Popular “gigs” create cover problems
[W]ith a growing gig economy … the lines between business and personal
activities have become blurred … .
By Bruce D. Hicks, CPCU, CLU
The Court Decisions column is a popular part of Rough Notes magazine. One reason for this is that the court room is where the promises made in an insurance contract often become real. All insurance professionals can develop “what if” scenarios, but until those scenarios are tested with an actual loss and a court decision, they remain mental exercises. This column comes from the industry expert contributors to Policy Forms & Manual Analysis (PF&M). This is a knowledge base consisting of more than 15,000 pages of coverage explanations from The Rough Notes Company’s digital solutions. The contributors are going to dig a little deeper into one of those court decisions to identify a coverage problem, provide possible solutions and/or offer broader perspectives.
How well does the insurance sector educate its personal lines customers? What is their practical level of risk awareness? Do most of the people we serve adequately understand the substantial limitations of personal policies with regard to business risks?
Developments in this still new century have made these questions increasingly important. This is especially the case with a growing gig economy where the lines between business and personal activities have become blurred … at least within the minds of consumers. The situation we wish to dig into appears to be clear cut. It may also be a useful illustration.
A delivery driver for a licensed marijuana consumables business suffered a loss. During a delivery, his car was damaged in a collision. He had a personal vehicle policy, but no protection was provided by his employer. His personal policy contained wording that barred coverage for loss involving business use of his car. The driver’s insurer denied his claim submission based on the policy exclusion and the driver sued.
A court reviewed the positions of both parties. The insurer’s position was simple, restating that their policy language freed it from any obligation to respond to the loss. The driver, in opposition, argued the following:
- The insurer’s refusal to cover the loss was a contract breach.
- The exclusion wording was confusing, so coverage existed due to ambiguity.
- It was against public policy for delivery workers to go without coverage.
Regardless, the court found that the policy exclusion was clearly worded and applicable to the loss as it occurred during a business activity. Neither was the court persuaded by the driver sharing that his employer went out of business and no remedy existed from that source.
In the above case, we happen to agree with the court’s findings. The driver made deliveries full-time. The accident definitely resulted from business use. The policy explicitly and clearly barred coverage for such use. In light of this, the arguments of contract breach and confusion over policy language were quite weak.
Next, let’s consider the point about public policy/public good. Public Policy Law, essentially, refers to rules and regulations created, maintained and enforced by government. They exist in various areas of our lives (social, health, politics, safety, economics and others) and have the intent to keep us from harm. Various insurance requirements are the embodiment of such laws, such as mandatory use of seat belts and financial responsibility laws. Insurance plays an important role in protecting people and their assets. But gaps often occur due to different developments.
Widespread economic changes and technological advances are a constant challenge to the insurance sector. In recent years, a huge issue is one mentioned at this article’s beginning—the gig economy. Generally, gig economy refers to work that is done by freelancers or contract workers. That is substantially different from the use of full-time employees that are part of a given company’s payroll.
The largest component of the gig labor force is drivers, ferrying people, delivering food, serving as business couriers, delivering goods/products, etc. The large expansion of this work pool has been driven by smart phone platforms and the desire of businesses to reduce costs by using part-time, unaffiliated personnel (who don’t require as much infrastructure, are more easily deployed and are available without an obligation to provide benefits).
Gig activity has become so common that it may have affected expectations of insurance protection. Let’s take a broader view of the circumstances faced by the unfortunate driver of our court case:
He was employed by an emerging business that is still struggling to become a fully legitimate, legal enterprise.
He was required to use his personal vehicle for deliveries to customers.
The use of the vehicle made it ineligible under his own policy.
There was no mention of commercial auto protection provided by the employer.
During litigation, the employer became insolvent.
With the business’s termination, the driver could not pursue any form of payment/reimbursement for his damaged car.
The incident was nearly an impossible one that left the driver grasping for a coverage solution. Is it at least slightly understandable that the driver believed that he should have been protected?
There is likely a significant problem faced by many insurance consumers. Even if persons aren’t involved with gig work on a regular, part-time basis, they may think nothing of one-offs. Commonly, persons make calls over their phones for help. It may be a simple pick up and drop off for a person without transportation or who had an emergency breakdown. There are requests for people to make a pick up and delivery of furniture, flowers, food, items for a party or a business meeting, and so on. People routinely respond to these calls and receive pay. They are all vulnerable to an uncovered loss occurring.
What effort do you undertake to make your clients aware of the need to purchase protection for these exposures? Are they advised that some activities are best avoided? So far, we’ve mentioned vehicular business risks, but there are many risks that are connected with homeowners policies.
Side hustles that can be performed from the home are also plentiful. Most attention has been given to homeowners who rent out their property. However, there are so many other small businesses that property owners don’t realize are not insured. For instance, how many customers may be selling baked goods, preparing and delivering meal packages, or selling products made with 3D printers?
Insurance professionals can help reduce the public’s chances of suffering uncovered, business-related losses. If you haven’t done so, consider regularly communicating with policyholders about business risks they may face. How about sending surveys shortly after writing new business or prior to renewing coverage? Ask about hobbies (they can often evolve into businesses) and be alert to property that is scheduled. They can also be indicators of home businesses.
Doing more to ferret out these exposures and addressing coverage issues (or other forms of mitigation) is a very good objective for us all.
The author
Bruce D. Hicks, CPCU, CLU, is an Indiana-based insurance coverage expert. Active in the CPCU Society, Bruce served as a governor of the organization from 2007 through 2010 and most recently served on its International Interest Group Committee and as Chair of its Publications Committee.
