Mobile Equipment and the 2006 Business Auto Policy
March 2006
Beginning in 2004, contractor insureds faced
a new challenge in purchasing liability coverage to address loss exposures related
to mobile equipment used in their business.
by Maureen McLendon
IRMI
One important component of the 2004 Insurance Services Office, Inc. (ISO),
commercial general liability (CGL) insurance policy was the provision that removed
from the policy what was essentially auto liability coverage for mobile equipment
that was subject to a compulsory liability or financial responsibility or other
type of motor vehicle insurance law in the state where the equipment was licensed
or principally garaged. The coverage was made available under the business auto
policy (BAP), by way of an amendatory endorsement. One very big problem in dealing
with the issue of determining whether a particular piece of equipment may present
a problem in this respect is the lack of consistency between states that makes
it difficult to determine with any certainty whether a particular piece of equipment
is or may become subject to one of these motor vehicle laws. Recognizing that,
there is a great deal of concern among contractors about the possibility of
gaps in coverage because of failure to structure their policies so as to minimize
the exposure.
The primary area of concern is with the BAP because even if the contractor
purchases a business auto policy, unless the appropriate covered auto designation
symbols are used, the needed coverage may not be available under the policy.
Recognizing that concern, ISO added a new covered auto designation symbol in
its 2006 BAP—symbol 19 (mobile equipment subject to compulsory or financial
responsibility or other motor vehicle insurance law only)—for use when symbol
1 (any auto) is not appropriate.
ISO acknowledges that one reason a new symbol is being introduced is that
some insurers have concerns about the use of symbol 1 (any auto), for example,
a symbol broad enough to reduce the need for an insured to know the status of
all mobile equipment it is operating. In other words, with symbol 1 the insured
contractor’s auto liability coverage would extend to cover any mobile equipment
subject to motor vehicle insurance laws. However, since a contractor may not
be able to get an insurer to issue its BAP using symbol 1 (any auto) for liability,
the implication is that symbol 19 (mobile equipment subject to compulsory or
financial responsibility or other motor vehicle insurance law only) is the way
to go. This is not necessarily true. There are other ways of accomplishing coverage,
and it is important to understand this; otherwise, coverage may be denied in
error.
Exhibit A is designed to set out the range of covered auto designation symbols
that may be used to trigger liability coverage under the business auto policy
in such a way as to easily identify the symbols that would automatically provide
liability coverage for mobile equipment subject to a motor vehicle insurance
law. The first column displays applicable covered auto designation symbols.
The remaining portion of the exhibit is split into 2 columns; then the 2 columns
are subdivided into 3 columns each. The first portion of the 2-column split
is for "autos" that have traditionally been insured under a commercial auto
policy, and the second is for "autos" that are newly defined as such and that
would have previously been classified as mobile equipment.
The subdivisions are for owned, hired, and nonowned (traditional-type) autos;
and for owned, hired, and nonowned (mobile equipment-type) autos. Each cell
of the exhibit then displays the notation "Covered," "Not
covered," or other appropriate wording to indicate restrictions on the
types of autos covered.
Exhibit
A
With symbol 1 (any auto), of course, the policy picks up unanticipated auto
exposures from wherever they may arise and no other designation symbol is necessary.
When symbol 1 (any auto) is not available, the combination of symbol 2 (owned
autos), symbol 8 (hired autos), and symbol 9 (nonowned autos), is the suggested
choice since it is as close an alternative to symbol 1 (any auto) as is possible.
In either of these cases, the addition of symbol 19 (mobile equipment subject
to a motor vehicle insurance law) is redundant and adds nothing to the policy.
In fact, if the contractor has no covered private passenger autos and symbols
4 (owned other than private passenger), 8 (hired autos), and 9 (nonowned autos)
are the BAP symbols used, symbol 19 is redundant in that case also.
Basically, symbol 19 (mobile equipment subject to a motor vehicle insurance
law) is needed for the (usually small) contractor whose auto insurer uses symbol
7 (specifically described autos), symbol 8 (hired autos only), and symbol 9
(nonowned autos only) to afford liability coverage. With symbol 7 for liability
coverage, the contractor’s policy will respond to auto accidents arising out
of the ownership, maintenance, or use of an auto the named insured owns only
if it is specifically described on the policy (with a liability premium charge
for it) or if the auto is a replacement for an auto that was specifically described
for liability coverage and the insurer is
notified within 30 days of acquiring the auto that coverage is to apply for
that auto.
The potential concern for contractors is not that of unnecessarily using
a symbol where it is not needed, but that an insurer may incorrectly deny a
claim simply because symbol 19 is not shown on the policy when that should have
no bearing on the issue.
Opinions expressed in Expert Commentary articles are those of the author and are
not necessarily held by the author’s employer or IRMI. This article does not purport
to provide legal, accounting, or other professional advice or opinion. If such advice
is needed, consult with your attorney, accountant, or other qualified adviser.