Does Your Business Need Uninsured/Underinsured Motorist Coverage?

SEPTEMBER 6, 2022

Most businesses that carry commercial auto insurance include uninsured/underinsured motorists’ (UM/UIM) coverage on their policies without understanding exactly what this coverage provides. UM/UIM provides protection for bodily injury (and property damage, depending on the state) suffered while involved in an accident caused by an uninsured driver, and provides more protections for an insured injured in an accident when the other party’s limits of liability have been exhausted.

This coverage can be added via an endorsement and may be considered beneficial because of the high number of uninsured drivers. However, some businesses may elect to not carry UM/UIM coverage, or only carry statutory minimum limits where required, because other coverage is usually available to injured employees.

There are several factors to consider when deciding whether to purchase UM/UIM coverage. It’s important to work with a broker that can conduct a detailed review of your exposures and the pros and cons of purchasing this type of coverage.

Should Commercial Auto Policyholders Buy Increased Limits for UM/UIM Coverage?

Since the most likely claimants are covered by other types of insurance, which would limit (or preclude) coverage under the commercial policy’s UM/UIM coverage, organizations that wish to control the cost of auto coverage may choose to purchase only the statutory minimum limits or carry no coverage at all. However, in certain instances, a business may wish to carry UM/UIM coverage and even consider purchasing limits beyond the statutory requirements.

Example of a reason to not carry coverage: An employee of a general contractor is driving between job sites and gets struck by an uninsured motorist. Since this employee is driving within the scope of her work, the workers’ compensation policy would respond. Furthermore, the employee is covered under her own personal auto policy and may be able to access UM/UIM benefits there. Because the contractor’s workers’ compensation benefits and the employee’s personal auto policy’s UM/UIM coverage would respond first, anything beyond the contractor’s statutory UM/UIM limits would be considered excess coverage.

Example of a reason to carry coverage: An organization’s employees drive their own vehicles to transport guests for lunch meetings, golf outings, and other functions. If an employee and his guest are injured in an accident caused by an uninsured driver, the employee would be covered by workers’ compensation, while the company’s UM/UIM coverage would benefit the guests in the absence of coverage from the uninsured third party who caused the accident.

Whether a business should purchase UM/UIM coverage will depend on how its vehicles are used, and who’s operating and riding in them. If the business is concerned that other coverage may not be available, or believes the cost of UM/UIM coverage is worthwhile to provide it as a benefit, then it can choose to buy coverage above statutory limits. However, when the business is confident that other coverage will be available (e.g., workers’ compensation, personal auto UM/UIM, medical, disability, etc.), there is a good argument to make for purchasing only statutory limits, or even rejecting coverage if that’s an option, which can create a premium savings for the insured.