Non-owned, hired auto insurance is pricey but necessary

July 22, 2004

In the United States, delivery services whose employees use their personal vehicles must carry non-owned, hired auto insurance. The insurance protects the business operator from liability in accidents that occur while the employees are working.

According to insurance brokers, nearly every insurance policy for personal drivers prohibits the use of one's vehicle for delivering goods for a business, and many policies specifically state no pizza delivery.

Jim Reichle, co-owner of Angelina's Pizza in North Olmsted, Ohio, suspects that very few pizza delivery operations have non-owned, hired auto insurance. That not only endangers the public, he said, he believes it compromises his ability to compete fairly against those pizzeria operators.

When drivers apply at Angelina's, Reichle follows his insurance company's guidelines to screen each applicant's driving record. If those applicants have more than two moving violations and one at-fault accident in a 36-month period, he can't hire them to drive.

"What winds up happening is that those drivers simply walk down the street, get hired by one of my competitors and sometimes are put on the road the same day," said Reichle. "I pay more than $15,000 a year to cover the drivers at both of my shops, and that leaves me with $15,000 less than another guy to use for marketing if I wanted. Basically I'm getting penalized for playing by the rules."

Reichle said two issues are at work regarding non-owned auto insurance: Many pizzeria owners aren't aware they must have it, and many others who know it's mandatory don't buy it.

"Jim's right," said John Fink, Reichle's representative agent at Leonard Insurance. "There probably are a lot of independent shops owners out there who are just crossing their fingers."

And perhaps some insurance carriers, too. Brian Hall, vice president of Columbus, Ohio, insurance broker Berwanger Overmyer Associates, said he knows of only five insurance companies who will write the high-risk policy for pizza delivery stores.

"Typically pizza delivery drivers are younger, inexperienced drivers who are usually driving at night," said Hall, who specializes in insuring pizzerias. "They're sometimes looking at directions to a house while they're driving and sometimes driving fast to get a delivery done."

Unlike pizza delivery drivers, drivers for package couriers or flower shops use company vehicles. Those, Hall said, are often better maintained and safer to operate. That makes companies more willing to insure them.

"In an owned-vehicle situation, the operator knows exactly how many vehicles are out on the road at any time, and the insurance company knows, too," Hall said. "But in a non-owned situation, the insurance company never knows how many are out there. There might be 10 autos out there one day, and then the next week, some of those guys quit their job, and they're replaced by new drivers who could have cars with bad brakes."

In other words, knowing the number of vehicles and their approximate condition, Hall added, allows the insurance carrier to have a "better handle on his actual exposure and risk."

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