Bridging the Gap: The CGL Auto Exclusion
A standard Commercial General Liability (CGL) policy contains a significant exclusion known as the 'Aircraft, Auto or Watercraft' exclusion. This provision states that the CGL policy does not cover bodily injury or property damage arising out of the ownership, maintenance, use, or entrustment to others of any 'auto' owned or operated by or rented or loaned to any insured.
For many small businesses, this creates a dangerous coverage gap. If an employee uses their personal car to pick up office supplies and causes an accident, or if the business owner rents a truck for a weekend event, the standard CGL policy typically provides zero protection. To address this exposure without purchasing a full Commercial Auto Policy, insurers offer the Non-Owned and Hired Auto (NOHA) endorsement. This is a critical topic for those preparing for the practice General Liability questions on the licensing exam.
Understanding Hired Auto Coverage
The 'Hired Auto' portion of the endorsement provides liability coverage for vehicles that the business leases, hires, rents, or borrows. It is important to note that this does not include vehicles owned by the business, its employees, partners, or members of their households.
- Typical Use Case: A business executive rents a car while traveling for a corporate conference.
- Coverage Scope: If the executive causes an accident while driving the rental, the endorsement protects the business entity if it is sued for the damages.
- Exclusions: It generally excludes vehicles hired with a driver (which are often covered under different arrangements).
For more foundational information on how these endorsements interact with the primary policy, see our complete General Liability exam guide.
Hired vs. Non-Owned Auto Comparison
| Feature | Hired Auto | Non-Owned Auto |
|---|---|---|
| Ownership | Rented/Leased by the business | Owned by employees or partners |
| Common Example | Rental car from an agency | Employee car used for deliveries |
| Key Requirement | Used for business purposes | Used in the insured's business |
| Primary/Excess | Usually Primary for the business | Excess over employee's personal insurance |
Understanding Non-Owned Auto Coverage
The 'Non-Owned Auto' portion covers liability for vehicles not owned, leased, hired, or borrowed by the business, but used in connection with the business. This almost exclusively refers to vehicles owned by employees, partners, or members of a limited liability company while they are performing duties related to the business.
If an employee is driving their personal car to the post office on behalf of the employer and strikes a pedestrian, the pedestrian may sue both the employee and the employer. The employee's personal auto policy would respond first (primary), but if the limits are exhausted or if the business is named in a large lawsuit, the Non-Owned Auto endorsement on the CGL policy protects the business's interests.
Key Exam Concepts for NOHA
Exam Trap: Physical Damage Coverage
One of the most common mistakes on the insurance exam is assuming that the Non-Owned and Hired Auto endorsement covers Comprehensive or Collision (physical damage) for the vehicles. It does not. This endorsement provides Liability coverage (Bodily Injury and Property Damage to third parties) only. If a rented car is totaled, the business must look to the rental contract or a separate physical damage endorsement for reimbursement of the vehicle's value.
Primary vs. Excess Priority of Coverage
In insurance law, 'insurance follows the car.' This means that the vehicle owner's policy is typically primary. However, when a business uses an endorsement, the priority shifts based on the type of vehicle:
- Non-Owned: The coverage is strictly excess. The employee's personal auto policy must pay its full limit before the CGL endorsement begins to pay.
- Hired: The coverage is usually primary for the business's liability, although this can vary depending on the specific wording of the rental contract and the endorsement form used.