Even though Alabama law requires motorists to carry liability insurance, some estimate that 19.5% of drivers in Alabama are uninsured. Considering the cost of medical care and the prevalence of distracted driving, even drivers with compliant liability insurance are often underinsured. Uninsured/underinsured motorist (UM) coverage is designed to remedy that problem by providing benefits for those who are injured by the negligence of an uninsured or underinsured driver.
Regardless of whether you are shopping for personal or commercial auto insurance, UM coverage is much more than a luxury — it is a necessity.
Commercial auto policyholders should take particular care to understand the scope of their UM coverage. While most personal auto policies extend UM coverage to the named insured, resident relatives and those occupying a covered automobile, commercial auto policies vary widely.
A disclaimer: UM law in Alabama is vast and (at times) complicated, and a column like this can’t address every important term in your auto policy. That said, the first things to understand when purchasing commercial auto policies are the UM coverage limits, the vehicles that are covered by the policy and the definition of “insured.”
Calculating UM coverage limits
Unless the named insured rejects UM coverage in writing, Alabama law requires insurers to provide UM coverage of at least $25,000 per person and $50,000 per occurrence. Of course, policyholders have an option to purchase more coverage for an increased premium. The UM statute, Ala. Code § 32-7-23, provides that insured people are entitled to “stack” up to three UM limits in a multi-vehicle policy.
Alabama law does not limit the number of coverages a person can stack under multiple policies. This issue typically arises when a commercial UM policy applies, because the insureds often also carry personal UM coverage.
What vehicles are covered
Commercial auto policies often tie coverage to “covered autos.” The definition of covered auto can vary widely, and it is important to read and understand the scope of that coverage.
For example, some commercial auto policies only cover “scheduled autos,” vehicles that are specifically listed on the policy declarations. Other commercial auto policies extend coverage to all vehicles owned by the insured. For example, some garage policies extend coverage to all autos owned by the insured and used in the insured’s business — for a car dealership, this definition may include every vehicle on the lot at the time of an accident.
When examining the scope of covered autos under a commercial policy, it may be important to consider the type of business entity identified as the named insured. For example, if the named insured is a corporation, a vehicle owned by one of its officers individually is not considered to be owned by the insured corporation. On the other hand, if the named insured is a partnership, a vehicle owned by one of the partners may be covered, depending on the language of the policy.
The possibilities can be staggering, but it is necessary to understand which autos are covered by your policy before you rely on your UM coverage. The repercussions for failing to do so can be very serious.
Who is an insured?
Most personal auto policies cover a few insureds: the named insured, resident relatives and permissive users. However, commercial auto policies can be tailored to fit your specific business needs. Some commercial auto policies offer broad coverage to all employees and officers driving while on the job. Other commercial auto policies only cover those occupying a scheduled auto. The definition of “insured” can turn on the type of business entity listed as the named insured.
The UM statute does not provide many requirements for the scope of UM coverage. Alabama law simply requires that a UM policy must cover at least those covered by the liability section. Safeway Ins. Co. of Alabama, Inc. v. Thomas, 264 So. 3d 98, 103-04 (Ala. Civ. App. 2018). There are some common misconceptions about this. For example, Alabama law does not require UM policies to offer “omnibus coverage,” coverage for those using a covered auto with permission. Grimes v. Alfa Mut. Ins. Co., 227 So. 3d 475 (Ala. 2017).
Consider your business’s needs before you purchase UM coverage. A low premium is attractive, but you must consider how your covered autos will be used to get the full value from your UM policy. If your business owns one vehicle that is used exclusively by a particular employee for deliveries, you can consider a narrow coverage. However, if your vehicles are sometimes used by contractors, customers or other non-employees, you should ensure that your UM coverage extends to those you hope to protect.
Read and understand
Every business is unique, and the ideal UM policy for a homebuilder is very different than the ideal policy for a tire shop.
While you should not expect to know the body of Alabama law governing UM insurance, an understanding of basic UM coverage principles can help you understand the different coverages available and choose the policy that balances your desire for low premiums with the optimal level of protection.
The most important thing you should always do is read and understand your policy when you purchase it. That knowledge will allow you to not only make a business decision about the insurance you are purchasing, but it can also inform the way you use your vehicles and run your business.
Brian Richardson is a partner at Swift, Currie, McGhee & Hiers LLP, representing large insurance companies in matters related to arson and fraud, automobile litigation, bad faith litigation, commercial litigation, construction law, insurance coverage, property insurance and trucking litigation. He can be reached at [email protected].
Murray Flint is an attorney practicing in the coverage and commercial litigation section of Swift, Currie, McGhee & Hiers, LLP. He handles arson and fraud claims, advises insurance carriers on coverage issues and defends companies both before and during civil litigation. He can be reached at [email protected].