A small business that uses vehicles as part of its operations faces certain risks that other businesses don’t. The right commercial auto insurance policy makes sure you’re protected so that you can get back to focusing on your business.

A business owner reviews commercial auto insurance documents and keys lying on a table in an office.

What Is Commercial Auto and How Does It Work?

Commercial auto is a type of insurance designed to cover vehicles driven for business purposes. Businesses use commercial auto insurance as a means of risk management. Through a contractual agreement with an insurance provider, the business is able to transfer a portion of its risk. This offsets the potential for a larger financial loss that could occur if a business vehicle were involved in an accident that resulted in property damage or legal liability to a third party.

Key Coverage Differences

While there are some similarities between commercial auto and the more familiar personal auto coverage, commercial auto comes with some key differences.

  • What’s alike: Both commercial auto and personal auto policies offer protection if a vehicle is involved in a traffic accident or other covered incident, paying out for damages to the covered vehicle or for injuries or property damage caused to a third party.
  • What’s different: While a personal car insurance policy covers the owner of the vehicle while they’re on the go for any number of personal reasons, a commercial auto policy covers a business entity while its owners or employees are operating the vehicle for business purposes. There’s also a greater variety of the type of vehicles that may be covered by a commercial auto policy, compared to a typical personal auto policy.

Covered Vehicles and Uses

Company cars, work trucks, delivery vans and more can all be covered under a commercial auto policy. These vehicles are typically owned by a commercial business entity, rather than an individual owner, and are driven solely for work purposes.

These company vehicles can serve a variety of functions.

  • They can be used to haul tools and equipment, raw materials and finished goods.
  • They may be used to transport workers, clients or customers.
  • They can be driven by one person, such as the owner of a sole proprietor business, or many, such as a team of professional drivers employed by a larger firm.

Hired and Non-Owned Autos

The variety of businesses today is truly endless, so some types of commercial auto policies exist to cover certain additional business risks. For instance, some companies may need employees to be able to travel between job sites or client and customer locations using their own vehicles. Others may have vehicle needs that rise and fall with demand, making the hiring or renting of vehicles more cost-effective than permanent ownership and maintenance of an entire fleet.

In these cases, businesses can obtain Hired and Non-Owned Auto (HNOA) coverage. HNOA insurance is a specialized type of commercial auto coverage that protects your business when you or your employees are driving your own vehicles or rented, leased or borrowed vehicles for business purposes. HNOA often works in combination with other forms of insurance, responding in specific instances when it is needed, yet allowing other policies held by employee drivers or third parties to respond first, when appropriate.

For example, say your employee was driving their own vehicle between client appointments and got into an accident for which they were deemed at fault:

  • The employee’s own personal insurance would respond for damage to their vehicle.
  • The business’s HNOA insurance would respond for damage to third-party vehicles.
  • The business’s workers’ compensation insurance would respond to the employee’s injuries.
  • The employee’s personal insurance would respond first to injuries to a third party, then the business’s HNOA insurance would respond to the claim as needed.

If an employee had the same accident while driving a hired vehicle:

  • The business’s HNOA insurance would respond to damage to the third-party vehicles.
  • The business’s workers’ compensation insurance would respond to the employee’s injuries.
  • The business’s HNOA insurance would respond to injuries to the third parties.

Why Having the Right Commercial Auto Matters

If your business uses vehicles as part of its operations, having the right commercial auto coverage is important. Even with safe drivers, auto claims are common. More than 5.93 million accidents were reported to insurers across the U.S. in 2022. That number is typical, with about six million incidents and 35,000 traffic deaths occurring each year.

Uninsured and Underinsured Risks

Businesses without proper commercial auto coverage face significant exposures. A typical traffic accident can easily reach five figures, while some losses amount to six figures or more. Small businesses are more likely to lack the correct amount or type of coverage to address their risks.

Personal auto policies are designed to cover typical driver risks, which can differ significantly from commercial driver risks. It’s for this reason that many policies exclude coverage for business auto use. When a commercial accident occurs, personal claims are often denied. The most common examples include claims involving employees of rideshare and food delivery businesses, but any claim excluded from coverage can be denied.

When an employee or third party is injured, a personal auto claim is denied and a business is involved, a lawsuit usually follows. Uninsured and underinsured businesses risk not only the losses from damaged company property, but bills for medical care, attorney fees, judgements and settlements. Businesses involved in a claim can also endure reputational damage and regulatory scrutiny.

Meeting Your Needs and Requirements

It’s good to remember that your business can be held liable for any accidents or incidents involving your drivers, the vehicles you own, and potentially even those vehicles you don’t own. Even if an employee’s personal auto coverage is used first in response to an accident, it is still critical for businesses to have their own coverage.

Commercial Auto insurance coverage from Lockton Affinity can help you protect your PuroClean franchise from legal fees and damages when your fleet vehicles are involved in a crash, while HNOA can protect you when your employees are driving their own vehicles or rented vehicles for business purposes. These coverages can help you reduce your risk and control your exposures.

Determining the specific auto coverage your business needs can be tricky, but help is available. Our dedicated representatives can help you evaluate your auto risks and find coverage that protects against your unique risks. Contact Lockton Affinity today at (844) 456-1518 to get started.