Here's a question that trips up a lot of business owners: if you already have commercial auto insurance on your company vehicles, why would you need hired and non-owned auto coverage? The short answer is that commercial auto only protects the vehicles you own. The moment someone rents a car for a business trip or an employee uses their personal vehicle to make a delivery, you've got a coverage gap. And that gap can cost you big if there's an accident.
Let's break down exactly what each type of coverage does, when you need them, and why most businesses actually need both.
What Commercial Auto Insurance Covers
Commercial auto insurance is straightforward: it covers vehicles that your business owns or leases long-term. Think of your company trucks, vans, or fleet vehicles. This policy handles everything from liability when your driver causes an accident to physical damage from collisions, theft, vandalism, or weather events.
The coverage typically includes bodily injury liability (if your driver hurts someone), property damage liability (if they damage another vehicle or property), medical payments, uninsured motorist protection, and comprehensive and collision coverage for your actual vehicles. It's essentially the business version of the auto insurance you have on your personal car, but with higher limits and commercial-specific protections.
What commercial auto doesn't cover is where things get interesting. It won't protect you when an employee drives their own car to the post office for work. It won't help when your sales manager rents a car at the airport for a client meeting. Those situations need different coverage.
Understanding Hired and Non-Owned Auto Insurance
Hired and non-owned auto insurance (often called HNOA) actually covers two different scenarios, both involving vehicles your business doesn't own. Hired auto coverage protects your business when you or your employees rent, lease, or borrow vehicles for work purposes. Non-owned auto coverage kicks in when employees use their personal vehicles for business tasks.
Here's the critical thing most business owners don't realize: HNOA is liability-only coverage. If your employee totals their personal car while picking up office supplies, this policy won't pay to fix their vehicle. That's on their personal auto insurance. What HNOA does is protect your business from lawsuits when that accident happens. If the other driver sues for $500,000 in medical bills and your employee's personal policy only covers $100,000, HNOA steps in to cover the remaining $400,000.
Think of HNOA as backup protection. It's secondary coverage, meaning the employee's personal insurance pays first, and HNOA only kicks in after those limits are exhausted. This is why it's essential that your employees maintain adequate personal auto insurance—their policy is the first line of defense.
When You Actually Need Hired and Non-Owned Coverage
The real question is whether anyone in your organization ever drives a vehicle for work that isn't covered by your commercial auto policy. If the answer is yes—even occasionally—you need HNOA coverage.
Common scenarios include administrative staff running to the bank or post office in their own cars, sales teams traveling and renting cars, employees given a vehicle allowance instead of company cars, consultants or contractors driving to client sites, or anyone picking up supplies or making deliveries in personal vehicles. Even if these trips only happen once a month, you're exposed.
Here's why this matters: personal auto insurance policies typically exclude business use or have very limited coverage for it. If your employee causes a serious accident while running a work errand, their insurer might deny the claim entirely. Even if the claim is covered, the limits on personal policies—often $100,000 to $300,000—usually aren't enough to protect your business from a major lawsuit. Without HNOA, your business assets are on the line.
The Coverage Gap That Catches Businesses Off Guard
Many business owners assume their commercial general liability policy covers these situations. It doesn't. General liability covers things like slip-and-fall accidents at your office or damage you cause while working at a client's location, but it explicitly excludes auto accidents. That's what auto insurance is for.
The gap happens when employees use personal vehicles for work. Legally, when an employee is acting in the course of their employment, the business can be held liable for their actions. This legal principle, called vicarious liability, means that if your employee causes an accident while doing something work-related, the injured party can sue both the employee and your business. The employee's personal insurance will defend the employee, but who defends your business? That's what HNOA does.
Underwriters have been paying more attention to hired and non-owned coverage lately, and premiums have started increasing in response to higher claim activity. This means insurers are seeing more claims in this area, which should tell you something about how common these gaps are.
How to Decide What Coverage You Need
Start by making a list of every vehicle used for your business. Company-owned or long-term leased vehicles go on your commercial auto policy. Everything else—rentals, employee vehicles, borrowed vehicles—needs HNOA coverage.
If you have even one company vehicle, you probably already have commercial auto insurance. Don't assume that's enough. Ask yourself whether employees ever drive their own cars for work, whether anyone travels and rents cars, or whether contractors or temporary workers drive for your business. If any of these apply, add HNOA coverage.
For businesses without any company vehicles, HNOA might be your only auto coverage, and it's often surprisingly affordable. Small businesses can expect to pay somewhere in the range of commercial auto rates, which average around $147 per month, though HNOA-only policies are typically less expensive since they're liability-only coverage.
Important Limitations to Understand
HNOA doesn't cover everything, and understanding the limitations prevents nasty surprises. First, it only covers accidents that happen during business use. Your employee's commute to and from work doesn't count as business use, and neither do personal errands, even if they happen during work hours.
Second, as mentioned earlier, HNOA won't pay for damage to the hired or non-owned vehicle itself. It also won't cover injuries to you or your employees—that's what workers' compensation insurance is for. HNOA is purely about protecting your business from liability to third parties.
Finally, HNOA only applies after the primary insurance is exhausted. This makes it critical to verify that employees who drive for work carry adequate personal auto insurance. Many experts recommend requiring employees to carry at least $250,000 to $500,000 in liability coverage if they'll be driving for business purposes.
Getting the Right Coverage in Place
Talk to your insurance agent about your specific situation. Be honest about how vehicles are used in your business—renting cars twice a year still creates exposure that needs coverage. If you already have commercial auto insurance, adding HNOA is usually straightforward and not terribly expensive, especially compared to the risk of an uncovered lawsuit.
Consider implementing a policy requiring employees who drive for work to provide proof of adequate personal auto insurance annually. Document when and how employees are authorized to use personal vehicles for business. These steps not only reduce your risk but also make it easier to file claims if necessary.
The bottom line is that commercial auto and hired and non-owned coverage aren't competing options—they work together to protect your business from different exposures. Most businesses need both. Getting the right coverage now means you won't be scrambling to figure out your insurance situation after an accident when it's too late.
