A customer has a business auto policy (BAP) that is rated within a radius of operations, not per auto. The policy has a 500-mile radius, which is sufficient for 99% of the time, but the insured wants to know if they will have coverage if they go outside that radius.

When the agent asks the underwriter, they're told that is a claims question. When the agent calls the claims department, they're told it depends on the claim. The coverage form does not specifically say that a claim outside of the radius is excluded.

Q: If the insured has a claim outside the 500-mile radius, will the claim be covered? Is there a chance the carrier may wish to nonrenew or cancel?

Response 1: A radius of operations is usually a rating variable. Rating and coverage are entirely two different things.

The BAP says coverage is provided:

7. Policy Period, Coverage Territory 

 Under this Coverage Form, we cover "accidents" and "losses" occurring: 

 a. During the policy period shown in the Declarations; and 

 b. Within the coverage territory. 

 The coverage territory is: 

 (1) The United States of America; 

 (2) The territories and possessions of the United States of America; 

 (3) Puerto Rico; 

 (4) Canada; and 

(5) Anywhere in the world if a covered "auto" of the private passenger type is leased, hired, rented or borrowed without a driver for a period of 30 days or less, provided that the "insured's" responsibility to pay damages is determined in a "suit" on the merits, in the United States of America, the territories and possessions of the United States of America, Puerto Rico or Canada, or in a settlement we agree to. 

We also cover "loss" to, or "accidents" involving, a covered "auto" while being transported between any of these places.

Unless there's another section of language in the contract that restricts the coverage territory to the radius used for rating, the radius has nothing to do with coverage.

That being said, the policy may be void if the insured has misrepresented the radius of operations. But the insurer would have to prove that intent and it's clear from your correspondence that you have advised the carrier that the insured may very occasionally go outside the radius. It would be difficult for the carrier to deny a claim on that basis unless they can document significant amounts of trips outside the radius.

Response 2: The radius of operation of autos is a rating mechanism and is not a coverage issue. If an auto exceeded the radius represented on the application only 1% of the time—as your question suggests—that is well within the general rating procedure included in the Commercial Lines Manual, which requires the premium to be based on 80% of the auto's highest use. 

As there is no exclusion in the standard BAP for exceeding the radius of operation, the insurer's only valid option is to contend that if the radius is exceeded, it amounts to a misrepresentation of the use of the auto. An insurer would then attempt to rescind the policy. Based on the information provided, it does not seem likely that the insurer would have any genuine basis for rescission. If an auto was occasionally operated beyond the 500-mile radius, there should be no difference in premium. Thus, the operation of that auto is not materially different than represented. 

On the other hand, if an auto rated on a 500-mile radius routinely operated in a 1,000 mile radius and was involved in an accident, the insurer might have grounds for rescission.

Response 3: When I handled claims like this, if it was a one-off event, coverage would usually be granted. However, this was a judgement call by the insurance company. It was an ex gratia settlement sent with a reservation of rights that explicitly stated any other claims outside the radius would be denied.

Other carriers did not extend that grace, stating that if you are going outside the radius you should ask for an endorsement for that one trip. This may be the best thing for the policyholder to do—obviously before the driver heads out on the road. 

In essence, this is extremely dependent on the carrier and the circumstances, and you will not have the underwriter or the claims department give you a firm answer. 

This question was originally submitted by an agent through the Big “I" Virtual University's (VU) Ask an Expert service, with responses curated from multiple VU faculty members. Answers to other coverage questions are available on the VU website. If you need help accessing the website, request login information.

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