Defining Coverage for Non-Owned Autos

These days, it is common for individuals to drive vehicles they do not own. Examples include employees driving company cars, people borrowing friends’ cars frequently, and parents allowing their children to drive their cars all the time.

Problems arise when such drivers are involved in an accident and their auto insurer is asked to afford coverage for liability arising out of the use of an auto that the driver does not own.

Most personal auto policies provide coverage for bodily injury or property damage arising out of the use of an auto not owned by the policy’s named insured. However, most insurers limit such coverage to only occasional use of a non-owned auto. An example is a temporary substitute auto that an insured uses because his owned vehicle is being repaired or serviced. The intent of such a limitation is that the auto insurer is not required to afford coverage for an insured’s full-time use of an auto for which no insurance premium was paid.

But the typical language used by auto insurers to avoid affording coverage for an insured’s frequent use of a non-owned auto has caused considerable confusion. Auto policies usually define a non-owned auto as an auto not owned by or “furnished for the regular use” of the named insured or a relative of the named insured. Many appellate courts have struggled to articulate under what facts an auto may be said to have been furnished for the regular use of an insured. One such appellate decision by the California Court of Appeal, 5th Appellate District, is Medina v. GEICO Indemnity Company.

In Medina, an employer furnished a van to its employee so that she could transport her computer equipment to the employer’s various retail stores to perform auditing services. The employee was required to travel throughout California’s Central Valley, and was allowed to use the company van as her personal vehicle when work required her to be away from home overnight. The employer did not limit the employee’s use of the company van when the employee was on out-of-town work assignments. The employee was involved in an accident during such an out-of-town assignment. A coverage dispute arose because the employee was on a personal errand while driving the company van.

The court in Medina upheld the granting of a summary judgment motion, in favor of the auto insurer, that contended there was no coverage afforded to the named insured because the company van had been furnished for her regular use by her employer as the owner of the van. In doing so, the court articulated some helpful guidelines for auto insurers faced with similar claims.

Obviously, when a person is allowed by the owner to use the vehicle for any and all purposes in the same manner as the person would use his own vehicle, the vehicle can be said to have been furnished for the regular use of the driver. The more difficult claims arise when the auto owner has placed some limitations on the driver’s use of the auto.

The fact that the auto owner places some restrictions on the driver’s use does not automatically mean that the auto was not furnished for the regular use of the driver. The key question is whether, at the time of the accident, the driver’s use of the auto was consistent with the uses authorized by the auto owner. If it was, then there is no coverage because the auto was furnished for the regular use of the driver.

As the court determined in Medina, the fact that the employee was driving the company van while on a personal errand does not mean the vehicle was being used in a manner inconsistent with the purposes for which the employer provided it. Since the employer placed no restrictions on the employee’s use of the company van while the employee was assigned to work out-of-town, her personal use of the company van constituted regular use of the van—using it in the same manner she would have used her personal auto.

According to the court in Medina, the elements to consider when determining whether a car was furnished for regular use include time, place, and manner of use; purpose or type of use; and restrictions on use. In analyzing coverage for claims involving accidents arising out of the use of a non-owned auto, it is important to obtain all of the relevant facts from the auto owner as well as from the driver. In claims involving an auto furnished by an employer, any and all documents provided to the employee regarding the use of a company auto should also be obtained and reviewed. A correct coverage determination can only be made once all the relevant facts are known.