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.

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