The Basics of Commercial Auto Insurance
A story about commercial auto insurance:
Lester is a real estate agent and broker in upstate New York, helping buyers find their new home. He owns his real estate agency, and the agency owns a Honda CRV. He uses that to drive buyers around to show them potential new homes.
One day, Lester is driving a young couple, the Johnsons, around a neighborhood when his car hits an icy patch, and they slide into a parked car. Everyone is fine, except for a few bumps and bruises, and Rachel, the wife, gets a small knock on the head.
After the police and EMTs arrive, Rachel is taken to the hospital as a precaution, treated, and released. Both Lester’s car and the parked car are towed away, and Lester is taken home.
After the dust is settled, it’s time to look at all the costs. Lester’s car is the property of his real estate agency, which means he had commercial auto insurance. Moreover, it’s so much like personal auto insurance that it has many of the same policies, riders, and endorsements. (An endorsement is an addition or amendment to an insurance policy. Itchanges the terms or scope of the original coverage of your insurance policy.)
Lester’s insurance will cover the damage to the parked car (property damage), Rachel’s medical costs (bodily injury), and the damage to Lester’s car (collision). In addition, because he had the right amount of insurance, Lester avoided paying tens of thousands of dollars out of his own pocket. Instead, everybody is “made whole” and all costs were covered. (And as a happy ending, the Johnsons still end up buying a house from Lester.)
What is Commercial Auto Insurance?
Commercial auto insurance is almost the same as personal auto insurance — the kind you have on your personal car or truck. It’s for any kind of vehicle owned by a business. Whether we are talking about a car driven by your salespeople, or a dump truck owned by a construction company, it is a requirement that any vehicle that drives on streets and highways have commercial auto insurance. It is like general liability insurance in that sense. Every business must have general liability — but not every business will have a vehicle, so it’s separate from general liability.
Commercial auto is broken down into two areas: liability and physical damage, which together make up full coverage.
Coverage for Third Parties (Other vehicles, someone else’s property)
Liability insurance is coverage for third parties – and comprises two sections: bodily injury and property damage. Bodily injury has two minimums, and every state has a different required minimum. In New York, those limits are $25,000 and $50,000 — $25,000 is the amount paid out per person, and the $50,000 is the total amount paid per accident.
Some states have lower minimums, like $15K/$30K, and some even have $10K/$20K. But those can be increased in increments — $25K/$50K, $50K/$100K, $100K/$300K, $250K/$500K. Anything above that, often around the $1 million range, and the limits turn into a single amount called the combined single limit (CSL). Then, it covers any combination of bodily injury and property damage costs up to that limit.
In reality, there are three limits. The bodily injury limit is $25K/$50K, and the property damage goes in correlation. In NY, the lowest property damage minimum you can have is $10,000. That amount increases in increments to $25K or $50K, depending on your needs. Almost 95 percent of the population has one of those three amounts. We tell our clients that the more assets they have, the higher those limits should be.
You’re free to choose whatever amount you want otherwise. If your business owns your car outright, or if you are financing it, you can choose your own limits because you own the vehicle. However, if you are leasing the vehicle, the bank owns it, and they typically requires $100,000/$300,000/$50,000 limits.
Property damage – which has a $10,000 minimum — is the damage you cause to someone else’s property, including their vehicle. However, we usually recommend that you get more than that amount. What if you got into an accident with a luxury car such as a Mercedes Benz? The chances the repairs are higher than $10,000 are pretty good, so you should get more. If the repairs were $20,000, your insurance would cover the first $10,000, but you would have to cover the rest yourself.
It is also possible to increase the amount of your property damage coverage without increasing your liability costs. So, be sure to ask your insurance professional about it.
Coverage for Your Vehicle and Your Property
Since we are talking about liability insurance, keep in mind that these two areas have nothing at all to do with your vehicle. This is only for the coverage of others’ vehicles and property, not yours (that’s physical damage). Liability insurance covers your car hitting another vehicle, a wall, a light post, a fence, or even a building.
Physical damage has two coverages: comprehensive and collision. When you take these two areas and combine them with liability, you have full coverage insurance. Comprehensive coverage is for your vehicle, usually for things like theft or vandalism. Collision covers any accidents in which your vehicle is involved.
Beyond that, you can choose to add rental and towing coverage. That is, getting your car towed and having a car to rent when your car is in the shop, after an accident. In our story above, this kind of insurance would have provided a new car for Lester to drive around with his car in the shop.
Finally, there are two other areas of coverage under physical damage: underinsured and uninsured. This comes into play if you are involved in an accident, and the person who hits you does not have enough insurance to cover your damages, or they do not have any insurance at all. Then, your policy will pick up the limits. Those limits are the same as your base limits, so $25,000/$50,000.
Who Needs Commercial Auto Insurance?
Any business that owns a car needs to have commercial insurance. But the owner can be different from the registrant of the car (the person who drives it and is named in the insurance policy).
With commercial insurance, you can have a different registrant than the titled owner of the vehicle. The insurer and the registrant must be the same, but the titled owner can be different. This is how a leased vehicle works: the bank/dealer owns the vehicle, and the registrant is (usually) the person driving the car around.
It’s the same with a commercial vehicle. A corporation can be the titled owner, but the insurer/registrant may be a separate person or company. It can even be the same person who owns the company. In other cases, however, the corporation can be both the titled owner and the insurer/registrant. We often see this in larger companies that have a fleet of vehicles assigned to individuals within the company, such as a salesperson covering a territory.
So if you own a business and want a tax write off, you would put the vehicle in the corporation name, but it doesn’t matter who the registrant and insurer is. But if you need to prove you own a commercial vehicle to fulfill the terms of a contract, then you should also list the corporation as the registrant/insurer.
Then we get into the issue of the license plates. You can have commercial plates or personal plates on your commercial vehicle.
Let’s say you’re a real estate agent and you have a Honda CRV as your company vehicle. You registered the car under the name of the business, but you have the CRV so you can drive potential buyers around. In that case, you would want passenger plates because it’s a regular car, and you’re driving on highways. On the other hand, if you’re a distributor with a box truck, you need commercial plates. The truck can be registered under the corporation name, but the title can be different.
If you are not sure, or if you have other exceptions or situations that you need to consider, it’s important to talk to your insurance agent about what might be the best option for you, not only to comply with all the appropriate laws, but to ensure you get the best possible coverage available.
Driving Passengers in Your Commercial Vehicle
You especially want to be concerned if you have a passenger transportation aspect to your business’ vehicle, such as if you drive an Uber or Lyft car, drive a cab, or own a limousine service. Once you start driving passengers as a part of your business, everything changes. You need to have a different discussion with your insurance agent. It’s one thing if you have your spouse or a child in the car, but when you start driving three or four people around as part of your business, you need a commercial auto policy with much higher limits.
Uber, for example, requires you to have a $100,000/$300,000 limit on your insurance. In the state of New York, the Taxi & Limousine Commission (TLC) requires that as well.
(An interesting side note: All TLC policies, including Uber, Lyft, Yellow Cab, Black Car, all renew on the last day of February. This isn’t like a regular auto policy that renews on the day you opened it. TLC policies all renew on the last day of February, even if you started the policy on October 1.)
The limits also change depending on what you are doing with your vehicle. For example, if you drive a tractor-trailer, you are required to have a $1 million CSL. There are so many different kinds of commercial vehicles you could drive, your CSL will change depending on the vehicle and its usage.
In addition, if you cross state lines with your tractor-trailer, your CSL could be as high as $1.5 million. If there is any commercial vehicle that goes over a state line, you need a Department of Transportation (DOT) number, and an insurance policy that provides filings to the DOT that shows you have an insurance policy that lets you cross state lines.
Are There Any Special Kinds of Insurance Add-Ons?
Not too surprisingly, there are many special endorsements for commercial auto insurance. There are too many to list them all, however here are a few that you might need for your own business.
If you drive a tow truck, there’s an endorsement called on hook coverage that covers property damage for the vehicle you are carrying. It’s also another term for cargo insurance. Technically anything that anyone is hauling is “cargo”. If you are hauling TVs in a semi, that is cargo. If you are an auto hauler carrying 10 cars, that is cargo. In addition, a tow truck’s cargo is the car which it is hauling.
Cargo insurance is more complicated, depending on the type of product you are carrying. Brand new products are easy, because those items have a set value. Nevertheless, household goods (moving personal belongings from one home to another) are a different issue. Moreover, even livestock requires its own special insurance, although hauling livestock is considered cargo as well.
Regarding transportation of goods and people, there is another liability called Warehouseman’s Liability. When products are in transit, it is cargo. However, what if it is held in a warehouse for a few weeks, and it catches on fire? Or you store your household goods in a storage pod, and that pod gets dropped while being moved in the warehouse? It is not cargo in that instance, so it falls under the Warehouseman’s Liability policy.
Of course, these all change when you start hauling cargo on a tractor trailer, either for a motor carrier or a freight forwarder. If you’re carrying this much cargo, you should visit our trucking and long haul insurance page for that kind of coverage.
There are also commercial auto (and cargo) insurance policies for
- independent contractors;
- logistics and freight forwarding;
- moving and storage;
- office and industrial;
- records storage; and,
There are also instances where you may need the Hired & Unowned endorsement, especially if you deliver food, or own a restaurant that offers delivery, but you do not have a company vehicle.
For example, let’s say you own a pizza restaurant, and you hire a driver to deliver pizzas. Hired is when the driver has her own car, and you pay her to deliver the pizzas. Unowned is when you let the delivery driver use your personal car. In either case, the vehicles are not owned by the business, but they are used for delivery by the business.
This endorsement is great for contractors too. If you send someone to the store to pick up a light switch in their own car, they’re covered under the Hired & Unowned policy or endorsement.
Hired & Unowned is used or purchased in one of three ways:
- If you own a certain kind of business, like a retail store. It is an endorsement available on your general liability insurance.
- If you are a contractor or work in a service business (such as a realtor or salesperson). It’s available on your commercial auto policy.
- If you own a restaurant. It can be available as a standalone policy by itself, such as food delivery for a restaurant. This costs around $300 per year.
What Kind of Vehicles are Considered Commercial Auto?
Let’s start with the easy part first. Commercial auto insurance will cover personal vehicles, like a car or SUV, used for business purposes. Examples of this are:
- real estate agents driving their buyers around
- attorneys going back and forth to court
- salespeople covering a geographic territory or route
It is also used for private transportation, like taxicabs, limousines, private car services, and Uber and Lyft drivers.
Then, there is everything else. Commercial auto covers these types of vehicles:
- Agricultural trucks
- Box vans or straight trucks
- Bucket trucks
- Car carriers
- Cargo vans
- Catering trucks
- Cement mixers
- Delivery vans
- Dump trucks
- Flatbed trucks
- Front end loaders
- Garbage trucks
- Ice cream trucks
- Motor homes
- Passenger vans
- Pump trucks (These can be fire trucks or septic tank cleaning trucks, or cement pump trucks. Cement pump trucks pump cement from the ground up to every floor of a new building.)
- Refrigerated trucks
- Street sweepers
- Tanker trucks
- Tow trucks
- Wheelchair buses and vans
- Specialty contractor vehicles, like bulldozers, cherry pickers, boom trucks.
Are There Limitations to the Scope of Commercial Auto Insurance?
No, not really. It is very difficult to deny coverage for the most part, because it is mandatory that everyone must have auto insurance. Some companies may drop a customer after they have to pay out following an accident. Alternatively, they could be dropped if the driver’s MVR (driver’s license report/motor vehicles report) is not good but that typically does not happen. Depending on your industry, the chances and options of carriers change.
You can use your commercial vehicle for personal matters, such as driving the company car home each night, or taking your contractor’s pickup to get lunch during the day. In fact, it is expected to see some personal use in the vast majority of “business use” vehicles, especially if it is a car or SUV.
Obviously, you are not going to take your spouse to dinner in your box truck. If you are a real estate agent and you have a Honda CRV, that’s different. You will use it for business in the day, and personal use at night. So private passenger vehicles for business use are covered.
But if you had a purely commercial vehicle, such as a box van or dump truck, they probably wouldn’t deny your claim if you took it to go to dinner and something happened, it’s just not usually done.
In addition, you would have a tough time valet parking that thing.
The Big Takeaway
The big takeaway is that every business-owned car needs commercial auto insurance, regardless of how it is used. However, there are endorsements, policies, and riders that will cover the particular usage of your particular vehicle.
It is also important to have as much coverage as you can afford, given all the different scenarios of what could go wrong. Whether it’s getting involved in a small fender bender with your company car or a major accident with your tractor-trailer, you need enough commercial auto insurance coverage to protect you, your company, and your passengers.
Commercial auto insurance is a many-headed and complicated beast. This article is by no means an exhaustive discussion about the kinds of commercial auto insurance you might need or are available. It is to give you an idea of some of the different options and endorsements you will need, depending on your industry.
Rather than trying to figure everything out yourself, say, on one of those “buy your insurance online” websites, it is important that you speak to a professional insurance agent that specializes in helping business owners and commercial vehicle drivers protect themselves.