What to do when employee drivers rent vehicles
Should employees purchase insurance when renting a car? Over the course of my insurance business, this has been the one question that has been posed by more clients than I can count. It is worth revisiting since this issue is as important to a start-up firm as it is to a Fortune 500 company.
The answer is that it depends on what types of insurance coverage your company currently carries, and whether the employees will be renting in the U.S. or internationally. There are nuances in the coverages purchased to mitigate issues when having employees rent vehicles. It also helps to develop a concise internal protocol to be followed when asked the insurance question.
Starting with the basics, when your employees rent vehicles for business purposes there are two main types of insurance coverages to consider: Liability and Physical Damage. Liability coverage protects against bodily injury or property damage to a third-party arising out of the use of a rented vehicle. Physical Damage protects against damage to the rented vehicle.
The firm’s liability risk exposure can be protected when renting a vehicle by purchasing Hired & Non-Owned Automobile (HNOA) Liability coverage. This coverage is designed to protect the Insured for liability arising out of the use of vehicles within the course of business, which is not owned by the Insured. HNOA would shield the Insured Entity from liability when exposed to: employees using their own vehicles on company business (Non-Owned Auto Liability) and employee renting or hiring vehicles (Hired Auto Liability).
Off-the-shelf HNOA coverage, which is typically written on a Commercial Package policy, will not provide the appropriate mechanism to allow your employees the ability to waive liability coverage when renting a car within the US. In order to extend the coverage to encompass the employee’s liability when renting a vehicle for business, the coverage must be endorsed to include “Employees as Insured”. This will provide coverage in excess of what the employee can collect under his or her Personal Auto policy, along with allowing your employees the ability to waive liability coverage at the rental agency (assuming that the employee has a personal auto policy in effect at the time of rental).
HNOA Liability coverage is an extremely important coverage to consider if you have employees using their personal vehicles and renting vehicle for business within the U.S. The coverage is purchased as a Combined Single Limit (CSL), which provides an aggregate limit for all claims, defense or indemnification costs, within the policy period. An Umbrella Liability policy can also sit over the CSL to provide extra limits should you have a large number of employees renting private passenger vehicles.
Hired Car Physical Damage coverage dovetails with Hired & Non-Owned Auto Liability and provides protection against costs associated with damages to a rental car when used within the course of business in the U.S. Purchasing this coverage will help to mitigate a loss suffered against the company should that vehicle be rented under the company’s name. Since most vehicles are typically rented under the employee’s name, it is prudent to have the “Autos Rented by Employees” endorsement added to the policy. This addendum clarifies the intent of the policy by making the employees an Insured when renting a vehicle in their own name for business purposes, along with making the rented vehicle a covered vehicle. Having this coverage in conjunction with the endorsement allows for employees to opt out of physical damage coverage at the rental car company.
If employees are using corporate credit cards or their personal auto coverage to opt-out of the physical damage coverage when renting a vehicle for business, please beware. These options should be evaluated extensively; as the terms of the coverage provided may not be sufficient to cover a total loss should that occur, thus exposing your organization to possible out-of-pocket expenses.
When employees are renting a vehicle abroad, (and yes, this does include Canada and Mexico), the golden rule is to elect Auto Liability and Physical Damage coverage from the rental car company in the country where the employee is renting the vehicle. In most countries, Auto Liability and Physical Damage coverage is compulsory, and must be written on an admitted basis with a local insurer who is approved to do business in that particular country. In order to alleviate your employees purchasing extra limits from the rental car company, which tend to be costly, Foreign Auto Excess/Difference in Conditions (DIC) coverage can be purchased.
The Foreign Auto Excess/DIC coverage is designed to sit over the local Auto Liability and Hired Car Physical Damage coverage purchased at the rental car company by the admitted insurance carrier. If the aggregate limit purchased through the rental car company is breached by a claim, then this coverage would begin to pay, thus insulating the Insured from additional cost associated with the incident. Purchasing this coverage on your Foreign Package policy allows your employees to elect the minimum compulsory limits at the rental car company when traveling internationally.
It is critical for the Insured firm to monitor losses on Foreign Auto Excess/DIC coverage to ensure that the additional limits are available to other employees renting vehicle abroad. As with renting vehicle in the U.S., using a corporate credit card or personal credit card may provide some coverage to the employees, but should be reviewed carefully. Please note that an employee’s Personal Auto coverage will not extend coverage to renting cars internationally.
Hopefully this has enhanced your knowledge with respect to this most common of questions. As a prudent risk management practice, firms should establish protocols for employees renting vehicles on company business to ensure consistency and continuity. If you have any further questions, please do not hesitate to contact the WGA team.
About the Author
Jim Smith is a Principal at William Gallagher Associates and has over 35 years of industry experience. He currently managed the service team of WGA’s Property & Casualty Department.
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