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Purpose of exclusion

Common concerns

Purpose of Exclusion

Rates for private passenger automobile insurance do not anticipate the hazards inherent in operating an automobile for hire to the general public, such as a taxicab or a van; for this reason, private passenger automobile policies in the past customarily excluded coverage for any automobile "while it is being used as a public or livery conveyance". This public or livery exclusion was, for awhile, reworded in the personal auto policy to state that coverage did not apply to "liability arising out of the ownership or operation of a vehicle while it is being used to carry persons or property for a fee". Since that phrase resulted in some confusion and conflicting judicial interpretations over the question of coverage, the current personal auto policy (PAP) returned to the use of the phrase "public or livery conveyance". This exclusion appears in all the coverage parts of the PAP; namely, the liability coverage part, the medical payments coverage part, the uninsured motorists coverage part, and the part dealing with coverage for damage to the named insured's auto. For a discussion of the public or livery exclusion, see Personal Auto Policy—Part A.

The purpose of the exclusion is to deny coverage in those situations when the vehicle is used for hire or held out for hire to the general public; the exclusion applies when the insured makes the vehicle available for use by the general public or attempts to make a profit through the hiring out of his vehicle. This is in keeping with the legal definition of livery conveyance that states that such a conveyance is a vehicle hired out and used indiscriminately in conveying the public or objects without limitation or without being governed by special terms. The exclusion is intended to be applied in those situations where it is obvious that the insured is holding the vehicle out for hire to the general public; for example, using a vehicle in a limousine service or using it as a taxicab. (Note that the exclusion does not apply to share-the-expense car pools. So, it would not apply in the case of the insured routinely picking up co-workers on his way to work who then contribute to the insured's travel expenses.)

Common Concerns

Questions may arise when the insured charges a fee for using the covered auto even though the vehicle is not held out for hire to the general public. Is the charging of a fee grounds enough to apply the conveyance exclusion found in the PAP? There are court decisions that discuss the public or livery conveyance exclusion in relation to the charging of a fee. The cases noted in the next few paragraphs may differ in their outcomes, but the main point that should be noticed is that the decisions are based on looking at the wording of the exclusion as a whole and applying it to the factual situation on a case by case basis.

U.S. Fidelity and Guaranty Co. v. American Interinsurance Exchange, 718 S.W.2d 955 (1986) was a case decided by a Kentucky appellate court concerning an action between two insurers. An "outreach" driver transported senior citizens in her personal auto in connection with her duties for a nonprofit social service agency. No fee was demanded from the passengers but a donation of 25 cents was requested if the passengers were so inclined; some gave the money, others did not. An accident occurred wherein a person was injured and the driver's insurance company denied coverage based on the idea that the auto came within the scope of the public conveyance exclusion. The court chose to ignore the existence of the fee and found that the exclusion did not apply; there was coverage under the driver's policy. The court's emphasis was on the use of the vehicle and the generally accepted definition of public conveyance; the emphasis was not on the charging of a fee.

In a similar case from Mississippi, the court of appeals in Progressive Gulf Insurance Company v. We Care Day Care Center, 953 So. 2d 250 (2006) held that the insured driver of a van transporting clients to an adult daycare center was covered under the terms of her auto policy for a liability claim arising out of an accident involving the van. The court found that the driver was paid an hourly wage for driving We Care's clients and that the clients did not pay anything for the transportation. The exclusion was seen by the court as being ambiguous as to whether it applied if any money was paid to the insured in connection with transporting a person or only where money was paid by the passenger on a per-trip basis.

Johnson v. Allstate Insurance Co., 505 So. 2d 362 (1987) was a decision by the Alabama supreme court. In this case, the exclusion did apply and coverage was barred. The insured transported children who were enrolled in the insured's day care center to and from the center. A fee of $1.00 each way was charged for each child transported. The vehicle was involved in an accident and several children were injured as a result. Parents of the children brought suit and the insured sought coverage from his insurer. After the insurer denied coverage, the insured filed an action seeking a judgment that the company had a duty to "honor, defend, and satisfy any claims arising out of the accident". The Alabama court chose to disagree. The court stated that the actual use to which the amount collected was put, whether to defray expenses or otherwise, was not relevant and whether or not a profit was made was not important. The important points were whether the amount charged to the users of the vehicle was a definite amount, whether the amount was proportionate to the actual expenses of a trip, whether the amount was voluntary, and whether the driver and passenger were engaged in a common enterprise. The insured's own deposition demonstrated that all those points were answered in such a way that the vehicle was clearly used for the transportation of people for a fee. Therefore, the use of the vehicle in this manner expanded the risks of liability beyond those usual risks covered by the insurance policy and so, any claims arising out of the accident were necessarily excluded from coverage under the terms of the auto policy.

Another question that has become quite common concerns employees who use their own private passenger autos for deliveries of items such as newspapers or pizzas and other fast foods. Since the exchange of money is involved in these deliveries, does the exclusion apply or not? A Tennessee court of appeals discussed this problem in United Services Automobile Assn. v. Couch, 643 S.W.2d 668 (1982). The decision of the court in this case was based on a different exclusion but the court did speak directly to the issue of a vehicle being used to carry persons or property for a fee. The court stated that the exclusion did not apply even though the customers to whom the deliveries were made paid a delivery charge because that charge did not inure to the benefit of the deliverer. Furthermore, the court said, a delivery price added to the price of an article was not a fee for use of the vehicle.

This decision was a Tennessee decision and certainly not binding on any other state; and the exclusion was not worded as the exclusion is in the current PAP. However, it would be logical to consider that such a situation as existed in the Tennessee case would not be excluded under the current personal auto policy in use today throughout the country. Indeed, one of the reasons for the return to using the "public or livery conveyance" language in the current personal auto policy is to clarify that the intent of the exclusion is to preclude coverage in those situations where it is obvious that the insured is using his vehicle as a conveyance held out for hire to the general public and not as in the case of the pizza delivery.

A similar case from New York reinforces the point that delivering pizza is not meant to fall under the scope of the public or livery exclusion. This case is American Motorists Insurance Company v. Travelers Insurance Company, 604 N.Y.S.2d 475 (1993). The Supreme Court, Albany County, noted that a livery exclusion is authorized by regulation for an auto liability policy. However, the court said, such an exclusion does not encompass an employee's use of his own auto to deliver pizza, and the exclusion could not, as a matter of public policy, be enforced to deny coverage for injuries caused by a vehicle being used to deliver pizza.

Several cases decided prior to the introduction of the current personal auto policy had to do with the question of car pools. With each car pool member contributing money toward operating expenses, was the auto carrying passengers for hire? Did the public or livery exclusion apply? Several legal decisions, such as Allstate Insurance Co. v. Roberson, 217 F.2d 10 (1954), Smith v. Stonewall Casualty Co., 188 S.E.2d 82 (1972), and Eason v. Weaver, 557 F.2d 1202 (1977), held that the exclusion did not apply to expense splitting passengers. These cases have not been overturned and the decisions are still valid, but the current personal auto policy (the liability coverage part, the med pay coverage part, the uninsured motorists coverage part, and the physical damage coverage part) has specifically dealt with this question by stating that the exclusion does not apply to a share the expense car pool. The court decisions have, in effect, been incorporated into the language of the auto policy.

A final concern to be addressed deals with the exclusion in relation to uninsured motorists coverage. A New York court of appeals case, In re Liberty Mutual Insurance Company, 623 N.E.2d 536 (1993), put forth the point that the livery exclusion in uninsured motorists coverage is unenforceable and invalid. The court stated that the exclusion is inconsistent with the purpose of mandatory uninsured motorists statutes and public policy meant to ensure that innocent victims of automobile accidents receive compensation. The Ohio Supreme Court in Stanton v. Nationwide Mutual Insurance Company, 623 N.E.2d 1197 (1993) decided that the exclusion was not enforceable under uninsured motorists coverage that is meant to insure that innocent persons injured by negligent uninsured motorists should not be without compensation. (The Stanton decision was superseded by Ohio statute as noted in Kovach v. Tran, 934 N.E.2d 1000 [2009].)

Note that some of these cases deal with the exclusion as referring to vehicles being used to "carry persons or property for a fee". Of course, the language of the exclusion on the current PAP has been changed; but the possibility of conflicts with uninsured motorists laws still exists. The public or livery conveyance exclusion in the current PAP applies to uninsured motorists coverage, and if a state law requires uninsured motorists coverage for insureds under every auto policy, the exclusion will not stand up to a legal challenge. After all, the public policy supporting the idea of uninsured motorists coverage (that is, coverage for innocent victims of uninsured motorists) is still valid regardless of how the livery exclusion is worded, and insurance policy language is still subject to state statutes.

February 6, 2012