Auto Insurance Policy Exclusions: Livery and Delivery Exclusions

Private passenger auto policies commonly excluded liability coverage for “livery” use starting around the middle of 1960, and the courts customarily applied this exclusion where the private passenger auto was used as a taxi (i.e. gypsy cab). As the courts eroded the effectiveness of the exclusion, and for-profit use of the private auto expanded, insurers have modified their policy language to increase the likelihood that the exclusion would be applied by the courts as intended. The use of the private auto with respect to for-profit activities that involved a risk much greater than the common usage of a private passenger auto became more noticeable when daily newspaper delivery by car became more common and the driver would be stopping at every driveway or every mailbox, presenting a hazard to traffic. The increased risk of accident became acutely noticeable where fast pizza delivery was promised and the pizza was free if not delivered within the time promised. As the frequent use of private autos for commercial activities expanded, the wording in these livery exclusions evolved.  Early on the policy language excluded “use as a livery conveyance”, then expanded to use policy language that excludes autos when “used for livery or delivery,” “carrying persons or property for a fee” , “delivery of persons or property”, “use for a fee,” and “use for a charge.”  Early in 1995 carriers started using exclusion language applied to “use for compensation or a fee”, “carrying persons or property for compensation or a fee,” and similar language. As the new phrasing came into common use the court challenges followed when claims were denied. Some courts interpreted the exclusion as intended, and upheld the exclusion of any for-profit activity in a private passenger auto policy, while a minority of courts did not, sometimes straining logic to declare these exclusions unenforceable. As the case law interpreting these provisions evolve over time, the language that will be most effective at achieving the insurer’s intent evolves with it. For an auto carrier to ensure the effectiveness of the insurance policy exclusions, case law across the country must be continuously monitored and a periodic policy revision process maintained.

The newest challenge to the personal auto carrier’s intent to exclude insurance coverage for commercial use is presented by the growing popularity of transportation network companies (TNCs) such as Uber, Lyft and Sidecar.  This involves the use of a personal auto as an unlicensed taxi but being dispatched by an on-line app.  The early regulation of TNCs by some states and cities have been focusing on requiring the TNC company and/or driver to maintain liability coverage (but not other coverage) with high limits that will apply to that commercial activity, but have remained relatively silent as to developing protections for the private passenger auto carrier who usually gets the first report of any accident and claims involving the commercial use of the personal vehicle by the TNC.  The Nash Group will continue to follow these developments.

 

This blog is not intended as legal advice.  Insurance companies should seek advice from an insurance compliance or legal professional to assist with the matters discussed in this blog.  The Nash Group LLC may be engaged for this type of research.

 Copyright © 2015. The Nash Group LLC.