Writing Commercial Auto?
When an E&O claim happens, it can be huge!

by Curtis M. Pearsall, CPCU, CPIA
Special Consultant to the Utica National E&O Program

If your agency writes commercial business, there is a good chance you write Commercial Auto for many of those customers. For some of those risks the vehicles may be more private passenger autos, while for others the exposure may include vans and trucks of various sizes. Bottom line, while “errors or omissions” when writing Commercial Auto only amount to around 6 percent of all E&O claims, when the claims happen they tend to be much larger than other coverages.
While writing Commercial Auto for your customers is not overly complex, it certainly does require knowledge – not only of the coverages, but also of your customer, what the vehicles are used for and who is using them. Effective use of an Exposure Analysis Checklist is strongly recommended.

One of the main issues with a Commercial Auto policy is the symbols used to indicate what vehicles are included in the coverage. The applicable symbols are expressed in numbers, ranging from “1” to “9.” Symbol “1” is the broadest – providing coverage for any auto. Thus, if your customer were to lease a vehicle for a particular job, symbol “1” would provide coverage. On the other hand, symbol “7” is only for vehicles listed on the policy. There would not be coverage for leased or non-owned vehicles with this symbol. Thus, having a discussion with your customer and getting answers to these questions will be beneficial when requesting that coverage be structured appropriately. Symbol “9” is only for non-owned vehicles.

Other Commercial Auto issues
“Drive Cther Car” coverage/the Named Insured. Offer the owners of the business (where the business is the named insured) additional “Named Insured” status or "Drive Other Car" coverage. Should a businessowner be injured while as a pedestrian or as a passenger in another vehicle, this coverage would be needed to collect Uninsured Motorist (UM) or Underinsured Motorist (UIM) coverage from the Commercial Auto policy.  

Limits issues. Because of the size of commercial vehicles, especially trucks, the damages can be significant when a claim occurs. While limits of $1,000,000 may sound like a lot, claims involving bodily injuries can certainly be more than that amount. Thus, offering an umbrella policy is highly recommended. Should the insured want lower limits, obtain a sign-off. This sign-off will be a solid defense should a major claim occur and the insured alleges you had not provided the proper coverage. When providing an umbrella, be sure to satisfy the underlying limit requirements.
 
Adding or deleting the wrong vehicles from a policy. If the Commercial Auto fleet is sizeable, maintaining an accurate list can be challenging. When the customer requests a modification to the policy – whether they are adding or deleting a vehicle – get the request in writing. This not only includes the vehicles in question, but the coverage specific to those vehicles. Request that the customer provide the VIN # for the vehicles being modified. It is also heavily recommended that when mailing the policy to your customer, advise them in writing to read their policy/endorsement to ensure there are no mistakes. As stated previously, if you have symbol “7” coverage and accidentally deleted the wrong vehicle, there is sure to be a problem should that vehicle be involved in a claim.

Replacement of coverage. If a customer presents an unwanted exposure (such as claims activity, problem drivers, etc.), it may be necessary for you to replace that account. If the account presents some challenges, aggressively pursue a replacement policy as soon as you know the carrier is going to get off that account. If it appears that finding replacement coverage may not be possible, promptly advise your customer. As you will note in the claim discussed below, not keeping the customer informed can result in a significant E&O claim against the agency.

Issuing certificates/evidence of coverage for vehicles that are not covered. If requested to provide proof of coverage by issuing a certificate or ID card, pull the file to make sure the vehicle is still on the policy and that the policy is still active. Remember, too, that the certificate is not a policy and should only reflect the coverages actually on the policy.  

In this E&O claim, the client's Commercial Auto policy was going to be non-renewed, and the agency told the client it was going to be difficult to place them with a new carrier. They could not find a new carrier, and told the client the day before the coverage was to expire they could not find replacement coverage. The client had to take their vehicles off the road for two weeks until they could secure coverage from another agent. The customer was essentially out of business.

The client sued the agent, stating the agency did not keep them properly informed of the situation, and claimed $679,000 in lost revenue. Although it was believed this was a defensible case, the case went to trial. The jury awarded $500,000 in damages, offset by 40% negligence on the client, bringing the award down to $300,000 plus interest. In addition, the jury awarded $500,000 for a violation of business law based on alleged misrepresentation. Counsel did not believe the judge would allow the $500,000 award for a business law violation to stand, and a hearing on that issue was set for two weeks after the verdict. The plaintiffs approached counsel right after the verdict and said they were willing to negotiate before the Court ruled on the business law violation. The case settled for $350,000.
When writing commercial lines, you will be asked to provide Commercial Auto coverage for the majority of your customers. Take the time to educate your staff and your customers on Commercial Auto. This will go a long way toward ensuring you do the proper job each and every time.