ST Ombud clarifies difference between Private, Business and Commercial insurance

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Upon entering a contract for a motor insurance policy, it is very important for financial advisers to clarify what the intended use of the vehicle is in order to determine the correct risk profile and to calculate the appropriate premium.

Understanding the distinction between the various usages is important – if an insurable incident occurs at a time when the vehicle is not being used in accordance with the specified usage, the insurer may reject the claim. The Ombud have in the past commented on advisers providing false information to effect lower premiums when in competition, or were simply not au fait with the distinctions between private, business and commercial usage of a vehicle.

The Ombudsman for Short-Term Insurance clarifies the differences as follows:

Private Use

Private use of a vehicle refers to use only for private and social purposes. In most instances, this includes driving to and from the insured’s regular place of employment, but does not include any other form of business travel.

Two complaints that were brought to Ombud’s office serve as useful examples of the limited extent to which an insured is covered for personal use of a vehicle:

In both cases the complainants had personal use cover and were thus only covered whilst their vehicle was being used for personal use or whilst at or travelling to their principle place of business:

  • The first complaint was brought by an insured after his insurer rejected a claim for a motor vehicle collision that occurred when he was on his way to meet a friend for dinner to discuss a business proposition. The insurer argued that, because the insured was not using the vehicle for personal use at the time of the accident, but instead was driving to a business meeting at a location other than his regular place of business, he did not enjoy cover at the time of the incident. Because the insurer rejected the claim in accordance with a proper interpretation of the terms of its policy, this Ombud’s office upheld the rejection.
  • The second complaint also concerned a motor vehicle collision which occurred whilst the insured, a work-from-home bookkeeper, was delivering statements to a client. The insurer rejected the claim on the grounds that the incident occurred whilst the car was being driven for business purposes and not for private use. Again, the Ombud’s office upheld the rejection because it was in accordance with a proper interpretation of the terms of the policy.

Business Use

Business usage refers to the use of a vehicle as part of an insured’s work function. This is, for example, when an insured has to travel to clients or attend meetings outside of his or her primary place of employment. A vehicle that is insured for business use will also be covered for private use.

In both the previous examples relating to personal use, the correct form of cover that the complainants ought to have taken out was business use cover.

Other examples of business use include driving to or parking at:

  • meetings away from the office;
  • training courses or conferences;
  • banks, if carrying out a business related transaction;
  • post offices, if collecting business correspondence;
  • company team-building events;
  • business-related social or networking events.

Naturally the above list is not exhaustive but merely illustrative of the types of uses contemplated under business use. If a consumer uses his or her car for anything other than commuting to a single place of work, he or she will most certainly require business use cover.

Commercial Use

Commercial use covers vehicles used to generate an income. Examples of commercial use include the use of a vehicle to carry goods for business purposes, to carry fare-paying passengers or for trade purposes. Within this context an issue which often arises is whether car-pooling constitutes commercial use of a vehicle.

With rising fuel costs, many resort to carpooling in an effort to reduce commuting costs. If an insured can show that he or she is not making a profit from carpooling, it is not necessary to take out commercial use cover. However, if any profit is made, an insured should notify his or her insurer that the vehicle is used for commercial purposes.

Click here to download OSTI article for excellent examples to illustrate the differences which might be handy during discussions with clients.