1 WRONGFUL DISCLAIMERS OF UM and UIM COVERAGE
UNDER BUSINESS AUTO POLICIES BY: James C. Haggerty
HAGGERTY, GOLDBERG, SCHLEIFER & KUPERSMITH, P.C. 1835 Market Street, Suite 2700
Philadelphia, PA 19103 (267) 350-6600
In assessing available coverage, business auto policies present different issues than personal auto policies. Many insurers do not seem to understand the nature and extent of coverage under business auto policies in the context of uninsured (“UM”) and underinsured (“UIM”) motorist claims. As a result, UM and UIM claimants are sometimes faced with invalid disclaimers of coverage for claims presented under business auto policies. An understanding of the workings of a business auto policy is necessary in order to understand the invalid nature of these disclaimers of UM and UIM coverages.
Personal auto policies insure both individuals and vehicles. Coverage extends to the named insured and resident relatives. The protections afforded by the personal auto policy follow those persons regardless of the vehicle involved in the collision. Coverage also extends to vehicles listed on the policy (as well as substitute or replacement vehicles). As a result, persons other than the named insured and resident relatives,who are using an insured vehicle with permission, will also enjoy the coverages provided by the policy.
Business auto policies, on the other hand, are generally designed to insure only autos. Individuals are afforded coverage while occupying a covered auto. Coverages are extended to autos through covered auto symbols listed on the Declarations Pages. Often, uninsured and underinsured motorist coverages are limited to specifically described autos (symbol 7) or owned autos subject to no-fault laws (symbol 6) while liability coverage is extended to any auto
(symbol 1). These coverage limitations apply to UM and UIM benefits where the named insured is a corporation. These coverage limitations, however, do not extend to UM and UIM coverages where the business auto policy is issued to an individual. Nonetheless, it is not unusual for an insurer to deny UM and UIM coverage under a business auto policy issued to an individual for reasons that would apply only where the named insured is a corporation. Such disclaimers are invalid.
UM and UIM coverages under a business auto policy are not always limited to designated vehicles. Personal auto features may be added to a business auto policy issued to a
corporationby endorsement, e.g. a Drive Other Car Endorsement. Even absent such
endorsements, a business auto policy issued to an individual extends UM and UIM coverage in much the same way as a personal auto policy. The individual named insured under the business auto policy, and family members, have UM and UIM coverage under the business auto policy regardless of the identity of the vehicle involved in the accident. Nonetheless, insurers routinely deny UM and UIM coverage to an individual named insured under a business auto policy
2 because a designated auto was not involved in the collision. Such a disclaimer is invalid.
An example helps illustrate the issue. A business auto policy is issued to an individual. Covered autos for uninsured and underinsured motorist coverages are identified on the
Declarations Pages by covered auto symbol 7. The policy defines that symbol as follows: Description of Covered Auto Designation Symbols
Symbol
7 Specifically Described “Autos”
Only those “autos” described in Item Three of the Declarations for which a premium charge is shown. . .
Business Auto Coverage Form CA 00 01 1001, p. 1 of 11. In the example, the individual named insured is then injured in an automobile accident while a passenger in a friend’s car. The
individual named insured recovers liability monies from the striking vehicle and UIM monies from the insurer of the car the named insured is occupying. Claim is then made for recovery of additional UIM benefits under the business auto policy issued to the individual named insured. The business auto insurer denies coverage on the basis that the policy limits UIM coverage, by covered auto symbol 7, to specifically described vehicles, alone. A typical disclaimer from an insurer states:
Our investigation has shown that your client was traveling in a vehicle not listed on our insured’s policy when a motor vehicle accident occurred. The vehicle involved in this unfortunate accident was not insured under this business auto policy. Therefore, there is no coverage as the vehicle involved is not a listed vehicle on the policy.
This coverage analysis by the insurer wrongfully ignores the fact that UIM coverage is afforded to the individual named insured and family members under the policy. UIM coverage is not just provided to occupants of specifically described autos. The disclaimer, therefore, is invalid. Nonetheless, insurers often persist in this type of disclaimer to the detriment of the
unsophisticated claimant.
Underinsured motorist coverage in a business auto policy, like all auto policies, is set forth in a separate coverage part of the policy. That coverage part (or endorsement) defines persons eligible to recover UIM benefits. The standard ISO policy defines an “Insured” for UIM recovery as follows:
A. Who Is An Insured
If the Named Insured is designated in the Declarations as: 1. An individual, then the following are “insureds”:
3 a. The Named Insured and any “family members”.
b. Anyone else “occupying” a covered “motor vehicle” or a temporary substitute for a covered “motor vehicle”. The covered “motor vehicle” must be out of service because of its breakdown, repair, servicing, “loss” or destruction.
c. Anyone for damages he or she is entitled to recover because of “bodily injury” sustained by another “insured”.
2. A partnership, limited liability company, corporation or any other form of organization, then the following are “insureds”:
a. Anyone “occupying” a covered “motor vehicle” or a temporary substitute for a covered “motor vehicle”. The covered “motor vehicle” must be out of service because of its breakdown, repair, servicing, “loss” or
destruction.
b. Anyone for damages he or she is entitled to recover because of “bodily injury” sustained by another “insured”.
Pennsylvania Underinsured Motorist Coverage – Non-Stacked CA 21 93 11 08, pp. 1- 2 of 4. Thus, where the policy is issued to an individual, that person and resident relatives are afforded UIM coverage when involved in a motor vehicle accident regardless of the identity of the involved vehicles.
The coverage agreement in the ISO Underinsured Motorist endorsement for business auto policies provides:
B. Coverage
1. We will pay all sums the “insured” is legally entitled to recover as compensatory damages from the owner or driver of an “underinsured motor vehicle”. The damages must result from “bodily injury” sustained by the “insured” caused by an “accident”. The owner’s or driver’s liability for these damages must result from the ownership, maintenance or use of an “underinsured motor vehicle.”
Pennsylvania Underinsured Motorist Coverage – Non-Stacked CA 21 93 11 08, p. 1 of 4. Thus, the individual named insured is entitled to UIM benefits for injuries arising from the actions of an underinsured motorist. UIM coverage for the individual named insured is not limited to designated vehicles, alone. In the illustration, therefore, the individual named insured is entitled to UIM benefits under the business auto policy even though he sustained injury while occupying a friend’s vehicle.
4 Nonetheless, insurers still deny UIM coverage to individual named insureds under
business auto policies when the individual named insured is not occupying a specifically
designated vehicle at the time of the accident based upon the covered auto symbol limitations on the Declarations Pages. This type of invalid disclaimer has been addressed and rejected by the Pennsylvania Superior Court. In Lastooka v. Aetna Insurance Company, 552 A.2d 254 (Pa. Super. 1988), the Court addressed a coverage issue where the owner of a sole proprietorship, who qualified as a named insured under a business auto policy, was killed in a motor vehicle accident while riding as a passenger in a friend’s vehicle which was not insured under the business auto policy.The insurer in that case argued that there was no coverage because the deceased owner was not operating a covered vehicle at the time the accident. The Court disagreed and reasoned as follows:
Under the policy in this case, there is a “schedule of coverages and covered autos” which designated that uninsured motorist coverage had been purchased, but more important to appellee’s argument was the fact that the “covered autos” box was coded as covering “owned autos only”. Appellee argues that this designation requires a finding that uninsured motorist coverage apply to the deceased only while in an owned auto. We disagree.
The page of the policy of uninsured motorist coverage contains a section entitled “who is an insured” and states “1. You or any family member. 2. Anyone else occupying a covered auto . . . .” The policy does not read “you or any family member while occupying a covered auto” which is how appellee, in essence, asks us to interpret the provision. Contrast this with the provisions in the policy on liability coverage which, under the “who is insured” section, states that “you are an insured for any covered auto.” If the uninsured motorist section is read as urged by appellee, the first classification, known as a class one insured, would be superfluous. Coverage would simply apply to any person occupying the vehicle whether or not they be a named insured or otherwise. However, under developed case law the class one status is crucial to determining the right to stack coverages, and cannot simply be disregarded. See Utica Mutual Insurance Company v. Contrisciane, 473 A.2d 1005 (Pa. 1984).
Lastooka, 552 A.2d at 255. This coverage analysis is applicable to the invalid coverage disclaimer often issued by insurers under a business auto policy issued to an individual named insured.
In making the disclaimer of UM or UIM coverage, the insurer many times references the definition of “Insured” under business auto policies in the liability coverage part. The standard ISO business auto policy defines “Insured” for liability coverage as follows:
A. WHO IS AN INSURED The following are “insureds”:
5 a. You for any covered “auto”.
Business Auto Coverage Form CA 00 01 10 01 p. 2 of 11. Thus, the standard ISO business auto policy specifically limits liability coverage for the named insured to use of a covered auto. This definitional limitation is not included in the standard ISO Underinsured Motorist Endorsement. Thus, the standard ISO business auto policy does not limit UIM coverage to occupants of covered autos, alone, as it does for liability coverage.
Unfortunately, as a result of the misinterpretation of business auto policies by insurers, eligible persons are sometimes denied UM or UIM benefits to which they are otherwise entitled. Wrongful disclaimers, based upon the misapprehension that UM andUIM coverage is limited to covered vehicles, are often made by insurers to claimants otherwise eligible for recovery. Where the named insured on the business auto policy is an individual, UM andUIM coverage is to be extended regardless of the identity of the vehicle involved in the accident. The specific policy terms extend coverage. Insurers must be required to pay these UM and UIM claims where the policy, by its specific terms, extends coverage. Any such wrongful disclaimers should be challenged. Contractual UIM benefits are available. Extra-contractual bad faith damages may also potentially be recoverable where such disclaimers are made.
