Business Use Exclusion Bars Coverage

July 15, 2013

A motorist injured in a collision sued the insurer under a commercial auto policy. This case is Forkwar v. Empire Fire and Marine Insurance Company, 487 Fed.Appx. 775 (2012). 

Mahdi was a contractor for J&J Logistics, working under an independent contractor agreement. Mahdi leased his tractor to J&J and called J&J every morning to see if J&J had a job for him. In November, 2004, Mahdi called J&J and was instructed to pick up a load at the Giant Food warehouse in Jessup, Maryland. On the way to Jessup, Mahdi decided to stop and but something to eat. Before he could exit the highway, Mahdi was involved in an accident with Forkwar. 

Forkwar sued Mahdi and J&J, seeking $500,000 in damages. Empire Fire and Marine Insurance Company wrote an auto policy for Mahdi and after receiving notice of the claim, determined that the business use exclusion on the policy applied. The insurer denied coverage and defense. A jury later found that Mahdi was negligent and awarded Forkwar $180,756. Forkwar then filed an action against Empire seeking payment. 

The trial court granted the insurers motion for summary judgment and this appeal followed. 

Forkwar made two arguments on appeal. She first contended that the trial court erroneously determined that Empire was not collaterally estopped by the judgment in the underlying action from arguing that the business use exclusion applied. Second, she argued that the exclusion does not apply to bar coverage. 

The United States Court of Appeals, Fourth Circuit, ruled that Forkwar did not meet her burden of showing that collateral estoppel applied. Forkwar tried to establish an employer/employee relationship between J&J and Mahdi under the respondeat superior doctrine. The court said that that doctrine and the business use exclusion are not identical issues since the respondeat superior doctrine requires the existence of an employer/employee relationship and the business use exclusion has no such element. The business use exclusion simply states that the insurance does not apply to injury or damage while a covered auto is used to carry people or property in any business or while a covered auto is used in the business of anyone to whom the auto is leased or rented. Thus, an individual who was acting in the business of J&J but who is an independent contractor rather than an employee would be subject to the exclusion without falling under the doctrine of respondeat superior. 

As for the argument that the business use exclusion applied, the court noted that there was very little case law on the applicability of the exclusion. However, both the Seventh and Fifth Circuits, in considering similarly worded business use exclusions, have held that the purpose of the exclusion is to retract coverage for occasions when the truck is being used to further the commercial interest of the lessee. Under this interpretation, the court said, the question is whether Mahdi's conduct at the time of the accident furthered the commercial interest of J&J. 

In applying the furthering-the-interests test to this case, the court found that Mahdi's conduct fell under the business use exclusion. The accident occurred while Mahdi was on his way to pick up a load for J&J; his driving to Jessup was a necessary step in completing his work; he was not pursuing leisurely engagement nor engaged in some folic or detour; Mahdi received instructions from J&J and was in the process of completing that task, and stopping for a meal did not mean that he was not operating his vehicle solely for the purpose of furthering J&J's commercial interests. The court ruled that the business use exclusion applied and barred coverage in this instance. 

The ruling of the district court was affirmed. 

Editor's Note: This case involves a business use exclusion that is worded similarly to the wording in the ISO endorsement, CA 23 09—insurance for non-trucking use. The driver/insured in this instance had that endorsement on his auto policy, and the purpose of the exclusion was to prevent the BAP insurer from having to defend and indemnify the insured for injuries or damage caused by the insured while driving his auto on the business of another entity. The court found that the accident occurred while the insured was using his vehicle in the business of J&J, the company that leased his vehicle. The exclusion clearly applied.