Ask Tommy

Situation: We have an insured that is hiring owner-operators (independent contractors or IC) who provide their own insurance. Our insured was not adding the IC to his policy thinking they had coverage already. We believe our insured still has exposure here since the IC are running under our insured’s authority.

??♂?Question 1: If there was a claim, would our insured’s policy be considered excess over the IC policy? The scenario above is a common business practice.

Question 2: Is there any way we could protect our insured from this type claim without having to add the IC to our insured’s policy?

??Answer 1: Your insured’s exposure is, in fact, excess to the primary policy of the IC. However, courts have sometimes ruled differently, thus making your insured’s policy primary.

Answer 2: Almost all underwriters for your insured will consider the IC exposure as primary for several reasons. First, even if the IC has primary insurance, we have no way of knowing the coverages and exclusions of the IC policy. Second, if a loss occurs under your insured’s authority, with your insured’s bill of lading, your exposure is real. Even if the IC policy does respond, your insured incurs significant expense regarding the claim. Third, if your insured is covered by a reporting form policy (other than a scheduled auto symbol) there must be clarity reached about the reporting base and exposure prior to when your insured’s policy is bound. Dominantly, almost exclusively, insurers require IC exposure to be included as primary exposure for your insured’s policy.

?? Technically, this is possible:

ISO does address in Commercial Auto Multistate Rule 24.C.1.b the possibility of covering leased autos with primary insurance (listing three important caveats). The premium calculation, by formula, using the Excess Liability Coverage (class code 6628) factor in Table 24.C.2.b.(3)?Liability Coverage Factors results in a higher premium for these autos than similar autos scheduled on the same policy. The abuse, and misunderstanding of “hired auto” coverage and premium calculation is widespread and a subject we cover in detail in our classes.?? ?