A GOOD DEED GOES UNREWARDED
The Louisiana Supreme Court reminds us that auto insurance may not follow the insured
Dissents in the case were sizzling, with one justice writing that “the ruling
in this case has far-reaching effects of which few, if anyone, would be aware,
By Joseph S. Harrington, CPCU
If you offer to drive a friend home in his or her car after he or she has been drinking, that’s a good thing, right? Yes, presuming you haven’t been drinking yourself.
And if you cause an accident along the way, your personal auto insurance will cover you, right? Maybe, maybe not. Now, we all know that personal auto insurance “follows the vehicle.”
Presuming your intoxicated friend has insurance for the vehicle but is not too intoxicated to grant you permission to drive it, there will be coverage for bodily injury and property damage arising from the operation of that vehicle. But suppose the limits of that coverage are not enough to cover the full costs of the damages and injuries. Will your auto insurance kick in? Typically, yes.
Under the standard Personal Auto Policy (PAP) developed by the Insurance Services Office (ISO), the liability insuring agreement extends coverage to damages “for which any insured becomes legally responsible due to an auto accident.” There is no provision expressly restricting liability coverage to the use of declared vehicles insured under the policy.
ISO language is used selectively in the personal auto insurance market, however, and non-standard provisions abound. In a recent case from the Louisiana Supreme Court, wording identical to ISO’s was invoked to exclude coverage for someone driving a car on behalf of a friend. A dissenting justice warned that the ruling “will have a chilling effect on positive behavior, such as individuals serving as designated drivers for their intoxicated friends.”
Under the ISO PAP, liability coverage extends to “any person” using a covered auto, without qualification, and its definition of a covered auto includes vehicles used as temporary substitutes for covered autos that are broken down, under repair, lost or stolen, or otherwise unavailable for use.
Language identical to ISO’s regarding temporary substitute vehicles was used in a provision of a policy at issue in the Louisiana case. The policy covered the insured’s use of a “non-owned auto,” which the policy defined as a vehicle “used as a temporary substitute for your covered auto … because of its: 1. breakdown; 2. repair; 3. servicing; 4. loss; or 5. destruction.”
In the Louisiana case, a man’s friend was driving the man’s car to a shop to have a damaged tire repaired. Along the way, the friend caused an accident, injuring two passengers in another vehicle. As is customary, the auto insurance for the car’s owner paid for damages up to its applicable limits. Those limits did not fully compensate the injured claimants, however; they also lodged a claim against the driver and his auto insurer.
The driver’s auto insurer denied coverage and was sustained by the Louisiana Supreme Court on a narrow factual basis: The car causing the accident was being driven as a favor to its owner, and not as a temporary replacement for a vehicle insured under the driver’s own policy. Because of that, the policy as written did not provide coverage, and the court’s majority determined that public policy did not mandate coverage.
The outcome will seem counter-intuitive to some risk professionals, as a one-time local trip to help a friend would seem to be a more incidental exposure than use of a replacement vehicle for several days or weeks. More than that, the outcome would seem unsettling in light of the insured’s and claimants’ invocation of a state statute that reads:
“[e]very approved insurance company … writing automobile liability, physical damage, or collision insurance, shall extend to temporary substitute motor vehicles as defined in the applicable insurance policy … any and all such insurance coverage in effect in the original policy … .”
The majority held that someone else’s car driven once did not qualify as a “temporary substitute motor vehicle” as defined in the policy and subject to expressed public policy.
Dissents in the case were sizzling, with one justice writing that “the ruling in this case has far-reaching effects of which few, if anyone, would be aware, believing that such a circumstance is covered by liability insurance.”
Well, now you’re aware.
Joseph S. Harrington, CPCU, is an independent business writer specializing in property and casualty insurance coverages and operations. For 21 years, Joe was the communications director for the American Association of Insurance Services (AAIS), a P-C advisory organization. Prior to that, Joe worked in journalism and as a reporter and editor in financial services.