The Ohio Supreme Court recently ruled on a case that could have significant risk implications for educational institutions relating to the transportation of students by third parties.

The Issue

The Ohio Supreme Court recently ruled on a case that could have significant risk implications for educational institutions relating to the transportation of students by third parties. In Federal Insurance Co. v. Executive Luxury Coach Inc., an employee of Executive Luxury Coach made a crucial driving error causing the death of himself, his wife, and five members of the Bluffton University baseball team. Due to the catastrophic nature of the accident and anticipated jury award, Executive Luxury Coach sought additional protection for itself and its driver through Bluffton’s excess insurance policies.

The excess carriers argued that Executive Luxury Coach and the driver were not considered insured under the Bluffton University auto policy and therefore denied coverage on this basis.

Lower courts, and the subsequent dissenting opinions within the Ohio Superior Court, noted Executive Luxury Coach provided permission to the college and the driver to use Executive’s “owned auto,” and therefore ruled that Bluffton’s policies should not respond in this case. In a parallel example, the courts proposed that a chauffeur service hired by a bride and groom for their wedding day, that subsequently causes an accident, cannot rely on the bride and groom’s auto liability policy just because they contracted to use the limousine service.

However, the Ohio Supreme Court ultimately ruled in favor of Executive Luxury Coach noting that the terms “hire” and “permission”, left undefined under Bluffton’s Commercial Auto Policy, were ambiguous enough to be reasonably interpreted as applying to this claim, thereby granting insured status to the transportation provider and the driver.

The Solution

The current standard ISO Commercial Automobile language remains ambiguous in this regard. Future rulings on the definition of “who is an insured” in these situations remain uncertain. A similar situation involving an educational institution could ultimately lead to a final decision where coverage does not respond to a responsible bus company and/or its driver. Nor would you necessarily want your own policy limits to be “shared” with a responsible/negligent contractor.

Further complicating matters, there are no endorsements to help clarify the issue with insurance carriers. Therefore, educational institutions must use effective contractual risk transfer to mitigate their potential exposure as much as possible.

1. When choosing a transportation provider, evaluate their limits of insurance to ensure adequacy.

Executive Luxury Coach was transporting an entire team of student on a long distance trip. The number of people, the capacity of the vehicle, and the distance of the trip should all be factors in the decision process. Although local vendors may provide the most attractive pricing, if they can’t demonstrate an excess or umbrella liability policy that matches the exposure of the service, continue looking.

2. Request, via written contract, that your institution be granted additional insured status under the transportation provider’s automobile, general liability and excess/umbrella policies Note that some insurers may be hesitant to add additional insured status under the automobile policy. 

Being named as additional insured grants you coverage under the transportation provider’s policies if the institution is named in a suit despite the provider’s negligence.

Note: Additional insured status should not be reciprocated on your institution’s policies.

3. Make sure the contract has indemnification wording in the institution’s favor.

Indemnification ensures the institution will not be responsible for negligent acts of the transportation company or its employees. If additional insured language ever fails to respond, strong indemnification wording can provide further assistance in the event of a lawsuit.

4. Do not hold the transportation company harmless or extend a waiver of rights in their favor.

Although there will likely be some reciprocal indemnification involved in any contract (say for negligent damage to a vehicle), institutions should not waive their or their insurance carriers right to recovery. The transportation company’s policies should respond in cases where your carrier makes a claims payment and seeks recovery from the responsible party.

Conclusion

Risk management must extend beyond the use of insurance policies. By focusing on strengthening your transportation provider contract, your institutions can reduce uncertainty caused by ambiguous policy language and unpredictable carrier response.