Omnibus Clause

An omnibus clause is a clause in an automobile liability insurance policy clause which extends coverage to individuals not named in the policy. The omnibus clause applies to individuals who are authorized to use an insured vehicle.

An omnibus clause in an automobile insurance policy expands the number of people who can be covered, but how far this coverage extends depends on legal interpretations of how authority is granted. Once the individual named in the policy provides permission to the first non-named individual, called the first permittee, that individual may then allow another party, the second permittee, to use the vehicle. This may be the case if a parent allows his or her child to borrow the family car, and the child then allows a friend to drive the vehicle.

Courts may differ on whether the named policyholder needs to explicitly provide permission to each party in order for them to be covered under a policy. In some cases courts may rule that the named insured granting unrestricted use of a vehicle is an indicator that the party given permission can subsequently give permission to other people. If the named insured expressly prohibits the first permittee to allow anyone else to use the vehicle, then coverage may be denied to the second permittee.

Determining who is authorized to drive is important. For example, a real estate company allows an agent to drive potential clients to a property for a viewing. The company expressly indicates that only the agent is permitted to drive the company vehicle. However, during the course of the day, the agent allows one of the clients to drive, and an accident follows. An omnibus clause that requires the insured’s permission to be either expressed or implied would deny coverage in this case because the insured openly stated that the first permittee was not allowed to let anyone else drive the vehicle.

The omnibus clause automatically covers anyone who could be held liable for your negligence or for the negligence of a permissive user – basically anyone who is vicariously liable for negligence committed by you (the named insured) or an authorized driver. Vicarious liability refers to liability that is attributed to someone even though that party did not directly commit a negligent act. A person or company may be held vicariously liability for someone else's negligence because of a legal relationship. For instance, an employer may be held vicariously liable for an auto accident caused by a negligent employee.