Automobile Liability Insurance

Protect your construction company from costly accident claims.

A business automobile policy insures bodily injury and property damage liability for owned, non-owned and hired vehicles. Contractors often overlook these plans in favor of more complicated liability policies, such as professional or general liability. But in my experience, most excess liability claims arise from vehicle use. The risk management protocols for this coverage affect more than just the auto policy and should be carefully managed from a safety and risk standpoint.

The Overall Program

Underwriters understand that auto losses usually involve litigation and tend to be expensive to settle. For this reason, they tend to focus on a contractor’s fleet management practices, which give them some insight into the contractor’s overall risk management program.

A poor auto claims history can place enormous marketing and pricing pressure on a contractor’s overall insurance and risk management program. This affects the underwriting of the entire account, diminishing the impact of quality assurance/quality control on other insurance lines.

More than 85 percent of all auto claims also involve workers’ compensation claims ranging from a “medical only” to death expense. For this reason, underwriters often use the auto claims record to judge a contractor’s overall risk management program for all lines of coverage.

Rating

Contractors should follow these tips to address certain underwriting dynamics in their market submissions:

• Most contractors own or manage service vehicles, which transport people and materials to a jobsite. Underwriters often overlook this, applying commercial class codes that increase rates. Review the fleet schedule annually, and document proper garaging locations and miles driven to and from project locations.
• Since contractors tend to buy and sell units often, the insurance broker can be the last to know about fleet changes. Providing an updated and accurate auto schedule prior to renewal will keep your broker up-to-date. The schedule should give the understanding that all autos—owned, non-owned or hired—will be covered during the policy year, subject to an annual reporting and “true-up” of cost. Having to report schedule additions or deletions creates the potential for uninsured claims.
• Driver selection is critical in the underwriting process. Who a contractor trusts with company vehicles will determine the type of credits the underwriter can apply in the rating process. Usually, the insurer obtains driver reports to ensure compliance with the selection process documented in the risk management program. Drivers who have recorded accidents, multiple speeding infractions or DWI/DUI arrests often require “driver exclusions” from coverage.
• Physical damage coverage, unless required by the lien holder, is an excellent form of self-insurance that provides larger deductibles for collision and comprehensive coverage. Many contractors will completely self-insure the physical damage and will tailor coverage to apply only to specific vehicles by year, class or value.

The Safety Effect

Technological advancements have created new risks for contractors, making safety and risk management even more important for auto coverage.

Cell phones can distract drivers and lead to injuries—even fatalities—for employees and/or third parties. Driver safety programs will often have specific restrictions on texting while driving, with many contractors requiring “stop/text” provisions. Safety protocols also integrate handless devices to allow “talk and drive” status. However, some contractors strictly prohibit both talking and texting while driving.

GPS can monitor speeds, braking, swift turns or other operator actions. Additionally, some contractors install cameras, which are triggered during an accident or significant braking. The camera records eight seconds before and after an accident, providing valuable information about the cause of an incident.

Coverage Checklist

Contractors can protect their risk profile by endorsing the business auto policy. Ten key endorsements to consider include the following:

• Automatic coverage for newly acquired vehicle units
• MCS-90 endorsement to satisfy the 1980 Motor Carrier Act
• Foreign auto exposures
• Drive other car coverage for company executives who have no personal auto policy
• Medical payments
• No fault benefits
• Personal injury benefits
• Blanket additional insured, as required by contract
• Advance notice of cancellation
• Named insured to include joint ventures and partnerships, as the risk profile may dictate

Uninsured/Underinsured Motorist Coverage

Despite legal requirements in most states, many vehicle owners do not purchase auto liability coverage. Uninsured motorist (UM) coverage is intended to provide compensation to an insured person for personal injuries or property damage suffered in an accident involving a third-party uninsured vehicle. Similar to UM coverage, underinsured motorist (UIM) coverage protects against drivers who have insufficient insurance to fully compensate the injured parties.

Every state has its own rules for the offer and sale of UM/UIM coverage. While some states require an insurance company to offer this type of coverage, many states ignore the applicable policy and set their own limits for rejection or selection. Contractors have the option to accept or reject coverage before their business auto policy takes effect. When a contractor has significant deductibles for their auto policy, he or she will usually reject coverage, except as specifically required by a given state. Following the acceptance or rejection rules carefully can keep this process clear and prevent mistakes in claims.

When litigation begins on an auto claim, one of the first documents requested by the plaintiff is the signed documentation on uninsured/underinsured motorist coverage. These coverages have implications that extend beyond the auto policy, so it is important to review with your insurance professional. Losses involving UM/UIM are seldom easily resolved and often surprise insurance owners with stacking of limits, umbrella/excess attachments and deductible problems.

Many contractors who accept UM/UIM coverage often find that injuries or damages may in fact be insured elsewhere, making such coverage unnecessary and costly.