1. Forms
2. CA
3. CA-26-04

What the form is

The CA 26 04 is an endorsement used with Single Interest Automobile Physical Damage Insurance Policies (such as forms CA 26 01 - Individual Policy Form, and CA 26 02 - Finance Master Policy Form). Its primary purpose is to amend these policies by adding an exclusion. Specifically, it excludes coverage for physical damage to a covered automobile if the damage occurs while the auto is being used to carry persons or property for a fee (public or livery passenger conveyance) or when used in connection with on-demand delivery services (e.g., food delivery, package delivery for a transportation network company).

Classes of business it applies to

This endorsement is relevant to financial institutions, such as banks, credit unions, and finance companies, that provide auto loans and are named as the insured under a single interest physical damage policy. This type of policy protects the lender's financial interest in the vehicle if it is damaged and the borrower does not have their own adequate insurance.

Real-world example: A bank has a single interest auto physical damage policy covering its portfolio of auto loans. A borrower, whose loan is covered under this policy, begins using their car to drive for a ride-sharing service. If the car sustains physical damage while the borrower is transporting a paying passenger, the CA 26 04 endorsement, if attached to the bank's policy, would mean the bank's single interest policy will not cover the damage to the vehicle.

Special considerations

• Rise of Gig Economy: The proliferation of ride-sharing services (like Uber or Lyft) and on-demand delivery services has significantly increased the likelihood of vehicles being used for commercial purposes not originally anticipated when a personal auto loan was underwritten. This endorsement directly addresses this evolving risk.
• Increased Risk Profile: Using a vehicle for livery or delivery services generally exposes it to higher mileage, increased traffic exposure, and potentially different driving behaviors, all of which can elevate the risk of physical damage. The CA 26 04 clarifies that this heightened risk is not covered under the standard single interest policy.
• Lender Protection: It protects the lender from losses stemming from activities that typically require commercial auto insurance, which often has different terms and higher premiums.
• Borrower Awareness: While this endorsement directly impacts the lender's coverage, it indirectly highlights the importance for borrowers to secure appropriate commercial auto insurance if they engage in such activities, as their personal auto policy and the lender's single interest policy may not provide coverage.

Key information for agents and underwriters

• Risk Assessment: Underwriters for single interest policies should consider the lender's portfolio and the prevalence of gig economy activities in their lending areas. The CA 26 04 helps to manage this exposure by clearly excluding it.
• Pricing: By excluding these higher-risk activities, the base premium for the single interest policy can be more accurately priced for its intended more limited coverage scope (protecting the lender's interest in vehicles primarily used for personal use).
• Coverage Clarity: This endorsement provides explicit clarity regarding coverage limitations, reducing ambiguity in claim situations involving vehicles used for passenger conveyance or delivery services. Agents should ensure lenders understand this exclusion.
• Potential for Coverage Gaps: Agents should advise lenders that if a borrower is using a vehicle for these excluded commercial purposes, a significant coverage gap exists. The lender's single interest policy with this endorsement will not respond, and if the borrower also lacks appropriate commercial coverage, the lender's collateral could be unprotected in the event of loss during such use.