Liability coverage under personal automobile policies does not apply when the vehicle is used to transport people or cargo. Language on this issue varies among policies issued by different insurers, but the intent is the same: to exclude any use of a personal auto for moving around people or property for income. However, this exclusion does not affect coverage for car pool, driver group and share-the-ride arrangements.
Personal automobile policies issued by many insurance companies, including those drafted by the Insurance Services Office, traditionally contained the exclusion quoted above along with an exception for share-the-expense car pools. Current policy wording typically refers to barring coverage for a vehicle that is used to transport persons or property in exchange for income. Therefore, coverage for carpools and similar arrangements are still accommodated.
Medical Payments Coverage
Automobile medical payments coverage in a personal automobile policy is not restricted or voided with respect to an insured or passengers in the insured's automobile. Let’s refer to the personal auto policy designed by the Insurance Services Office. The latest and previous editions of their automobile policy provide that there is no medical payments coverage for any person for bodily injury:
"...sustained while occupying your covered auto when it is being used as a public or livery conveyance." It further states that "... this exclusion does not apply to a share-the-expense car pool."
Whether or not the clarification exists with the pertinent exclusion in a policy, it is the intent and effect for coverage to apply to car pool, driver group and share-the-ride arrangements.
Why the Exception for Carpools?
Coverage is unaffected because the driving exposure is essentially the same. The common exclusion concerning “public or livery conveyances” is to prevent coverage for situations that involve a commercial or business exposure. Using an auto that is covered by a personal auto policy to transport people or goods for hire is unfair to insurers because while the insurance company charged a premium based on personal use, “public or livery conveyances” are typically:
- driven more miles
- exposed to worse (i.e., high density) traffic situations
- driven under more pressure to meet delivery schedules
- exposed to poorer driving conditions
The premium charged for a personal auto policy contemplates using the car for commuting, vacations, personal errands, etc. Most car pool arrangements fit right in with the personal use. Therefore, the “personal” premium compensates an insurer for the exposure. In fact, certain arrangements could reduce the overall exposure of the driver group to losses since the arrangement “spreads” the group’s driving responsibilities and exposure to traffic. During the car pool driving rotation, one car and one policy (instead of several cars and policies) are exposed to a loss.
When an insurance agent is aware of a car pool situation involving a client, consideration might be given to whether the current coverage is adequate. It may make sense to recommend and make certain of higher bodily injury liability insurance limits, especially the "per occurrence" limits. Higher medical payments coverage limits may also be in order. Of course, the agent might also make sure that any fees involved in the arrangement represent coverage for the driver’s operating expenses and not additional income.
The Employer’s Liability Exposure
There is a scenario involving car pools that may definitely need to be addressed through additional insurance. The typical personal auto policy may not cover a car-pooling arrangement set up for employees by their employer. The liability may be excluded under a personal auto policy if a business entity either sponsors or arranges car pools for its employees. Why would a coverage gap be created? The reason for such a transportation arrangement would be questioned. Employer sponsorship could transform the arrangement into an extension of the employer/employee relationship. The daily commute could then be considered a business instead of a personal driving exposure. Depending on how expenses are handled, a car pool arrangement that’s funded by an employer may also be interpreted as a form of compensation or benefit.
Example: Ben Duzwell is a department supervisor for Acme Aggregated Products. He happens to live in a new suburban housing complex along with four members of his work team. Ben owns a passenger van that he drives to work. While he always gets to work on time, team members are often late, complaining about traffic, etc. Ben offers to pick up his team each day and transport them to and from work for free. Ben’s manager at Acme finds out about the car pool when congratulating Ben about his team’s improved attendance. His manager gives Ben a monthly bonus that covers gas, maintenance and a “couple hundred dollars” for being such a pro-active employee. The fact that Ben started a car pool for the benefit of his company and is receiving money that exceeds his expenses turns the arrangement into one that is highly likely to be excluded under his personal auto policy.