The Insurance Report - February 2006

HIRED & NON-OWNED AUTO
By Roland L. Enz - President, California Plus Insurance Service, Inc.

Most of you will never have contact with Hired Auto and Non-owned Auto coverages. But, if you have been hit with an audit and your audit found that you do have a Hired Auto exposure, it probably came as a shock or was like being run over by a fully-loaded semi. If you were not prepared, the monetary consequence was probably very substantial.

I’ll start with a simple explanation of the coverage, followed by the insurance industry’s logic behind it. Hired Auto and Non-owned Auto coverage goes hand in hand with each other. Hired Auto means the total dollar amount of costs the insured incurred for the hire of any truck, trailer or semi trailer. Non-owned means any truck, trailer or semi trailer that you use in your operation that you do not own.

The reasoning behind these coverages is the fact that your operating authority, either with the local state and/or federal government, is supported by the filing made by your insurance company. This filing makes representation that any and all vehicles operating under your authority are covered by your insurance company. It has been taken one step further by our liberal court systems. The insurance industry’s reasoning is, if the shipment is on your bill of lading, and/or if you pay someone else to move the load using any vehicle other than your vehicle, liability exists, or the assumption of liability exists, and the insurance company wants premium for that exposure.

Most insurance companies do not want the exposure, and if that exposure exists, they will cancel your policy or extract a large premium from you for the coverage. There are some insurance companies that will consider a risk with a Hired Auto exposure, but may limit it to a percentage of the total vehicles insured on the policy, usually in the area of around 20% of the total number of vehicles covered.

The policies written through the California Assigned Risk Program will write this coverage but the premium is excessive. If you have been placed in the Assigned Risk Program, be prepared for an audit. There are two areas that they are most concerned with: any hired auto exposure and the radius of operation, which will include territories that you run into.

The Hired Auto confusion comes from that fact that in most cases double coverage exists. The majority of you that have been through the process of an audit and unknowing of the consequence and/or the exposure, can have difficulty understanding how an insurance company can charge for coverage if it is provided by the other party’s insurance company. Even if Certificates of Insurance are provided by the party that is hauling for the prime carrier, the prime carrier’s insurance company wants insurance premium for the Hired Auto exposure.

This problem is most prevalent in small to mid-size trucking companies. The larger the company, the more flexibility can be built into the policy. There are cures. Many have overcome the problem by creating a separate brokerage company with its own authority. By doing so, those non-owned trucks can be run through the brokerage company. The most preferable direction would be to incorporate. This would create a barrier between you and your existing company.

You can, for the most part, overcome the problem by adding the hired operator (owner-operator) on to your policy as a leased operator. But there can be many pitfalls, so extreme caution should be used to prevent any hint of an employee relationship. This, for the most part, only works for interstate carriers. California requires all intrastate carriers to have their own operating authority, which creates another problem. You can hire trucks that haul intrastate commerce, that do not have California operating authority, if you hire the truck and you have complete control over the vehicle. There are specific standards that have to be met. The enforcement division of the California Highway Patrol will gladly go over this with you. The problem with this scenario is the fact that the operator of the hired truck becomes an employee.

Many of you operate outside of the system and get away with it. It is difficult to back-pedal if and when you are exposed. If you pay money to another for the shipment of goods, take the time to acquaint yourself with the consequences. If you have any questions concerning this or any other insurance topics, feel free to contact me through California Plus Insurance Service, Inc. in Modesto, CA at 1-800-699-7101.