Here's a scenario that catches business owners off guard: Your employee grabs a rental car to visit a client across town. On the way, they cause an accident that injures someone. The rental company's insurance has limits. Your employee's personal policy doesn't apply because they were on company business. And your commercial auto policy? It only covers vehicles you own. Suddenly, your business is facing a lawsuit with no coverage in sight.
That's exactly the gap that hired and non-owned auto insurance fills. This coverage protects your business when you or your employees use vehicles you don't own for work purposes—whether that's a rental car, a leased vehicle, or an employee's personal car. And the best part? It's incredibly affordable for the protection it provides.
What Is Hired and Non-Owned Auto Insurance?
Hired and non-owned auto insurance (often abbreviated as HNOA) is liability coverage for vehicles your business uses but doesn't own. It's actually two types of coverage bundled together, each addressing a different situation.
Hired auto coverage protects your business when you or your employees drive rented, leased, or borrowed vehicles for business purposes. Think rental cars for business trips, leased vans for moving equipment, or borrowed trucks for hauling supplies. If an accident happens while using one of these vehicles for work, hired auto coverage steps in to cover bodily injury and property damage you're liable for.
Non-owned auto coverage applies when employees use their own personal vehicles for company business. Maybe your sales team drives their own cars to client meetings, or your office manager runs to the post office in her SUV. When they're doing work for your business, non-owned coverage provides an extra layer of protection beyond their personal auto insurance.
The key thing to understand is that this is liability-only coverage. It covers bodily injury damages, medical costs, lost income, legal fees, and property damage that you're responsible for. It won't pay to fix damage to the hired or non-owned vehicle itself—that's what the vehicle owner's collision coverage or the rental company's damage waiver is for.
Why Your Business Needs This Coverage
Most business owners assume their commercial auto policy covers any vehicle used for business. That's not how it works. Commercial auto policies cover specific vehicles that you own or lease long-term and have listed on the policy. When an employee jumps in a rental car or uses their personal vehicle for a work errand, you've got a coverage gap.
Here's what makes this especially tricky: non-owned coverage works as secondary insurance. The employee's personal auto policy pays first, up to its limits. If damages exceed those limits, your non-owned coverage kicks in. This is crucial because many people carry minimum liability limits—often just $25,000 or $50,000. A serious accident can easily result in $500,000 or more in medical bills and lost wages. Without non-owned coverage, your business is on the hook for everything beyond what the employee's policy covers.
Even businesses that rarely use rental cars or employee vehicles need this protection. One-time errands still create exposure. Your bookkeeper drives to the bank to deposit checks. Your project manager rents a car when theirs is in the shop. These occasional uses carry the same lawsuit risk as regular use. And with commercial auto insurance premiums increasing for 46 consecutive quarters through 2023, the gaps in coverage are becoming more expensive when claims aren't covered.
How Hired and Non-Owned Coverage Actually Works
Let's walk through a real-world example. Say you hire a marketing consultant who drives their personal car to attend a trade show on your behalf. On the way home, they rear-end another vehicle, causing $200,000 in medical bills and lost wages for the other driver. The consultant has a personal auto policy with $100,000 in liability coverage.
Here's what happens: The consultant's personal insurance pays the first $100,000. But the injured party can sue your business for the remaining $100,000 because the consultant was acting on your behalf when the accident occurred. If you have non-owned auto coverage with limits of $1 million (a common recommendation), your policy covers that additional $100,000. Without it, you're paying out of pocket and potentially facing a judgment that could seriously damage your business.
For hired vehicles, the coverage works a bit differently. Rental car companies provide their own insurance, but their liability limits are often minimal. When you add hired auto coverage to your business policy, it provides higher limits and fills gaps that the rental company's insurance might not cover, including legal defense costs if you're sued.
Coverage extends to bodily injury (medical expenses, rehabilitation, lost income, pain and suffering, funeral costs) and property damage (repairs to other vehicles, damaged buildings or fences, damaged equipment or cargo). It also covers legal and settlement costs including attorney fees, court costs, and judgments up to your policy limits.
Getting the Right Coverage for Your Business
Most businesses add hired and non-owned auto coverage as an endorsement to their general liability insurance or business owners policy (BOP). You can also add it to a commercial auto policy if you have one. Some insurers offer it as a standalone policy, though bundling it with other coverage often gets you a better rate.
The cost is remarkably low for the protection you get—typically less than $150 per year. Many insurers recommend liability limits of $1 million, with $500,000 as a minimum. The difference in premium between these limits is usually small, making the higher limit a smart choice considering the additional protection.
When you're shopping for coverage, be upfront with your insurance agent about how your business uses vehicles. Tell them how often employees use personal cars for work, whether you regularly rent vehicles, and what kind of business activities involve driving. This helps them recommend appropriate limits and ensures you're not caught off guard if you need to file a claim.
One important practice: if employees regularly use personal vehicles for business, make sure they maintain adequate personal auto insurance. Your non-owned coverage is secondary, so you want that primary coverage to be solid. Some businesses require employees to carry minimum liability limits and provide proof of insurance annually.
Next Steps: Protecting Your Business
If you don't currently have hired and non-owned auto coverage, start by reviewing your existing business insurance policies. Check whether it's already included—sometimes it's part of a business owners policy without you realizing it. If it's not there, contact your insurance agent or broker to add it.
Given that nearly 30% of small business owners are uninsured according to recent surveys, and that commercial auto insurance costs continue rising, this affordable coverage fills a critical gap that many businesses don't even know they have. For less than $150 a year, you're protecting against potentially devastating lawsuits that could threaten everything you've built. That's not just good risk management—it's essential business protection that every company with employees or occasional vehicle use needs to have in place.
