Accidents arising from personal use, hiring and renting of motor vehicles

1.For the past over eight years that I have functioned as the Insurance Ombudsman, I have inquired into claims where Private vehicles have met with accidents while being used for “Hire” or “Rent”. My decision has been as follows:

• Where the vehicle was insured for “personal/private use” and at time of accident there was evidence that it was “hired” – then the insurer is not liable.
• Where the vehicle has been insured for “hiring” and the vehicle was “rented” or given out on “self driven basis” or to a taxi service when it met with the accident, the insurer is again not liable.

2.Recently, a senior bank officer had bought a vehicle in his wife’s name and had insured it for “hiring” but when the vehicle met with an accident, it was clear that it had been “rented out” to a rent-a-car company. The insurer successfully avoided liability – although at the time of accident, the vehicle was driven by the insured’s own brother (wife’s brother). While accepting that the insurer had no legal liability, as the Ombudsman, I recommended an ex-gratia payment.

3.The legal principle for excluding liability is the element of control of the vehicle at time of accident and not who was the driver.

4.If a vehicle is “hired” with your driver both driver and the owner (insured) have control of the vehicle.

5.If the vehicle is “rented,” even if the driver is a driver of the owner (insured) yet the owner (insured) has no control over the vehicle but it is the rental company that has control.

6.Hence, what is legally important is who had control of the vehicle prior to and at the time of the accident. In a rented vehicle it is the rental company.

7.Many people now give their own vehicles with their own paid driver to taxi companies and taxi companies use such vehicles. In such case the insurance premium must be a rental premium and not a hiring premium. Unless this practice is strictly adhered to, insurance companies will face grave problems because the owners of vehicles (insured) will pay a lesser (hiring) premium and then rent the vehicle while the rental premium is more than the hiring premium.

8.The evidence of the driver and the occupants of the car and any other witnesses and the Police at time of accident are important in deciding whether a vehicle was being used for “personal” purposes, “hiring,” “rental” or “self drive”. Normally, the driver admits if it was on a “hire” or being used by a rent-a-car or taxi company. “User” has to be one; either “personal,” “hire,” or “rental”.

9.There are several common law (English and Australian) judicial decisions that have recognised the above position.

10.As the Ombudsman, I have brought these issues to the notice of the Insurance Association of Sri Lanka (IASL) so that they can educate policyholders to take out the right type of insurance.

(The writer is the Insurance Ombudsman of Sri Lanka.)