LONG BEACH, NY - If you've made it this far, your business is likely surviving these tough economic times. Despite lower client demand, you may be faced at any time with a job that requires more limousines than you have in your fleet. So what do you do?
In most cases, you would farm the work to another company, one that, hopefully, you know well and can trust to do the job according to your high standards. But this practice of farming, whether you are the farmer or the farmee, carries several insurance implications that you should be aware of before you enter into an agreement.
Every trip that you book will be different from every other trip you've booked in the past. It's the nature of your business. So the points presented in this article are a summary of the general rules to follow and are not in any way considered legal advice. State laws vary and you should consult with your local counsel and review state laws in any jurisdiction so you are not blindsided by some little known requirement that could negatively impact your business.
Do you know who represents your company?
Even before you may need another company to help you fulfill a multi-vehicle request, you need to investigate the companies that you might employ. No operator should mind this. After all, at this point you are a potential customer who can offer the company some profitable work. Doing your homework before the need arises helps you to avoid being rushed into hiring someone you do not know. Visit potential operators and ask questions about their drivers, hiring, and training. Ask about the company's ability to supply a Certificate of Insurance showing its coverage limits and an endorsement that shows you are covered if there is a claim. Remember, how payment is made, whether through you or the actual customer, could affect your liability exposure. It's good to know all this information in advance.
Execute a written agreement with the limo company in question to the effect that no trips that you contract with it will be "re-farmed" out. This practice would put you at unnecessary risk and in a position in which you do not know the involved companies and their drivers.
Whose insurer responds?
What about insurance coverage? The general rule is that a vehicle's primary insurance follows the vehicle. The farmed auto should have limits at least equal to your own.
Under most domestic policies, there is no coverage for accidents that happen outside the U.S. and Canada. If an accident happens in a foreign country, such as Mexico, for example, you may be sued in the U.S. by your customer if you had farmed the trip out to another limousine company. If a booking requires traveling outside the U.S. or Canada, you may be able to secure additional international coverage, but be very careful about what it will cover and the limitations such policies provide.
Some liability and coverage issues
Scenario No. 1
YOUR Company farms out to XYZ Company. If an accident happens, YOUR Company could possibly incur some liability vicariously based on the "Joint Venture" theory. XYZ Company is liable for the negligent acts of their employee and, in most states, XYZ Company is also liable as the owner of the vehicle.
In this case, XYZ Company's insurer is responsible for the primary coverage and must defend itself and its driver. In the event of a suit against you, YOUR Company may seek coverage from XYZ Company's insurer. If it was well documented in the original agreement, YOUR Company should get defense and perhaps indemnity, if applicable, from XYZ Company. If XYZ Company does not pick up the defense for YOUR Company, if you have "hired auto" coverage, YOUR insurance company may be required to defend you. If damages exceed XYZ Company's coverage, YOUR Company's insurance company will indemnify YOUR Company up to its limits. Absent "hired auto" coverage, you may be required to pay these damages yourself.
Scenario No. 2
YOUR Company leases a vehicle and driver to THEIR Company and an accident occurs. YOUR Company's driver could be primarily liable and your company could be jointly and severally liable.
YOUR Company's insurance company could be the primary insurer, and THEIR Company's insurance company could possibly be co-primary insurer. THEIR Company's insurance company would definitely be responsible for "Excess" if THEIR Company is found liable, for among other things, as an "employer" and only if THEIR Company has "hired auto" coverage.
Scenario No. 3 - Networking to affiliates
Farming out also includes occasions when YOUR customers are being picked up and dropped off in another city, state or country and YOUR Company makes those reservations for them. The easiest way to consider this is as the "network" that affiliated companies belong to. A call may come into YOUR operation (in Ohio) based on a transportation request that ABC Company received in Boston. ABC Company does not operate in Ohio, but since YOUR Company is part of a network, ABC Company can either pass the entire reservation process on to YOUR Company, or ABC can book the job and then farm it out to you. For a longer trip, ABC Company may actually be making customer arrangements with network affiliates in multiple cities in one or more than one country.
The converse holds true as well. YOUR customer in Ohio needs to be picked up at a hotel in New York City. YOUR Company turns to your network affiliate in New York and either you make the reservation for your customer or YOUR Company provides the network affiliate's information to the customer who then makes the arrangements. The issue here is, who gets paid? If YOUR Company is doing the billing for the trip, it is your customer and you will have some responsibility for the trip and the arrangements. If YOUR Company will not be doing the billing and are only referring your network contact to the customer, there is much less responsibility for you.
Except for insurance coverage issues that apply outside the U.S., international network arrangements for YOUR customers work the same way as they do in the states. As with Scenarios No. 1 and No. 2, your liability exposure and insurance coverage will depend on the structure of your arrangement.
Leave nothing to chance
The best advice we can give whether you are farming out to a company to do work for you or whether you are offering your services to another company is to have a written agreement, dotting all the Is and crossing all the Ts, and having it reviewed by your attorney before the vehicle leaves the lot. It goes a long way in keeping every part of the trip clearly understood and legal.
Source: Lancer Insurance Company, Long Beach, NY