Mobile Equipment vs. Auto

There are at least six reasons for the use of exclusions in insurance policies. They are used to reduce the premium, eliminate uninsurable exposures, control moral and morale hazards, eliminate unnecessary coverage, and isolate risks requiring special treatment and separate coverage provided elsewhere. This last reason listed is the motivation for the "auto" exclusion in the ISO commercial general liability (CGL) policy and the "mobile equipment" exclusion in the ISO business auto policy (BAP).

The line between autos and mobile equipment has to be drawn somewhere. If the same insurer provides both CGL policy and BAP coverage, then it may not matter how the line is drawn. But if the insurers differ, the policy forms are nonstandard, or even more critical, if there is an absence of either policy, then the line drawn warrants close scrutiny.

Actually, it takes multiple policy provisions to distinguish exposures intended to be covered on the BAP from those intended to be covered on the CGL policy. Some provisions address the use of the vehicle at the time of loss, for example, a cherry picker being driven on the highway vs. a cherry picker being used to lift workers. Ultimately, the definitions of "auto" and "mobile equipment" (which are exactly the same on both the BAP and the CGL policy, except for the alphabetic/numeric identification) will draw the dividing line, although the line sometimes fades.

The definitions of "auto" and "mobile equipment" in the 2004 edition of the Commercial General Liability Coverage Form (CG 00 01) are shown in the inset below for your convenience. An interesting thing about definitions is that they are able to operate like a coverage, and at the same time, like an exclusion. Definitions are boundaries that enclose an area and leave an area outside the enclosure. An item found within the boundary is covered and an item left outside the boundary is excluded. Notice that an "auto" is defined to exclude "mobile equipment" and "mobile equipment" is described in detail. A vehicle fitting the description of "mobile equipment" is covered, while a vehicle that does not fit that description is an "auto," which makes it an excluded vehicle.

Since payroll, sales or area usually are the basis of premium for a CGL policy, the number of covered vehicles has no effect on the premium. Consequently, it is in the best interest of the policyholder to lump as many vehicles as possible into the "mobile equipment" category, because additional premium is not charged for these vehicles; unlike the BAP, where premium is charged for each vehicle. But care must be taken not to assume a vehicle is covered as "mobile equipment" under circumstances subject to uncertain interpretation, unless, of course, there is appropriately symboled BAP coverage available to take its place.

Definitions
2. "Auto" means:

1. A land motor vehicle, trailer or semitrailer designed for travel on public roads, including any attached machinery or equipment; or
2. Any other land vehicle that is subject to a compulsory or financial responsibility law or other motor vehicle insurance law in the state where it is licensed or principally garaged.
   
   However, "auto" does not include "mobile equipment."

12. "Mobile equipment" means any of the following types of land vehicles, including any attached machinery or equipment:

1. Bulldozers, farm machinery, forklifts and other vehicles designed for use principally off public roads;
2. Vehicles maintained for use solely on or next to premises you own or rent;
3. Vehicles that travel on crawler treads:
4. Vehicles, whether self-propelled or not, maintained primarily to provide mobility to permanently mounted:
   1. Power cranes, shovels, loaders, diggers or drills; or
   2. Road construction or resurfacing equipment such as graders, scrapers or rollers;
5. Vehicles not described in a, b, c or d above that are not self-propelled and are maintained primarily to provide mobility to permanently attached equipment or the following types:
   1. Air compressors, pumps and generators including spraying, welding, building cleaning, geophysical exploration, lighting and well-servicing equipment; or
   2. Cherry pickers and similar devices used to raise or lower workers;
6. Vehicles not described in a, b, c or d above maintained primarily for purposes other than the transportation of persons or cargo.
   However, self-propelled vehicles with the following types of permanently attached equipment are not "mobile equipment" but will be considered "autos":
   1. Equipment designed primarily for:
      1. Snow removal;
      2. Road maintenance, but not construction or resurfacing; or
      3. Street cleaning;
   2. Cherry pickers and similar devices mounted on automobile or truck chassis and used to raise or lower workers; and
   3. Air compressors, pumps and generators, including spraying, welding, building cleaning, geophysical exploration, lighting and well-servicing equipment.

   However, "mobile equipment" does not include any land vehicles that are subject to a compulsory or financial responsibility law or other motor vehicle insurance law in the state where it is licensed or principally garaged. Land vehicles subject to a compulsory or financial responsibility law or other motor vehicle insurance law are considered "autos."

   The underlined text is new in the 2004 edition.

   Commercial General Liability Coverage Form (CG 00 01 12 04) Copyright, Insurance Services Office Inc. 2003.

It's up to the agent and underwriter to make sure that each vehicle fits, because policyholders are not going to understand the nuances of vehicle types defined in the policy. The time to clear up any uncertainty about the classification of a vehicle is when the policy is written or when additional vehicles are acquired or employed in the business. I recommend that you make the discussion of "mobile equipment vs. auto" a part of every relevant presentation and that you leave the insured a copy of the definitions (those provided in the inset of this resource kit), or highlight them in the policy you deliver. The policyholder should be instructed to notify you immediately when any vehicle is acquired or used, so that it can be classified for proper verification of coverage.

The vehicles described by a, b, c and d are clearly meant to be covered by the CGL policy, whether or not self-propelled, or whether the use involves its mobility as a vehicle or its operation as equipment. This includes off-road vehicles, on-premises service vehicles, vehicles on crawler treads, and vehicles with permanently mounted power cranes, shovels, loaders, diggers, drills and road construction/ resurfacing equipment. The vehicles with permanently attached equipment described by f (1) are clearly meant to be covered by the BAP, if self-propelled, regardless of whether the use involves its mobility as a vehicle or its operation as equipment. These include snow removal, road maintenance or street cleaning equipment not otherwise described as vehicles in a, b, c or d.

Cherry pickers, air compressors, pumps, generators, spraying, welding, building cleaning, geophysical exploration, lighting and well-servicing equipment are listed in both e (1), (2) and f (2) (3). The second and third provisions in f apply to self-propelled vehicles. These vehicles are considered autos, except when the actual equipment listed is being operated. Then, per exception (5) to auto exclusion g of the CGL policy, the operation of the equipment becomes covered on that policy. Thus, liability for spraying is covered by the CGL policy and liability while mobilizing the equipment is covered under the BAP. Both policies would be necessary to achieve complete protection. Purchasing these two policies from the same insurer would be a distinct advantage.

On the other hand, the first and second provisions in e apply to vehicles that are not selfpropelled; the same permanently attached equipment as f (2), (3), but without the ability to mobilize under their own power. These vehicles are covered under the CGL policy, whether or not liability arises from their mobilization or the operation of their equipment.

All other vehicles not specifically identified in a through f will fall under one of two allinclusive categories. The definition of "auto" picks up all vehicles designed for travel on public roads other than "mobile equipment." And all vehicles maintained primarily for purposes other than the transportation of persons or cargo will fall into the "mobile equipment" category, per the first paragraph of f.

Although the line does fade at times, communication with the underwriter may help resolve the uncertainty. An example of a vehicle that could fall on either side of the line is the mobilization of a self-propelled vehicle with permanently attached spraying equipment used in road construction. Is it road construction equipment d covered by the CGL policy or is it spraying equipment f (3) covered by the BAP? This author has been unable to locate any significant litigation on the definition of mobile equipment since its revision under the 1986 ISO CGL program. The absence of such litigation may mean that interpretation problems are rare.

Keep in mind that vehicles easily categorized as mobile equipment can become autos under supporting circumstances. For instance, a snow removal maintenance vehicle initially used only on the premises parking lot can become an auto simply by changing the use to offpremises.

2004 ISO CGL edition. The new wrinkle, of course, is the language in the "mobile equipment" definition introduced by the ISO in its 2004 edition of the CGL policy (underlined in the inset above), which was approved for use in New Jersey effective March 1, 2005. This controversial revision states that if the vehicle, otherwise determined to be "mobile equipment," is subject to financial responsibility or compulsory insurance requirements, then it is deemed to be an "auto" and not covered on the CGL policy. Consequently, before a determination can be made, the relevant motor vehicle laws for each state where business is conducted must be reviewed. (By the way, these laws aren't exactly written with bright lines to determine their requirements for certain types of vehicles.)

New Jersey Motor Vehicle Law. Motor vehicles driven on New Jersey public highways must be registered (Section 39:3-4) and insured (Section 39:6B-1) in this state. A motor vehicle is defined in Section 39:1-1 "includes all vehicles propelled otherwise than by muscular power, excepting such vehicles as run only upon rails or tracks and motorized bicycles." This compulsory insurance law makes all mobile equipment operated on public highways an "auto" under the CGL policy.

BAP Symbol 19. Having revised the definition of "mobile equipment" in the 2004 CGL, the ISO completed its coverage relocation by making a similar change in the definition of "mobile equipment" in the BAP. This was accomplished initially by means of the CA 20 51 endorsement that was approved in New Jersey effective March 1, 2005. Since then, the ISO has filed a new 2006 edition of the BAP (approved effective April 1, 2006) that incorporates the CA 20 51 changes and introduces a new Symbol 19 that applies to mobile equipment caught in the financial responsibility/compulsory insurance trap. This symbol gives the insurer a means of quantifying the exposure and charging a rate commensurate with that exposure.

Of course, Symbol 19 will be redundant if the policyholder already has Symbol 1-Any Auto, Symbol 2-Owned Autos Only or Symbol 4-Owned Autos Other Than Private Passenger Autos Only.

Many insurers have chosen not to use Symbol 19 to cover mobile equipment that is operated incidentally over public highways. They have independently filed endorsements that provide coverage for this type of mobile equipment on the BAP without additional charge. This is a simple solution to the problem for those businesses that already have a BAP to insure their other vehicles. For those businesses that have no other vehicles to insure on a BAP, a solution to the coverage problem may prove more complicated and costly.

More considerations. Another distinction of importance is when mobile equipment is being transported (carried or towed) by autos owned or operated by or rented or loaned to any insured. They are not covered by the CGL policy due to exclusion h (1), but will obtain automatic coverage on the insured's BAP policy, assuming the auto is a "covered auto." Note too that the CGL policy will cover the transportation of mobile equipment by an independent contractor's auto, since this scenario was not carved out in the exclusion.

And finally, for any vehicle designated as an auto, physical damage coverage can be added to the BAP. In addition, although the CGL policy cannot accommodate physical damage coverage, BAP physical damage coverage can be placed on selected mobile equipment using the Mobile Equipment (CA 20 15) endorsement. Generally, though, it is customary to provide physical damage coverage on mobile equipment under an inland marine policy, where coverage and rates are more flexible.

Includes copyrighted material of Insurance Services Office Inc., with its permission. Copyright, Insurance Services Office Inc. 2000, 2003. 11/06