Nonprofit insurance: The auto risk you may not be insured against

Published on Wed, 06/11/2014 - 18:25

Non-owned auto liability can be confusing for any business owner. But if you run a nonprofit, you have some unique risks that most garden variety main street businesses don’t have. So it’s crucial to understand this exposure.

What is hired and non-owned auto liability?

Before you can fully understand this risk, it’s important to get some definitions out of the way:

  • Hired auto liability refers to the liability you assume when you hire, rent, or lease a vehicle for your business, such as renting a car from Hertz.
  • Non-owned auto liability refers to use of a vehicle that isn’t owned by your organization, but is used by an employee, volunteer, or anyone doing work on your organization’s behalf. For example, if your administrative assistant uses her own vehicle to pick up office supplies for you, her car isn’t owned by your nonprofit, but it’s being used for your business, so you have exposure.

Basically, any vehicle that isn’t registered and titled to your organization but is used in the course of your business is either a hired or a non-owned vehicle.

What are your unique exposures as a nonprofit?

Nonprofits often have driving exposures that regular businesses don’t have. For instance:

  • Volunteers driving their own vehicles
  • Transporting children
  • Transporting the elderly
  • Hiring vehicles for special use or events
  • Volunteers driving

What would happen if a major auto claim caused by an employee or volunteer resulted in a settlement demand on your organization? Let’s look at one possible scenario…

One of your employees drives his own vehicle to pick up some supplies for an upcoming event your nonprofit is hosting. Along the way he causes an accident, resulting in major damage to the other vehicle and injuries to the other driver. The injured driver sues your employee, his insurance company, your nonprofit, and your insurance company. Here’s how it might play out:

Your employee’s insurance company will be the first to respond and defend him under his policy, up to the policy limits. When those limits are exhausted, the injured driver will come after you and your insurance company. What happens next depends on your coverage. If you have non-owned auto liability coverage, your insurance company takes care of it and you get on with your life. But if you failed to get this coverage, getting on with your life is going to be a lot tougher. You could find yourself on the hook for a huge settlement and that could divert a lot of funds away from your organization’s ability to serve.

Avoid this costly mistake

Too many nonprofits assume their commercial auto policy will cover them when employees and volunteers are using personal vehicles. But that’s a dangerous and costly assumption. If you have employees or volunteers who drive for the business, make sure you have non-owned and hired coverage. After all, you can’t control what personal insurance coverage your employees and volunteers have; you can’t predict the severity of a potential accident; and your regular commercial auto policy will leave you stranded.

Let’s face it – today’s accident claimants and their lawyers will seek recovery from as many sources as they can. So don’t leave your nonprofit vulnerable to this potential liability. When you’re ready to discuss your nonprofit insurance needs with an expert, Heffernan's Nonprofit Insurance Practice is the place to start. With our wide range of insurance products and our affiliations with industry leaders, we’ll help you steer clear of the hazards.