The Omnibus Clause: Understanding Auto Insurance Policies

An omnibus clause is a provision in standard automobile liability policies that extends coverage to individuals who are not named in the policy. This means that as long as the individual has permission to drive the car, they are covered by the insurance policy. This also extends to those who are vicariously liable. For example, a parent's auto insurance policy will cover their child if they have been given permission to drive the family car, and the child's friend if they are then given permission to drive the vehicle.

Permission to drive

The permission given to the first permittee can be explicit or implied. For example, a parent may explicitly allow their child (the first permittee) to borrow the family car, and the child then gives permission to a friend (the second permittee) to drive. In this case, the friend would be covered by the omnibus clause as long as they have permission from the child.

Courts may differ in their interpretation of whether the named insured needs to explicitly provide permission to each party. Some courts may rule that unrestricted use granted by the named insured to the first permittee indicates that the first permittee can subsequently give permission to others. However, if the named insured expressly prohibits the first permittee from allowing others to drive, coverage may be denied to the second permittee.

It is important to note that the extent of coverage provided by an omnibus clause depends on legal interpretations of how authority is granted. To avoid conflicts, it is crucial to understand the specific terms and conditions of the insurance policy.

Vicarious liability

• An employer may be held vicariously liable for a car accident caused by a negligent employee.
• Parents can be held vicariously liable for the negligent or criminal actions of their children, such as allowing their child to drive and then causing an accident.
• A construction company may be held vicariously liable for damages caused by an employee's mishandling of equipment.
• A train company may face vicarious liability if an engineer loses control of a train, resulting in damages or injuries.

Who is an insured driver?

An omnibus clause is a provision in a standard automobile liability policy that extends coverage to individuals who are not named in the policy. This clause applies to people who are authorised to use an insured vehicle, as long as they have permission from the policyholder.

Now, who is an insured driver? Insured drivers under an omnibus clause typically fall into one of three categories:

The Named Party

This is the person who is named in the contract as the insured. They are the owner of the auto insurance policy and are responsible for paying premiums, filing claims, and making changes to the policy. The named insured is usually considered the primary driver and their driving record, credit history, etc., are taken into account when calculating premiums.

Permissive Users

These are drivers who are covered by an insurance policy with the express permission of the policyholder. They are also known as additional drivers, and they are added to the policy with permission to drive the covered vehicles and share full coverage. Permissive users can include teenagers, adult children, unmarried partners, or even spouses of the policyholder.

Vicariously Liable Parties

These are people who could be held legally liable for the actions of the named insured or any permissive users. In other words, they can be held responsible for negligent actions that they did not commit themselves and may not have been aware of. Vicarious liability usually arises from a legal relationship, such as an employer being held liable for an employee's negligent actions.

Extent of coverage

The omnibus clause is a provision in standard automobile liability policies that extends coverage to individuals not named in the policy. This means that the clause applies to individuals who are authorised to use an insured vehicle, as long as they have permission from the policyholder. This permission can be either expressed or implied.

The extent of coverage of an omnibus clause depends on legal interpretations of how authority is granted. The clause covers the policyholder, as well as any individual users responsible for the use of the insured vehicle, provided the use is with the permission of the named insured. The permission of the policyholder allows the first permittee to then permit a third party, known as the second permittee, to use the vehicle. This could be the case if a parent allows their child to use their car, and the child then lets a friend drive.

In some cases, courts may require that the policyholder provide explicit permission to each party that wishes to drive their vehicle. However, in other cases, it may be decided that when the policyholder allows unrestricted use of their vehicle to another individual, this person can then allow additional drivers without seeking further permission from the policyholder.

If the policyholder forbids the first permittee from letting another person drive their vehicle, a second permittee is usually not covered if they drive the car and are involved in an accident.

Statutory exceptions

While state statutes generally require automobile liability insurance companies to provide omnibus clauses in their insurance policies, there are some statutory exceptions for certain types of vehicles. For example, in some states, insurance coverage for leased vehicles within the context of a garage liability policy does not need to include an omnibus clause.

In the case of a mother who allowed her son to drive an insured vehicle, the insurance company was unable to deny liability coverage for an accident caused by the son while delivering food, despite a food delivery exclusion in the policy. The insurance company's desire to avoid the risk inherent in food deliveries conflicted with a state statute requiring the policy's omnibus clause, which made the son an insured driver under the policy. As a result, the food delivery exclusion clause was void.

The interpretation of omnibus clauses and their applicability can vary based on the specific circumstances and the state's statutes and legal interpretations.

Frequently asked questions