Auto Insurance for Employee Vehicles – Non Owned Auto Physical Damage Coverage Gap

Full coverage is a misleading term. Making the assumption that you have full coverage in any sense can lead to uncovered claims and losses. We always recommend discussing your coverage concerns with a knowledgeable broker or agent to find out what type of coverage gaps exist and develop a plan to close those gaps. 

A Nonprofit Organization contacted our office to inquire about a potential Auto Insurance coverage gap and needed assistance finding a product that would close the gap. This organization employs Social Workers that go into the field to visit clients and occasionally transport clients. The organization does not own any vehicles and carriers Hired and Non Owned Auto Insurance. 

They require their employees to carry their own Auto Insurance HOWEVER if an employee were to get into an accident, the employees personal auto insurance could potentially decline the claim due to the fact that the employee was using their vehicle for business purposes. 

The organization was under the assumption that the Hired and Non Owned auto would extend coverage to repair the employees car if it was damaged. They even obtained Hired Auto Physical Damage in an attempt to close the gap. Unfortunately, Hired Auto Physical Damage is intended to cover vehicles rented by the organization on a temporary basis. If the vehicle you rent is damaged then the rental car company could bill you for the “loss of use” and the repair or replacement costs due to the damage that was caused. Hired Auto Physical Damage will cover those costs. 


Ultimately it is the responsibility of the employee to obtain the correct coverage for their lifestyle. The staff member should work with their insurance agent to write a policy that will extend coverage while using their vehicle for their job. Some companies will extend coverage, others will exclude coverage for business use. The team member may have to obtain a Commercial Auto policy if their vehicle is used extensively for visits and client transportation. 

Best practice would be to alert your team of this coverage gap and provide them with the tools to protect themselves. It should be clear that the employee is responsible for their own vehicle repairs if their car is damaged. This can be addressed in a company wide memo or added to your employee manual/employment agreement. 

A running list of solutions and precautions has been developed to address this concern:  

Send a Memo/Advise Staff – clearly explain to the team that they must properly insure themselves.

  1. Set Up a Fund – some organizations have set up an emergency fund to assist employees with vehicle repairs that were not covered by insurance. 
  2. Company Cars – if it is in the organization’s budget to purchase a vehicle, this is a great solution. 
  3. Employees Buy a Commercial Policy – carriers can not decline claim for business use.
  4. Employees ask Personal Lines Carrier to Extend Coverage  – some personal carriers will extend coverage for business use. 
  5. Increase the mileage reimbursement to cover the increased insurance costs – help staff cover the additional cost of insurance by increasing mileage reimbursement. 

Explaining to a team member that the organization does not provide coverage for their car after it is in a wreck can lead to an upset team. Proactive insurance talks are an informative way to show your team that you care.

For more information about how to protect your Nonprofit or Social Service Organization from Non Owned Auto Physical Damage claims, contact our office at 626-815-1550.