An agent asks, "Recently we have had several personal lines customers ask to transfer their personal vehicles to their business auto policies. In both cases, the businesses are solely owned by our personal auto customers, but they are incorporated. The business auto rates are less (at this time) than the personal rates. We are strongly discouraging this transfer, and have explained the problem with titling, registration, ownership, etc. We would like the experts' opinions on the coverage advantages/disadvantages of personal auto vs. business auto with DOC."
This question often comes up when insureds (e.g., an artisan contractor with a pickup truck) have the option of insuring autos under either a Personal Auto Policy (PAP) or a Business Auto Policy (BAP). While there is no definitively correct answer, often the PAP is a superior way to insure the exposure if the vehicle is personally owned. Again, which form is most appropriate for an insured depends on the particular circumstances.
When comparing prices, be sure you're comparing apples with apples by selecting the same coverages. Make sure the BAP is priced with the appropriate coverage symbols, along with UM/UIM and medical payments, plus PIP if applicable. Also make sure you're comparing the same limits and don't forget the need for umbrella coverage. You're probably going to find generally broader coverage and a cheaper price for a Personal Umbrella Policy (PUP) vs. a Commercial Umbrella Policy (CUP) as long as the PUP covers business use of autos. In addition, you might find it difficult to get a CUP issued with a PAP as underlying coverage.
Neither policy even talks about registration or title specifically but physical damage is like all property or inland marine policies. The "insured" must have an insurable interest in the property. PAP eligibility is contingent upon "ownership" (as are "acquired autos," unless leased) — however, the ISO Personal Auto Manual does not define "ownership" because this is a legal issue that will vary from state to state, depending on statutory criteria or case law. The same is true for the BAP.
Why this is important deals not only with eligibility, but also autos acquired during the policy period. In one instance, like the question cited above, you might have an auto owned by an individual that would like to cover it under a business auto policy of their wholly owned corporation. In another situation, you might have a corporately owned auto that the person wants to cover under a PAP. Both of these scenarios are addressed by separate articles on the Virtual University.
Using the latter situation as an example, if the corporation acquires a new or replacement auto, is it automatically covered by the PAP? The PAP covers acquired autos when "you" become the owner (or acquire it under at least a six month written lease)...the problem is "you" is defined to be the named insured (an individual, not a corporation) and resident spouse. You don't have to be a rocket scientist (or underwriter or adjuster) to see that this presents a problem.
It would be easy to conjure up many scenarios where these types of issues can present problems. So, no matter what course you take, be sure to consult with the insurer to make sure that claims and coverage are what you expect them to be.
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