Does Hired and Non-Owned Auto Cover Physical Damage?

Hired and Non-Owned Auto (HNOA) coverage is a type of commercial auto insurance designed to address liability exposures for businesses. It protects a business from financial losses arising from accidents involving vehicles the business does not own but uses for business purposes. This coverage focuses on the liability the business might incur for bodily injury or property damage caused to third parties, not the physical damage to the vehicle. HNOA coverage does not include protection for physical damage to the hired or non-owned vehicle itself.

Understanding Hired and Non-Owned Auto Coverage

Hired and Non-Owned Auto coverage is an important component of a business’s insurance portfolio, addressing risks associated with vehicles not directly owned by the company. Hired autos refer to vehicles a business rents, leases, or borrows for commercial activities, such as a rental car used for a business trip or a leased truck for deliveries. Non-owned autos are personal vehicles, often owned by employees, used for business-related tasks, like an employee driving their own car to a client meeting.

This type of coverage is a liability policy. It protects the business financially if it is found legally responsible for an accident that causes bodily injury to another person or damages their property. For instance, if an employee driving their personal car for a business purpose causes an accident, HNOA could cover the legal expenses and damages to the third party if the business is sued. The protection extends to property damage liability, covering costs to repair or replace another person’s vehicle or property, and bodily injury liability, which addresses medical costs, lost income, and legal fees for injured third parties.

While mitigating third-party liability risks, HNOA does not provide coverage for injuries to the business’s own employees or damage to the hired or non-owned vehicle itself. The employee’s personal auto policy typically serves as the primary coverage for their own vehicle, and the business’s HNOA policy generally acts as excess coverage for liability after the employee’s personal policy limits are exhausted. Businesses often add HNOA as an endorsement to their commercial auto or general liability insurance policies.

Physical Damage Coverage Defined

Physical damage coverage in auto insurance protects the insured vehicle itself from various forms of harm. This coverage is distinct from liability coverage, which addresses damages or injuries to third parties. Physical damage coverage typically includes two main components: collision coverage and comprehensive coverage.

Collision coverage pays for repairs or replacement of the insured vehicle if it is damaged in an accident involving another vehicle or object, or if it overturns. This applies regardless of fault. Comprehensive coverage, also known as “other than collision” coverage, protects the vehicle from non-collision incidents. These incidents include theft, vandalism, fire, natural disasters like floods or hail, and damage from falling objects or hitting an animal.

While most states mandate liability insurance, physical damage coverage is often optional. It is typically only required if mandated by a lienholder or lease agreement.

Securing Physical Damage Coverage for Hired and Non-Owned Vehicles

Given that standard Hired and Non-Owned Auto (HNOA) coverage primarily addresses liability to third parties, businesses must explore additional avenues to cover physical damage to vehicles they rent or whose employees use for business. For hired vehicles, businesses have several options. One common method is purchasing Collision Damage Waivers (CDW) or Loss Damage Waivers (LDW) directly from the rental car company. These waivers are contractual agreements, not insurance policies, that release the renter from financial responsibility for physical damage or theft of the rental vehicle, subject to the terms of the rental agreement.

Some commercial auto policies can be endorsed to provide physical damage coverage for hired vehicles. This “hired auto physical damage” endorsement extends coverage to rented or borrowed vehicles, treating them similarly to owned vehicles under the policy. Businesses should ensure employees rent vehicles in the business’s name and use a business credit card to facilitate coverage from such endorsements. This endorsement can cover the cost of repairs or replacement for the hired vehicle itself, offering a more comprehensive solution than relying solely on rental company waivers, which may have exclusions.

For non-owned vehicles, such as those personally owned by employees but used for business, the situation differs. Any physical damage to the employee’s personal vehicle would typically be covered by the employee’s personal auto insurance policy, assuming they carry collision and comprehensive coverage. The business’s HNOA coverage would only apply for liability claims if the employee’s personal policy limits are exhausted or if the personal policy excludes business use.