Is driving in the gig economy without commercial auto insurance risky?
[Note: I originally wrote this blog post in 2016, and I updated it in 2018 and 2023, but only to remove outdated links and enhance readability. This post reflects the blog structure used in 2016 and my writing style at the time. Both have changed measurably since then. Estimated reading time: 11 1/2 minutes.]
Mitch* was very excited to learn his wife is pregnant with their sixth child. A man of deep religious faith who is in his mid-30s and married for a decade, he believes children are a blessing from God. He’d always wanted a large family. Both he and his wife come from them. But, he also knew that he needed to generate more income for his growing brood.
Never afraid of hard work or long hours, Mitch decided some odd jobs using his SUV in the new “gig” economy might work. His vehicle wasn’t new enough for ride-sharing work but it was paid-for and large enough to carry heavy or outsized items around.
Mitch signed up for some ‘as-needed’ delivery work on a few sites that allowed him to take local jobs when he had time, which usually meant nights and weekends when he was off work.
Mitch never thought of driving gigs as a real business. But he'd wish he had.
He wouldn’t make a mint doing this work but it was good, steady, flexible side work that would net several hundred extra dollars a month. He figured he could generate even more income if he worked during high-demand periods like evenings, gift-giving holidays and moving season.
Because these were the kinds of side jobs Mitch had always done—he’d even been a cab driver just before he got married—he never thought of this as a real business like where his day job was. But the time would come when he wished he had.
Mitch Becomes a Statistic
Mitch had been pulling double-duty at his day job and his by now heavily pregnant wife needed more help at home with the kids. This kept him busy and tired but he kept his side gigs and even picked up extra ones when he could.
One night while he was out doing deliveries, Mitch was particularly tired. It was a late evening in early December and he was making his last delivery, some holiday gifts. He’d just picked them up from the dispatch site of the local delivery company he was doing work for which handled same or next day deliveries for big online retailers.
He had until 8:00 p.m. to get the packages to the customer but had made good time driving. He knew once he made this last delivery, he would go home and grab such much-needed sleep. His sister, who was staying with them to help, would get the kids to bed. He was anxious to get done and go home to his family.
Mitch drove his vehicle while drowsy, a form of impaired driving and a big mistake.
As he made his way to the customer’s location, he rounded the corner on a nearby residential street and started downhill toward the address. He had the radio on low volume playing soft holiday music and could hear his GPS giving him turn-by-turn directions.
But, Mitch made a big judgment error that night. He also was trying to shake off sleep but that wasn’t working well. He was driving while drowsy, a form of driving while impaired, and a big mistake. That's because according to conservative estimates from the National Highway Traffic Safety Administration, 91,000 police-reported crashes in 2017 involved drowsy driving. Worse, men are more likely than women to drive drowsy and twice as likely to crash. Mitch was about to be a statistic.
The Unthinkable Happens
He must have nodded off momentarily because the next thing he heard was a loud boom and when he looked up his vehicle had crashed into a large, old oak tree. The engine, stopped, was smoking. He grabbed what he could and exited the SUV quickly. Nearby residents, hearing the commotion, came out to see what had happened. A few asked Mitch if he was okay. Dazed and confused, he answered 'yes' and dialed 911.
Mitch hoped his personal car insurance covered this accident. But would it?
While he waited for law enforcement and fire and rescue, he watched as a small fire formed under the hood of his SUV. The resident whose tree he’d hit was livid about the damage to the old oak. “I'll have cut it down!” he was yelling, shaking his fists at Mitch, who of course apologized and felt horrible.
He promised to pay for whatever he had to but his SUV appeared totaled and he wasn’t sure he could keep that promise. He sure hoped his personal car insurance (PCI) covered the damage. As he thought about that, he called his wife to give her the news.
Calling the Insurance Company
While he waited for an exam in the emergency room, he called his insurance company’s 24-hour hotline. He told the phone agent about the accident and asked what his options were.
The agent asked him some questions, including what he was doing when he got into the accident. Mitch casually explained he was making his last delivery of the night for a local company for which he worked as an independent contractor.
Upon further questioning, the insurance company learned that Mitch had, for at least the last seven months, been using his vehicle up to 20 hours a week to make deliveries and run errands for paying customers. But, because he didn't think he had to, Mitch hadn’t informed the insurer of this business activity using his personal vehicle.
After all, he’d been doing odd jobs using his personal auto since he got his first car right out of high school. He also had a clean driving record and this was his first major accident.
Mitch's first mistake wasn't driving drowsy. It was not telling his carrier he so often drove his personal for business purposes.
Besides, he’d thought that because the local delivery company’s general liability insurance covered him if he damaged another’s property while driving, he’d be fine. He just assumed his PCI would cover any other incidents.
He’d been wrong. He learned his first mistake wasn't driving drowsy. I was not telling his carrier how he used his SUV during off work hours.
Now he was hearing not only did his personal auto policy not cover this accident, but his insurance carrier was also threatening cancelation. They might because he hadn’t informed them he was using his vehicle more for business than personal use lately.
Mitch hoped that his having been their good, reliable customer for years would influence their decision in his favor and his PCI wouldn't be canceled. He automatically renewed his policy every year so he hadn’t really looked at the coverage limitations in the decade he’d had the insurance.
But, now, he had no vehicle of his own to get to and from work though if he could keep his PCI, which protected his wife’s car, too, he’d drive hers for a while until he got another. All he knew now was this situation was a mess that he had to fix to keep supporting his growing family.
How Having Commercial Auto Coverage Could Have Helped Mitch
The moment a Mitch started using his personal vehicle to do deliveries of physical items in exchange for money, he should have recognized he was now operating a business and obtained commercial auto coverage. Almost all PCI policies exclude coverage on a personal vehicle used to deliver food, packages, supplies or anything else as a business activity.
Using a personal vehicle for business makes driving riskier from the perspective of insurers. They require drivers to cover those risks by getting commercial coverage with higher liability limits and, usually, higher premiums.
Mitch should have gotten commercial auto coverage the moment he decided to drive his SUV for money.
Exacerbating Mitch’s situation was his having been doing paid deliveries for months without informing his insurer. Not only would he have coverage for the accident had he bought the proper insurance protection, he probably could have replaced his vehicle and gotten back to work immediately.
The policy would have provided the same types of coverage his PCI did when he was driving for personal use. That includes general liability coverage for the damaged tree if it hadn’t been covered under the delivery company’s general liability. But, because he had no commercial auto insurance, he was on his own for covering the damage to and replacement of his vehicle.
And, if the tree owner decided to sue him for some reason, he would have to cover those legal costs, too, and, possibly to risk to his personal assets, like his home or savings. Mitch would have been fully covered in this event with commercial auto insurance.
It would have protected his family home and personal assets from seizure in a lawsuit because the insurer would have fought the lawsuit and covered its costs.
How Mitch Could Have Been Hurt Worse
There are multiple ways Mitch could have suffered far worse damage to his life and finances. If he’d hit a human or animal, he’d have been out-of-pocket for all those injuries. Had his SUV crashed into a home or business, he would have no liability protection without commercial auto coverage.
Had he sustained serious injuries himself, he would have had to pay significantly higher medical costs than a trip to the emergency room for minor injuries. In fact, depending on how serious the injuries or property damage, he could have been liable for tens of thousands of dollars.
There are multiple ways Mitch could have suffered far worse damage to his life and finances.
In addition to being out of work for an extended time if he'd been hurt, he faced lawsuits that could cost his family home and other financial assets. That's because he was not only driving his personal vehicle but was self-employed in his own name and social security number.
So, he hadn’t done anything to protect business activities, including to buy the right insurance. Even if he had a personal umbrella policy, it would not have covered his business use of his SUV.
If he lives in one of these states, he also might be subject to fines and fees for not registering his vehicle as a commercial vehicle and obtaining and maintaining commercial vehicle coverage. That's true regardless of the costs, which often are high. So, purchasing failure to buy this coverage could have had far more dire consequences for Mitch.
Drive Business Smart—Get Commercial Auto Coverage
Mitch may not have understood he needed to get business auto coverage to use his personal vehicle for business purposes. But, that didn't mean he wouldn't pay the price for his lack of knowledge. But, what about you? Are you jeopardizing your personal property and finances by driving your personal vehicle for business?
Are you participating in the gig economy by using your personal auto for paid deliveries, errands, ride sharing or vehicle sharing without proper commercial insurance coverage? Are you failing to run as a real business and get the right insurance coverage?
If you are, you could find yourself in serious financial and legal trouble if there’s some event with that vehicle that won’t be covered with your PCI. Add to that the costs related to insurance policy cancelation, and you could face years of consequences.
The first thing you must do is talk to your insurance company or agent about how you use your vehicle for business use. In some states, you are only required to get this coverage if you’re driving more than a set number of hours or a certain percentage of time for paid business use.
However, in some states, driving as a volunteer could subject you to commercial auto coverage rules. You may need commercial coverage or could get a special endorsement on your PCI for the business activities for which you use your personal car.
The only way to know is to talk to an agent in your state familiar with the gig economy (or using your car as a volunteer), the state’s changing rules about the business use of personal vehicles and what the implications of using your personal auto for any business activities. Make sure you’re honest and tell them exactly how and how often you use your vehicle for business activities involving the auto.
But, be cautioned about believing it’s enough to do online research to find out if you need commercial coverage for your personal vehicle’s use in business in your state or jurisdiction. If you misinterpret the motor vehicle laws in your jurisdiction or state about the personal versus the commercial use of your vehicle or decide to take the risk anyway, you could find yourself experiencing serious problems.
Assume that if you use your personal car more than three times per month for paid business use (or even unpaid volunteer use, especially if it requires transporting others), you’ll need to talk to an insurance agent about commercial coverage. Moreover, don’t assume the companies you’re contracting for will cover you fully, either.
Understand exactly when and how much coverage you’ll have by working for them but never depend on any client to cover your business activities. Always get your own supplemental insurance protection to cover your business activities and protect your personal assets from mishaps in your business.
(c) 2016-2023. Dahna M. Chandler for The Stellar Communicator, Inc., a division of Thrive Media Collaborative, Inc. All rights reserved. This blog post may not be reproduced in whole or in part without express written permission of the author. Reading time estimated by Read-O-Meter.
[*Disclaimer: "Mitch" is a fictional character and this blog post is based on an entirely fictitious business account meant to illustrate the points made in this blog post. This post is written for informational purposes only. It is not meant to substitute for any legal, financial, accounting or other business or personal advice that should be provided by qualified professionals in those areas. Before taking any action based on the information contained here that could have legal, financial, or any other important consequences, consult with qualified professionals who can provide guidance that considers your unique circumstances. Since you maintain full responsibility and liability for applying this information to your business, contact licensed insurance providers, attorneys, accountants, other professionals, and your business partners/investors before deciding to apply information contained here to your enterprise.]
