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Lesson 5 Business Auto Policy

Introduction The Business Auto Policy (BAP) is a combination of several policies. It includes a liability section, which provides protection from claims for bodily injury and property damage for which an insured is legally responsible. It also includes a physical damage section, which provides coverage for damage to or loss of an insured's covered auto. This presentation will focus on these two coverages. Medical Payments and/or Personal Injury Protection and coverage for Uninsured and/or Underinsured Motorist bodily injury and/or property damage losses can be added by endorsement. These coverages vary from state to state and will not be addressed in this presentation. You should obtain and keep for reference a copy of the forms for these coverages that apply in your state. The structure chart displays the make up of the business auto policy.

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This lesson will consist of the following topics: 1. Business Auto Exposures 2. Definitions 3. Symbols 4. Newly Acquired Autos and Liability Coverage Extensions 5. Who is an Insured 6. Insuring Agreement 7. Liability Exclusions 8. Physical Damage Coverage and Exclusions 9. Conditions

Learning Objectives After completing this lesson, you will be able to:

1. Identify the liability and physical damage exposures covered by the BAP. 2. Explain specific Business Auto Policy definitions. 3. Identify a covered auto when presented with the appropriate symbol information. 4. Determine whether a newly acquired auto is covered in specific situations. 5. Identify what types of vehicles are granted coverage through the Liability

Extension. 6. Determine who is and who is not an insured in a BAP. 7. Recognize the parts of the Insuring Agreement for BAP liability coverage. 8. Apply the Liability exclusions of the BAP to specific situations. 9. Explain the application of BAP's Physical Damage coverage. 10. Apply the Physical Damage exclusions of the BAP to specific situations. 11. Recognize Conditions provisions under the BAP.

Forms to Print from Forms Library: CA 00 01 Business Auto Policy CA DS 03 Business Auto Policy Declarations

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Lesson 5 Topic A - Business Auto Exposures Learning Objective: Identify the liability and physical damage exposures covered by the BAP. In this topic, we will discuss two primary exposures covered by the BAP. These two are:

1. Liability for the ownership, maintenance or use of covered autos.

2. Physical damage for loss of or to a covered auto.

Liability Legal liability results when bodily injury to others or damage to the property of others arises out of the ownership, operation, maintenance or use of an auto. Business auto exposures can arise from an insured's maintenance or use of several types of autos.

• Autos the Named Insured owns. • Autos the Named Insured does not own, but are used in, or on behalf of, the

Named Insured's business. • Autos the Named Insured hires or borrows.

The last two auto types are specifically defined in the policy and will be discussed later. Physical Damage A business owner can suffer loss if one of the business's vehicles is damaged or destroyed. Some of the more common claims include collision, windshield breakage, theft, fire, and vandalism. The BAP can be written to include coverage for many of the perils that can damage a vehicle. Physical damage losses can happen to both owned autos and to hired or borrowed autos. We will study how the policy covers, or does not cover, these exposures.

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Learning Objective: Identify the liability and physical damage exposures covered by the BAP. Other Coverage Forms The BAP is not designed to provide coverage for cargo contained within the vehicles in the business of transporting materials, commodities, and/or goods of others, or for those that are in the automobile and trailer dealers business. Truckers Coverage Forms, Motor Carrier Coverage Forms or Garage Coverage Forms handle those risks and will not be discussed in this course.

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Lesson 5 Topic B - Definitions Learning Objective: Explain specific Business Auto Policy definitions. Throughout the BAP, specially defined words or terms are set apart by quotation marks. Before beginning a discussion of the BAP conditions, provisions, and coverages, you need to have an understanding of these defined words or terms:

• Accident • Auto • Employee • Insured Contract • Mobile Equipment • Property Damage • Trailer

The definitions begin on page 9 of the BAP coverage form, where you will find sixteen words or terms as they apply to the BAP coverage form. You should refer to this section of the BAP when the meaning of a defined word is unclear. We will not discuss all of the definitions in this topic. Some will be discussed at the point of their application to the BAP. An example is “pollution” which will be discussed in Topic G – Liability Coverage Exclusions. However, several defined words or terms are used in more than one section of the policy, and we will discuss those now.

Accident As used in the BAP, an "accident" does not have to be sudden. A continuous or repeated exposure to the same condition that result in "bodily injury" or "property damage" is considered an "accident."

Example A truck, exceeding the weight limit restriction for a bridge, crosses the bridge daily. Over a period of time, the bridge is weakened and suffers structural damage. This is considered an "accident."

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Learning Objective: Explain specific Business Auto Policy definitions. Auto An "auto" is a land motor vehicle, "trailer", or semi-trailer designed for travel on public roads. "Auto" also includes any other land vehicle that is subject to a compulsory or financial responsibility law or other motor vehicle insurance law where it is licensed or principally garaged. "Auto" is not "mobile equipment." "Mobile equipment" has the same definition in this policy as is found in the Commercial General Liability (CGL) Policy. Employee The BAP does not actually define employee. The definition only tells us that an employee does include a leased worker (one leased by a labor-leasing firm), but does not include a temporary worker (a substitute for a permanent employee). Insured Contract The first five types of "insured contracts" in this policy are the same we found in the CGL Policy. Those deal with lease of premises, sidetrack agreement, easement agreement, agreement to indemnify a municipality, and assumed tort liability arising from the insured's business. There is no elevator maintenance liability in the BAP definition of "insured contract."

Note: Please refer back to Lesson 3 Topic B for more information about the insured contract in the CGL Policy.

The BAP includes one additional type of "insured contract" that addresses the exposure of auto rental or lease agreements. These agreements are considered "insured contracts," if the rental or lease is entered into as part of the named insured's business and the agreements are made by the Named Insured or any of their employees. The rental/lease "insured contract" does not cover property damage to the auto rented or leased by the named insured or one of employees. We will discuss property damage to a rented or leased auto in Topic H Physical Damage Coverage and Exclusions.

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Learning Objective: Explain specific Business Auto Policy definitions.

"Mobile equipment" has the same definition as the definition of "mobile equipment" in the CGL Policy. If you would like to review that definition, please refer to Lesson 2 Topic B.

"Property damage" means damage to or loss of use of tangible property.

"Trailer" simply states trailer includes semi-trailer.

Please refer to the end of Lesson 5 Topic B to complete Self Quiz 9.

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Lesson 5 Topic C - Symbols Learning Objective: Identify a covered auto when presented the appropriate symbol information. In this topic, we provide an overview of the use of symbols in the Business Auto Policy (BAP). Additional symbols are also suggested which may customize coverage. Overview On the BAP Declaration Page, the coverage applicable to autos is determined by the use of numerical symbols. This is the part of the BAP that tells us which autos are covered by the policy. The symbols are entered next to a coverage on the Declarations to show what coverage applies. When a symbol is entered in the Covered Auto column next to the desired coverage, then those autos designated by that symbol have that coverage. More than one symbol may be used to designate coverage.

Tip: A symbol must be on the Declaration Page to trigger coverage. If there is no symbol next to a coverage item, no auto has that coverage.

Summary of Covered Auto Symbols The key to symbols and to analyzing coverage is to remember that the symbol belongs only to the Named Insured, not necessarily to the driver of the vehicle. Go to the Forms Library to print a study aid which summarizes the symbols. We will go through each one listed in the next few pages. The symbols are also fully described on page 1 of the BAP.

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Learning Objective: Identify a covered auto when presented the appropriate symbol information. Symbol 1 Symbol 1 can be used to provide Liability coverage:

• Triggers liability coverage for all autos • Provides the broadest liability coverage possible • May be used when there are no owned autos and an umbrella calls for underlying

auto coverage

Symbol Description Applicable Coverages

1 Any Auto Liability Only

Symbols 2 – 4 Symbol Description Applicable Coverages

2 Owned Autos Only Liability, Physical Damage, Medical Payments, Personal Injury Protection, Uninsured Motorists

3 Owned Private Passenger Autos Liability, Physical Damage, Medical Payments, Personal Injury Protection, Uninsured Motorists, Towing

4 Owned Autos Other Than Private Passenger Autos

Liability, Physical Damage, Medical Payments, Personal Injury Protection, Uninsured Motorists

Symbols 2 - 4 are used for owned autos.

• Triggers coverage for autos owned at the inception of the policy as well as automatic coverage for autos (of the same type) acquired during the policy period.

• Can provide Physical Damage Coverage (towing and labor on Symbol 3).

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Learning Objective: Identify a covered auto when presented the appropriate symbol information. Symbols 5 & 6 Symbol Description Applicable Coverages

5 Owned Autos Subject to a No-Fault Law

Personal Injury Protection for autos required to have No-Fault benefits in the state where they are licensed or principally garaged

6 Owned Autos Subject to a compulsory Uninsured Motorists law

Uninsured Motorists Coverage when the law in the state where the autos are licensed or principally garaged are required to have and cannot reject Uninsured Motorists Coverage

Symbol 5 is also used for owned autos

• That are required to have no-fault benefits in the state where they are principally garaged

• Includes newly acquired autos if no-fault benefits are required Symbol 6 is also used for owned autos

• That are required to have Uninsured Motorist Coverage according to state law where the autos are licensed or garaged

• Includes newly acquired autos if the state does not permit rejection of mandatory coverage

Symbol 7 Symbol Description Applicable Coverages

7 Specifically Described Autos Only

Liability, Physical Damage, Medical Payments, Personal Injury Protection, Uninsured Motorists

Symbol 7 is used for specifically described autos

• Triggers coverage for autos scheduled in the Declarations • Liability for non-owned trailers attached to a scheduled auto

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Learning Objective: Identify a covered auto when presented the appropriate symbol information. Symbol 8 Symbol 8 is used for hired autos:

• Triggers coverage for autos you lease, hire, rent, or borrow • Does not include autos leased, hired, rented, or borrowed from employees,

partners or members or members of their households

Symbol Description Applicable Coverages

8 Hired Autos Only – meaning autos the Named Insured leases, hires, rents or borrows – excluding those from employees, partners of a partnership, members of a limited liability company, or members of their households

Liability, Physical Damage

Symbol 9 Symbol 9 is for non-owned autos:

• Triggers coverage for autos you do not own, lease, hire, rent, or borrow and are used in connection with your business.

• Autos owned by your employees, partners, members or members of their household while used in your business or your personal affairs.

Symbol Description Applicable Coverages

9 Non-owned Autos Only – autos the Named Insured does not own, lease, hire rent or borrow. Includes autos of employees, partners, members, and their respective households

Liability Only

Symbol 19 Symbol 19 is used for mobile equipment.

Symbol Description Applicable Coverages

19 Mobile Equipment Subject To Compulsory Or Financial Responsibility Or Other Motor Vehicle Insurance Law Only

Only those “autos” that are land vehicles and that would qualify under the definition of “mobile equipment” under this policy if they were not subject to a compulsory or financial responsibility law or other motor vehicle insurance law where they are licensed or principally garaged

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Learning Objective: Identify a covered auto when presented the appropriate symbol information. Additional Symbols There is a way you can customize coverage for a client by using additional symbols. You attach the endorsement CA 99 54 - Covered Auto Designation Symbol to describe the vehicles you wish to cover. For example, your insured may want to have collision coverage only on those vehicles that are fairly new. You would use Symbol 10, and could define it as follows: Only those "autos" you own with a model year of 2005 and newer. This includes those "autos" you acquire ownership of after the policy begins. Be sure to review Lesson 5 Topic C Symbols p11 to look at sample entries on a Business Auto Declarations Page, showing coverage symbols. Knowledge Check Match each symbol on the left with the corresponding statement on the right. 1 2 3 7

Provides coverage for owned private passenger autos only, can provide towing and labor. Provides liability coverage for any auto only. Provides coverage for autos scheduled in the Declarations. Provides coverage for owned autos only.

The correct answers are below: 3: Provides coverage for owned private passenger autos only, can provide towing and

labor. 1: Provides liability coverage for any auto only. 7: Provides coverage for autos scheduled in the Declarations. 2: Provides coverage for owned autos only.

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Learning Objective: Identify a covered auto when presented the appropriate symbol information. Automatic Coverage Symbols vs. Scheduled Coverage Symbols When you use Symbols 2 - 6, the policy states, "This includes those "autos" you acquire ownership of after the policy begins." This means that the insured has automatic coverage for the type of auto shown next to the coverage without having to notify the insurer. Since Symbol 1 is "Any Auto," it automatically triggers liability coverage for any newly acquired autos. When an insured has Symbol 7 next to a coverage, only those vehicles specifically scheduled in Item 3 of the BAP Declarations have that coverage. In our next topic, we will study the very limited coverage an insured has for newly acquired autos when Symbol 7 is used. Please refer to the end of Lesson 5 Topic C to complete Self Quiz 10.

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Lesson 5 Topic D - Newly Acquired Autos and Liability Coverage Extensions Learning Objective: Determine whether a newly acquired auto is covered in specific situations. The coverage for newly acquired "autos" is tied to the symbol used for each coverage. Whether or not the Named Insured has a specific coverage for a newly acquired "auto" will depend on which symbol is shown on the Declarations. We study this concept in three parts:

• Automatic Coverage Symbols 1 - 6 or 19 • Specified Autos-Symbol 7-Limited Coverage • Liability Coverage Extensions

Note: You will find the provision dealing with this subject beginning at the top of page 2 of your BAP under the title, Owned Autos You Acquire After the Policy Begins.

Automatic Coverage: Symbols 1- 6 or 19 If any of these symbols are used to trigger a coverage in Item 2 of the Declarations, then the Named Insured has that coverage for newly acquired autos of the type described by the symbol for the remainder of the policy period. Examples

• Assume that a Named Insured has a BAP in which Symbol 2 (Owned Autos Only) is used to trigger liability, comprehensive, and collision coverage. If this insured acquires an additional auto, that auto has liability, comprehensive, and collision coverage under the policy for the remainder of the policy period. The insured does not have to report the newly acquired auto. Premium will be picked up on audit.

• Assume that a different Named Insured has a BAP in which Symbol 3 (Owned Private Passenger Autos) is used to trigger liability, comprehensive, and collision coverage. If the insured acquires a panel truck, there is no automatic coverage because the panel truck does not qualify as a private passenger auto.

It is a good practice for the insured to inform the agent immediately of any change in auto ownership to avoid any gaps that could exist.

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Learning Objective: Identify what types of vehicles are granted coverage through the Liability Extension. Liability Coverage Extensions If the Business Auto Policy includes liability coverage, the following three types of vehicles automatically have liability coverage. There is no need to describe these "autos" on the policy, and there is no premium charge either.

Trailers Liability is automatically provided for any trailers that have a load capacity of 2,000 pounds or less and which are designed primarily for travel on public road. Mobile Equipment Liability is automatically extended to cover liability arising out of mobile equipment while it is being towed or carried by a covered auto. This includes coverage if a piece of mobile equipment causes a loss while it is being towed or carried by a covered auto. Remember that the CGL Policy specifically excludes the transportation of mobile equipment by an auto owned by, operated by, rented to, or loaned to any insured. The BAP picks up that coverage here. Temporary Substitute Liability is automatically extended to any non-owned auto that is being used, with the permission of the owner, as a temporary substitute for a covered auto that cannot be used for one of the following reasons: • Breakdown • Repair • Service • Loss • Destruction

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Learning Objective: Identify what types of vehicles are granted coverage through the Liability Extension. Specified Autos Symbol 7 - Limited Coverage When the policy shows Symbol 7 next to a coverage, the BAP states that a newly acquired auto will have that coverage only if both of the following conditions are met:

1. All autos the insured owns must be insured by the insurance company 2. This insured must tell the insurance company within 30 days after acquiring the

vehicle which coverage they want

If both conditions are met and the newly acquired auto is an additional unit, it will automatically have the coverage that all owned autos have. If the unit is a replacement vehicle, it will automatically have only the coverage the replaced vehicle had.

Example 1: An insured owns nine autos insured on a BAP with Symbol 7 triggering coverage. All nine autos have Liability, eight have Comprehensive, one has Specified Causes of Loss, and six have Collision. If the insured acquires a 10th auto, that additional unit only has automatic liability coverage, because that is the only coverage all nine autos have. Example 2: An insured owns two autos, both of which are insured on a BAP with Symbol 7 triggering coverage. Vehicle 1 has only liability coverage, and Vehicle 2 has liability and collision coverages. If the insured acquires a replacement auto for Vehicle 1, the new auto only has liability coverage and only for 30 days. Physical damage coverage does not apply until the insured notifies the insurance company.

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Learning Objective: Identify what types of vehicles are granted coverage through the Liability Extension. Symbol 7 Coverage Limitations Example 3 Whether the newly acquired auto is an added auto or a replacement auto, there is no coverage, and no coverage ever applied, if the Named Insured failed to give the notice within the 30-day period. Coverage will begin on the day the Named Insured notifies the company.

Example 3: An insured owns one auto with Symbol 7 shown for liability, comprehensive and collision coverages on her BAP. She acquires another auto on March 1, but does not notify the company until August 15. There was never any automatic coverage for this newly acquired auto. The coverages she requests begin on August 15.

Note: Be careful when symbol 7 is used to trigger coverage!

Knowledge Check A Business Auto Policy Coverage Form providing Liability coverage automatically provides Liability coverage for all of the following, EXCEPT:

A. A temporary substitute B. Mobile equipment while being carried of transported by a covered auto C. A backhoe while being used on the insured premises D. An owned trailer with a load capacity of $1,500 The correct answer is C, “A backhoe while being used on the insured premises.”

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Knowledge Check Match each symbol on the left with the corresponding statement on the right. 1 2 3 7

Provides coverage for any newly acquired owned private passenger auto only Insurance company must insure all owned autos before there is any automatic coverage for any newly acquired auto and only then for up to 30 day If collision and comprehensive coverage are triggered in the declarations, any newly acquired auto automatically has this coverage for the policy period The named insured is the only one insured for liability on any "auto" basis symbol

The correct answers are below: 3: Provides coverage for any newly acquired owned private passenger auto only 7: Insurance company must insure all owned autos before there is any automatic

coverage for any newly acquired auto and only then for up to 30 day 2: If collision and comprehensive coverage are triggered in the declarations, any newly

acquired auto automatically has this coverage for the policy period 1: The named insured is the only one insured for liability on any "auto" basis symbol Please refer to the end of Lesson 5 Topic D to complete Self Quiz 11.

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Lesson 5 Topic E - Who is an Insured? Learning Objectives: Determine who is and who is not an insured in a BAP. In Topics C and D, we studied what vehicles the BAP covers. In this topic you will learn who has coverage under the policy. There are three classifications of insureds afforded coverage in the BAP. "You"

Named Insured - "You" refers to the Named Insured shown in the Declarations. If the Named Insured is an individual, there is no automatic coverage for any spouse or for any other relative. A few states do have mandatory provisions that make persons other than the named individual (resident spouse, estate executor) a "you."

Permissive Users of Covered Autos

Permissive users are individuals who are using a covered auto with the Named Insured's permission. The covered auto must be owned by, borrowed by, or rented to the Named Insured subject to five exceptions that will be covered in detail later. (Reminder: A covered auto is one defined by the symbols shown on the first page of the BAP Declarations.)

Others Who Have Vicarious Liability

The third classification of insureds is those who are legally responsible for the conduct of any insured identified above. These insureds do not have to be named by endorsement. If they are liable for the conduct of any insured covered by the BAP, then they automatically are an insured.

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Learning Objectives: Determine who is and who is not an insured in a BAP.

“You" The Named Insured receives the broadest coverage. Permissive Users of a "Covered Auto" Example: Your insured has an unendorsed Business Auto Policy (BAP)form. The employee drives the company car on a business trip. There are five exceptions which we will discuss in the next pages. Others with Vicarious Liability Example: A Named Insured donates time to the Boy Scouts of America. If a permissive driver causes an accident with the Named Insured's covered auto while doing the volunteer work, the Named Insured's BAP will provide coverage for the Boy Scouts of America, as well as the Named Insured and the permissive driver.

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Learning Objectives: Determine who is and who is not an insured in a BAP. Five types of permissive users that do not get coverage under this provision of the BAP: Owner of rented or borrowed "covered auto..." If the Named Insured rents or borrows a covered auto, the owner of that auto is not covered under the insured's BAP. The owner of the vehicle must look to his/her own policy for coverage. This exclusion does not apply if the rented or borrowed covered auto is a trailer, and the trailer is connected to a covered auto owned by the Named Insured. Employee using his owned auto... An employee of the Named Insured using a covered auto that is owned by that employee or a member of that employee's household. Example: Employees are not insureds under the BAP if they are driving their own autos on behalf of their employer. The employer as the Named Insured has coverage under the BAP. Any individual working in the auto business... Any individual working in the auto business (repairing, selling, servicing, and parking) is not an insured under the BAP, unless that is the Named Insured's business. Example: An auto mechanic, who is not a Named Insured's employee, drives the Named Insured's auto for a test drive. There is coverage for the Named Insured if the mechanic has an accident, but there is no coverage for the mechanic under the insured's BAP. Loading and unloading a "covered auto" by a non- employee... The liability section of the BAP provides coverage for certain loading and unloading operations. This coverage will be discussed in Topic G - Liability Exclusions. However, there is no coverage for non-employees who load and/or unload a covered auto. Example: Lynn's Lumber Co delivers lumber to a job site. Conway's employees unload the truck. Lynn's BAP does not cover Conway's employees while loading and unloading. Partner of member of an LLC using his owned auto... Partners and members of limited liability companies are not covered when using their own personal autos or autos owned by members of their household. It makes no difference if the use is for business or not. The BAP will not give coverage to the individuals, but it will cover the partnership or limited liability company.

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Knowledge Check Penny and Wayne Tutoring Company are a partnership and the named insured on an unendorsed Business Auto Policy Coverage form. Which one of the following statements would be true?

A. Spouses of Penny and Wayne are automatically considered named insureds under the Business Auto Policy Coverage form

B. Only Wayne is insured while using his personally owned auto since he is the first named insured

C. Penny and Wayne are insureds while using autos owned by the partnership D. Penny and Wayne are insureds while using their personally owned autos

The correct answer is C, “Penny and Wayne are insureds while using autos owned by the partnership.”

Knowledge Check Your insured goes on a business trip and borrows an auto from one of his customers. Your insured has a Business Auto Policy (BAP) Coverage form in which liability is written on a Symbol 1 (Any “Auto”) basis. Who is an insured under his BAP?

A. Your named insured only B. Neither your named insured nor their customer C. Your named insured’s customer only D. Both your named insured and their customer

The correct answer is A, “Your named insured only.”

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Lesson 5 Topic F - Liability Insuring Agreement Learning Objective: Recognize the parts of the Insuring Agreement for BAP liability coverage. We continue our study of the BAP by looking at liability coverage that you will find at the top of the second column on page 2 of your BAP. In this topic we review the following as they apply to the BAP:

• Insuring Agreement • Supplementary Payments • Out-of-state Extensions

Insuring Agreement The first part of the liability insuring agreement states that the insurance company will pay all sums that any insured must legally pay because of:

• "Bodily injury" or "property damage" • That arises from the ownership, maintenance, or use of a covered auto; • Caused by an accident; and is • Not excluded by this policy.

The second part of the insurance agreement states that the insurance company will pay "covered pollution cost or expense" caused by an "accident" resulting from the ownership, maintenance or use of a covered auto. As you will see in the BAP Exclusions Section, there are only a few covered pollution losses, therefore, there are few instances that "covered pollution cost or expense" will be paid. Besides paying for covered losses, the insurance company has the right and the duty to defend any insured against a suit seeking covered damages or cleanup cost. If there is no coverage, the company does not have to defend. The company can investigate and/or settle any claim it sees fit. Once the insurance company has paid the limit of liability insurance, they no longer have a duty to defend. Two liability coverage extensions in the BAP expand coverage for:

• Supplementary Payments • Out-of-state Coverage Extensions

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Learning Objective: Recognize the parts of the Insuring Agreement for BAP liability coverage. Supplementary Payments The supplementary payments are paid in addition to any limit of insurance provided by the BAP. There are six types of supplementary payments included in the BAP. Here are the first three:

1. The insurance company will pay costs it incurs on behalf of an insured while investigating, settling, and/or defending an insured. Examples include but are not limited to investigative reports, expert testimony, legal fees, and court costs.

2. The insurance company will pay up to $2,000 for the cost of bailbonds required because of a covered accident, including bonds for traffic law violations. The insurance company does not have to provide these bonds, only pay for them.

3. The insurance company will pay the cost of bonds for release of attachments made against an insured in any suit the insurance company is defending. Attachments are legal proceedings, where a defendant files and gets a legal claim against an insured's assets to assure value to pay any judgment and/or claim. In order to have use of the assets, the insured may be required to post a bond for the asset's value. The insurance company does not have to provide these bonds, only pay for them.

4. The insurance company will pay all reasonable expenses that the insured incurs at the company's request. These include but are not limited to travel, meals, and lodging. In addition, the insurance company will pay the insured up to $250 per day for lost earnings because of missed work.

5. The insurance company will pay all costs taxed against an insured in any suit that the company defends.

6. The insurance company will pay for post-judgment interest. Remember from the CGL Policy that post-judgment interest is set by the court. This interest accrues from the date of the judgment until the judgment is paid. Pre-judgment interest is paid as part of the liability limit in most states.

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Out-of-State Extensions When a covered vehicle is operating in another state, these coverage extensions give additional coverages required by that state's law. These two extensions are:

1. Higher limits than policy limits to comply with the laws where the auto is being used.

2. Additional benefits, such as no-fault or mandatory personal injury protection required of out of state vehicles by the jurisdiction where the auto is being used.

Please refer to the end of Lesson 5 Topic F to complete Self Quiz 12.

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Lesson 5 Topic G - Liability Exclusions Learning Objective: Apply the Liability exclusions of the BAP to specific situations. As with the CGL Policy, the BAP insuring agreement is very broad. Thirteen liability exclusions restrict the scope of liability coverage found in the insuring agreement.

Thirteen BAP Liability Exclusions

1. Expected or Intended Injury 2. Contractual Liability 3. Workers Compensation 4. Employee Indemnification and Employer’s

Liability 5. Fellow Employee 6. Care, Custody or Control 7. Handling of Property

8. Movement of Property by a Mechanical Device

9. Operations 10. Completed Operations 11. Pollution 12. War 13. Racing

13 BAP Liability Exclusions We will study the exclusions that restrict business auto coverage on the next page, and offer additional explanation for the exclusions which impact Handling of Property. As with all exclusions, coverage is excluded for:

• exposures better covered under other types of policies, • exposures covered by endorsement for an additional

premium, or • exposures that are not insurable under any policy or

endorsement. Go to the Forms Library to print a study aid which summarizes the 13 Liability exclusions.

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Learning Objective: Apply the Liability exclusions of the BAP to specific situations. The Major BAP Liability Exclusions Expected or intended injury If the insured expects or intends to cause "bodily injury" or "property damage", then the policy does not provide coverage. The CGL has an exception for "bodily injury" resulting from the use of reasonable force to protect persons or property, but there is no such exception in the BAP. Contractual Liability This BAP does not cover liability assumed under any contract or agreement, other than liability assumed in an "insured contract" or that the insured would have in the absence of the contract. We discussed the definition of "insured contract" in Topic B. If you need to review that definition, navigate back there now. Workers Compensation The BAP will not cover any obligation of the insured to provide benefits under workers compensation, disability benefits or unemployment compensation law. In general almost any claim involving the injury to an employee will not be covered by the BAP. Employee indemnification and Employer's Liability Any obligation of the "insured" to pay for liability arising out of work-related accidents to an employee, or to any consequential liability to his family, is not covered. Fellow Employee Liability for bodily injury arising out of an auto accident in which one employee negligently injures a fellow employee not covered. Care, Custody or Control This exclusion states that damage to property owned by, being transported by, or in the care, custody, or control of the insured is not covered. There are special inland marine policies to cover these exposures.

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The Major BAP Liability Exclusions continued Handling of Property This BAP does not cover "bodily injury" or "property damage" resulting from the handling of property: Before it is moved from the place where it is accepted by the insured for movement into or onto the covered auto; OR after it is moved from the covered auto to the place where it is finally delivered by the insured. The BAP and CGL dovetail the treatment of loading and unloading. The CGL stops when goods are accepted for movement onto the auto, the BAP covers the exposure associated with loading, in transit, and unloading, and the BAP continues until the goods are finally delivered. At that time the CGL picks up the coverage. Let's look at some examples.

Example #1 Ozzie's Office Supply store stacks boxes by the front door for pickup. The top two boxes fall, injuring a pedestrian. Policy: Ozzie's CGL provides coverage because the goods have not been accepted for movement onto an auto.

Example #2 Ozzie’s driver begins moving the boxes onto the delivery truck. He drops one of the boxes and injures another pedestrian. Policy: Ozzie's BAP provides coverage because the goods have been accepted for movement onto an auto. Example #3 While driving across town, one of the boxes falls off the truck, causing extensive damage to the parked Jaguar it hit. Policy: Ozzie's BAP provides coverage because the goods have been accepted for movement onto an auto, are in transit, and have not been finally delivered. Example #4 After final delivery of the shipment, the improperly stacked boxes fall and damage some computer equipment at the purchaser's office. Policy: Ozzie's BAP no longer provides coverage because the goods have been final delivered by the insured. This represents liability arising out of a completed operation that Ozzie's CGL will cover.

Rev. 03/10 141

The Major BAP Liability Exclusions continued Tip: When you have clients who move property around frequently, it is a good idea to be sure the BAP and the CGL are written by the same insurance company to avoid coverage disputes involving the loading and unloading of vehicles.

Movement of Property by a Mechanical Device This insurance does not apply to "bodily injury" or "property damage" resulting from the movement of property by a mechanical device (other than a hand truck) unless the device is attached to the covered auto. If an insured uses any type of mechanical device in the loading or unloading operation, the BAP provides coverage only if the mechanical device is attached to the covered auto or the mechanical device is a hand truck (dolly). Loading and unloading a truck using an attached hydraulic lift-gate or mechanical crane is covered under the BAP. If it involves detached equipment (forklift) then the CGL provides liability. Operations This insurance does not apply to "bodily injury" or "property damage" arising out of the operation of any equipment listed in paragraphs 6.b. and 6.c. of the definition of mobile equipment. This corresponds to the similar language in the CGL for this type of equipment. If you remember these are vehicles designed to give mobility to permanently mounted cherry pickers, welders, compressors, lighting systems, pumps, sprayers, building cleaning, well servicing, and geophysical exploration equipment. The mobility or "over-the-road" exposure of these vehicles is covered by the BAP. Whereas the operation of the equipment attached to these vehicles is covered by the CGL. Completed Operations The insurance does not apply to "bodily injury" or "property damage" arising out of your work after that work has been completed or abandoned. Liability arising from completed operations is covered under the CGC Policy. Pollution The BAP excludes almost all "bodily injury" and "property damage" arising out the pollution exposure, including the actual damage or harm caused by the pollutants and costs to clean up and/or test for pollutants.

Rev. 03/10 142

The Major BAP Liability Exclusions continued By means of exceptions found in this exclusion, the BAP gives coverage for "bodily injury" and "property damage" arising out of a pollution incident under the following circumstances:

1. Fluids or fuels used to operate the "auto" escape. Fuel leaks from the truck's fuel tank.

2. A covered "auto" causes damage to property containing a pollutant as long as this does not occur on premises the insured owns or rents, and as long as the property containing the pollutant is not carried or contained on a covered auto.

Example: The insured runs into an oil storage tank on a neighbor's premises, causing it to leak. This is an example of pollution covered by the BAP. War This insurance does not apply to "bodily injury" or "property damage" due to war. Racing This insurance does not apply to covered "autos" while used in any professional or organized racing or demolition contest or stunting activity or while practicing for such activity.

Rev. 03/10 143

Knowledge Check Determine whether the CGL or BAP policy will handle each of the loading and unloading exposures listed below.

1. A box falls off the delivery truck, causing damage to a parked car. 2. Property is moved by a hand truck dolly to unload boxes from a delivery truck. 3. Workers unloading a delivery truck with a fork lift injured a pedestrian. 4. After delivery, two boxes in a stack by the door fall, injuring a pedestrian. 5. A driver drops a box while moving it out of a delivery truck, injuring a pedestrian.

The correct answers are below.

1. BAP 2. BAP 3. CGL 4. CGL 5. BAP

Please refer to the end of Lesson 5 Topic G to complete Self Quiz 13.

Rev. 03/10 144

Lesson 5 Topic H - Physical Damage Coverage and Exclusions Learning Objective: Explain the application of BAP's Physical Damage coverage. Section III of the Business Auto Policy is the Physical Damage Coverage section. Many businesses face potential losses if their vehicles are damaged, destroyed, or stolen. They may also incur additional expenses to rent replacement autos while repairs are being made. In this topic you will study the ways you can provide physical damage coverage for your clients, as outlined in the four areas of policy provisions, Coverage Grant, Exclusions, Limit, and Deductible.

Note: Turn to page 5 of your Business Auto Policy. The Physical Damage Coverage begins near the bottom on the right column.

BAP Physical Damage Coverage - Coverage Grant Four separate items of the Coverage Grant are shown.

Rev. 03/10 145

Learning Objective: Explain the application of BAP's Physical Damage coverage. BAP Physical Damage Coverage Grant - We Will Pay Under "We Will Pay" The insuring agreement promises to pay for loss to a covered auto or its equipment. Three types of coverage are offered.

Comprehensive Comprehensive coverage is coverage for any cause except collision or overturn. Specified Cause of Loss Coverage Coverage Offered on a Named Perils Basis • Fire, Lightning, or explosion, • Theft, • Windstorm, Hail or Earthquake, • Flood • Mischief or Vandalism, • and the sinking, burning, collision, or derailment of any conveyance transporting a

covered auto Collision Coverage Collision Coverage is for collision with another object, or overturn.

The Named Insured can choose either Comprehensive or Specified Perils when insuring the vehicles. Most companies require one of these two coverages before they will include collision coverage. BAP Physical Damage Coverage Grant - Towing & Glass Breakage

2. Towing

Towing includes labor if performed at the place of disablement. It can be purchased for private passenger type autos only.

3. Glass Breakage - Hitting a Bird or Animal - Falling Objects or Missiles Glass breakage will be covered under Comprehensive Coverage if the insured has purchased that coverage. The insured has the option of having glass breakage coverage under Collision if caused by collision or overturn. Loss caused by hitting a bird or animal or caused by a missile or falling object will be covered under Comprehensive Coverage.

Rev. 03/10 146

Learning Objective: Explain the application of BAP's Physical Damage coverage.

4. Coverage Extensions • Transportation Expenses

This extension pays for the transportation expense (taxi, bus, delivery costs as well as rental cost), subject to a daily maximum of $20 and a per loss maximum of $600 because of the total theft of an auto of the private passenger type. There is a 48-hour waiting period before the insurer will begin paying this expense.

• Loss of Use Expenses The endorsement also adds loss-of-use coverage resulting from physical damage to rented or hired autos when the insured becomes legally liable under a written rental contract or agreement. The BAP must show Symbol 8 (Hired Autos) next to the appropriate physical damage coverage in order to collect under this part of the policy.

Note: Please look at page 6 of your BAP where we will now study the Physical Damage exclusions.

Rev. 03/10 147

Learning Objective: Apply the Physical Damage exclusions of the BAP to specific situations. 5 BAP Physical Damage Exclusions

1. Specific perils such as nuclear hazards or contamination, war, insurrection, rebellion, and revolution are excluded.

2. Professional or organized racing, demolition contests or stunting activity,

including practice and/or preparation is excluded.

3. Loss caused by or resulting from wear and tear, freezing, mechanical or electrical breakdown, blowouts, punctures, or other road damage to tires is excluded unless another covered loss caused this type of damage. Example: A thief steals a covered auto that has Comprehensive Coverage. When the vehicle is recovered there is engine damage and/or tire damage as a result of the thief's misuse of the covered auto. Coverage applies because the cause of the loss is theft.

4. Specific types of equipment are excluded • Tapes, records, CDs, visual or data electronic devices

• Speed measuring and/or jamming equipment

• Electronic equipment (regardless of installation) that receives or transmits unless it is designed solely for the reproduction of sound, including accessories used with the equipment

There is, however, some coverage for certain types of electronic equipment: Equipment and/or its accessories operated and solely powered by the "auto's" electrical system are covered if: A. Permanently installed in or upon the covered "auto"; or B. Removable from a permanently installed housing unit; or C. An integral part of the same housing unit described above; or D. Necessary for the "auto's" normal operation or monitoring of the operating

system. Will not pay for loss to a covered "auto" due to diminution in value. This means the actual or perceived loss in market value or resale value which results from a direct and accident loss will not be covered. For decades disputes about claims related to reduction in value of an "auto" damaged in a covered accident has been discussed. It is almost impossible to calculate without selling the vehicle and it is not the intent of the Commercial Auto Coverage Forms to provide for payment of a loss in market value.

Rev. 03/10 148

Learning Objective: Explain the application of BAP's Physical Damage coverage. Limit of Insurance The insurance company will pay the smaller of:

1. Actual cash value at the time of the loss; or 2. The cost of repairing or replacing with like kind and quality.

The company can adjust for depreciation and does not have to pay for betterment. Deductible Physical damage losses that are subject to the deductible are shown on the BAP Declarations. This deductible applies to each covered "auto." However, if the insured has Comprehensive Coverage selected and fire or lightning causes the loss, no deductible will apply.

Rev. 03/10 149

Lesson 5 Topic I - Conditions Learning Objective: Recognize Conditions provisions under the BAP. Like all other insurance policies, the BAP has conditions that apply. There are two groups of conditions outlined in the BAP:

• Loss Conditions • General Conditions

Note: They begin on page 7, where you will see the first group of conditions.

Loss Conditions

Appraisal For Physical Damage Loss The insured and insurance company only enter the appraisal provision when there is a disagreement on the amount of Physical Damage loss. The insurance company agrees there is a covered loss, but the conflict concerns the dollar amount of the loss. The decision reached through this process is binding on both the insured and the insurance company. Duties/Legal Action These are the conditions that deal with an insured's duties in the case of a loss and the requirements that must be met before filing legal action against the insurance company Loss Payment - Physical Damage Coverage The options that the insurance company has when paying for a physical damage loss are spelled out here. The choice belongs to the insurer, not the insured. Transfer of Rights of Recovery Against Us The fourth loss condition requires that individuals or organizations receiving payment for losses under the BAP Policy assist the insurance company in subrogating or recovering the amount paid to them from another who caused or contributed to the loss.

Rev. 03/10 150

Learning Objective: Recognize Conditions provisions under the BAP. 5 Important General Conditions

Bankruptcy The first General Condition states that if the insured becomes bankrupt or insolvent, the insurance company must still meet the contract obligations. Concealment, Misrepresentation or Fraud The second condition states that any concealment or misrepresentation of a material fact or committing any fraud voids the BAP. There is no coverage and there is no obligation to defend. Liberalization This means if the insurance company revises the BAP coverage form during the policy period and the revision provides additional coverage with no increase in premium, then this policy automatically gets the additional coverage on the revision effective date. The insured does not have to wait until the next renewal or get a written revised policy. Other Insurance The other insurance condition states that coverage under this BAP is primary for the Named Insured's owned covered autos and excess for any other covered auto. The exception is liability coverage will be primary if liability arises from an "insured contract." If physical damage coverage is purchased for hired autos, then the hired auto is considered owned. Policy Territory, Coverage Area This condition defines the policy period and the coverage territory. The coverage territory is the United States of America, its territories and possessions, Puerto Rico, and Canada. The coverage territory is also anywhere in the world if: 1. A private passenger type auto is leased, hired, rented, or borrowed (without a

driver) for a period of 30 days or less and

2. The insurance company agrees to a settlement or where damages are awarded in a suit brought in the covered territory described above.

Please refer to the end of Lesson 5 Topic I to complete Self Quiz 14.