Square Pegs in Round Holes: Adjusting Claims Involving Rideshare Drivers

CampusLifts.  Haxi.  Kangaride.  Lyft.  Sidecar.  Summon.  UberX.  Wingz.  Sound familiar?  They are colloquially known as “rideshare” services or transportation network companies (TNC).  TNC’s typically do not provide transportation services themselves.  Instead, they provide an online-enabled platform to connect passengers with drivers using their personal, non-commercial, vehicles.[1]  They are the bane of the existence of many taxicab collectives, municipalities, and insurers[2].  In this blog, we explore, generally, the potential insurance coverage issues for TNC drivers, and offer considerations for insurers when presented with related claims.

TNC drivers might assume that if they have personal automobile insurance, they are covered in the event of an accident. However, the issue is not that straightforward.   Several insurers have gone on the record to state that they do not provide such products and that TNC activities are not within the coverage grant afforded by Ontario’s standard personal automobile liability policy – the OAP1 Policy.[3]  The Insurance Bureau of Canada’s position is that the OAP1 Policy excludes coverage if the vehicle is used to carry paying passengers. According to the IBC, if a driver has purchased a personal auto insurance policy and uses his or her vehicle for TNC purposes, “there will be coverage implications”. The coverage implications impact not only TNC drivers, but also vehicle owners / lessees and any other user of the road, be they other motorists, passengers, pedestrians or bicyclists.

How do TNCs and more particularly, their drivers, presently operate in such a heavily insurance regulated jurisdiction like Ontario? Well, very cautiously and with exposure to risk. Consider the workings of the present insurance regime in terms of the application for insurance, the provisions of the Insurance Act and the wording of the OAP1 policy itself.

A typical application form for personal automobile insurance asks:

“Will any of the described automobiles be rented or leased to others, or used to carry passengers for compensation or hire, or haul a trailer, or carry explosives or radioactive material? Yes ?  No ? ” [emphasis added.]

Apparently, in the view of how the insurance industry assesses risk, carrying paying passengers is akin to carrying explosives or radioactive material.

The answer to the above question is binary.  If the applicant answers “yes” (in connection with carrying passengers for compensation), he or she will almost certainly be declined personal coverage and will instead be referred for a commercial policy.  The OPCF-6A endorsement permits the automobile to be used to carry paying passengers.  The endorsement is available for purchase upon the payment of a costly premium.  However, the endorsement is only available for commercial vehicles and for properly licensed drivers of “public vehicles” (such as taxicabs and other transportation vehicles).  At this point, the endorsement is not available to an individual driving a personal vehicle.

If the applicant answers “no” and then proceeds to carry passengers “for compensation”, an insurer will likely take the position that there was either misrepresentation or nondisclosure on the application or a failure to disclose a material change in risk.  An insurer’s position in that regard has coverage implications for property damage, bodily injury and accident benefits claims.

The specific prohibition against carrying paying passengers appears in subsection 250(1)(c) of the Insurance Act and in section 1.8.1 of the OAP1 Policy. Subsection 250(1)(c) permits insurers to include an exclusion in an auto policy to negate coverage if the automobile is “used as a taxicab, public omnibus, livery, jitney[4], or sightseeing conveyance or for carrying passengers for compensation or hire”.  Interestingly, the wording of section 250 is permissive, not mandatory.

Also consider the actual policy wording. Section 1.8.1 of the OAP1 Policy contains a general exclusion relevant to TNCs.  Section 1.8.1 provides:

1.8       who and what we won’t cover

1.8.1    general exclusion

Except for certain accident benefits coverage, there is no coverage under this policy if:

…

• the automobile is used as a taxicab, bus, a sightseeing conveyance or to carry paying passengers.  However, we don’t consider the following as situations involving carrying paying passengers:

• giving a ride to someone in return for a ride,
• sharing the cost of an occasional trip with others in the automobile,
• carrying a domestic worker hired by you or your spouse,
• occasionally carrying children to or from school activities that are conducted within the educational program,
• carrying current or prospective clients and customers, or
• reimbursing volunteer drivers for their reasonable driving expenses, including gas, vehicle wear and tear and meals.

It is unlikely that an insurer will characterize a TNC driver’s activities to fit into any of the six bulleted exceptions set out above.

There are also provisions in the Insurance Act and the OAP1 policy that require an insured to contact the insurer if there has been any “change in the risk material to the contract”.

Surprisingly, the case law interpreting section 1.8.1 is somewhat dated, but does include appellant and Supreme Court of Canada authority. The following principles can be gleaned from the case law:

• The exclusion applies where the exchange of remuneration for service is meant to be commercial in nature as opposed to simply an exchange of amenities, in which case the passenger is merely a gratuitous passenger.  The term “for hire” involves using the vehicle on a commercial basis as a means of earning income.[5]
• Courts will look at the purpose for which the transportation was provided: was it merely social or was it in performance of a contractual obligation or otherwise for a commercial or business purpose?  If it is the latter, the exclusion will apply and there would be no coverage.[6]
• The exclusion applies where a driver agrees to provide transportation at a fixed rate between the homes of the driver and the passenger at a regular frequency.  In this circumstance, the vehicle was determined to be operated in the business of carrying passengers for compensation.[7]
• Payment for gas and oil and related trip expenses by several accompanied passenger friends of driver do not make the vehicle a “commercial vehicle” if no commercial purposes exist.[8]
• There is no “commercial purpose” where the presence of passengers in the vehicle come about casually or incidentally and a nominal payment is voluntary offered to show appreciation in an attempt to share the cost for the trip.[9]
• It is not a defence to say that exclusion against carrying passengers for reward does not apply when only one passenger is being carried.  The exclusion applies whether one passenger is being carried or many passengers are being carried.[10]

We can infer from these cases that if drivers use their own cars in a commercial endeavour – that is, for money, reward or profit, – even if they do so occasionally – indemnity for claims (presumably arising out of that activity) will not be provided.

Consider also that the Financial Services Commission of Ontario (FSCO) has confirmed that motor vehicles used for “carpooling” are fully covered by the OAP1 Policy without the need of a commercial auto policy or special endorsements or riders, and without the need for disclosure to the insurer.  Ontario’s Public Vehicles Act, R.S.O. 1990, c. P.54 was amended in 2009 to address carpooling.  The definitions of “public vehicle” and “taxicab” in that Act do not include a motor vehicle:

• with a seating capacity of 10 or less;
• travelling on a one way or round-trip or taking passengers incidentally to the driver’s purpose for the trip;
• where no fee is charged or paid by passenger except to reimburse the expenses of operating a motor vehicle;
• where the driver does not take passengers in more than one, one-way or round-trip in a day; and
• where the owner or lessee of the motor vehicle does not use more than one vehicle as a carpool vehicle, unless the owner or lessee employs most of the passengers being transported in the vehicles.

As things presently stand, in the event of a claim made by a TNC driver, a number of determinations would need to be made.

– Was the driver engaged in a true commercial activity or merely a personal / social / car-pooling activity?

– Did the accident occur in the course of a TNC activity?

• Does the determination of coverage depend on when the accident occurred having regard to whether the TNC driver was “in the course of driving as a TNC driver”?
• At what stage in the process did the accident occur?
• Did the accident occur during pre-passenger pick up (i.e. when the TNC driver was checking the TNC app or en route to pick up passengers) or post-passenger pick up?[11]

– Did the driver disclose his or her intention to use their personal vehicle to transport passengers for a fee on the application for insurance?

• If not, will the policy be void ab initio for material misrepresentation or for material change in risk?
• Will reliance instead be had only on the exclusion?
• What are the implications of both?
• Will coverage be available under the “absolute liability” provisions of the Insurance Act, thereby causing insurers to have at least $200,000 of skin in the game?  Will insurers subrogate against their TNC driving insureds?

– Are TNC drivers insured motorists and protected from property damage claims for “at fault” claims by the “no-fault” provisions of the Insurance Act, or can third party drivers or their insurers subrogate against them?

– Are TNC driver’s employees or independent contractors of the TNC?  Will the TNC be vicariously liable for the negligence of the driver?[12]

– Can the TNC be exposed to liability for a product defect referable to its app?[13]

So many questions, so little blog space to answer them in this installation.  Suffice it to say that the current regime of automobile insurance in Ontario results in a risk for a TNC drivers in that their personal automobile insurance policies will likely not cover the use of their vehicle to carry paying passengers.  TNC drivers involved in an accident with their personal vehicles while carrying passengers for compensation face financial exposure to:

• pay for the repair of their own vehicle damages;
• pay for the repair of the vehicle damage caused to the other vehicle if: (a) they are at fault, and (b) the “no-fault” provisions of the Insurance Act pertaining to property damage is rendered inapplicable;
• pay compensation to parties injured in an accident directly or indirectly as a result of an insurer or the Motor Vehicle Accident Claims Fund pursuing the driver for recovery of any payouts they make;
• reduced availability of accident benefits, chief among them is the unavailability of an income replacement benefit;
• fines for not having requisite licenses for operating a “public vehicle”.

There is presently a gap in the insurance offerings available to consumers who long to be TNC drivers.  Until the gap is filled, TNC drivers face financial exposure operating without insurance. The TNC industry is evolving, as is the insurance industry in its efforts to catch up with the needs of the market. The determination of claim coverage can be complicated. Claims adjusters should not be quick to take an off coverage position just because a claim involves a TNC driver.  An insurer’s duty of good faith and fair dealing requires all claims to be fairly investigated. All cases turn of their facts, and the facts of each claim involving TNCs need to be examined before coverage decisions are made.