Bill Wilson has a new blog post about personal auto physical damage coverage for those driving vehicles they don't own. His specific concern is people test-driving cars they might purchase and people who borrow a repair shop's vehicle while their own vehicle is being fixed. His general points about coverage are well worth considering, but I want to focus on this. It involves an accident that occurred while an insured was test-driving a car. The insured was at fault and caused damage to the dealership's car and that of a third party:
In the last claim, the very large national carrier cited this exclusion in their proprietary (non-ISO) auto policy:
This insurance does not cover certain losses or situations….
It does not cover a non-owned car while being used or maintained in any auto business by anyone.
According to the carrier, the auto was being “used” IN an auto business by someone, so the exclusion applied. This seems to be a rather restrictive interpretation but the carrier insisted it was designed to exclude losses involving loaner cars and could be applied to test driving or even rental cars.
Note that the “auto business” exclusion above is non-ISO language. ISO’s “auto business exclusion” applies only to insureds:
While employed or otherwise engaged in the “business” of…selling…repairing…servicing…storing…or parking vehicles designed for use mainly on public highways.
Clearly, the ISO language would not apply to this claim since the insured is not the person engaged or employed in the auto business. However, the proprietary language could arguably apply to the claim to preclude coverage. Regardless, the ISO Other Insurance clause (and the clause in the non-ISO policy) clearly provide coverage only on an EXCESS basis.
So, what is the solution? With regard to the “auto business” exclusion applied in the last claim, there’s nothing you can do except, as the agent did in this claim, lobby the carrier to change the exclusion to something more reasonable like the ISO language. The alternative is to not use that carrier’s auto policy.
The ISO language would have covered this loss; the carrier's proprietary language was designed to not cover it. Any person who owns this particular policy and who test-drives a car is self-insuring the exposure; this is the insurer's intent. How many times have any of you reading this taken cars for test drives? In my own case, the precise answer is, "A lot." This is a commonplace exposure, one that this carrier (and I have no idea who that carrier is) has decided to exclude. Do you suppose the carrier features that exclusion in its advertising? Or does it instead talk about how much money the customer will save on the premium? My bet is on door number two.
Auto insurance policies are not identical. Auto insurance is not a commodity. A loss that occurs during a vehicle test drive can reach five figures very easily. Can most people afford to self-insure that? Would most people be surprised to find out that they're self-insuring it? The answers are no and yes, respectively.
Yet another example of why it's important to know the product you're selling and for the buyer to know it, too.