Insurance Academy

When Insurance Companies Fail at the Promise

By | August 28, 2019

I read an article last week about the intersection of gig work, an innocent injured party, insurance, and big business. Let me summarize the best I can. A driver is in traffic and is suddenly hit by another driver, who was pulling into traffic. At the time of the accident, the second driver was making deliveries for Amazon Flex. The first driver was injured, and their car was damaged by the other driver.

What happened next was a tragedy made of up fast, cheap, and easy insurance purchasing and gig economics. What happened next shouldn’t have happened, but it did and now the innocent party in the accident is the only one who can’t get their life back to where it was before the accident.

Where did things go wrong here?

First, the first driver called their insurance company. This is fairly reasonable. In fact, it’s something I’ve done more than once. The insurance company (GEICO) took her claim report and told her that she would be better off if she contacted the other driver’s insurance company. The representative from GEICO told her that if they proceeded with her claim, they would need to collect her $500 deductible up front.

Excuse me? This seems ridiculous to me. This contradicts everything that I know about auto insurance. Before you ask, yes. It’s because I’ve had a few accidents in my time. Some have been my fault and some have not. Either way, I’ve never been told that I needed to pay the deductible to the insurance company before anyone ever looked at my car.

The 2005 ISO Personal Auto Policy provides coverage for damage to the insured’s auto. Let’s see what it has to say.

We will pay for direct and accidental loss to “your covered auto” or any “non-owned auto”, including their equipment, minus any applicable deductible shown in the Declarations….

“Collision” means the upset of “your covered auto” or a “non-owned auto” or their impact with another vehicle or object.

Nowhere in the policy does it state that the insured must pay the deductible before any repairs can be made. In fact, the coverage simply states that the company will pay for damages less the appropriate deductible.

What happens in many cases is that the insured calls their insurance company. The company tells them to take the car to a shop and get an estimate. Sometimes, the insurance company has a few preferred shops, but that’s not important here. Eventually, the estimate gets approved and the work starts. The shop sends in bill and the insurance company reviews and pays them. The shop knows what the deductible is, so they don’t bill the insurance company. They bill the customer, who pays it.

That’s how it is supposed to work.

If the insured did not cause the accident, or there is another party that could be found to be at fault, the insurance company should then send a letter to the other party’s insurance company. Then they can argue, negotiate, whine, and then cut a check, usually for the actual amount of damages. At that time, the first insurance company cuts a check for the deductible and mails it to their insured.

It looks to me that GEICO failed here.

Second, the driver for Amazon Flex didn’t understand the insurance implications of delivering for them. I had to do a little searching on the Flex website, but I did find their insurance requirements. Here’s what their FAQ tells a prospective driver.

As a delivery partner, you must maintain the required insurance for delivering packages in your area. In addition to your personal coverage, Amazon provides delivery partners in all states other than NY with the Amazon Commercial Auto Insurance Policy at no cost.

Since this incident didn’t happen in New York, the driver is OK with the coverage Amazon provides. This doesn’t tell us much related to the insurance implications of driving for them, but it does remind us that there is a difference between the personal auto exposure and the commercial auto exposure that these drivers create.

Without seeing the specific Progressive policy, I can’t make a full determination about coverage. It’s possible that they have an exclusion that takes all coverage away whenever a covered auto is engaged in any business. However, if it looks like the 2005 ISO Personal Auto Policy, the business exclusion might not apply. Here it is.

We do not provide Liability Coverage for an “insured”:

Maintaining or using any vehicle while that “insured” is employed or otherwise engaged in any “business” (other than farming or ranching) not described in Exclusion A.6.

This Exclusion (A.7.) does not apply to the maintenance or use of a:

  1. Private passenger auto;
  2. Pickup truck or van; or
  3. “Trailer” used with a vehicle described in a. or b. above.

Unless I’m reading that wrong, the Flex driver may still have coverage, unless they were driving something other than a private passenger type, pickup truck, or van. That seems unlikely because of the nature of the work they were doing.

I’m not sure that Progressive did right, either.

What about Amazon?

Shouldn’t their commercial auto policy pick up here? You’re right. They should. The best scenario is that the Amazon driver was so shook up by the accident that they didn’t think about Amazon’s commercial auto coverage. The more likely scenario is that the driver has never thought about Amazon’s commercial auto policy because there’s very little about it in the material that I read. I’d be inclined to think that Amazon doesn’t share the policy details with their drivers unless they have to and most of them probably aren’t asking.

What happened here?

That’s a great question. This is the unintended consequence of self-service, fast, cheap, and easy insurance buying. When people are buying insurance, no one thinks to themselves that they are going to have issues if there is a claim. In fact, most people think that they’ll never have a claim so that never enters into their thought process. They are simply looking for insurance that they can afford. They don’t consider what may go into the fast and cheap parts. GEICO and Progressive achieve fast and cheap by taking that local agent out of the loop. I know that they have local agents, but that’s not where the lion’s share of their business come from.

That means that in every interaction, the customer has to get online, or call into a call center, to reach someone who doesn’t know them, doesn’t care about them, and doesn’t have any reason to extend themselves for them. The customer is just another voice on the other end of their phone. Whether the customer wants insurance now, or they want their claim paid now, they’re just another voice in the representative’s ear. Either way, when the call is disconnected, the representative will note the file, move it to the proper queue, and take the next call.

In the end, the person who suffered damage (both bodily injury and property damage) is still not made whole. They aren’t indemnified. They are waiting on the promise of the insurance company that told them they could save 15% in 15 minutes and on the insurance company that told someone else to name their own price.

This is what you get when you go after fast, cheap, and easy.

**NOTE: I didn’t have access to the policies belonging to the individuals involved. It is possible that their policies are more or less restrictive or provide more or less coverage than the policies that I quoted. I am also not an expert on personal auto coverage in the state of Massachusetts; nor do I know all of the details about this particular loss and the people involved. The bottom line is that insurance companies should err on the side of putting people back on the path to normal and argue about the details between themselves later.

About Patrick Wraight

Patrick Wraight, CIC, CRM, AU, is director of Insurance Journal's Academy of Insurance. He can be reached at pwraight@ijacademy.com.

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