Should You Place a Personally Owned Vehicle on a BAP?

One of the owners of a corporation, the named insured, wants to add a personally titled vehicle to the corporation’s auto policy.

The agency’s procedure manual calls for the CSR to verify that there is a formal lease in place from the individual to the corporation. The lease contains language that requires the lessor to be named as an additional insured under the named insured's auto policy, as well as any loss payee requirements.

One producer at the agency thinks it’s not necessary to list the lessor as an additional insured on the basis that the liability will respond to the individual and protect his personal assets. The producer believes the new business auto forms provide coverage for a personally owned vehicle scheduled on the declarations page.

Q: While I agree there is coverage for the business, I don't think there is coverage for the owner. Am I correct?

A: This question is more complicated than many realize. First, yes, the insured corporation is covered for the vehicle. Extension of coverage could cause problems at the time of a claim, such as misrepresentation—but that's a different discussion.

Second, the producer is wrong. The Who Is An Insured section in the Liability section of ISO's business auto policy specifically excludes the owner of a vehicle that is used for company business. There is no policy provision in the unendorsed policy that addresses or changes this exclusion when a vehicle is leased back to the company—even if the vehicle owner is a corporate officer, since there are two separate "persons."

Yes, a formal lease is required. At minimum, the lease should include:

  • A description of the vehicle.
  • A description of the individual leasing the car to the company: name, position in the company, and business purpose for adding the vehicle.
  • The period of the lease agreement, which can be indefinite.
  • Whether or not financial consideration is required from the lessee: mileage, fuel, monthly fee and the like.
  • The requirement that the lessor have a personal auto policy. If no other autos are owned, a named non-owner policy is necessary.
  • Properly notarized signatures. If the contract is not notarized, it is acceptable for a third party witness to attest and date the signatures.

Since the BAP now provides 24-hour coverage, the lease may also need to include something about non-permitted uses or non-permitted drivers. 

Lastly, the policy should be endorsed with CA 99 47 – Employee as Lessor, since a corporate officer is an employee of the corporation. This takes the place of the additional insured-type endorsement because the named employee becomes an insured on the policy. The endorsement also makes the vehicle an owned vehicle for coverage purposes.

Although the personally owned auto could be managed on the BAP as described, the owner is better served with a PAP.

Chris Boggs is executive director of the Big “I” Virtual University (VU).

This question was originally submitted by an agent through the VU’s Ask an Expert Service. Answers to other coverage questions are available on the VU website. If you need help accessing the website, request login information.