On April 16, 2019, the Business Litigation Session of the Superior Court decided one of the first cases under the Massachusetts auto policy’s standard exclusion relating to ridesharing in the case of Commerce Insurance Company v. First Help Financial and Marcio R. Rodrigues-Pessoa (“Commerce,” “First Help,” and “Mr. Pessoa”).
In this case, Commerce asserted that First Help, the lender that had financed Mr. Pessoa’s vehicle had no right to payment for the total loss of Mr. Pessoa’s Ford Fusion because there was no coverage under the policy. Commerce based its claim of no coverage on the policy’s “vehicle sharing, and public or livery conveyance exclusion” (“ridesharing exclusion”) barring coverage. At the time of loss, there was no dispute that Mr. Pessoa’s vehicle was being used to carry passengers for hire under Uber’s ridesharing network in violation of the exclusion.
California accident while driving three Uber-app passengers
The vehicle Commerce insured, and First Help financed for Mr. Pessoa was a 2015 Ford Fusion. On October 8, 2017, the Fusion had an actual cash value of $13,250.00. On the same date, Mr. Pesseo owed First Help $14,367.27 on the promissory note secured by his vehicle.
On October 8, 2017, the insured vehicle rear-ended another vehicle on an expressway near the San Francisco International Airport. The accident totaled Mr. Pessoa’s vehicle. When the accident occurred, the Ford Fusion had a driver and three passengers. Mr. Pessoa was not in the car. The driver was one Pedro Dearaujo who was driving the three paying passengers using Mr. Pessoa’s Uber driver account for the vehicle.
When the police questioned Mr. Dearaujo about the accident, he told the police that he regularly drove the vehicle under Mr. Pessoa’s Uber driver account.
Commerce’s collision coverage and ridesharing exclusion
The insurance policy Commerce issued was a standard Massachusetts insurance policy for the period of December 2, 2016, to December 2, 2017. Commerce’s auto policy included collision coverage with $500.00 deductible. This coverage “pa[id] for any direct and accidental damage” to Mr. Pessoa’s Ford Fusion up to the lesser of “the cash value of the auto or the cost” no matter “who was at fault.”
The policy also included the ridesharing exclusion that barred Mr. Pessoa from recovering collision damages incurred while using the insured vehicle in connection with a transportation network company such as Uber or Lyft.
This exclusion stated Commerce would not pay under any coverage Part of the policy while the insured vehicle was:
Available for use as a public or livery conveyance, including use of your auto for hire through a ridesharing arrangement or a Transportation Network Company (TNC) which operates under an agreement for compensation. This includes but is not limited to any period of time a vehicle is being used by you or any household member who is logged into a TNC as a driver, whether or not a passenger is occupying the vehicle.”
First Help files a claim as a secured lender; Commerce denies and seeks a declaratory judgment
In the ordinary course of its business, First Help had Mr. Pessoa sign a security agreement under the uniform commercial code and had taken a security interest in the vehicle. As a result, Commerce’s coverage selection pages for Mr. Pessoa’s vehicle listed First Help a “Secured Lender.”
Mr. Pessoa never filed a claim or communicated with Commerce about his vehicle’s total loss. Instead, First Help submitted a timely claim to Commerce policy seeking payment under the secured lender’s provision of Mr. Pessoa’s policy. Commerce denied First Help’s demand for payment alleging that, under the circumstances of the loss, the ridesharing exclusion barred any coverage.
After denying First Help’s claim, Commerce filed a declaratory judgment seeking a ruling that First Help [and implicitly no other secured lender] had no right to independently recover where the insured violated the policy’s ridesharing exclusion. Commerce’s suit claimed that its policy could never provide coverage under these circumstances because of the transportation network driver’s statute.
This statute provides that automobile insurers may lawfully “exclude any and all coverage … for any loss or injury, including coverage for collision damage, ‘that occurs while a driver is providing transportation network services.'” Since Commerce’s policy excluded coverage for ridesharing, Commerce argued that the right to deny “any and all coverage” as stated in the transportation network statute applied to both the insured violating the exclusion and that insured’s secured lender.
First Help argues that Commerce has an independent obligation under the policy
Before the Superior Court, First Help argued that the ridesharing exclusion did not affect the “Secured Lenders” provision that stated:
When your coverage selection 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 policy’s “legal interests of each party” were further defined by the provision stating:
The secured lender’s right of repayment will not be invalidated by [the named insured’s] 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 other 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.”
First Help argued that, notwithstanding the transportation network statute’s provisions, prior Massachusetts case law ruled that an insurance policy with a secured lender’s provision “creates two distinct insurance obligations, one owed by the insurer to the property owner or other named insured, and another owed to the secured lender.”
To First Help, the distinct obligation in the secured lender provision protected an innocent secured lender against the loss of insurance coverage as the result of the “acts, defaults and neglects by the named insured.” Based upon that analysis First Help argued it was entitled to insurance coverage as a secured lender listed on the policy even if the ridesharing exclusion barred any coverage for Mr. Pessoa’s collision loss.
Superior Court accepts First Help’s argument and rules against Commerce
Before the Superior Court, there was no dispute between Commerce and First Help as to the underlying facts. To resolve the legal question over coverage, Commerce and First Help submitted to the court what is called “case stated.”
Under this procedure, the court accepts the stated facts submitted by the parties and rules on those facts as to the application of the law. Based on this case stated, the court ruled against Commerce finding that the ridesharing exclusion did not apply to First Help’s claim even though the collision occurred while Mr. Pessoa’s vehicle was indisputably being used to transport Uber passengers at the time of the accident.
In deciding for First Help, the court relied instead upon the separate provision relating to the secured lender’s right of payment which under the policy “will not be invalidated” by the named insured’s “acts or neglect.” The court ruled even though Mr. Pessoa had let his friend, Pedro Dearaujo use his vehicle as an Uber driver; this was “an act” or “neglect” by the named insured that under the plain meaning of the secured lender’s provision could not invalidate First Help’s coverage for collision damage.
The court noted that the only exceptions to coverage for a secured lender resulted from “conversion, embezzlement, secretion, arson, theft or any other means of disposal.” committed by or for the named insured. The court emphasized that these exceptions did not include the use of the vehicle to drive Uber passengers.
The court further noted that the present secured lender’s provision had the exclusion for arson by a named insured inserted after a 1987 case decision. The decision had allowed a secured lender to recover even though the insured had committed arson, and the amendment barred such recovery in the future.
The court emphasized that the present secured lender’s endorsement used by Commerce and other insurance companies has not had any revisions since the new transportation network company statute took effect to exclude damages incurred while the named insured uses or allows their vehicle to be used to provide transportation network services.
To the court, without such a modification, the secured lender’s endorsement applied, and therefore Commerce was liable to First Help on the agreed facts in this case stated.
Final Order and no appeal by Commerce
The court entered a decision declaring that First Help Financial LLC was entitled to $12,750.00 in collision damages under the secured lender’s provision of Mr. Pessoa’s auto policy with Commerce
When final judgment entered on April 22, 2019, Commerce had 30 days to appeal. The docket for the Superior Court shows Commerce did not file a notice of appeal. As a result, the ruling of the Superior Court’s Business Litigation Session is precedent that other secured lenders can use if this same issue arises with other insurers.