driver and passengers. Symbol 1 provides liability coverage for the use of any auto, including autos owned by employees. Symbol 2 does not apply because Lime Green does not own the auto.
Coverage Autos Symbol 9 - Non-owned "Autos" Only
Only those "autos" you do not own, lease, hire, rent or borrow that are used in connection with your business. This includes "autos" owned by your "employees", partners (if you are a partnership), members (if you are a limited liability company) or members of their households but only while used in your business or your personal affairs.
Auto Dealers Coverage Form
The ISO coverage form designed to meet the auto, general liability, and errors and omissions liability insurance needs of auto and trailer dealers. Provides the equivalent of commercial general liability insurance and business auto insurance in a single coverage form, an approach that prevents coverage gaps that could occur if an auto dealer had separate general liability and auto policies.
An endorsement to the Business Auto Coverage Form that limits the insurer's liability for physical damage loss to the least of the actual cash value, the cost to repair/replace, or the limit of insurance shown for the covered auto in the endorsement's schedule is called the
The Stated Amount Insurance endorsement limits the insurer's liability for physical damage loss to the least of these values: the ACV, the cost to repair/replace, or the limit of insurance shown for the covered auto in the endorsement's schedule (stated limit).
