Omnibus Clause

Example

“Thanks to the omnibus clause in her auto policy, Sarah's insurance covered the accident even though her teenage son was driving the car when it happened.”

Memory Tip

Remember 'Omnibus = On the Bus' - like a bus that carries many passengers, this clause covers many different drivers.

Why It Matters

The omnibus clause protects you from potential lawsuits and financial responsibility when someone else drives your car and causes an accident. Without this protection, you could be personally liable for damages even if you weren't driving, which could result in significant out-of-pocket expenses.

Common Misconception

Some people believe that if someone else drives their car, that person's insurance automatically becomes primary, but actually the car owner's insurance (with the omnibus clause) typically provides the primary coverage. The driver's own insurance may only provide secondary coverage if limits are exceeded.

In Practice

Mark lends his car to his neighbor Jim for the weekend. Jim causes an accident resulting in $75,000 in damages to another vehicle. Even though Jim was driving, Mark's auto insurance (with omnibus clause coverage) pays the claim up to Mark's $100,000 liability limit. Without the omnibus clause, Mark could have been personally responsible for the entire $75,000, potentially forcing him to liquidate assets or face bankruptcy.

Etymology

From Latin 'omnibus' meaning 'for all' or 'including everything.' The term was adopted in insurance to indicate comprehensive coverage that extends to multiple parties beyond just the policyholder.

Common Misspellings

Related Terms

More in insurance

Other insurance terms you should know

See Also