Read the episode transcript
Aaron Bollinger (00:00)
Welcome back to Speaking of Insurance, brought to you by Bollinger Insurance Services. I'm Aaron Bollinger, and today we're talking about a mistake that I think a lot of business owners make without even realizing. And that's assuming that because a vehicle has auto insurance, it's automatically covered when somebody uses it for their business or for your business. Now imagine this. We love this example. The contracting business in California. We work with a lot of contractors. That's why I like to say this. You've got a few employees, several projects underway, and you're constantly coordinating your materials, subcontractors, and customers. One afternoon,
Aaron Bollinger (00:27)
You ask one of your employees to drive to a supplier and pick up some materials for a job. The employee uses their personal car. They have auto insurance. They have a valid driver's license. And as far as you're concerned, everything is fine and you have insurance. But on the way back, you're involved in a serious accident. Maybe not you, but on the way back, they're involved in a serious accident. Another driver is injured. Two vehicles are damaged, and the injured driver claims that your employee caused the accident. Initially, you might think this has nothing to do with your business insurance at all.
Aaron Bollinger (00:56)
After all, it's your employee's personal vehicle, but there's a problem. Your employee was driving for your business. That's where the distinction comes in. Depending on the circumstances, your company could be named in a lawsuit. You've got several questions. does the employee's personal auto policy cover the accident? Does your CGL insurance cover it? Commercial general liability? Does your business auto cover a vehicle you don't explicitly own? And what happens if the injured person is claiming hundreds of thousands of dollars in damages? That's what we'll be discussing today.
Aaron Bollinger (01:24)
There's a difference between having insurance on a vehicle and making sure your business is properly insured when that vehicle is used for work. And understanding that difference can help you avoid potentially expensive coverage gaps, which is what we love to talk about and help people identify. The example I gave, of course, is hypothetical, but the exposure is 100% real and something that businesses deal with every day. So why does this matter in California? Per the National Highway Traffic Safety Administration, there were an estimated thirty-six thousand six hundred and forty traffic fatalities in the US in twenty twenty five.
Aaron Bollinger (01:54)
That was a 6.7% decrease compared to 2024. While the decline, the fact that there is a decline, is encouraging. We're still hearing and talking about tens of thousands of people losing their lives in motor vehicle accidents every year. Those aren't all commercial vehicle accidents either, of course. The number is just used to illustrate how serious the exposure of driving can be. every time one of your employees gets behind the wheel, whether they're driving a company truck or their personal car.
Aaron Bollinger (02:19)
There's some level of accident risk. In California, that can create a significant financial exposure for your business. We're talking about potential medical expenses, property damage, legal defense costs, and liability claims. Now, not every accident turns into a major lawsuit. Yes, that's true, but the severity of a claim can be much greater than you might anticipate initially.
Aaron Bollinger (02:39)
Imagine a company vehicle causes an accident involving several other cars. Even if the vehicle itself is only worth $30,000, the liability doesn't stop at just the value of the vehicle. Lost wages, substantial medical expenses, multiple people injured, litigation as well. That's why commercial auto insurance is about more than just insuring a company truck. It's about protecting the business against the liabilities associated with operating that vehicle. So there's a big difference between personal and commercial auto insurance.
Aaron Bollinger (03:07)
A lot of people don't really think about it until it's too late. And so commuting to work, driving to the grocery store, taking your kids to school, other permitted uses under the policy should be covered, depending on the policy wording. But a commercial auto policy is vehicle exposures associated with business operations. So driving on behalf of your work, not commuting directly to your work, because that can be considered personal, but in tandem with the daily operations and the expectations of your job. So
Aaron Bollinger (03:37)
Of course, driving to work is not the need, the, we drive to work every morning, everybody should get a commercial auto policy. Not necessarily. Depends on the type of vehicle, how it's being used, the ownership of that vehicle, the activity, and the insurance contract. Business related trips are not automatically excluded from personal auto insurance policies, but somebody who drives their personal car to an office every morning.
Aaron Bollinger (04:00)
Is a completely different situation for somebody using their vehicle to make paid deliveries throughout the day, or to drop things off at client addresses, or to sell people on things and commuting that way as well on behalf of the business. A contractor who occasionally drives to inspect a project, that's a different exposure from a contractor operating a fleet of trucks carrying tools and materials to and from projects. A business transporting passengers for compensation is another issue as well.
Aaron Bollinger (04:28)
That's a different type of commercial auto insurance. And a lot of eligibility for auto insurance programs is based around the exposure that the operations of that vehicle is undergoing is made up of, if that makes sense. So your eligibility for the Hartford could be potentially 100% valid if you are a contractor, but potentially the eligibility for the Hartford if you are doing.
Aaron Bollinger (04:52)
rideshare deliveries and operating another type of business is a completely different type of thing. And of course there are business use restrictions on auto insurance.
Aaron Bollinger (04:59)
The easiest way to do this is to disclose how the actual vehicle is being used to the insurance company. So then you can determine how is this existing policy appropriately or inappropriately covering me and whether I do need additional coverage. The worst time to find out that your insurer isn't aware or wasn't aware of how a vehicle is being used is after an accident. This is what we always talk about, the mitigation of claim circumstances. Let's use another contractor as an example.
Aaron Bollinger (05:26)
If you own a plumbing company and you have three trucks, each one carrying tools, materials, and equipment, and you have employees that drive to different job sites across SoCal. Sometimes they visit multiple customers in a single day. Those vehicles are essential to your business. if one of them is involved in an accident, the financial consequences, of course, go beyond just repairing that truck.
Aaron Bollinger (05:44)
now, if you own a business and you don't own any company vehicles, you might assume, I don't need commercial auto insurance. Not necessarily true. What if your employees are using their own vehicle for business errands? Maybe someone drives to the bank, somebody picks up office supplies, a manager visits a customer, an employee drives to a supplier. Even though your company doesn't own those vehicles, it could still face liability arising from accidents connected with that work that you are having them do on behalf of the business.
Aaron Bollinger (06:11)
This is where hired and non-owned liability coverage, which we have talked about, comes in. It's just that these statistics that we have been talking about and discussing become so relevant when it comes to why this is such a need to discuss with business owners and with employees. Non-owned auto coverage generally addresses certain liability exposures involving vehicles that businesses don't own that are used in its operations. So, those personally owned vehicles potentially could get covered in the event of an accident if you have hired and non owned coverage.
Aaron Bollinger (06:39)
hired auto liability coverage generally addresses the certain exposures involving vehicles that your business rents, leases, or borrows and doesn't own. But that non-owned is the additional coverage for the employee that drives their personal vehicle to pick up supplies for your business.
Aaron Bollinger (06:53)
Here's a key point. Hired and non-owned auto liability coverage is primarily intended to protect the insured business against certain liability claims. It doesn't mean that your employee's personal vehicle is insured for the physical damage that could happen to it. So that's a completely separate thing that they would have to insure for. In many situations, the employee's personal auto policy might respond to this with business non-owned auto liability coverage potentially providing that liability or additional level of coverage as well.
Aaron Bollinger (07:19)
But you need to review the actual policies, and this is where having an insurance broker becomes the best decision that you can make. So you don't have to do all this by yourself. And so another thing is a CGL policy, commercial general liability policy. A business owner might say, Aaron, I have a million dollar general liability policy. Wouldn't that cover an accident and the liabilities associated with that accident if it involved one of my employees? Generally speaking, commercial general liability contains exclusions for liability arising out of ownership, maintenance, use, or entrustment of
Aaron Bollinger (07:47)
Automobiles by employees and owners. There can be exceptions and specific circumstances where the accuracy of that statement needs to be confirmed and evaluated. But the important point is that GL, CGL, commercial general liability insurance, isn't designed to replace commercial auto liability coverage or hired a non-owned auto insurance. If you're a contractor that has a two million CGL policy, general liability policy, you might feel comfortable because you have a substantial amount of insurance. Yes, millions of dollars of insurance. That's great.
Aaron Bollinger (08:18)
But if you don't have the appropriate commercial auto insurance and one of your employees caused an accident while operating that company vehicle that we had discussed, that is an example of the business owner discovering that they might have to pay out of pocket. Their business could get, litigated against and have to pay out this huge claim that, of course, negatively impacts cash flow. The key to operating and running a business, as every business owner knows, is cash flow. If you have had historically high cash flows and then all of a sudden,
Aaron Bollinger (08:47)
know maybe you reinvest some of those earnings into your business. And then obviously maybe the business's revenue grows and then there's even more exposure and you don't have an adequate insurance program that's maybe probably tracking the vehicles exposures. Companies that have dozens of vehicles have a really hard time tracking the driving lists as well. Having a broker that will organize all of that for you, coordinate it with the umbrella insurance and do all that with literally just a CSV file or list of the drivers and their date of births.
Aaron Bollinger (09:16)
That gets updated, that gets asked for at every renewal, and as it changes, could be the difference maker between millions of dollars of additional profit in your business's pocket and you having to pay the millions of dollars for the commercial auto liability coverage that should have been otherwise covered. So the company, of course, in the situation that we had mentioned, where you think that the GL policy is covering it, but it isn't, it could 100% ruin.
Aaron Bollinger (09:44)
Your business's cash flow. It's just a reminder. It's not, trying to scare you. It's just a level of awareness that we're talking about. Now let's talk about something specific to California. There's great news on January 1st of 2025. California increased its standard minimum auto liability insurance limits. It went from 15,000 per person for bodily injury, 30,000 per accident, 5,000 for property damage, to 30,000 for bodily injury.
Aaron Bollinger (10:11)
60,000 for bodily injury or death to multiple people in one accident and $15,000 for property damage. That's enough, right? The minimum limits? No. If you're a business owner, of course. Million dollars CSL is the recommended limit if you're operating any vehicles for your business. Hired non-owned auto coverage being endorsed onto the policy is essential. That is the minimum for auto insurance, for personal auto insurance. The legal minimum is not appropriate insurance for your financial exposure.
Aaron Bollinger (10:37)
If you have an accident with a newer SUV, the property damage alone could potentially exceed that $15,000 minimum. That's before the BI, the bodily injury claims that come out of that. A serious accident with multiple injured people, the financial consequences could be so exhausting of those minimum limits that it's ridiculous. And so the point is that every business needs.
Aaron Bollinger (11:05)
A different type of insurance and a different level of coverage, but always higher than what they think they need. And so paying the premium for the year, of course, is a very difficult thing to do, to have to make that check out to the insurance company feeling like maybe you're not going to get, you know, it paid back or reimbursed. But that's the whole point of insurance, is that if it doesn't get paid back, then at least you don't lose sleep about having to pay out millions of dollars, which is what that
Aaron Bollinger (11:35)
Combined single limit of a million dollar commercial auto insurance policy would be able to cover you for. And so of course, one million dollar limit is not sufficient for every type of business either. If you're operating heavy trucks or transporting passengers, you have a different exposure from businesses using a few, maybe lighter weights, light duty vehicles. Some commercial operations are subject to additional financial responsibility requirements beyond California's general minimums.
Aaron Bollinger (12:01)
So understand what rules apply to you as well before you make the decision to go for the lower insurance. Make sure that you fully understand what you're signing yourself up for, both in a financial way and in a legal way. So here's a hypothetical example. We love these. An employee is driving a company pickup truck. They cause an accident involving another vehicle. Maybe the other driver suffers damages. Hopefully, there's nobody else in the passenger seat as well. But there's also a significant amount of property damage.
Aaron Bollinger (12:26)
Let's say that the total legally recoverable damages are $300,000. Now imagine your business has an applicable commercial auto liability limit of $100,000. So you didn't listen to me. You didn't go for the million CSL, but you went for $100,000. For simplicity, let's assume that entire claim is covered and that no other insurance or contractual arrangement changes the calculation that we're going on. The insurer's payment would generally be limited by the applicable policy limit. That could leave a substantial amount of damages above the insurance limit.
Aaron Bollinger (12:57)
but if you were to carry a million dollar combined single limit, like I had mentioned, assuming coverage applies, the larger limit would of course substantially protect you more for that loss and any type of loss than the lower limits. Coverage does depend on liability. Coverage does depend on damages, policy terms, exclusions, other factors. This is just an illustrative example of why it is so important.
Aaron Bollinger (13:20)
Sometimes people focus entirely on reducing their insurance premium, that they lose sight of the financial protection and burden that goes on the insurance company when they sign that contract. They compare two quotes and choose the cheapest one. They don't compare the liability limits, the deductibles, the covered vehicles, the driver's lists, additional coverages, potential endorsements, compliance-based endorsements as well, that some businesses are required to carry. Cheaper policy isn't necessarily a better policy. If it leaves you with more exposures, it is not the better policy. So
Aaron Bollinger (13:49)
Another common situation that we do see as insurance brokers is that your business needs a vehicle temporarily. Maybe your normal truck is being repaired and you have a special project, or maybe you're sending an employee to another city for work, you rent a vehicle for them, and the rental company asks whether you want to purchase additional insurance. What should you do? Well, the answer depends on the coverage you already have and the rental agreement. a commercial auto policy may provide hired auto liability coverage.
Aaron Bollinger (14:14)
But that doesn't automatically mean it covers physical damage to the rented vehicle. There may be a separate hired auto physical damage coverage option or endorsement that needs to get added on. Even when the physical damage coverage applies, the rental contract may create additional obligations as well. The rental company might charge for additional loss of use expenses or other costs after vehicle is damaged as well for them, for their level of financial burden that they have to take on when that vehicle is no longer being able to be operated or rented out to somebody else.
Aaron Bollinger (14:42)
Whether the amounts of your current insurance are adequate or the insurance that you purchase with that rental company are adequate, depend. So before declining the rental company's coverage, maybe ask your insurance broker, hey, I'm I've got X, Y, and Z situation. How would my insurance coverage coordinate? Can I add endorsement on? Is it currently covered as existing? And if you have employees that rent vehicles regularly, worth establishing a company policy. So everyone handles the insurance questions consistently.
Aaron Bollinger (15:11)
endorses the vehicles on, adds the exposures and make sure that the insurance company and that the broker are both aware of the level of financial risk that they are taking on, both the broker and the insurance company. And you as well, as a business owner, because they'll give you that level of clarity.
Aaron Bollinger (15:26)
So here are the five questions that I would have every business owner ask. Are any vehicles being used for business operations or purposes? Have you accurately disclosed how much these vehicles are used? Does your business have hired and non-owned auto liability coverage? Are your liability limits appropriate? Are your drivers, vehicles, and coverage arrangements being reviewed as your business changes as well? So if your business is changing its operations, driving amount, maybe the frequency, the radius, maybe the state that it's driving in, maybe you hired new employees.
Aaron Bollinger (15:55)
adding new vehicles as well, like I've mentioned, or expanding into deliveries and other sorts of services, you might have to adjust your insurance. You do have to adjust your insurance. So this is what I want everyone to take away from today's episode. Just because a vehicle has insurance doesn't necessarily mean your business is properly protected for that vehicle when it's used for work. And just because your company doesn't own any vehicles doesn't mean it does not have any auto liability exposure. Employees use personal vehicles, businesses rent vehicles, contractors travel between job sites.
Aaron Bollinger (16:23)
And company vehicles are involved in everyday operations in almost all businesses. The important thing that you have to understand is how those activities affect your insurance. Commercial auto insurance can provide important protection against certain vehicle-related liability claims. Hired and non-owned auto coverage can address certain exposures involved vehicles that are not owned explicitly by your business. And appropriate liability limits can help protect your company against the financial consequences of a serious accident. But your coverage needs to reflect your actual operations. That's where an insurance broker comes in.
Aaron Bollinger (16:53)
If you're a business owner in California and you're unsure whether your commercial auto insurance policy is appropriate for how your company operates, that's something that we can help you review at Bollinsure Insurance Services. Whether you operate a contracting business with several trucks, a professional office whose employees occasionally drive for work, or a small business that rents vehicles for projects, the goal is to identify your exposures and understand what coverage options may be available to you. because the question isn't simply whether your vehicles are insured.
Aaron Bollinger (17:18)
It's whether your business is properly protected when something goes wrong on the road. I'm Aaron Bollinger. This has been Speaking of Insurance, brought to you by Bollinsure Insurance Services. Thank you for listening, and I'll see you all in the next episode. Please reach out if you have any questions. Thank you.
