Hired and non-owned auto: the commercial coverage gap that catches business owners off guard

After 50 years of writing commercial policies on the Peninsula, I've learned that the most dangerous coverage gaps are the ones nobody is looking for. Hired and non-owned auto — HNOA — is at the top of that list.

Here's the trap. A business owner buys a commercial auto policy for the company trucks, checks the box, and feels covered. But commercial auto only covers the vehicles listed on the policy. The moment an employee drives their own car for work, or you rent a van for a busy week, that owned-vehicle policy goes quiet. And that's exactly when a claim shows up.

What HNOA actually means

There are two halves, and the names tell you what they do.

Non-owned auto covers vehicles your business uses but doesn't own — most commonly, your employees' personal cars. When your office manager drives her own Honda to the bank, picks up supplies at the hardware store, or drops off a document for a client, she is operating a non-owned auto on your behalf.

Hired auto covers vehicles your business rents, leases, or borrows short-term — the box truck you grab for a big delivery week, the rental car an employee drives on a business trip.

Neither of those is on your commercial auto policy. HNOA fills that gap.

Why your business gets sued for a car you don't own

This is the part owners don't see coming. When an employee causes an accident while running an errand for you, the injured party's attorney doesn't just sue the $22-an-hour employee with minimum-limits insurance. They sue the business. It's called vicarious liability — you can be held responsible for the actions of an employee acting within the scope of their job.

The attorney follows the money. The employee has a $15,000 California minimum-limits policy and a used car. Your business has a building, equipment, a book of clients, and a bank account. Guess who gets named in the lawsuit.

Without HNOA, here's the order of events: the employee's personal auto policy pays up to its limit (often the state minimum), and then it's exhausted. Your general liability policy looks at the claim and points to its auto exclusion — GL does not cover bodily injury or property damage arising from the use of an automobile. Now your business is exposed for everything above the employee's tiny limit, out of pocket.

A claim I'll never forget

I insured a landscaping company on the Peninsula years ago. One of their crew members was driving his own truck to a job in Atherton and T-boned another car at an intersection. The other driver was hurt. The attorney sued both the employee and the company.

The employee's personal auto had $15,000 in bodily injury coverage. The medical bills and the settlement were many times that. The company's general liability policy excluded auto. If that business hadn't carried HNOA, the owner would have been writing a check — or selling the business — to cover the judgment.

They had it. The HNOA endorsement responded. It had cost them a few hundred dollars a year. That's the whole story of this coverage: trivial cost, catastrophic gap.

Who needs it (almost everyone)

If any of these are true, you need to have the HNOA conversation:

The businesses that think they're safe are often the most exposed — a consulting firm, an accounting office, a property management company. They have no company trucks, so they have no commercial auto policy at all. But their people drive personal cars for work every single day.

What it doesn't do

HNOA is liability coverage that protects your business — it is not physical damage coverage for the vehicle. If your employee's personal car is damaged in the wreck, that's on their personal auto policy, not your HNOA. And HNOA assumes the employee carries their own primary insurance. That's why the next mistake matters so much.

The MVR step owners skip

If your team uses personal vehicles for work, you should:

These three steps cost almost nothing and they're the difference between HNOA being a clean backstop and being a contested claim.

What it costs

This is the best news about HNOA: it's cheap. For most small businesses it's added as an endorsement to your general liability or commercial auto policy for somewhere in the range of a few hundred dollars a year, depending on payroll and the number of drivers. Compared to a six-figure judgment, it's one of the highest-leverage dollars you'll spend on insurance.

The bottom line

The vehicles you own are the easy part — you can see them in the parking lot, so you insure them. The risk that gets businesses is the car you don't own: the employee's sedan, the weekend rental, the borrowed van. Those are the ones with no policy behind them and your business name on the lawsuit.

If your people ever drive anything other than a vehicle listed on your commercial auto policy, send me your current GL and auto declarations pages. I'll tell you honestly whether you have HNOA, whether your limits make sense, and where the gap is. It's a five-minute review that has saved Peninsula business owners from the worst week of their professional lives.

Paul Nadler has been a licensed insurance broker in California since 1976. He is the third-generation owner of Nadler Insurance in San Carlos. Let's review your commercial auto →