“Pizza Exclusion” Barring Coverage For Delivery Man Invalid in Maryland
March, 2004
A business-use exclusion in a personal auto liability that reduces coverage for a pizza delivery driver below the statutorily mandated minimum is void and unenforceable. Salamon v. Progressive Classic Ins. Co., 841 A.2d 858 (Md.).
Facts
Salamon was delivering pizzas for The Pizza Connection when his car collided with another vehicle. Salamon was the owner and operator of the car he was driving and maintained no commercial vehicle insurance. Progressive issued a personal automobile policy to Salamon five months before the accident and before Salamon began employment with The Pizza Connection.
The Progressive policy contained a variety of exclusions including one referred to as the “Pizza Exclusion.” The Pizza Exclusion provided that liability coverage under the policy did not apply to:
Bodily injury or property damage arising out of the ownership, maintenance, or use of a vehicle while being used to carry persons or property for compensation or a fee, including but not limited to, delivery of magazines, newspapers, food, or any other products.
There was also a similar Pizza Exclusion within the collision damage section of the policy. After the accident, Salamon gave notice to Progressive of the occurrence and the circumstances surrounding the accident. Progressive filed a complaint for declaratory judgment to deny coverage based upon the Pizza Exclusion.
Progressive contended that the Pizza Exclusion unambiguously negated any duty to defend or indemnify. Salamon alleged that the exclusion was void because it was inconsistent with Maryland’s compulsory insurance statute. The trial court reviewed only whether the provision was ambiguous and did not fully consider the argument regarding whether Maryland’s compulsory insurance statute rendered the Pizza Exclusion invalid. The trial court found in favor of Progressive and ruled that the exclusion was clear and unambiguous. On appeal, Maryland’s highest court reviewed whether Progressive’s exclusion contravened Maryland’s public policy rendering the exclusion invalid and unenforceable.
Analysis
In 1972, the Maryland General Assembly enacted a comprehensive compulsory insurance law requiring and policies to contain collision and a personal injury protection coverage. The statute was intended to make certain that owners and operators of motor vehicles in Maryland were financially responsible. The legislative policy had an overall remedial purpose of protecting the public by assuring adequate compensation for damages resulting from motor vehicle accidents. These goals were advanced by requiring each vehicle owner to obtain motor vehicle insurance and by limiting the ability of insurers to cancel or refuse to renew insurance policies. The Act requires, in part, that every driver must maintain minimum limits of $20,000 per person and $40,000 for any two or more persons. Any portion of a motor vehicle policy that is inconsistent with this statutory scheme is void and unenforceable. Lewis v. Allstate Ins. Co., 792 A.2d 272 (Md. 2002). Maryland courts have consistently held insurance policy provisions excluding or reducing the insured parties’ coverage below the statutory minimum level that are not expressly authorized by the Legislature to be invalid. Lewis.
Here, Progressive argued that courts have distinguished between insurance policy exclusions pertaining to particular classes of insureds as opposed to exclusions pertaining to specific acts of individual insureds. Progressive argued that courts have upheld exclusions based on actions, but invalidated those based on classes of people. As in other jurisdictions, the Salamon court rejected this argument and declined to make any distinction between actions of individuals and classes of people.
After reviewing the Maryland Act, the court concluded that the “Pizza Exclusion” had not been authorized by the legislature nor any other Maryland statute. Progressive sought to deny all coverage to its insured rendering the insured uninsured and consequently reducing coverage below the statutory minimum levels. This was in contradiction to the compulsory insurance scheme and consequently Progressive’s “Pizza Exclusion” was held to be invalid.
Other Jurisdictions
Other jurisdictions around the country have reviewed the “commercial vehicle” or “Pizza Exclusion” contained within personal line policies and have typically found the exclusion unenforceable or invalid unless specifically authorized by the state’s statutory scheme. In Progressive Universal In. Co. of Illinois v. Liberty Mutual Fire Ins. Co., 806 N.E.2d 1224 (Ill. App. 2004), the court reviewed an auto policy provision that excluded coverage for bodily injury arising out of the use of a vehicle “while being used to carry persons or property for compensation or a fee, including, but not limited to, delivery of magazine, newspapers, food…” As in Salamon, the insured in Progressive Universal was delivering pizzas and was paid $1.25 per delivery. The insured did not dispute that he was delivering food for compensation or a fee. The court found the exclusion to be unambiguous but, in light of the Illinois Vehicle Code requiring that a motor vehicle liability policy insure every person using the vehicle with permission, the court found the “Pizza Exclusion” violated public policy and void under the Illinois Vehicle Code.
Salamon and Progressive Universal are consistent with holdings in other jurisdictions which have examined this issue including Louisiana and Colorado (holding that business delivery exclusions were invalid because they conflicted with statutes requiring mandatory coverage for permissive users). Stanfel v. Shelton, 563 S.2d 410 (La. App. 1990); St. Paul Fire & Marine Ins. Co. v. Mid-Century Ins. Co., 18 P.3d 854 (Colo. App. 2001).
The only exception to the trend to hold commercial use exclusions invalid is the recent decision in Amerisure Ins. Co. v. Farmers Ins. Exchange, 2004 WL 953 146 (Mich. App. May 4, 2004). In Amerisure , Farmers insured a vehicle being operated by a pizza delivery driver. The Farmer’s policy contained a business-use exclusion for vehicles used to “carry persons or property for a charge.” The Michigan court held that the exclusion was unambiguous and then reviewed Michigan’s compulsory insurance scheme. Under the Michigan No-Fault Insurance Act and decisions interpreting the Act, a policy exclusion which conflicts with the mandatory requirements of the No-Fault Act is void as contrary to public policy. However, the Michigan No-Fault Act expressly permits a business-use exclusion.
Farmers’ business-use exclusion thus did not violate the Michigan No-Fault Act and was therefore permissible. The exclusion expressly excluded coverage for vehicles used to carry property for a charge and prior court decisions had found that pizza delivery constitutes carrying property for a charge. As a result, the Michigan court upheld Farmers’ exclusion and denied insurance coverage to the pizza delivery driver.
Learning Point:
If a jurisdiction has enacted a mandatory insurance statute and that statute does not expressly authorize a commercial use, pizza exclusion or business-use exclusion, it is likely that the exclusion will be found to be invalid if it reduces insurance coverage below the statutory minimum limits. The exclusion will likely be held invalid despite being a clear and unambiguous exclusion for the activity being conducted by the individual. Arguments regarding denial of coverage for a particular class of individuals versus excluding coverage for particular acts have not met with success. If the jurisdiction has expressly authorized the creation of an exception, the jurisdiction will likely uphold a clear and unambiguous business-use exception contained within an automobile liability policy.
When confronted with a specific exclusion for business-use, the analysis should start with a review of the statutory scheme within the jurisdiction and a determination as to whether there is mandatory minimum limits required in that jurisdiction. Finally, the statutory scheme should be analyzed in order to determine if an exception to the mandatory coverage has been expressly stated by the legislature. ¨
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