A risk management consultant shared the following claim with me:

“An employee was running to the store to get some milk for some sort of work party or activity and was involved in an at-fault accident. Now, the employee’s personal auto carrier is denying the claim on the basis that the insured was engaged in “business use” at the time of the auto accident and, therefore, not only is the liability claim excluded, but so is the physical damage claim.

“It is downright disgraceful that an insurer would include such a broad exclusion and that any department of insurance would approve that policy form. I wonder if the California financial responsibility laws will require that coverage apply for the $15K-$30K-$5K minimum limits for third party liability.

“Traditional insurance agents arranging coverage should know that at some point in time most everyone uses their vehicle in business whether to run an errand, go to a class or meeting, etc. Insurance agencies should ban the sale of policies like this one.

“There is a good chance the policyholder purchased the coverage online or via a direct sales representative and might have answered honestly that he did not use his car in business – of course until he did.”

The liability exclusion in the personal auto policy in question reads:

“Bodily injury or property damage resulting from the ownership, maintenance, or use of a vehicle or trailer by a person while in the course and scope of employment, or engaged in any business. This exclusion includes use of a vehicle for delivery of goods or services arising out of any business. This exclusion does not apply if business use of the insured auto has been declared and a premium charged prior to the loss.”

A similar exclusion applies to physical damage claims.

I have written about this for years. Insurance is NOT a commodity. You will not find an onerous business use exclusion like this in an “ISO standard” personal auto policy nor in the proprietary policies of most insurance companies. At policy inception, an insured can answer truthfully that they do not use the vehicle for any business purpose, but later begin to do so, unaware of the restrictiveness of this type of exclusion.

Such onerous exclusions have, I believe, dramatically increased in the past decade or two. I’ve seen exclusions for unlisted drivers where the insured reported all resident drivers at policy inception, but later a ‘boomerang’ kid moves back home and the insured fails to report this to the insurer. For other examples of this, check out this article.

Allowing exclusions like this in the most common class of insurance policies is appalling. I can recall when state insurance departments rigorously reviewed policy forms and form revisions, disallowing such onerous exclusions that not only adversely impact the insured, but leave the public unprotected from negligent vehicle operators that would otherwise be insured in the absence of such exclusions.

Allowing such policy forms in the marketplace does not serve the public interest. This is especially true given that industry advertising is dominated by price-focused ads that imply that there’s really no difference between insurance policies other than price. Regulators should regulate what is important.

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Bill Wilson

Founder at InsuranceCommentary.com
One of the premier insurance educators in America on form, coverage, and technical issues; Founder and director of the Big “I” Virtual University; Retired Assoc. VP of Education and Research from Independent Insurance Agents & Brokers of America. Reprint Request Information

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