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Daycare Insurance>Understanding Excess Transportation Liability and Non-Owned Auto Liability
Daycare Insurance 04:11 PM 10-22-2014
Understanding Excess Transportation Liability and Non-Owned Auto Liability
And What They Mean to Your Business

As a child care business, you may find yourself having to decide whether or not you will offer a school drop-off and pick-up service. This decision exposes you to more liability risk. In the event of an auto accident, who’s the responsible party? What if these children sustain bodily injury? What if you weren’t the person driving? These are good questions to concern yourself with considering you are travelling with other people’s children.

Child Care Excess Transportation Coverage

Let’s examine what the Transportation endorsement does and how it protects you. In the Excess Transportation Liability endorsement, the language used first specifies that this coverage is “excess of any other insurance available to and collectible by the Insured”. This means that your own auto policy is “pay-first”, or primary, and that anything awarded by this endorsement is payable AFTER the underlying conditions are met.

There are two potential outcomes that trigger the Transportation endorsement:

1) Your auto-carrier denies any claim seeking damages for injured children, and

2) Your limits are exhausted in defense of said claim(s).

In California, the state minimum liability limits on a personal auto policy are $15,000 per person/$30,000 per accident (Other states will vary minimum liability requirements). Depending on the number of injured children, if the other party was injured in the accident, and the limits you carry, this amount is most likely insufficient. It is also extremely easy to exhaust these limits and may leave you having to pay out of pocket for any damages awarded above and beyond that $30,000 accident limit.

*The good news in all of this is that the student accident policy of $20,000 per enrolled child pays for ALL medical expenses, including while transporting the children.*

An important clause that explains the function of the endorsement is Condition 1. This condition clearly identifies how you are covered for instances of liability involving children hurt in an auto accident.

Insuring Agreement I. COVERAGE is extended to include “bodily injury” to a “day care child” while being transported as a passenger in an “owned automobile” or a “temporary substitute automobile”.

This condition shows that the coverage is only for liability stemming from incurred bodily injury. A child has to get hurt in an auto accident. If there are no injuries to a child from a minor collision, this endorsement may not apply.

However, let’s examine some of the potential hazards of the endorsement’s language. There are a couple of conditions that are amended in the wording. For instance, Condition 3 of the Transportation Endorsement stipulates the following:

The expenses incurred by the Company in defending any claim or suit pursuant to the Child Care Excess Transportation Coverage endorsement shall reduce the limits of liability available under this endorsement.

The clause means exactly what it says—if there is an accident and you are sued by parents because their child suffered bodily injury, the cost of defending that claim will reduce your limits. In this case, the total limit available through the endorsement is $50,000, regardless of the number of children involved. If defense costs come out to $10,000, your remaining available limit is then reduced to $40,000.

It is also important to understand that this endorsement is not a replacement for Auto Liability Insurance. Auto liability operates entirely different, affording coverage for your liability in property damage you cause to another vehicle. The language in the Excess Transportation endorsement, as shown, limits coverage to bodily injury. It will not pay for property damage you cause in an auto accident. It also will not pay for injuries the other driver and their passenger(s) might sustain as again, the language of the endorsement limits coverage to a “day care child”.

Non-Owned Auto Liability

This endorsement is a bit trickier. For clarification, “Non-Owned Automobile” is defined as a vehicle not owned by you, not registered in your name, not hired by you (no buses), or not loaned to you. It specifically means a vehicle someone else is driving on your business’ behalf. Does this mean that your helpers, employees, or staff persons are being afforded auto liability coverage? No. The endorsement is covering you, the business owner.

[Coverage] is extended to include liability of the “Named Insured” [You] only for “bodily injury” or “property damage” arising out of the use of any “non-owned automobile” in the child care business of the “Named Insured” by any person other than the “Named Insured”.

The key phrase in this clause is “any person other than”. This is the triggering condition for this coverage to apply. It cannot be you behind the wheel; it has to be a person driving for your business, such as having your assistant or employee dropping off or picking up the children from school. A common misconception encountered in understanding this form is the definition of “owned”. Providers often misinterpret this concept as being a “borrowed” vehicle that they are using.

What the endorsement is doing is providing you coverage for the actions of others. This is what is known as “vicarious liability”. By sending this driver out on the road, you are assuming responsibility for this person’s actions, much in the same way you assume the responsibility for their actions in the case of employment operations. Even though employees, helpers, and volunteers are considered “Insureds”, this endorsement is exclusive to the “Named Insured”.

An important condition that is added to this form expresses the scope of how the limit of $35,000 is handled in the event of a suit or claim brought against you.

The insurance afforded by this endorsement shall be excess insurance over any other insurance available to the “Insured”, whether such other insurance is collectible or not.

Again, like the Transportation endorsement previously described, this is an “excess” form. Additionally, the obligation of the company is dependent upon any other available coverage. However, unlike the Transportation endorsement, this form states that it is not the Company’s obligation or requirement to “drop down” or assume any obligation of any other insurance. This means that if your driver has a clause or endorsement that does not afford coverage in this specific incident (non-owned auto) on their personal auto policy, regardless of the language used, that clause or endorsement does not affect this particular endorsement.

This presents a semi-problematic situation. If, for instance, your driver’s auto policy contains language that stipulates that there is no coverage for business use of the vehicle, you are now subject to exposure because of their lack of financial responsibility. Your driver, as the insured, is then faced with a potential “gap” in coverage, where their auto-policy may deny the claim because they were driving on your behalf. The Non-Owned Auto Liability form protects your interests and assets from this type of exposure in the event an involved party seeks damages from you.

Bottom Line

These endorsements are not designed as replacements for legally required insurance. Neither one replaces an auto policy, and neither one should be viewed as such. They are here to protect you, the business owner, and your assets from exposures you face when transporting children or having some one else run errands on the child care’s behalf. They are different—one protecting you from lawsuits because a child was injured in an auto accident, the other protecting you from the actions or negligence of an employee, helper, or volunteer driver.

I hope this explanation helps you in deciding if either of these endorsements is necessary to your business operations.

NOTE: This Analysis was done based on our current product offerings and policy forms and is for educational purposes only. This does not reflect the forms of any other insurance company.
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