Uber driver holding smartphone in car. Uber is an American company offering transportation services online. Photo: Shutterstock.com.

This story is reprinted with permission from the Insurance Coverage Law Center, the industry's only comprehensive digital resource designed for insurance coverage law professionals. Visit the website to subscribe.

A trial court in Massachusetts has ruled that a secured lender's loss in a totaled vehicle was covered under the vehicle's insurance policy even though the collision occurred while the vehicle was being used to transport Uber passengers, in violation of the policy's public conveyance exclusion.

The Case

A Ford Fusion insured under an insurance policy issued by Commerce Insurance Company to Marcio Rodrigues-Pessoa was totaled in a collision in San Bruno, California.

At the time, Pedro Henrique Manicobe Dearaujo, a friend of Mr. Rodrigues-Pessoa, was using the Ford Fusion to transport three Uber passengers. Mr. Dearaujo told the police that he regularly drove the vehicle under Mr. Rodrigues-Pessoa's Uber driver account.

First Help Financial, LLC, which was listed as a secured lender on the Commerce insurance policy, submitted a claim for coverage under the secured lenders provision of the policy. Mr. Rodrigues-Pessoa never submitted a claim to or otherwise communicated with Commerce about the collision and the damage suffered by his vehicle.

Commerce denied First Help's claim on the ground that it was barred by the policy's public conveyance exclusion. The insurer then sought a declaratory judgment as to whether First Help could recover under the policy.

For its part, First Help argued that it was entitled to insurance coverage under the policy's secured lenders provision even assuming that any claim by Mr. Rodrigues-Pessoa for collision damage coverage would have been barred by the policy's public conveyance exclusion.

The Commerce Policy

The Commerce policy's public conveyance exclusion provided:

[Commerce] will not pay damages or benefits under any Coverage Part of your policy while your auto is: . . .

Available for use as a public or livery conveyance, including use of your auto for hire through a ride sharing arrangement, or a Transportation Network Company (TNC) which operates under an agreement for compensation.

The policy's secured lenders provision stated:

When your Coverage Selections Page shows that a lender has a secured interest in your auto, [Commerce] will make payments under Collision, Limited Collision and Comprehensive (Parts 7, 8 and 9) according to the legal interests of each party.

The secured lenders right of repayment will not be invalidated by your acts or neglect except that we will not pay if the loss of or damage to your auto is the result of conversion, embezzlement, or secretion by you or any household member. Also, we will not pay the secured lender if the loss of or damage to your auto is the result of arson, theft or any other means of disposal committed by you or at your direction.

The Court's Decision

The court granted judgment in favor of First Help, ruling that First Help's loss in the totaled vehicle was covered under the policy's secured lenders provision and was not barred by the public conveyance exclusion even though the collision occurred while the insured vehicle was being used to transport Uber passengers.

In its decision, the court pointed out that the policy provided that a secured lender's right of payment “will not be invalidated” by the named insured's “acts or neglect.” The court added that Mr. Rodrigues-Pessoa's decision to let his friend use the vehicle as an Uber driver was an “act” or “neglect” by Mr. Rodrigues-Pessoa that, under the plain meaning of the secured lenders provision, did not invalidate First Help's coverage for collision damage.

Moreover, the court said, use of a vehicle to drive Uber passengers did not fall within any of the exceptions in the secured lenders provision.

Accordingly, the court concluded that because the secured lenders provision did not exclude coverage where the named insured allowed the insured vehicle to be used to provide transportation network services through a company such Uber, it gave First Help an enforceable right under the insurance policy to recover for the collision damage to the insured vehicle.

The case is Commerce Ins. Co. v. First Help Financial, LLC, No. 1884CV02106-BLS2 (Mass. Super. Ct. April 16, 2019).

Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. Mr. Meyerowitz is the Director of the Insurance Coverage Law Center and editor-in-chief of journals on insurance law, banking law, bankruptcy law, energy law, government contracting law, and privacy and cybersecurity law, among other subjects. He may be contacted at smeyerowitz@meyerowitzcommunications.com.