Date: April 2020
When an organization shares a vehicle or equipment with another entity or borrows an auto or equipment from another party, it is important that each party understands who is responsible for the vehicle or equipment and how coverage applies for shared and borrowed autos and equipment.
Coverage follows the vehicle. Member-owned, leased and long-term rental vehicles are all considered vehicles owned by the member. Owned vehicles need to be listed on the member’s MCIT automobile schedule for coverage to apply. Newly acquired vehicles must be scheduled within 30 days of acquisition.
MCIT’s coverage is primary for a loss involving a scheduled vehicle, including physical damage (first party claims) and liability (third party claims).
When a member loans a scheduled auto to another party, MCIT will defend and indemnify the member for auto liability claims arising out of its use. Coverage is subject to the terms, conditions, limitations and exclusions of the MCIT Coverage Document.
In other words, if the member is sued in response to an accident involving a scheduled auto, MCIT will defend and indemnify the member. It is important to understand that for MCIT coverage to extend to the individual driver, that person must meet the definition of a “covered party.” For this purpose, “covered party” means officials, employees and volunteers of any public entity while using, with the member’s permission, a “covered auto” on behalf of or in conjunction with the member.
If the driver fails to meet that definition, he or she is responsible for responding to claims made against him or her, and must look to his or her own insurer for coverage.
Physical damage coverage, including comprehensive and collision coverage, for a scheduled auto loaned to another party remains with MCIT. If the member loans a scheduled auto to another MCIT member, the receiving member is provided automatic physical damage coverage when the auto is used no more than 30 days in a calendar year. This coverage is discussed further in the next section.
Although MCIT adjusts the underlying physical damage and liability claims, MCIT reserves the right to pursue subrogation against the at-fault party.
As noted above, coverage follows the vehicle. Generally, when a member borrows a vehicle, the coverage on that vehicle will be the first to respond to any claim.
An MCIT coverage enhancement provides members automatic physical damage coverage for autos borrowed from another public entity without having to schedule it. This coverage applies to autos borrowed for 30 days or less and is subject to the member’s standard physical damage deductibles.
The intent of this enhancement is to streamline the coverage process and assist municipalities in the common practice of sharing autos.
MCIT members routinely require employees to use their personal vehicles for employment-related activities for which the employee receives a mileage reimbursement. When the employee’s vehicle is involved in an accident, his or her coverage is primary.
MCIT provides excess liability coverage under nonowned auto coverage. MCIT’s coverage does not apply to physical damage claims under this arrangement.
A borrowed auto does not include an auto in an impound lot. Autos that have been abandoned, seized, confiscated, etc. are not available for use until the forfeiture is complete and title has been transferred to the member. MCIT recommends checking with the county attorney or other legal counsel regarding the status of the title on such vehicles.
Contractors Equipment and Miscellaneous Personal Property
Contractors equipment includes tractors, graders, loaders, backhoes and other equipment not usually licensed for road use. The term applies to equipment owned and used by an MCIT member and generally does not apply to equipment owned by a contractor.
Miscellaneous personal property includes items such as boats, motors, rescue/dive equipment, snowmobiles, ATVs and personal watercraft.
As with auto coverage, the equipment must be scheduled for coverage to apply. This equipment and personal property is covered on an actual cash value basis and is subject to the deductible.
Contractors equipment provides automatic physical damage coverage for up to 30 days on an actual cash value basis when loaned, leased or rented from another party for which the member is legally liable. Unlike the auto coverage extension, this extension can apply to equipment loaned, leased or rented from a dealer and not just from another public entity. Miscellaneous personal property coverage does not include this provision.
A county borrows a backhoe from a city for a county project. The county operator backs into a citizen’s pickup truck, causing damage to both the backhoe and the truck. Because the equipment was borrowed for fewer than 30 days, the county’s contractors equipment physical damage coverage extension applies to the backhoe damage on an actual cash value basis.
MCIT’s general liability coverage responds to the pickup truck owner’s property damage liability claim, subject to the deductible, because the equipment operator is a county employee and, therefore, a covered party.
Borrowing and Mutual Aid Agreements
When contractors equipment or miscellaneous personal property is loaned to or borrowed from another entity in conjunction with a mutual aid agreement, unlike auto coverage, liability and responsibility follows the unit of command. Typically, the receiving party is in command.
The mutual aid agreement should include a hold harmless clause that clearly states which party is responsible for the liability and physical damage on the equipment. The agreement should not waive the member’s right to subrogation, which allows MCIT the right to recover from the at-fault party.
Personal Use of Member-owned Property
Other issues arise when employees ask to borrow member-equipment or a member auto for personal use. Members should consider such requests carefully, as there are coverage, legal and risk management issues that come into play.
Risk Management Recommendations
- Properly maintain equipment and autos and keep them in good repair.
- Document maintenance and repair records.
- Allow only trained and qualified employees to operate equipment.
- Use shared and borrowed autos and equipment for public purposes only.
- Report all claims promptly to MCIT.
- Mutual aid agreements should clearly define how liability will be handled/assessed and should not waive the right to subrogate.
Members should contact their MCIT risk management consultant toll-free at 1.866.547.6516 if they have questions relating to shared and borrowed autos and equipment.