By Cedric Stephens, ContributorQUESTION: MY daughter will be attending the UWI in September. We will be providing her with a car. She will be responsible for the expenses. She plans to carry some of her friends on the grounds that they will contribute to the gas. It has just occurred to me that in the event of an accident in which the friends were hurt, they could be considered as fare-paying passengers. This could possibly lead to her insurer's refusal to pay the claim. Can you suggest anything to avoid this potential problem?
D. H., Kingston.
Answer: I enjoy questions like yours. It is not that I dislike questions that are dissimilar but, simply, by raising the matter now and not after the fact the odds are very much in your favour that I can help you, and your daughter, avoid a problem 'down the road'. Like you, I believe in the axiom: an ounce of prevention is worth more than the cure. What is even more pleasing is that your daughter is displaying skills in cost recovery that would warm the heart of our Finance Minister.
You are absolutely correct. Your daughter's plan to collect 'gas contributions' (or to use Omar Davies' term of art, 'user fees') from her friends could lead to insurance problems. Most motor policies exclude "... use for hire or reward, commercial travelling, motor trade purposes, reliability trial or speed testing or the carriage of goods or samples in connection with any business or trade."
Insurers exclude these activities for very good reasons. For one, the traffic regulations place a much higher standard of skill on drivers who carry fare-paying passengers. They are required to have a general driver's licence. In other words, persons with private driver's licences are not allowed to carry passengers for hire or reward.
REASONS FOR CLAUSE
One reason for the exclusion clause in private motor policies is that insurers are simply following the regulations. Also, the activities in the exclusion clause tend to be much higher than the 'normal' risk. The typical route taxi driver is a good example. What does 'carrying passengers for hire or reward' mean? Some insurers say that your daughter's plan to collect 'fees' from her friends falls within the exclusion. My dictionary confirms this. Hire is defined as 'payment by contract [oral or written] for use of thing or for personal service'. Reward is 'return or recompense for service'. I can find no fault with the view of these insurers except that they are too strict in their interpretation.
Your daughter's passengers can bring a legal action against her and/or the car owner to recover damages. This assumes that she caused the accident in which they were injured. Normally, a motor policy compensates injured passengers. If, however, insurers became aware of the payment of 'user fees', they could avoid liability. This would be by invoking the 'hire or reward' exclusion. The owner and the driver would be left to pay the injured persons. These amounts could run into tens of millions. In 1997, for example, a local court made an award of $34.5 million to one passenger.
Not all insurers in Jamaica interpret the 'hire and reward exclusion' very strictly. I spoke with the managers of three companies last week. They were quite liberal in how they viewed it. Without any pushing on my part, they said that they would not invoke the clause if your daughter's friends were to be injured. In other words, they would not deem the payment of (gas) contributions as falling within the exclusion.
There is a way around the problem. Seek the approval of your daughter's insurers before she enters into the arrangement. Tell them where you live in relation to the friends, confirm how many passengers will be carried and that they will be students at the UWI and provide some idea of the amount of the contribution. Supply the information in writing. Ask them to confirm to you in similar fashion that they will not apply the exclusion clause in the event of claims from those passengers.
Finally, you said that you were 'providing' your daughter with a car as opposed to 'giving' her one. Does this mean that the vehicle is registered and insured in your name? If so, and assuming that your daughter is under 25 and has been driving for less than three years, you may also need to make sure that the insurance applies while she is driving.
Cedric E. Stephens provides impartial advice on risks and insurance. If you need free info
or advice to solve a problem,
write to The Financial Editor or, contact Mr. Stephens directly at aegis@cwjamaica.com.
