Chapter 15e Commercial/business Auto Policy

• Library: The Handbook on Additional Insureds (ABA) (2018 Ed.)

CHAPTER 15E Commercial/Business Auto Policy

Mirna M. Santiago

I. Permissive User as Additional Insured

In most commercial automobile liability policies, there are two significant groups of additional insureds. First is a permissive user of a covered auto ("Anyone else while using with your [the named insured's] permission a covered 'auto' you [the named insured] own, hire or borrow . . ."¹), which is subject to a number of exceptions. Second is "[a]nyone liable for the conduct of an 'insured' described above but only to the extent of that liability."²

In most jurisdictions, a permissive user of a business/commercial vehicle will be considered an additional insured and entitled to coverage under the insurance policy covering that vehicle.

In addition to business or commercial auto insurance, the "omnibus" provision of any "non-owned" or "hired" auto endorsement of a commercial general liability policy operates to extend coverage to permissive automobile users. "However, the omnibus provision must adhere to the purpose that the underlying policy was designed to cover. Any restriction as to the use imposed upon the original insured must also be observed by an additional insured coming within the omnibus clause. Where a 'commercial' general liability policy is in force, there will be no liability for the insurance company when a covered automobile is used for noncommercial purposes. Only after defining the realm of the endorsement's coverage does one determine whether a permissive user qualifies as an 'insured person.'"³

A permissive user of a vehicle is treated no differently than a named insured.⁴ In other words, an auto carrier may not seek to recover damages from the operator of a vehicle, so long as he is in possession of the vehicle with the permission of the owner.

At issue with commercial autos and their policies is what is considered "permission,"⁵ who may properly grant such permission, and when the permission has been exceeded so as to strip the driver of additional insured status under the business policy.

Merely violating an employer's guidelines for the use of the commercial auto will not automatically vitiate the commercial carrier's duty to provide coverage. For instance, in Missouri, the Court of Appeals found that the driver of a commercial van was covered under his employer's policy, notwithstanding that he was impermissibly transporting non-employees with the vehicle and had consumed alcohol, which was in direct violation of the corporate directives.⁶

Similarly, using the vehicle in a manner inconsistent with the express permission given will not nullify coverage. For instance, a Nebraska court, following the "initial permission"⁷ rule held that "where one having proper authority gave initial permission to use an insured vehicle to the driver operating it at the time of the accident, the operation was within the express or implied permission of the named insured for purposes of liability coverage, even though specific or express terms of the permission were violated."⁸

To wit, the "initial-permission rule is not concerned with the scope of use for which permission is granted. As long as the initial use of the vehicle is with the consent, express or implied, of the insured, any subsequent changes in the character or scope of the use, such as from a passenger to a driver, do not require the additional specific consent of the insured. The initial-permission rule contemplates a situation in which the subsequent use of a car may be inconsistent with and even frustrate the intentions and plans of the person granting permission."⁹

However, some jurisdictions, like Missouri, have required that a second permittee must obtain express or implied permission to use the vehicle from the named insured.¹⁰ "Coverage may in some instances extend to second permittees if the first permittee had unfettered control over the car and the second permittee uses the car in a manner impliedly permitted by the owner,"¹¹ but if the first permittee must obtain permission each time she wants to use the vehicle, or if the insured has specifically prohibited a first permittee from allowing someone else to drive the car, there can be no implied use for a second permittee.¹²

Further, a "gross" or "substantial" deviation from the permission granted may be grounds for a denial.¹³ "Under the moderate or minor deviation rule, a minor deviation from the purpose for which an employer grants an employee permission to use a vehicle will not be sufficient to exclude the employee from coverage under an omnibus clause, while a material deviation is held to constitute a use of the automobile without the employer's permission."¹⁴

If an employee has previously been extended permission to operate the busi-ness's auto, the company's carrier may also be precluded from arguing lack of permissive use for a subsequent accident.¹⁵

Likewise, permission will be implied where one employee—who is operating the vehicle with express permission—allows another employee to utilize the vehicle. In those cases, liability may not be avoided by arguing that the second employee was not expressly authorized to operate the vehicle,¹⁶ albeit a court may look at the company's policies to determine whether permission had been granted.¹⁷ "Even though [implied permission] can be proven circumstantially, permission must be actual. When that actuality is denied by both the grantor and the purported grantee, its existence cannot be inferred from extrinsic evidence that neither contradicts their testimony nor disturbs their credibility."¹⁸

An employer may also be estopped from arguing that an employee has overstepped the bounds of the permission granted with respect to the auto if the employer was aware that the employee routinely utilized the company vehicle for personal errands and failed to address until the accident occurs.¹⁹

In those instances, the court will likely find that there is permissive use and the carrier must provide coverage.

Although the courts have had no problem extending coverage where the vehicle has fallen into the hands of a second employee who perhaps may have not had the express permission of the company, they are reluctant to provide...