Public or Livery Exclusion

 

The exclusion of public or livery conveyances traditionally included in automobile policies has been a principal source of anxiety to insureds forming car pools. See “Public or Livery Conveyance” for information on this exclusion of coverage in the personal auto policy (PAP).

 

Although court decisions have consistently held that car pools do not constitute public or livery use of an automobile, misunderstanding of the public or livery exclusion persists within and without the insurance industry. For example, one suggestion sometimes heard is that car pool participants should share the actual driving rather than share driving costs; otherwise the car pool may amount to public or livery use. This simply is not the case. The courts are in agreement that charging a car pool passenger for his or her reasonable share of expenses does not constitute public or livery use. Also, the exclusion on the current personal auto policy states that it does not apply to a share-the-expense car pool. Whether the insured takes his or her turn at driving, say one day a week with four other drivers, or drives five days a week and collects a reasonable share of expenses from each passenger, the exclusion does not apply. It is only when the insured indiscriminately makes the car available to the general public or attempts to make a profit that he or she runs the risk of operating a public or livery conveyance

 

This is in keeping with the legal definition of “livery conveyance.” That definition states that such a conveyance is a vehicle that is hired out and is used indiscriminately in conveying the public or objects without limitation or without being governed by special terms. In other words, a public or livery conveyance is open to the general public to deliver goods or persons for whoever pays the price; such a vehicle is also usually regulated by public laws governing the safety and sometimes the price. A car pool vehicle, on the other hand, is not open to the general public and is not subject to the same stringent regulations that apply to a bus or long haul truck, for example.

 

Sometimes, though, what constitutes a “reasonable share of expenses” is open to question. In Aetna Cas. and Surety v. Mevorah., 566 N.Y.S.2d 842 (1991), the insured purchased a van. Her husband regularly drove her, some friends, and some of their friends to work. Each passenger paid $3.00 each way. In denying a claim in which a passenger was injured, the insurer said the fee turned the vehicle into a “public or livery conveyance.” The court disagreed, saying that a “fair and reasonable definition of the term 'share-the-expense' car pool may encompass many varieties of less formal car pool arrangements [than a mathematically certain division of expenses] … While there was no proof at the trial that the $3.00 paid by each rider accurately reflected a fair apportionment of actual travel expenses, there was no proof to the contrary.” In fact, under Indiana law, the precise formulation of expenses would “reflect commercial endeavor, not car pool initiated for convenience… Indiana also considers four factors in determining whether an insured carries persons or cargo for a fee: (1) whether amount charged is definite amount; (2) whether it was proportionate to actual expenses; (3) whether payment was voluntary or consideration to driver; and (4) whether driver and passengers were engaged in common enterprise.” (See General Accident Ins. Co. of America v. Gonzales, 86 F.3d 673 [U.S. App. Seventh Cir., 1996].)

 

Premium

 

The foremost concern of other insureds may be with the possibility of an increase in policy premium. Here, too, the insured's concern may be put to rest. In itself, car pooling does not increase premium. On the contrary, in some cases it may considerably reduce premium. For example, under the general rules of the personal vehicle manual of Insurance Services Office, a primary rating consideration is the one-way distance driven to work. Any one of three use classifications applies to most people who drive to work: pleasure use (less than three miles), work less than 15 miles, and work 15 or more miles. Cars falling in the second class are charged as much as an additional 25 percent of the rate that would be charged for pleasure use, and cars falling in the third class are charged as much as an additional 45 percent of the rate for pleasure use.

 

However, if the car is driven to work no more than two days a week or two weeks in a five week period, it may be assigned the next lower use classification. For example, a car driven more than fifteen miles to work but only two times a week is rated for work less than fifteen miles. Likewise, a car driven three or more miles but less than fifteen miles is rated for “pleasure use” if driven to work two or fewer times a week.

 

Of course, each insured's potential savings will vary according to age, sex, marital status, geographical location, and other factors, but with little difficulty the alternate premiums can be worked out. The rate is also contingent upon no business usage.

 

Injury to Named Insured

 

In some car pools, one automobile is used all or most of the time, with the participants taking turns driving. The question frequently arises whether liability for injury to the owner of the automobile is covered, should he or she be injured while someone else is driving, and whether it is advisable to show each participant as an additional named insured.

 

Under the provisions of most automobile policies, any person using the automobile with a reasonable belief of permission is, by definition, an insured. Hence, it is unnecessary to name each participant as an additional insured. As respects liability for injury to the owner of the automobile when someone else is driving, the situation varies according to the policy covering the automobile. Some independently filed personal auto policies, for example, may exclude liability coverage for any person for bodily injury to the named insured or any family member. Others provide liability coverage for the named insured only. In this instance, any other carpooler driving the vehicle would have to rely on his or her own auto policy. The current unendorsed ISO personal auto policy has no pertinent exclusion and holds that damages for which any insured (this term includes any person using the covered auto) becomes legally responsible will be paid.

 

However, some states' mandatory special provisions alter the coverage. For example, California's PP 01 69 11 13 amends Part A – Liability to state “We do not provide Liability coverage for any 'insured' for 'bodily injury' to you or any 'family member' whenever the ultimate benefits of that indemnification accrue directly or indirectly to you or any 'family member.'” So, if a fellow carpooler is driving the insured's vehicle, causes an accident, and is sued by the insured for his or her injury, the insured's PAP will not respond. Colorado's endorsement PP 01 61 11 13 adds an exclusion that the insurer will not “provide Liability Coverage for you or any 'family member' for 'bodily injury' to any 'family member'.” In this situation, if the carpooler was the husband named insured and his wife a passenger, and the husband is sued by the wife for injuries sustained in an at-fault accident, the policy will not respond. (The exclusion applies to any such situation, not just a carpool.) Finally, the District of Columbia PP 01 64 01 05 modifies Part A – Liability Coverage to state that the insurer will “not provide Liability Coverage for any 'insured' for 'bodily injury' to you or any 'family member' to the extent that the limits of liability for this coverage exceed the minimum limits of liability required by the District of Columbia's Compulsory No-Fault Motor Vehicle Insurance Act.” Under this provision, a family member injured by an insured can collect, at most, the minimum limits legally required in the District of Columbia, or $25,000 per person.

 

These amendatory endorsements are by way of example and should not be taken as an all-encompassing list. In these states, then, the result could be that the car owner's insurer would not respond, with either defense or damages, should the owner file suit against a guest driver who injured the named insured while driving the named insured's car. The insured should therefore be warned of the existence of any such exclusion in his policy so that driving by guests can be avoided unless the guest driver has adequate insurance of his own. If the driver carries his own insurance, that may be a source of recovery for the injured car owner. The driver's PAP, however, would consider the insured's vehicle a nonowned vehicle and so the driver's PAP is excess.

 

If a guest drives another car pool member's car regularly or frequently, the guest driver's insurance might be inapplicable due to the exclusion (in the guest driver's policy) of use of vehicles furnished or available for the regular use of the insured. Thus, if the guest driver's own insurance is to be depended on—by either the owner of the car or the guest driver—the guest driver's policy should be amended to include extended nonowned liability coverage, which deletes the furnished or regular use exclusion found on the personal auto policy. However, this is an unlikely event. See Extended Nonowned Coverage; in particular, the discussion of Regular Use.

 

Generally, courts hold that simply driving another's vehicle with permission does not constitute regular use; a driver would have to have a set of keys, or be able to access the vehicle without having to ask permission. In the case of Central Security Mut. Ins. Co. v. DePinto., 681 P.2d 15 (Kan. 1984), nursing student DePinto drove a college-owned van for a semester, transporting nursing students two days a week to clinical programs at local hospitals. She did not have her own keys, and, in fact, did not drive the same van each time. The court said that “regular use within the meaning of the exclusionary clause of automobile liability policy is defined as continuous use, uninterrupted normal use for all purposes, without limitation as to use, and customary use as opposed to occasional use or special use.”

 

If the named insured is injured as a passenger and the guest driver is not liable, the named insured still has regular access to the policy's medical payments coverage and, if applicable, uninsured motorists coverage. In states having automobile no-fault laws, personal injury protection customarily covers the named insured while occupying any auto as driver or passenger. The policy in question, however, should always be checked.

Injury to Passengers

 

Apart from a liability claim or, in no-fault states, a claim under personal injury protection, an injured passenger's most practical (or at least the quickest) means of compensation through automobile insurance is under the medical payments coverage of either the car owner or the passenger.

 

Under the personal auto policy and most others, the passenger's medical payments coverage is excess over the owner's medical payments coverage specifically applicable to the owned automobile. Thus, if all members of a car pool carry medical payments coverage, each passenger will have full access to the auto owner's insurance and, if needed, his or her own coverage beyond that.

 

Liability of Employer

 

Since some employers sponsor or encourage the use of car pools, there has arisen the question of their possible liability for accidents involving these automobiles. It seems reasonably possible that a court might hold that this sponsorship of group riding somehow creates a master-servant relationship, making the employer liable either to members of the public or (apart from workers compensation recovery) to employees who have accepted rides at the employer's suggestion.

 

Some states have forestalled potential problems by making laws addressing these issues. Most have developed because of a push to seek workers compensation because of an accident while driving to or driving from work—in other words, to bring that activity within the scope of employment. In the case of Smith v. Pinner., 891 F.2d 784 (U.S. App. Ct. 1989) the court applied Colorado law. The fact that an employer reimbursed a supervisor for travel to and from work did not render the employer vicariously liable for injury sustained by another employee. Colorado's statutory amendment stating that “employment shall not include participation in ridesharing agreement effectively modifies the travel reimbursement rule for vicarious employer liability by eliminating its potential application to reimbursed employees who commute to work in car pool[s].” Therefore, passenger Smith had no claim against Pinner's (and his own) employer for his injuries arising out of Pinner's at-fault accident as the two men were returning from a job site.

 

In any event, there is at least a strong probability that employers will be sued under these circumstances, particularly if the owner or driver of the automobile is insolvent, uninsured, or if the employer is perceived to have the proverbial deep pockets. Even if a court of last resort should eventually absolve the employer from liability, defending the suit may be expensive, and there is always the possibility of an adverse judgment. For this reason, an employer could well need nonowned autos liability coverage. Not quite on point, but illustrative, is the case of Korczak v. Sedeman, 2004 WL 765213 (N.D. Ill. 2004). Sedeman was employed by one company but was sent by it to work for another. He was paid by the second company. The second employer paid for his food, lodging, and equipped him with a minivan to drive. Occasionally he was directed to drive other employees to a job site; each day he drove other employees to and from the lodging to the job site. (The employees were all citizens of a foreign country temporarily employed in the United States.) While leaving work, Sedeman was involved in a serious at-fault accident in which one person was killed. Korczak sued Sederman and both employers, alleging Sederman was acting as their agent. Both employers argued Sederman had clocked out for the day, and so could not have been acting as their agent. They stated he could drive the van anywhere he wanted after work. The court disagreed, noting that according to Illinois law, conduct of a servant is within the scope of employment if “it is actuated, at least in part, by a purpose to serve the master….” Since Sederman had been given the van specifically so he could drive other noncitizen employees, and was thus free to drive anywhere he wanted only after he had dropped his fellow employees off at the motel, he was acting within the scope of employment.

 

Some employers actually provide their own vans or other vehicles for the car pools they sponsor. In this case, the vehicles are insured as owned vehicles under the employer's automobile policy, which will insure both the employer's liability and, ordinarily, that of the employee driver at the time of an accident. Naturally, the particular policy should be reviewed to ascertain the scope of coverage.