Coverage vs. Eligibility: Is a PAP Enough for an Independent Contractor?

An insured who has a non-ISO personal auto policy works as an independent contractor with no employees. As an electrician, he uses his own pickup truck—the one on the PAP—to visit jobsites. He does not haul or deliver products, but on occasion transports tools or wiring to perform service work for residences or businesses, such as installing a light switch or repairing a fan.

Although the PAP includes coverage for business use, the underwriter advises the agent that the insured needs to obtain a commercial auto policy, saying he isn’t covered in the event of an accident if he happens to have equipment in the truck.

Q: “Does this client require a commercial auto policy for proper coverage?”

A: “Coverage and eligibility are two different things. Based on the underwriting guidelines, your insured is not eligible for a PAP. But that doesn’t mean he doesn’t have coverage if he is currently insured on a PAP. The underwriter would have to incorporate the eligibility and underwriting rules into the policy to preclude coverage.

For example:

Before a manual can be looked to in determining the rights and liabilities of the parties, it must first have been referred to in the body of the policies by plain and clear language and properly made a part thereof. — Virginia Sur. Co. v. Knoxville Transit Lines, 135 F. Supp. 606 (E.D. Tenn. 1955)

Similarly, valid grounds are necessary if the insurer wants to cancel mid-term. Ask the underwriter to cite the exclusions that remove coverage. Otherwise, the insurer is likely stuck with the account until renewal time. Also check with the claims department to confirm coverage.

Obviously, the carrier doesn’t want this exposure, but it’s on it until its policy language matches its underwriting appetite. Your best bet is to move the coverage eventually. Until then, it appears that coverage is in place.”

Bill Wilson is director of the Big “I” Virtual University.

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, email logon@iiaba.net to request login information.