Like many businesses, your company may own mobile equipment or machinery, such as a backhoe or a truck-mounted crane. You may use the equipment on your premises or at a job site. If you or your employees drive the machinery on a public road, insuring your vehicle for liability may be more complicated than you think. As this article will explain, mobile machinery may require coverage under both a general liability policy and a commercial auto policy.
What is Mobile Equipment?
Movable machinery is referred to as “mobile equipment” under a commercial liability policy. Mobile equipment is a defined term in the ISO general liability and commercial auto policies. Its meaning is the same in both policies. Likewise, auto is a defined term that has the same meaning in both policies.
Both autos and mobile equipment are land vehicles, but they differ in two important ways. The first has to do with function. An auto is used to transport people or property over public roads.
Mobile equipment, on the other hand, is used primarily off public roads. Its main function is to perform an operation, like digging, scraping, or moving large items (think crane or forklift). Mobile equipment may be driven or conveyed on a public road from one location to another. However, transportation is not its primary purpose.
A second difference between autos and mobile equipment has to do with insurance. Autos must be insured for liability in accordance with state compulsory insurance laws. Mobile equipment is not subject to such laws.
A general liability policy covers bodily injury or property damage that arises out of the operation of mobile equipment. This coverage applies whether you are operating the equipment at your premises or at a job site.
For example, suppose that Larry’s Landscaping owns a mobile digging machine. Larry’s liability policy covers the equipment while it is stored on Larry’s premises and while it is used at a customer’s location. The equipment is covered automatically and does not need be listed on Larry’s liability policy.
Suppose that Larry’s Landscaping has been hired to construct a garden on a customer’s property. One of Larry’s employees is operating the digging machine when he accidentally rams the machine into the side of the customer’s car. When the customer demands that Larry’s Landscaping pay for the damage, Larry’s liability policy should cover the loss.
Assume that Larry’s Landscaping has completed one job and is traveling to another job site. An employee is driving the machine on a public road when he accidentally rear-ends the car in front of him. If the car owner sues Larry’s Leasing for the damage, will Larry’s liability policy cover the claim? The answer may be no.
Driven on a Public Road
In recent years, many states have passed laws applicable to mobile machinery that may be driven on public roads. These laws require such machinery to be insured for liability for accidents that occur on public roadways. The types of vehicles for which liability insurance is required vary from state to state. For instance, a forklift may be subject to a compulsory insurance law in State X but not in State Y.
The definition of mobile equipment found in commercial auto and liability policies excludes land vehicles that are subject to a compulsory or financial responsibility law in the state where they are licensed or principally garaged. That is, if state law requires you to purchase liability insurance for a particular vehicle, that vehicle qualifies as an auto.
Note that if a vehicle (such as a backhoe) meets the definition of mobile equipment but is subject to a compulsory insurance law, the vehicle is considered an auto only when it is driven on a public road. If the vehicle is involved in a road accident, you will need to rely on your commercial auto liability insurance to cover any lawsuits that result. The vehicle is still considered mobile equipment when it is stored on your premises or operated at a job site for digging, scraping etc. Claims that arise out of these activities are covered under your general liability policy.