BAP vs PAP

Do you need a Business Auto Policy (BAP) or is your Personal Auto Policy (PAP) adequate?  Although every contractor asks this question,  this will unfortunately be one of the vaguest answers you will find on our site – because it depends.

Every carrier can have their own guidelines and to complicate things even more, many Personal Auto Policies can be endorsed to expand coverage to the business.  Many contractors fail to mention the business use of their personal vehicle for fear “it will cost more”.  Therefore, unless you specifically ask for this endorsement, you most likely do not have it.  The first concern you need to be worried about is if your PAP excludes business use of your vehicle, which means you would be driving without insurance no matter how much in premium you are paying!

So are you excluded?  Here is the way one carrier will exclude vehicles for business use:

1. Vehicles must be private passenger automobiles owned or leased by an individual, husband or wife resident of the same household or jointly owned by two or more resident relatives.

2. Pickups rated greater than 1 ton, vans and utility type vehicles used only as a private passenger vehicles are also eligible provided such vehicles may not be used in the occupation, profession, or business of the insured other than farming ranching and sales. If the business use consists solely of carrying tools and supplies between the named insured’s residence and a job site, an Artisan risk, is acceptable provided:

a. The vehicle is individually owned, and;
b. The vehicle is operated solely by the named insured and covered family members, and;
c. The named insured has no more than one vehicle in this category, and
d. The vehicle visits no more than 3 job sites per day.
e. The vehicle has no visible signs or business logos.

So what does this mean in English?  Sometimes it’s OK, and sometimes it is not.  In short we can all agree that if you are driving a triple axle with 80,000 GVW, you need a commercial policy, but if you are driving a Chevy Impala as a project manager, your personal policy may be just fine.  It becomes grayer if you consider yourself and “Artisan” and your insurance company thinks you are not.

A more black and white scenario is this:  If you have employees ANY employees, volunteers, or brothers-in-law working on a job with you, you need to get a commercial policy.  There is always the possibility you ask the “ever reliable” brother-in-law to run over to Home Depot and grab a box of six penny nails.  If he gets in an accident, the driver whom he hits will see your logo on the side of the truck and immediately want to call Morgan & Morgan or some other “reputable” attorney.  If your only protection is your PAP, your insurance company can use this as an excuse to deny coverage.  If the accident is very minor, you may not have a problem, but if the accident is big enough, then you may have a far bigger issue to deal with.  Your PAP policy only protects you.  A BAP protects you, your business, and your employees…even if they are in-laws.

Another reason to base your decision on is called “Hired Non-Owned” coverage.  This may be an optional coverage on your BAP.  This means if you ask your helper, employee, in-law, or whomever to run an errand on your behalf and they get in an accident while using their personal vehicle, your policy would most likely respond to the claim if your employee exhausts his insurance limits or (hopefully not) doesn’t have any.

Cell phone call logs are being used as evidence.  We have seen an increase in litigation where attorneys will argue that your employee, at 8:00 PM on a Friday was still working for you even though he was leaving the bar after work and got in an accident.  The reason why?  They will prove that he called you and left a message at 7:55 PM.  Although he may only be leaving you a voicemail letting you know where he left the job-box keys, an attorney will argue that message was work related therefore he was still working for you and therefore you are liable.  Is this fair or reasonable? Absolutely not!  Is this scenario likely?  Unfortunately more likely than you care to admit!

Perhaps this last point will make your decision for you.  The cost is usually very similar for a BAP versus a PAP.  If you can protect you and your business for the same premium, why not?

One last question that comes up is whether or not you or the business owns your vehicle.  If you personally own your truck, you will need to “lease” you vehicle back to the business for $1 a year.  This is a very common move for smaller contractors, but it may have tax implications.  Ask your tax adviser if this creates any issues for you on April 15th.