Linda is a junior partner in a law firm and drives a car that the firm owns and insures. She is unmarried and her children are not old enough to drive, so she does not carry a personal auto insurance policy. The firm’s auto insurance covers her as a partner and she doesn’t own another car, so she sees no need to have her own policy. Most of the time, this is not a problem. However, spring break comes and she takes her kids to DisneyWorld. She rents a car at the Orlando airport and never gives a thought to whether her firm’s insurance will cover her if she has an accident with the rental. In this case, a phone conversation with the firm’s insurance agent would have been a great idea.

While driving back from the Magic Kingdom one night, Linda accidentally rear-ends a new Lexus. The damage to the other car is extensive; Linda looks to her firm’s auto liability coverage for the cost of repairing it. The ISO Business Auto Policy covers the person or organization shown in the policy declarations (the information page at the beginning.) In this case, the name shown in the policy Declarations is the name of Linda’s firm. The policy goes on to say that, for liability insurance, the firm is an insured and so is anyone else using, with the firm’s permission, a covered auto the firm owns, hires or borrows, with some exceptions. Unfortunately for Linda, the firm didn’t rent the car; she did. She rented the car in her name. Consequently, the firm’s insurance will not cover her liability for this accident. She will be forced to pay for it out of her own funds.

However, there are a couple of policy changes that the firm can buy that would solve Linda’s problem. The first is an endorsement called Drive Other Car Coverage-Broadened Coverage for Named Individuals. The insurance company will require the insured to list the names of one or more individuals on the endorsement. The change extends several of the policy’s coverages so that they apply to the listed individuals and their resident spouses. This endorsement comes with some significant limitations:

  • It extends to the listed individual’s coverages that the policy already provides; it does not add coverages not provided. If the firm’s policy does not provide collision coverage on any its vehicles, Linda will not have collision coverage on a car she rents.
  • It covers the named individual’s spouse only while a resident of the same household. If Linda is married to Jim, Jim automatically has coverage for a car he rents in his name. If they separate, however, Jim loses that automatic coverage because he no longer resides in the same household as Linda.
  • The only family member it automatically covers is the resident spouse. It will not cover any other family members in the household unless the endorsement specifically lists their names.

An alternative to this endorsement is to list individuals’ names in the policy declarations along with the firm’s name and attach an endorsement called Individual Named Insured. It covers the individual listed in the declarations and automatically covers the person’s resident spouse and family members. It also covers these individuals should they injure another of the firm’s employees.

These policy changes affect several coverages, including liability, uninsured motorist, medical payments, and physical damage. An organization should consult with a professional insurance agent to discuss the endorsements’ details and identify the one that will best insure the concerned individuals. With the right coverage in place, Linda can enjoy her vacation without having to worry about who will pay for the fender-bender.

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