Author: Mike Edwards
"I'm in a bit of a quandary about a Business Auto exposure. My insured is a meeting consultant/event planner. When I called him yesterday to talk about his upcoming renewal and get a quick update on any changes he's made, he mentioned that he is getting ready to move to a larger location, and expand his business. His daughter plans to relocate back home to Louisiana, and join the business. She has worked with a large professional event planning firm in Orlando since graduating from LSU about 10 years ago.
"One of the areas they want to expand into is more turnkey events, where they become a one-stop-shop for their clients. The example he gave me was where they would coordinate a large event, like a business conference or wedding, and include hiring a shuttle van, shuttle bus, or limo as a part of the package deal.
"Somewhere in the back of my mind, I seem to remember that the BAP excludes hiring an auto with driver, but I can't seem to find any exclusions in the coverage form which addresses this exposure. Any ideas?"
First, kudos for making the effort to get updates from your insured at renewal. According to E&O experts, far too many accounts get renewed as-is. An annual update or review of each account, even a cursory one, is good for the business relationship with customers, and an excellent E&O loss control procedure.
The BAP does have several provisions (three, to be exact) which address hiring an auto with a driver. However, just to demonstrate that the forms drafters have a sense of humor, none of the provisions are found in the exclusions. For the following discussion, assume your insured is VIP Event Planners ("VIPEP"), and that the commentary and coverage form excerpts are from the ISO BAP (CA 00 01 10 13).
Here is the first excerpt from the ISO BAP that references hiring an auto with driver:
SECTION IV - BUSINESS AUTO CONDITIONS
B. General Conditions
5. Other Insurance
b. For Hired Auto Physical Damage Coverage, any covered "auto" you lease, hire, rent or borrow is deemed to be a covered "auto" you own. However, any "auto" that is leased, hired, rented or borrowed with a driver is not a covered "auto".
(1) If VIPEP includes transportation as a part of the package of services they provide a client, and VIPEP leases, hires, rents, or borrows the shuttle van, shuttle bus, limo, etc. with a driver, their BAP with symbol 8 Hired Car Physical Damage coverage will not apply. The rationale probably is that since your insured has essentially no control over the auto, there is no basis to provide coverage for any physical damage done to the auto.
(2) However, endorsement CA 20 33 03 10 Autos Leased, Hired, Rented or Borrowed With Drivers – Physical Damage Coverage, provides a buy-back.
Here is the second excerpt from the ISO BAP that references hiring an auto with driver:
SECTION IV - BUSINESS AUTO CONDITIONS
B. General Conditions
7. Policy Period, Coverage Territory
Under this Coverage Form, we cover "accidents" and "losses" occurring:
a. During the policy period shown in the Declarations; and
b. Within the coverage territory.
The coverage territory is:
(1) The United States of America;
(2) The territories and possessions of the United States of America;
(3) Puerto Rico;
(4) Canada; and
(5) Anywhere in the world if a covered "auto" of the private passenger type is leased, hired, rented or borrowed without a driver for a period of 30 days or less
Comment: If VIPEP arranges transportation outside the Coverage Territory by leasing, hiring, renting or borrowing an auto with a driver, some form of international coverage is needed.
Here is the third excerpt from the ISO BAP that references hiring an auto with driver:
SECTION II - COVERED AUTOS LIABILITY COVERAGE
This insurance does not apply to any of the following:
Liability assumed under any contract or agreement.
But this exclusion does not apply to liability for damages:
a. Assumed in a contract or agreement that is an "insured contract", provided the "bodily injury" or "property damage" occurs subsequent to the execution of the contract or agreement; or
b. That the "insured" would have in the absence of the contract or agreement.
SECTION V – DEFINITIONS
H. "Insured contract" means:
6. That part of any contract or agreement entered into, as part of your business, pertaining to the rental or lease, by you or any of your "employees", of any "auto". However, such contract or agreement shall not be considered an "insured contract" to the extent that it obligates you or any of your "employees" to pay for "property damage" to any "auto" rented or leased by you or any of your "employees".
An "insured contract" does not include that part of any contract or agreement:
b. That pertains to the loan, lease or rental of an "auto" to you or any of your "employees", if the "auto" is loaned, leased or rented with a driver; or
(1) While the BAP's contractual liability coverage does not include a contract involving an auto loaned, leased, or rented with a driver, the applicability of this provision is fairly narrow. Two important notes about contractual liability. First, it only applies where the named insured (VIPEP) has agreed to assume the tort liability of another (limo company), for damages to a third party. Second, the contractual exclusion above does not apply to any liability for damages "That the 'insured' would have in the absence of the contract or agreement." [See B.2.b. above.] In other words, an injury caused through the direct negligence of VIPEP is generally beyond the scope of contractual liability.
(2) For example, if the transportation company they hired had poor vehicle maintenance or unqualified drivers, VIPEP could be sued for failing to properly investigate and vet the shuttle bus or limo company. VIPEP's potential liability for this does not involve contractual liability, but instead would be the direct negligence on the part of VIPEP. In such case, the contractual exclusion for an auto hired with a driver would not have any impact on coverage for VIPEP.
(3) Further, assume VIPEP provided guests with those cone-shaped birthday party hats, and while riding in the limo, one guest had his eye severely damaged by the pointy tip of another guest's party hat. The fact that the injury occurred in the limo would not fall under the contractual liability provisions, since the potential negligence was by VIPEP.
(4) Since the scope of contractual liability is to cover VIPEP's assumption of liability of another party (limo company), the exclusion of an auto hired with a driver is to avoid VIPEP's BAP from applying to the negligent driving of the shuttle bus or limo, by the driver who was sent by the transportation company. That exposure should rest with the transportation company, and not shifted to VIPEP.
(1) In many situations, where an event planner such as VIPEP is providing a turnkey package of services, there is the potential for a liquor liability exposure. It could be argued that where VIPEP includes alcoholic beverages as a part of its services, they could be considered to be "in the business of… furnishing alcoholic beverages." And even if guests bring their own alcohol (so-called "BYO"), the 2013 changes to the CGL liquor liability exclusion do not guarantee an exemption for VIPEP. See recent article on the CGL changes, including the liquor liability exclusion: click here.
(2) In doing some research for your question, I found some helpful information on various websites of event planner organizations, including:
Wedding and Event Planning Insurance: Three basic coverage options every planner should consider
Last Updated: November 2, 2016