Is It Time to Reform new Solvency in Taiwan –with An Overview of Solvency Ⅱ
Abstract:
The growing need of a risk-based capital approach to manage the insurance company and evaluate the capital requirements are both important development in the EU and Taiwan. Solvency directives currently in the EU include a whole dimension of insurance company operations. The member countries and insurers in their jurisdiction are at different levels risk exposure. Under the different levels of risk exposure to the member countries’ insurers, it is not easy to implement the directive smoothly.
On the other hand, Taiwan, as a member of IAIS, has been faced the necessity to reform a new regulation framework to meet the solvency requirement and adequacy requirement on capital in order to competition with the solvency world trends. Comparison of solvency regulations with main jurisdictions, say U.S. and EU, in order to understand the variation in countries will be a cornerstone to us.
Though the trends to new solvency regulations is ongoing developing and the EC member countries should be in compliance with the principal rules in 2012. The mission to new Solvency Ⅱ still have a few challenges to be resolve. From the point of thinking, Taiwan’s regulator seems should adopt a soft way to launch, after “wait and watch”, the solvency regulations.
Key Words:
SolvencyⅡ, Solvency Margin, Guarantee fund, Risk-Based Capital (RBC), Minimum Capital Requirement(MCR), Solvency Capital Requirement(SCR), Best estimates, Risk Margin,
1 Introduction:
Insurance has always been one of the most regulated industries for the “risky” nature. Over a period of time, there has been a huge change towards a more deregulated environment. The regulators, however, still need to protect the policyholders’ interests.
Solvency has been a main measure to test the health of an insurance company. Solvency as a tool for ensures the ability of the insurer to meet its contractual obligations; this method used for its measurement has changed in this decade. Hence, a group of solvency principles from IAIS and the European Commission form the most important part of the regulations in insurance. Taiwan has also been put into the conflict of different approaches, how the mitigation can work through under our existing regulation framework would be a challenge at this moment in time. As the same reasoning, Risk-Based Capital (RBC) measurement and the regulations article in our insurance law form the solvency monitoring method in Taiwan is facing a necessity to restructure.
This paper will introduce the EU countries’ solvency regulations in brief, and then made a comparison with the regulation structure in Taiwan in order to afford a new consideration approach to our solvency regulations.
Regardless of the supervisory system, all “solvency norms” approaches have a few common features .
Consist of a “minimum solvency requirement” (a minimum amount of surplus of assets over the liabilities) or “required minimum margin"; the RBC ratio used in Taiwan also indicate the solvency ability and insolvency risk of an insurer.
The insurance companies need to prove that the “available solvency margin” (amount of free capital required for regulatory purpose) exceeds the “minimum solvency requirement”; it is similar to our disclosure of RBC ratio of an insurance company in period to prove the ability to meet its obligations.
The “control” level represents the amount that requires the regulator’s intervention. It has been regulated in our insurance law Article 149 to Article 149-11, but it seems too complex to regulate and sometimes confuse the reality of policyholders’ protection.
The “solvency test” shows compliance with the solvency requirements by the regulator. Follow the Basel II Agreement, the stress test to an insurer can give the early warning or signal to the supervisor in order to protect the consumers. It is also important to us, beside the RBC ratio, to create a framework of “solvency test” for insurance industry in examining the health of an insurer.
Today EC is introducing a new approach for measuring the financial stability of insurance companies. Known as Solvency II, this approach is intended to provide greater protection for policyholders and stability for insurance markets by providing insurance supervisors with better information to evaluate the solvency of insurance companies. The solvency tool in Taiwan seems to be relative less advantage with EU, so we are facing a strong necessity revising the solvency regulation which was based in a RBC basis consideration in this decade. Hence, there is a new issue to improve the solvency regulation framework with a whole dimension.
Solvency regulations have moved over past years from simple ratio-based methods to complex risk-based approach. The solvency regulations development in EC member countries started from the first life and non-life directives of the EU (in the 70’s) through the time of Solvency I. from a premiums-based into a better risk-based approach.
Due to the complexity of the subject, a single regulation framework fits all line of insurance business is nearly impossible. Hence, this paper focuses on life insurance for discussions.
2 Solvency Ⅰ regulations versus RBC system
The Life insurance directives (EEC 1979) and the non-life insurance directives (EEC 1973) can be considered as the start of a solvency requirements to fulfill in an insurance market. The approach was simple and straight forward. Solvency was based on simple accounting results.
The calculation of the Minimum Solvency Margin (often referred to as the Required Solvency Margin) consisted of two results:
The first related to the technical provisions (referred to Investment Risk)
The second related to policies hold by the policyholders (referred to Operational Risk)
In addition, there was a Guarantee fund in a minimum amount to meet the entire obligation to the policyholders.
One third of the Minimum Solvency Margin was compared with the guarantee fund to fit the minimum guarantee fund. It involved:
A: Minimum Solvency Margin (or Required Solvency Margin) =
4% mathematical reserves
+
0.3% capital sum at risk
B: Guarantee fund = 800,000 ECU in 1979
C: Minimum Guarantee Fund = max (1/3 A, B)
Compare it with Taiwan’s practice. The formula for Minimum Solvency Margin was applicable for each life insurance and annuity business. But there is not a Guarantee fund regulation requirement for each insurance company in Taiwan. The regulatory objective on solvency is achieved by the RBC ratio monitoring in period to afford the early signal warning to supervisor. If the RBC ratio is under the minimum requirement, then the regulators will trigger an intervention to insurer unless it is improved up to the rational level.
The basis mentioned above were simple, easy to manage and understand, but did not consider risks directly. When the increasing in market complex and rising of customer protection needs are more development, a new solvency regulation framework is more urgent to be built up all over the world.
The assets could be valued at historical costs as well as market value. Hence, asset valuation was not harmonized to the real situation. So, in effect prudence did not really work in the insurance company. The disadvantages of this solvencyⅠregime were examined in the Müller report published in 1997. Changes to the Life Directives were, however, quite small. In life insurance, the directive stated that the available solvency margin to cover the technical provisions must be in good quality. It further specified the solvency margin for unit-linked contracts.
Similar to the solvency I, RBC can define each asset by its risky nature properly but cannot reflect the total obligations change under the variation of economic and environment that an insurer should reserve to meet in protecting policyholders. Both of RBC and Solvency I provided a simple device to regulate insurer solvency. It has improvements over the early day regulations, but still simple. A positive outcome was that it made the compliance management easy and inexpensive.
In spite of its relative simplicity, they did increase the protection of the policyholders. That explains the reason why the system performed well over the years.
2.1 Transition of Solvency I
Müller report found the existing structure of solvency margin satisfactory, but still had some suggestions were made for further improvement. There were:
The minimum guarantee fund should be reviewed and updated at regular 5 year periods
- Minimum requirement was increased to 3 million euro - to be updated in the future with EU consumer price inflation.
The regulations should not only look at the solvency margin, but also at the composition of the margin and the guarantee fund.
The risks identified to be classified as:
- Technical (insufficient premiums, mortality, morbidity, interest rate – that would perhaps affect discontinuance rates, reinsurance etc.)
- Investment (depreciation, liquidity, matching, interest rate including reinvestment, derivatives etc.)
- Non-technical (management, 3rd party credit risk, regulations etc.)
Solvency I norms provided higher protection to policyholders. A few of the significant features were:
Solvency I set that solvency requirements should be met at all times and not just on the date of the latest balance sheet.
Permanent health insurance needed additional capital over and above what was specified in the earlier regime.
Insurance companies were required to have an additional solvency margin for unit-linked contracts (firm bears no investment risk) where the allocation to management expenses was not fixed further than 5 years.
Another important difference was that the member jurisdictions were free to set more strict requirements than those specified in the Directive, if they preferred to do that.
2.2 Need for further development
However, under these rules, important changes had taken place in the insurance industry, creating the need to adapt the new solvency regulations properly.
The equity markets were well-built in the recent decades helping insurance companies.
Fall in interest rates making it difficult to meet the guaranteed returns.
Increase in Life expectation.
Increase in the frequency of high impact events more often than ever.
Some paper for Solvency I had already indicated the need for a better system that an insurance company is exposed his risk to a broader way. Solvency I had already moved for the development of a more sophisticated and holistic approach in Solvency II. Another factor which driven reforming of the solvency regulation was the fact that some other countries like the U.S. had already started the move towards a risk based capital system. At the same period, Taiwan had adopted a RBC system towards the insurance industry monitoring in this decade. Like the Solvency I cannot fulfill the huge economic environment change, RBC system also need a new modification to meet the whole world trends.
In 1999, at a meeting of the Insurance Committee (IC) it was agreed that an overall review of the financial position of an insurance company should be done. This review was to include earlier ignored risk classes (e.g. ALM risk, Operations Risk etc,) – Solvency II committee was born as a result of this decision.
3 Solvency Ⅱ – an ongoing regime in EU countries
European market has stepped to adopt a principles based approach for insurer solvency. Solvency II is a new, risk-sensitive system for measuring the financial stability of insurance companies in EU. It is intended to provide greater protection for policyholders and stability for financial markets by providing insurance supervisors with better information and tools to assess the overall solvency of insurance companies .
Before it is fully implemented, Solvency II is expected to conduct in large scale changes in product portfolio, operations as well as the reporting requirements of insurance companies.
3.1 What has changed?
The fundamental change of Solvency II is in the approach from rule based to principle based. Regulations are being draft from a rules-based set to a risk-based one. While the two main regulation jurisdictions, EU and the U.S., attempt to reach the corporate structure in solvency requirement. RBC structure used in Taiwan should have been change towards the Solvency corporate results. The mitigation of the two frameworks seems towards a cooperative way, but still in process and need times to harmonize.
A traditional approach to capital adequacy and solvency assessment based on static accounting results is limited in scope. It limited to the balance sheet. A “Risk based solvency assessment” involves considering the risks exposed to these risks while addressing the capital needs. The principles on capital adequacy and solvency of insurers as lay down by IAIS 14th principles. One of the principles (#6) suggests that “Capital adequacy and solvency regimes have to be sensitive to risk”. This means that the solvency margin should also consider risks that have not been adequately reflected in this valuation.
Several differences could be observed between Solvency II and Solvency I
The Required Solvency Margin has been replaced by the Minimum Capital Requirement (MCR).
MCR is required to be calculated at least once a quarter and reported to the supervisory authorities.
Minimum MCR has been fixed as 2 million Euros (the guarantee fund has been replaced by MCR).
The MCR acts as the safety net – it is the level below which the supervisory intervention triggers off.
An additional capital requirement called Solvency capital requirement (SCR) is the target level of capital. This is the starting point of calculation of the adequacy of the quantitative requirements.
SCR can be calculated using standard formula or internal model
MCR and SCR are calculated separately. MCR uses the technical provisions – risk margin. The factors are applied to the capital sum at risk with a minimum floor (similar to the guaranteed amount under earlier regimes)
Assets Liabilities
Available Capital
Available Capital (Free)
Available Capital (locked) SCR - MCR
MCR
Assets covering technical provisions Risk Margin Technical Provisions
Best Estimates (Liability)
3.2 Solvency II and RBC both are sensitive to risk
The new Solvency II norms provide a risk-sensitive calculation of the capital requirement in the form of the Solvency Capital Requirement (SCR). Companies are not expected just to fulfill with additional limits on capital requirements. As illustrate below, the SCR is used to meet up capital charges based on specific risks rather than limits based on strict rules. On the contrast, RBC ratio appraise on the assets to reflect the reality of all the asset items hold by an insurer on a risk-based approach is also an risk sensitive consideration.
3.3 Solvency II is “principles based “approach
Solvency norms are classified into two broad categories:
1. Rules based on well defined factors to Accounting basis. The factors are clearly defined and the rules on the factors need to be applied are clearly defined.
2. Principles Based approach to valuation of liabilities is specified by general solvency principles and does not have strict rules. The more detailed methodology is left to the judgment of the insurer as long as it is consistent with the principles set out.
RBC ratio and the insurance law addition regulation in Taiwan were likely to the mixed of the two solvency regulation categories. Insurance industry was directly regulated by the insurance law in assets allocation, liability reserve, investment restricted. On the other hand, RBC has been put into the assets monitoring in an indirectly way to supervise the insurance industry. But the Solvency II norms are more “principles based”. Recognizing the need to set up a regulatory approach that is more flexible and adaptive to the dynamic market conditions, the Solvency II directive follows the Lamfalussy procedure (used for the regulation and supervision of the EU securities market).
This procedure ensures that the new solvency regime is able to keep tempo with the future global market and technology developments in the insurance industry as well as harmonization with new promising accounting standards.
Does Taiwan’s insurance regulation framework need a practice procedure like the Lamfalussy procedure? Is it flexible enough to meet the world trends to the solvency? As the necessity of single standard in the insurance solvency framework to fit all over the insurance industry being a global mission for each jurisdiction, Taiwan’s regulators seems have to follow a similar thinking procedure but in some modification to put into practice in our insurance industry. IAIS also had been engaged in a long run to mitigation the uniform solvency regulation among the EU’s member jurisdictions. It seems still ambiguous to reach the final conclusion, insurance industry in Taiwan environment runs a vary portfolio with other countries. How to fulfill the new structure on solvency framework promoting in EU will be a big challenge in Taiwan. So maybe doesn’t be hurry to embed the Solvency II norms will be a better way for us, QIS (quantitative impact studies) in EU constant responses the problems or difficulties in applying for EU member companies. The way to harmonization on Solvency II still needs more efforts.
3.4 Technical provisions and risk margins
The solvency norms confirmed that Technical Provisions should be “adequate in respect of the entire business of the insurance company. The Technical Provisions should be set in a prudent manner, with prudent assumptions for interest rate, demographic factors and allowances for costs.” Industry practice in most countries is that the Technical Provisions have typically included margins for prudence.
However, when there is no division between best estimates and risk margin, the information is not transparent enough either for the regulator or for management decisions to understand the original assumptions.
Solvency II norms require the insurance company to report the best estimates and the risk margins separately. This is a major difference between the earlier solvency norms and Solvency I. Under Solvency II, the margin above is not just a “prudent actuarial margin”. It is a margin that is determined using the principle of “return that the investor would expect for bearing the uncertainty or risk associated with the cash flows.”
3.5 Calculation of SCR and Risk Margin
Under Solvency II, there are two levels of capital requirements that are different and be calculated separately. SCR is calculated using best estimate value of liabilities, the calculation of risk margin using Cost of Capital approach (recommended by the directive) takes the SCR for future years as an input. In that sense, CEIOPS (“Committee of European Insurance and Occupational Pensions Supervisors”), a key stakeholder in the drafting process of Solvency II has very clearly avoided the problem of “circularity”. Some significant features are:
Best estimate is gross of reinsurance
Best estimate of the liability is using the cash flow approach; if any options or guarantees exist and can be hedged by suitable financial instruments (derivatives), then the cash flow will be separated as hedgeable and non-hedgeable.
Risk margin is calculated using CoC and net of reinsurance
The risk margin shall be calculated only for the non-hedgeable(In practice, most of the life insurance risks are non-hedgeable).
CoC calculation includes underwriting risk, operational risk for existing business and counter party default for ceded reinsurance. It excludes market risk
3.6 Calculation of MCR
Under Solvency II norms, in order to maintain the continuity with the existing solvency measures, the approach towards MCR is based on a combination of the technical provisions (excluding the risk margin) and sums at risk. Some factors are increased to reflect the fact that the existing solvency norms use technical provisions with margins while under Solvency II, MCR calculation is done on best estimates excluding the risk margin.
4 EU countries being at what extend in Solvency Ⅱ
Before the discussion about how far or how fast Taiwan should be start on the new solvency framework. We need to survey the main EU countries at what extend to reform their existing structure on solvency.
Most countries in the EU recognized the need to enhance their solvency assessment frameworks. The following sections discuss the existing frameworks in three main countries – UK, Switzerland and Netherlands and their moving differences towards Solvency II.
After look at these variation developments to fulfill the solvency Ⅱ. We would more recognize that Taiwan needs to stay for a while, thinking what the most suitable solvency structure should be adopted for our country.
4.1 FSA and Solvency II
The capital requirements under Solvency I was considered to be non-risk sensitive and not enough by the British Financial Services Authority (FSA). However, they also knew that a detailed study that was a requirement for the future risk-based system under Solvency II was not likely to happen in the near future. The FSA adopted an alternative approach whereby the firms were expected to hold a level of capital (over and above the MCR) that reflects the nature and volume of the insurance company’s business.
The FSA adopted a twin-peak approach. For life insurance companies, this aimed at establishing the missing link between provisioning for liabilities and capital requirements for “with profits” business and potential future bonuses. It helped in determining whether the company needed to hold additional “top up” capital over and above the Mathematical reserves to cover the potential future bonuses.
4.2 SST and Solvency II
The Swiss Solvency test (SST) was introduced in 2003. It involves the calculation of a Minimum capital and a Target capital. The minimum solvency capital is calculated based on the statutory balance sheet and does not depend upon the company’s specific exposures.
There are standard models for calculating the market, credit and insurance risks. The risks and events that are not covered by the standard models can be modeled using adverse scenarios which need to be aggregated with the standard models.
The SST values all assets and liabilities market consistently . Consistency is the hallmark of SST. SST also considers Operational risk under Pillar II on the same lines as FSA.
Companies are allowed to choose between standard models and internal models. The internal models need to be tested under pre-defined scenarios.
While large insurance companies were to fulfill with SST as of 2006, insurance groups, reinsurers and small companies need to comply till 2008. On the other hand, operational details under Solvency II are still developing. So one needs to “wait and watch” to see how the Solvency II aspects map to the SST directives.
It would be more challenging for supervision of groups and group level SCR. Considering that under Solvency II, the internal models require single approval for Groups (consolidated business); consistency of approach across jurisdictions would be the biggest challenge. Model verification by the supervisors would be the hardest task. In addition, for companies that adopt internal models, the model has to be an inherent part of the company’s management and internal processes. This is to say that the models used for regulatory purposes and management needs should be linked.
4.3 Netherlands and Solvency II
The Dutch system proposes to introduce a supervisory regime that aims at matching with the statutory financial statement i.e. there should be only one set of accounts for accounting and solvency purposes.
The realistic values of insurance liabilities consist of a best estimate plus a risk supplement. The risk supplement can be calculated using an internal model and has to be stochastic. The margins are to be calculated separately for separate risk groups.
The Dutch system does not currently do any quantification of Operational Risk though there is an intention to include it in future.
5 Solvency Ⅱ timeline for EU countries
Though the timeline for compliance looks a distant 2012, insurance organizations need to sketch out their action plans as they may meet a few challenges during implementation. The boundaries have been drawn with the draft directive.
5.1 Challenges related with Models.
QIS2 responses show that many Insurers took more time than estimated. It clearly indicates that the companies are merely to deal with issues related to SCR calculation, Data issues etc. Insurers can choose for either a standard model, internal model or partial model (a combination of both internal and standard model) for SCR calculation. Companies going the internal model way need to get approval from the regulators. The development and approval process could be difficult because the sophisticate of various models.
Companies will perform sensitivity analysis and stress tests to do both qualitative and quantitative review of various risks. Small insurers and niche players, with their limited modeling capabilities, may face higher capital requirement pressure since their portfolios may not reflect the market reality.
Companies need to fill the gap between complex statistical terms and information technology to build robust models. The model needs to be internalized and properly understood by the key management decision makers. There could be dangerous that a complex model is interpreted differently by different people in the company. It is necessary that there is a common understanding of the internal model adopted (between the CEO, CFO, CRO, Appointed Actuary ...). The senior management has to ensure that proper review is done at times to ensure that the model continue to be relevant as the economic and commercial environment changes.
The models need to be approved by the supervisors. From the supervisor’s perspective, it would be almost impossible to formally verify each and every model. The assessment of models would rely heavily on industry best practices and supervisors’ experience.
In addition, the internal models have to be transparent to the public in a manner that is easily understood by a knowledgeable person. The basic methodology and approach should be disclosed to the public.
5.2 The IFRS prospects
The challenge is to bring together between IFRS Phase II and Solvency II in the areas of Asset Valuation, Liability Valuation and Disclosure. There are differences under two major categories - Technical provisions and Disclosure
Technical provisions: Though there are agreements between Market consistent approach towards provisions, best estimate of liability and use of discounted cash flow in valuation basic differences come from the definition of insurance itself, treatment of diversification benefits and guaranteed benefits under insurance contracts.
Disclosure: Greater transparency, higher emphasis on risk management and sensitivity testing are some of the similarities between IFRS Phase II and Solvency II. Major differences come from the reporting level, definition of insurance contracts and reporting materiality to the supervisor.
5.3 Risk Management
CEIOPS has set its expectations about managing and reporting various risks by insurers. Multiple stakeholders from the insurance industry have raised concerns.
There are indications that the stricter risk management standards to be applied under Solvency II. Risk management consideration needs to be embedded.
Operational risk was the difficult to comply with during QIS responses from the member companies. But it plays a vital role in the Solvency II regime. EU directive 2006/48/EC includes a standard approach and an advanced measurement approach for operational risk. It touches on fraud, operational risks, marketing and distribution risks, legal risk and staff related issues. Leaving this could prove to be a costly mistake from the organization.
The documentation may become complex with so many risks to report. There should be an attempt to simplify the reporting procedure.
5.4 Diversification Challenges
Diversification at various levels of business brings about the benefits of reduced capital requirement. Aggregation of results at the group level (banks and insurance) will bring down the cost of capital. Aggregation at the LOB (insurance) level will help the insurers a reduction in the capital. Diversification, however, is not without challenges. The following are some of the key challenges:
The possibility of a subsidiary getting a lower rating compared to the group level rating would badly affect the capital requirements within the group.
Supervisory cooperation is very important for Solvency II to the relationship between the group supervisor and solo supervisors to ensure a supervisory union.
Smaller insurance firms / single line insurance firms may face potential disadvantage from the lack of diversification benefit and have to raise additional capital compared to a similar subsidiary of a larger group.
6 Conclusion
The new directive for Solvency II has already been released. It introduces a SCR (Solvency Capital requirement) that is different from the target levels that exist in most countries. The SCR is a requirement that reflects the company’s risk profile. The Directive also sets out a Minimum Capital Requirement (MCR). Falling below the MCR will trigger an intervention from the regulators. It should be calculated quarterly using a simple and robust formula on the principles-based.
Given the various levels of maturity and complexity at the member countries, implementing the directive would be a challenge. Insurance companies would need to bring together and thought out action plan to ensure towards compliance. One of the biggest challenges in moving towards a “principles-based” approach is the additional responsibility that all stakeholders within the companies (senior management, board etc.) and regulator (sufficient seniority and ability to engage with the senior management and board) have to ensure obedience to the principles of solvency supervision.
This new framework on solvency regulations will certainly be a benchmark to Taiwan in monitoring domestic insurance industry and harmonizing with the world trends. It is still developing and continuing transform to make it acceptable and workable. Challenges mentioned above constantly existing even in three main EU member jurisdictions, it would forms very many dissimilar practices in compliance level among the member countries, jurisdictions, and insurance companies because the various reorganization and adopt principal-based free structure design. As the reasoning, solvency regulation in Taiwan is more stable than the EU’s confusing development. Regulators though facing the growing need to a new risk-based structure to protect the policyholders. A smoothly moving towards reform a new, has been examined and incurred fewer impact, solvency structure is the right way to future.
An overview of Omnibus Clauses
An overview of Omnibus Clauses
Abstract
The term “Omnibus Clauses” has been used in many non-life insurance policy forms, especially in motor insurance policy or liability insurance policy. Although the term “Omnibus Clauses” sometime exists in different type of others forms of policy clauses such as, “Additional Insured Clause” or “Definition of Insured”. The full reason of the existing of these similar clauses expanding coverage to the motorists other than the named insured is always seemed to be from the view of points of both public interests and economic thinking of minimum total external cost.
The omnibus clause section and the other insurance clauses section have been introduced in Insurance Law and Regulation, cases and materials, Fourth Edition, Kenneth S. Abraham. It is involved about the automobile insurance practices and law cases in different states of American. Law cases and problems occurred here seems less than American when we compare with the auto insurance in Taiwan’s practices.
This article are written base on Taiwan’s motor insurance policy practices and get knowledge of American insurance law textbooks. It also has been get the materials from Google, Wiki-pedia, and Law Dictionary Web-sites on internet. The author tries to introduce how the “Omnibus Clause” works from early 1980’s American to present’s Taiwan.
Keywords: Omnibus Clause; Additional Insured; Definition of Insured; Other Insurance; Drive-Other-Car Clause;
1. Introduction
The term “Omnibus Clauses” is used to define the liability insurance policies, particularly in motor insurance policies for extending coverage to vehicle users other than the named insured. These vehicle users often are known as “additional insureds.” Similar clauses are used in other types of insurance, such as public liability insurance policy and other types of comprehensive insurance policies.
There are usually not the term “Omnibus Clauses” existing in the insurance policy forms in Taiwan, it has been described as “additional insured clause” in motor liability insurance, or pointed out as “definition of insured”. For example, the broadest coverage provided by Compulsory Automobile Insurance Act of R.O.C., enacted and promulgated on December 27, 1996 states the “definition of insured” in Article 9: ”………. In this Act, “insured” means a proposer to whom an insurer extends coverage and any person using or managing the insured automobile with the proposer’s consent.” The coverage for compulsory motor insurance policy in Taiwan has been extended to the utmost scope is for the reason that assuring the public interests guarantee and indemnification to the accident victims. It can be clearly observed in the same Act in Article 1: This Act is specially adopted in order to ensure prompt basic coverage for the injured parties in automobile traffic accidents that result in injury or loss of life and to maintain roadway traffic safety. Base on the opinion, almost the same wide scope of coverage to the named insured other than the vehicle user has been adopted on motor liability insurance policy in Taiwan.
1.1 What Omnibus Clause is……..
An omnibus clause is a clause that provides that liability insurance for the designated automobile applies to the named insured, any member of the insured's household, and to any person using the automobile with the insured's permission, provided the use was within the scope of permission.
http://en.wikipedia.org/wiki/Omnibus_clause
Omnibus clause 1) an automobile insurance policy clause which provides coverage no matter who is driving the car. 2) a provision in a judgment distributing the estate of a deceased person, giving "all other property" (not specifically mentioned) to the beneficiaries named in the will.
http://legal-dictionary.thefreedictionary.com/omnibus+clause
Omnibus Clause 1)A part of an automobile insurance policy which aims at providing insurance coverage to any other person using the automobile with the permission of the insured whether or not their names are mentioned in the policy. 2) A condition that is agreed upon in a judgment to give away the entire property of the dead person to all the people and entity named in the will.
http://legal-explanations.com/definitions/omnibus-clause.htm
Omnibus clause: A clause in an automobile liability insurance policy that serves the purpose of giving "additional assureds, other than the person named in the liability policy as assured, with certain specified limitations, the benefit of the policy. . . . It extends protection to one ‘permitted' to use the car, although the ‘assured' may not be liable for the accident under the doctrine respondents superior. The object of such clause is to cover the liability of the operator of the car as unnamed assured, and to protect any person so injured by giving him a cause of action against the insurer for injuries deemed by law to have been caused by the operation of the car." 30 So. 2d 123, 125. Statutes have been passed in some jurisdictions requiring the inclusion of omnibus clauses for the protection of automobile accident victims. See 84 N.W. 2d 84. Also applies to a clause in a will or distribution decree passing all property not specifically mentioned or known of at the time.
http://www.answers.com/topic/omnibus-clause-1
Omnibus Clause: An agreement in most Automobile Liability policies and some others that, by its definition of insured, extends the protection of the policy to others within the definition without the necessity of specifically naming them in the policy. An example would be a policy which covers the named insured and "those residing with him."
1.2 Omnibus Clause in insurance practices
Omnibus clause provides coverage for persons who have some relationship to the named insured. For example, motor liability insurance here includes a clause stating that “covered persons” means in addition to the named insured and the family members or others.
How to define that “who are the additional insureds?” is a discussible issue. What kind of relationship to the named insured could be treated as “additional insured?” Whether the coverage should expand or not to all of the insured vehicle users in motor insurance policy in Taiwan?
Generally, motor liability insurance policies will expand coverage for additional insured, which use the insured vehicle with the permission of the named insured. The reasons to expand coverage other than the named insured at least have both economic and public interest’s reasons. One should desire to purchase a motor insurance policy could also cover his (her) family members when they use the vehicle, such as his wife (her husband) and children. Furthermore, one also feel an obligation to the owner when one use other persons’ vehicle(property), similar to persons feel responsibilities or feel as vehicle owner in regard to the good use of the vehicles. In fact, as a best practice reason, many potential troubles could be avoided by extending coverage to permitted users as motor insurance’s insured. Of course, you also can have options to choose the particular motor insurance policy with the “limited user” clause to down the premiums for a narrower coverage only affect to the named insured. Under the term, there will at best be a 35% payment down on this type of policy if you apply the policy with “limited user” clause afford by Cathy Insurance company or some others –not all – motor insurance companies.
The omnibus clauses in motor liability insurance are also useful to the interests of accident victims. It make the permitted users can afford the indemnification for accident victims. It is an important factor in legal requiring of omnibus clauses in liability insurance coverage. Moreover, the public interest for assuring compensation for accident victims has also affected the coverage scopes.
There are some issues about the extension of different coverages, -including compulsory motor liability insurance, uninsured vehicle users insurance, and under-insured motorist insurance . From the point of the social public benefit policy, it is fully meet with the social interest in assuring of indemnification for motor accident victims. Nevertheless, the scope of coverage afford by omnibus clauses has been the subject of many legal events.
1.3 Example from JSTOR Colombia Law Text
CONFLICTING “OTHER INSURANCE” CLAUSES IN AUTOMOBILE LIABILITY POLICIES
Plaintiff insurance company issued to A an automobile liability policy which contained a clause covering him while driving cars other than his own. The clause provided that this “Drive-Other-Car” insurance was “excess” should A have other insurance available. Defendant company issued to B a liability policy on a Mercury car with an “omnibus clause” covering any person using the Mercury with B’s permission. The policy further provided, however, that this “omnibus clause” was not applicable to borrowers of the car if they have other insurance available. A, while driving the Mercury with B’s permission, negligently collided with another car, and each insured conceded liability in the absence of other’s policy. Plaintiff sought a declaratory judgment that defendant’s coverage was available to A, and, consequently, plaintiff’s “Drive-Other-Car” insurance was excess. Defendant contented that its “omnibus clause” was inapplicable, since plaintiff’s policy constituted “other insurance” available to A. On appeal from a judgment for plaintiff, held, reversed. The “other insurance” provisions of the two policies, being mutually repugnant, must be regarded and the loss prorated. Oregon Auto. Ins. Co. v. U.S. Fidelity & Guarantee Co., 195 F.2D 958(9th Cir. 1952).
A loss covered by two or more insurance contracts frequently results because one individual has two substantially identical policies, policies which overlap, or both floater and specific policies. There is a similar duplication of insurance covering a driver’s negligence where the owner’s policy has an “omnibus clause” and the driver carries “Drive-Other-Car” insurance.
1.3.1 Observation
Limitation on “Omnibus Clause” only keeps in force in the absence of other insurance by the motorist violates the public interest policy assuring compensation to the accident victims. It is not suitable for the limitation on the coverage by the “other insurance clause” while the trend to the motor liability insurance coverage is going wide and board to the injured victims. Drive-Other-Car clause mentioned beyond still unavailable in motor liability insurance market in Taiwan, nevertheless, it is possible adopted by insurance company in the future if necessary for the motorist responsibility. The duplication of two or more insurance coverage will be troublesome in determinate which coverage is primary coverage and which will be excess, or referred to prorate the loss. As the “omnibus clause” provided coverage is at best afford indemnification for victims. The Drive- Other-Car insurance think as “excess” and the omnibus clause insurance as primary should be the best arrangement.
2. Omnibus Clauses for Users of Vehicles; Problems of Interpretation
2.1 Generally
Many of the disputes about the scope of coverage provided by an omnibus clause are related to an express or an implied permission. Court is hard to determine whether the named insured had limited on the purpose or the time during for the use of the vehicle. Judge is troublesome to find the truth on permission or not on the using of an insured vehicle when an accident occurred. Different court events have developed to involving these issues. The results of such cases can be classified into the following three groups:
First, judgments strictly to explain the omnibus clause, and requiring proof that the use which given by a named insured was within the scope of the permission (referred to as a “strict” rule). This rule has also been adopted by the motor property damage insurance in Taiwan, one used the insured vehicle occurred an accident should proof that the usage was within the scope of the permission by the named insured.
Second, judgments freely to explain the omnibus clause, and generally concluding that almost any use is within the coverage only if the vehicle was being used by a person over the named insured’s purpose(referred to as a “liberal” rule). This rule has been adopted by the motor liability insurance in Taiwan, one used the insured vehicle occurred an accident seldom be asked to proof that the usage was within the scope of the permission by the named insured. The cost of determine whether the coverage provided by omnibus clause or not has been reduced effective under this rule in Taiwan’s motor liability insurance market.
Third, judgments adopting a “minor” versus “material” different standard under which coverage is only denied when there was a material violation of the scope of permission by a named insured (referred to as a “minor deviation” rule).
These classifications are rough, and there are differences in use by courts. It is hard to comment which lines of decision would be the best. Maybe “minor deviation” rule to be the better one, which take a position between the two extreme approaches. It is flexible to the factual situation, too. Under this rule the relationship of the parties and the scope of the permission are very important. Clearly, the same permission to use a vehicle by a named insured should be different to a regular employee of a company and to a one-time user. Similarly, the permission given to a named insured’s children or a friend would be different from the one-time permission to a casual person. The principal the minor deviation rule is that each case is stand on its own facts.
However, the disadvantage of such an f1exible rule is the higher cost of finding the fact. Because this approach often needs a court to determinate both permitted or not and the scope of permission.
On the other principle of flexibility, Taiwan adopts different approach on the coverage provided by omnibus clause between motor property damage and third party liability insurance seems more flexible on assuring the victims’ indemnification of a vehicle accident. That has been successful avoided the disadvantage of the higher cost of finding the fact while assuring the victims’ interest of the social responsibility.
The relationship between a named insured and a driver is very important in determining whether the driver’s use of a vehicle was within the scope of permission. For example, a broad permission is much more possible for non-business purposes than the use for business purposes. Thus, when an employee either uses an employer’s car for personal purpose or allows a third person to use the car, it is generally assumed to be lack of the employer’s permission and therefore out of the scope of coverage.
2.2 Coverage for a Permittee’s Permittee (Re-permittee)
If a named insured gave permission to one person, and that person permitted someone else to use the car, that occur dispute of “repermittee to use the car” if within the coverage or not?
Such cases is usually referred to as a “Permittee’s Permittee” or the “secondary permittee”. Usually, the secondary permittee was given permission from “original permittee” and lack of the permission of the named insured.
When courts determine coverage questions on “permittee’s permittee” have to face a number of factual questions, such as:
Whether the original permittee allowed repermission from a named insured to use the vehicle?
Whether the original permittee clearly consented to the third person’s use of the vehicle?
Whether the nature of the use of the vehicle was within the scope of the permission approved?
Whether the named insured authorized the “permittee’s permittee” to use the vehicle?
Whether the named insured, if asked, would approved the repermittee to use the vehicle?
The problems involve by these questions are quite troublesome. There are some guidelines below.
When a named insured disagree the use of a vehicle by third persons, generally the permittee’s permittee is not covered when using the vehicle. However, if the named insured’s original permission is broad in scope and especially if the original permittee is expressly allows others to use the vehicle; courts generally will hold that the repermittee is covered as an additional insured even when the vehicle is used for personal purpose.
When an original permittee was neither authorized others to drive a vehicle nor prohibited from doing so, courts have often focused on the use purpose when the accident occurred. If the secondary permittee’s use was for the benefit of the original permittee, courts generally conclude that coverage should be extended to the secondary permittee. If the evidence shows that the vehicle was being used only for the second permittee’s personal purposes the courts have usually denied coverage.
Although there are difficulties to determinate the coverage scope on repermittee’s use of insured vehicle. These rules should always consistent with the goal of public interest of providing accident victims’ indemnification, which is an important consideration by courts. Review our motor insurance policy clauses; it has been provided board coverage on liability insurance by the additional insured clause, and more limitation scope and narrow coverage on motor property damage insurance. That also is consistent with the goal of providing accident victims’ benefit of indemnification.
A rule always extend coverage to a permitttee’s permittee may not only disobey the real word of insurance policy, but also may be in conflict with actual agreements. It would be a clearly standard both on the scopes to the original permittee and to the repermittee. Motor insurance policies, in Taiwan, have quite different approach to this issue which would always extend coverage to a permitttee’s permittee (re-permittee). Generally, the practice would extend coverage to a permitttee’s permittee in motor liability insurance policy (include compulsory motor liability insurance policy) but adopting a strictly rule in applying the omnibus clause in motor property damage (comprehensive) insurance policy. The development seems to be affected by the public interest in favor of assuring indemnification for vehicle accident victims.
2.3 Injury to a Named Insured by an Additional Insured
Sometimes a named insured covered by a liability insurance policy has a tort claim resulting from the negligence of an additional insured under the named insured’s policy. For example, an owner of an insured vehicle may lend it to another person. He also may be injured by the borrower. One of the cases involves with a question in Massachusetts . The liability insurance claim involved was the state’s compulsory automobile insurance. The law, the compulsory coverage was provided indemnity for the insured and any person responsible for the use of the insured’s vehicle. It consents against loss to pay damages to “others” for bodily injuries under the insurance policy. The Massachusetts Supreme Judicial Court concluded that the term”others” could not be included the named insured.
The judgment beyond was then applied as an example by the Connecticut Supreme Court . In this Connecticut case, Chief Justice Maltbie agreed in the result, but indicated that he would have reached a different result. He remarked: “The word ’others’ …….means persons other than the one invoking the protection of the policy, whether it be the named insured or one who is operating the car with his consent. “ This decision had affected the opinion that “the others covered by motor liability insurance should not exclude the named insured on the accident when the insured motor was used by an additional insured on the permission on the named insured.”
A majority of the decisions on this point in others courts support the decision by Chief Maltbie. Furthermore, a new clause in the 1955 revision of the motor insurance policy forms strengthens this conclusion. In the revised policy forms, the term “the insured” is used to each claim, and then a “named insured” is not an insured at all the claim in tort against an additional insured. The concept seems still weak in Taiwan’s insurance practices. Coverage provided by motor liability insurance always excludes the coverage to the named insured under the reason of high risk of moral hazard. It is obviously unfair to the named insured when he was injured by his own insured vehicle by the operating of an additional insured.
For the most basic solution to the complicated situations in whether a named insured under coverage or not. Some insurance policies include a clause clearly declaring that the bodily injury liability coverage does not apply to bodily injury to an insured. Such a limitation in the insurance contract, coverage may be denied on the basis of the exclusion.
2.4 Comment: An Appraisal of Omnibus Clauses
Expanding the scope of coverage provided by liability insurance policies has been the trend to Taiwan and the whole of the world, particularly in regard to motor liability insurance.
(1) An increased demand of insurance purchasers to have their policies extend broadly to others,
(2) An increasing recognition by both court decisions and judgments, of assuring indemnification for victims in motor accidents, and
(3) A decrease worries of insurers about the costs of providing extend coverage with omnibus clauses.
In the development of more extensive protection, insurers still have not pay attention to shortage of the omnibus clauses in motor insurance policies. Omnibus coverage focus on the existence of “permission”---that is permission to use an insured vehicle is the only standard for determining the scope of insurance coverage. This approach makes a lot of disputes. Furthermore, coverage disputes focus on permission usually involves arguments, and frequently involve large costs to resolve coverage questions.
The expenses to define “permission” ---actual or assumed--- could be avoided most of argument on whether the driver was an insured. For example, coverage could be provided for all persons using an insured vehicle unless the operator’s use to theft or other crimes of the vehicle. Although the question whether a theft had occurred may still be troublesome, it will arise in relatively few problems. Accordingly, the disputes would be significantly reduced. This approach is now construed on motor liability insurance policies in Taiwan. And few disputes and litigations occurred in the point of “permission”.
There are some reasons why extent of liability coverage provided by omnibus clauses do not increases costs produced by vehicle users. First, the savings in court expenses should partially offset the claims produce by extensive coverage from the additional insureds. Second, victims in such accidents usually are at least partially receiving compensation from some source-motor compulsory insurance, national health insurance, or social benefits,-other than compensation from liability insurance. The costs of these events are finally paid by the whole society, by all vehicle users, or by individuals. Providing more compensation for victims by extensive scope of liability insurance will only change the allocation of accidents costs. Although expansion of omnibus clause coverage would probably produce higher motor insurance costs, the net costs might not be higher to the conflicts among liability insurers, their insureds, and accident victims.
Abstract
The term “Omnibus Clauses” has been used in many non-life insurance policy forms, especially in motor insurance policy or liability insurance policy. Although the term “Omnibus Clauses” sometime exists in different type of others forms of policy clauses such as, “Additional Insured Clause” or “Definition of Insured”. The full reason of the existing of these similar clauses expanding coverage to the motorists other than the named insured is always seemed to be from the view of points of both public interests and economic thinking of minimum total external cost.
The omnibus clause section and the other insurance clauses section have been introduced in Insurance Law and Regulation, cases and materials, Fourth Edition, Kenneth S. Abraham. It is involved about the automobile insurance practices and law cases in different states of American. Law cases and problems occurred here seems less than American when we compare with the auto insurance in Taiwan’s practices.
This article are written base on Taiwan’s motor insurance policy practices and get knowledge of American insurance law textbooks. It also has been get the materials from Google, Wiki-pedia, and Law Dictionary Web-sites on internet. The author tries to introduce how the “Omnibus Clause” works from early 1980’s American to present’s Taiwan.
Keywords: Omnibus Clause; Additional Insured; Definition of Insured; Other Insurance; Drive-Other-Car Clause;
1. Introduction
The term “Omnibus Clauses” is used to define the liability insurance policies, particularly in motor insurance policies for extending coverage to vehicle users other than the named insured. These vehicle users often are known as “additional insureds.” Similar clauses are used in other types of insurance, such as public liability insurance policy and other types of comprehensive insurance policies.
There are usually not the term “Omnibus Clauses” existing in the insurance policy forms in Taiwan, it has been described as “additional insured clause” in motor liability insurance, or pointed out as “definition of insured”. For example, the broadest coverage provided by Compulsory Automobile Insurance Act of R.O.C., enacted and promulgated on December 27, 1996 states the “definition of insured” in Article 9: ”………. In this Act, “insured” means a proposer to whom an insurer extends coverage and any person using or managing the insured automobile with the proposer’s consent.” The coverage for compulsory motor insurance policy in Taiwan has been extended to the utmost scope is for the reason that assuring the public interests guarantee and indemnification to the accident victims. It can be clearly observed in the same Act in Article 1: This Act is specially adopted in order to ensure prompt basic coverage for the injured parties in automobile traffic accidents that result in injury or loss of life and to maintain roadway traffic safety. Base on the opinion, almost the same wide scope of coverage to the named insured other than the vehicle user has been adopted on motor liability insurance policy in Taiwan.
1.1 What Omnibus Clause is……..
An omnibus clause is a clause that provides that liability insurance for the designated automobile applies to the named insured, any member of the insured's household, and to any person using the automobile with the insured's permission, provided the use was within the scope of permission.
http://en.wikipedia.org/wiki/Omnibus_clause
Omnibus clause 1) an automobile insurance policy clause which provides coverage no matter who is driving the car. 2) a provision in a judgment distributing the estate of a deceased person, giving "all other property" (not specifically mentioned) to the beneficiaries named in the will.
http://legal-dictionary.thefreedictionary.com/omnibus+clause
Omnibus Clause 1)A part of an automobile insurance policy which aims at providing insurance coverage to any other person using the automobile with the permission of the insured whether or not their names are mentioned in the policy. 2) A condition that is agreed upon in a judgment to give away the entire property of the dead person to all the people and entity named in the will.
http://legal-explanations.com/definitions/omnibus-clause.htm
Omnibus clause: A clause in an automobile liability insurance policy that serves the purpose of giving "additional assureds, other than the person named in the liability policy as assured, with certain specified limitations, the benefit of the policy. . . . It extends protection to one ‘permitted' to use the car, although the ‘assured' may not be liable for the accident under the doctrine respondents superior. The object of such clause is to cover the liability of the operator of the car as unnamed assured, and to protect any person so injured by giving him a cause of action against the insurer for injuries deemed by law to have been caused by the operation of the car." 30 So. 2d 123, 125. Statutes have been passed in some jurisdictions requiring the inclusion of omnibus clauses for the protection of automobile accident victims. See 84 N.W. 2d 84. Also applies to a clause in a will or distribution decree passing all property not specifically mentioned or known of at the time.
http://www.answers.com/topic/omnibus-clause-1
Omnibus Clause: An agreement in most Automobile Liability policies and some others that, by its definition of insured, extends the protection of the policy to others within the definition without the necessity of specifically naming them in the policy. An example would be a policy which covers the named insured and "those residing with him."
1.2 Omnibus Clause in insurance practices
Omnibus clause provides coverage for persons who have some relationship to the named insured. For example, motor liability insurance here includes a clause stating that “covered persons” means in addition to the named insured and the family members or others.
How to define that “who are the additional insureds?” is a discussible issue. What kind of relationship to the named insured could be treated as “additional insured?” Whether the coverage should expand or not to all of the insured vehicle users in motor insurance policy in Taiwan?
Generally, motor liability insurance policies will expand coverage for additional insured, which use the insured vehicle with the permission of the named insured. The reasons to expand coverage other than the named insured at least have both economic and public interest’s reasons. One should desire to purchase a motor insurance policy could also cover his (her) family members when they use the vehicle, such as his wife (her husband) and children. Furthermore, one also feel an obligation to the owner when one use other persons’ vehicle(property), similar to persons feel responsibilities or feel as vehicle owner in regard to the good use of the vehicles. In fact, as a best practice reason, many potential troubles could be avoided by extending coverage to permitted users as motor insurance’s insured. Of course, you also can have options to choose the particular motor insurance policy with the “limited user” clause to down the premiums for a narrower coverage only affect to the named insured. Under the term, there will at best be a 35% payment down on this type of policy if you apply the policy with “limited user” clause afford by Cathy Insurance company or some others –not all – motor insurance companies.
The omnibus clauses in motor liability insurance are also useful to the interests of accident victims. It make the permitted users can afford the indemnification for accident victims. It is an important factor in legal requiring of omnibus clauses in liability insurance coverage. Moreover, the public interest for assuring compensation for accident victims has also affected the coverage scopes.
There are some issues about the extension of different coverages, -including compulsory motor liability insurance, uninsured vehicle users insurance, and under-insured motorist insurance . From the point of the social public benefit policy, it is fully meet with the social interest in assuring of indemnification for motor accident victims. Nevertheless, the scope of coverage afford by omnibus clauses has been the subject of many legal events.
1.3 Example from JSTOR Colombia Law Text
CONFLICTING “OTHER INSURANCE” CLAUSES IN AUTOMOBILE LIABILITY POLICIES
Plaintiff insurance company issued to A an automobile liability policy which contained a clause covering him while driving cars other than his own. The clause provided that this “Drive-Other-Car” insurance was “excess” should A have other insurance available. Defendant company issued to B a liability policy on a Mercury car with an “omnibus clause” covering any person using the Mercury with B’s permission. The policy further provided, however, that this “omnibus clause” was not applicable to borrowers of the car if they have other insurance available. A, while driving the Mercury with B’s permission, negligently collided with another car, and each insured conceded liability in the absence of other’s policy. Plaintiff sought a declaratory judgment that defendant’s coverage was available to A, and, consequently, plaintiff’s “Drive-Other-Car” insurance was excess. Defendant contented that its “omnibus clause” was inapplicable, since plaintiff’s policy constituted “other insurance” available to A. On appeal from a judgment for plaintiff, held, reversed. The “other insurance” provisions of the two policies, being mutually repugnant, must be regarded and the loss prorated. Oregon Auto. Ins. Co. v. U.S. Fidelity & Guarantee Co., 195 F.2D 958(9th Cir. 1952).
A loss covered by two or more insurance contracts frequently results because one individual has two substantially identical policies, policies which overlap, or both floater and specific policies. There is a similar duplication of insurance covering a driver’s negligence where the owner’s policy has an “omnibus clause” and the driver carries “Drive-Other-Car” insurance.
1.3.1 Observation
Limitation on “Omnibus Clause” only keeps in force in the absence of other insurance by the motorist violates the public interest policy assuring compensation to the accident victims. It is not suitable for the limitation on the coverage by the “other insurance clause” while the trend to the motor liability insurance coverage is going wide and board to the injured victims. Drive-Other-Car clause mentioned beyond still unavailable in motor liability insurance market in Taiwan, nevertheless, it is possible adopted by insurance company in the future if necessary for the motorist responsibility. The duplication of two or more insurance coverage will be troublesome in determinate which coverage is primary coverage and which will be excess, or referred to prorate the loss. As the “omnibus clause” provided coverage is at best afford indemnification for victims. The Drive- Other-Car insurance think as “excess” and the omnibus clause insurance as primary should be the best arrangement.
2. Omnibus Clauses for Users of Vehicles; Problems of Interpretation
2.1 Generally
Many of the disputes about the scope of coverage provided by an omnibus clause are related to an express or an implied permission. Court is hard to determine whether the named insured had limited on the purpose or the time during for the use of the vehicle. Judge is troublesome to find the truth on permission or not on the using of an insured vehicle when an accident occurred. Different court events have developed to involving these issues. The results of such cases can be classified into the following three groups:
First, judgments strictly to explain the omnibus clause, and requiring proof that the use which given by a named insured was within the scope of the permission (referred to as a “strict” rule). This rule has also been adopted by the motor property damage insurance in Taiwan, one used the insured vehicle occurred an accident should proof that the usage was within the scope of the permission by the named insured.
Second, judgments freely to explain the omnibus clause, and generally concluding that almost any use is within the coverage only if the vehicle was being used by a person over the named insured’s purpose(referred to as a “liberal” rule). This rule has been adopted by the motor liability insurance in Taiwan, one used the insured vehicle occurred an accident seldom be asked to proof that the usage was within the scope of the permission by the named insured. The cost of determine whether the coverage provided by omnibus clause or not has been reduced effective under this rule in Taiwan’s motor liability insurance market.
Third, judgments adopting a “minor” versus “material” different standard under which coverage is only denied when there was a material violation of the scope of permission by a named insured (referred to as a “minor deviation” rule).
These classifications are rough, and there are differences in use by courts. It is hard to comment which lines of decision would be the best. Maybe “minor deviation” rule to be the better one, which take a position between the two extreme approaches. It is flexible to the factual situation, too. Under this rule the relationship of the parties and the scope of the permission are very important. Clearly, the same permission to use a vehicle by a named insured should be different to a regular employee of a company and to a one-time user. Similarly, the permission given to a named insured’s children or a friend would be different from the one-time permission to a casual person. The principal the minor deviation rule is that each case is stand on its own facts.
However, the disadvantage of such an f1exible rule is the higher cost of finding the fact. Because this approach often needs a court to determinate both permitted or not and the scope of permission.
On the other principle of flexibility, Taiwan adopts different approach on the coverage provided by omnibus clause between motor property damage and third party liability insurance seems more flexible on assuring the victims’ indemnification of a vehicle accident. That has been successful avoided the disadvantage of the higher cost of finding the fact while assuring the victims’ interest of the social responsibility.
The relationship between a named insured and a driver is very important in determining whether the driver’s use of a vehicle was within the scope of permission. For example, a broad permission is much more possible for non-business purposes than the use for business purposes. Thus, when an employee either uses an employer’s car for personal purpose or allows a third person to use the car, it is generally assumed to be lack of the employer’s permission and therefore out of the scope of coverage.
2.2 Coverage for a Permittee’s Permittee (Re-permittee)
If a named insured gave permission to one person, and that person permitted someone else to use the car, that occur dispute of “repermittee to use the car” if within the coverage or not?
Such cases is usually referred to as a “Permittee’s Permittee” or the “secondary permittee”. Usually, the secondary permittee was given permission from “original permittee” and lack of the permission of the named insured.
When courts determine coverage questions on “permittee’s permittee” have to face a number of factual questions, such as:
Whether the original permittee allowed repermission from a named insured to use the vehicle?
Whether the original permittee clearly consented to the third person’s use of the vehicle?
Whether the nature of the use of the vehicle was within the scope of the permission approved?
Whether the named insured authorized the “permittee’s permittee” to use the vehicle?
Whether the named insured, if asked, would approved the repermittee to use the vehicle?
The problems involve by these questions are quite troublesome. There are some guidelines below.
When a named insured disagree the use of a vehicle by third persons, generally the permittee’s permittee is not covered when using the vehicle. However, if the named insured’s original permission is broad in scope and especially if the original permittee is expressly allows others to use the vehicle; courts generally will hold that the repermittee is covered as an additional insured even when the vehicle is used for personal purpose.
When an original permittee was neither authorized others to drive a vehicle nor prohibited from doing so, courts have often focused on the use purpose when the accident occurred. If the secondary permittee’s use was for the benefit of the original permittee, courts generally conclude that coverage should be extended to the secondary permittee. If the evidence shows that the vehicle was being used only for the second permittee’s personal purposes the courts have usually denied coverage.
Although there are difficulties to determinate the coverage scope on repermittee’s use of insured vehicle. These rules should always consistent with the goal of public interest of providing accident victims’ indemnification, which is an important consideration by courts. Review our motor insurance policy clauses; it has been provided board coverage on liability insurance by the additional insured clause, and more limitation scope and narrow coverage on motor property damage insurance. That also is consistent with the goal of providing accident victims’ benefit of indemnification.
A rule always extend coverage to a permitttee’s permittee may not only disobey the real word of insurance policy, but also may be in conflict with actual agreements. It would be a clearly standard both on the scopes to the original permittee and to the repermittee. Motor insurance policies, in Taiwan, have quite different approach to this issue which would always extend coverage to a permitttee’s permittee (re-permittee). Generally, the practice would extend coverage to a permitttee’s permittee in motor liability insurance policy (include compulsory motor liability insurance policy) but adopting a strictly rule in applying the omnibus clause in motor property damage (comprehensive) insurance policy. The development seems to be affected by the public interest in favor of assuring indemnification for vehicle accident victims.
2.3 Injury to a Named Insured by an Additional Insured
Sometimes a named insured covered by a liability insurance policy has a tort claim resulting from the negligence of an additional insured under the named insured’s policy. For example, an owner of an insured vehicle may lend it to another person. He also may be injured by the borrower. One of the cases involves with a question in Massachusetts . The liability insurance claim involved was the state’s compulsory automobile insurance. The law, the compulsory coverage was provided indemnity for the insured and any person responsible for the use of the insured’s vehicle. It consents against loss to pay damages to “others” for bodily injuries under the insurance policy. The Massachusetts Supreme Judicial Court concluded that the term”others” could not be included the named insured.
The judgment beyond was then applied as an example by the Connecticut Supreme Court . In this Connecticut case, Chief Justice Maltbie agreed in the result, but indicated that he would have reached a different result. He remarked: “The word ’others’ …….means persons other than the one invoking the protection of the policy, whether it be the named insured or one who is operating the car with his consent. “ This decision had affected the opinion that “the others covered by motor liability insurance should not exclude the named insured on the accident when the insured motor was used by an additional insured on the permission on the named insured.”
A majority of the decisions on this point in others courts support the decision by Chief Maltbie. Furthermore, a new clause in the 1955 revision of the motor insurance policy forms strengthens this conclusion. In the revised policy forms, the term “the insured” is used to each claim, and then a “named insured” is not an insured at all the claim in tort against an additional insured. The concept seems still weak in Taiwan’s insurance practices. Coverage provided by motor liability insurance always excludes the coverage to the named insured under the reason of high risk of moral hazard. It is obviously unfair to the named insured when he was injured by his own insured vehicle by the operating of an additional insured.
For the most basic solution to the complicated situations in whether a named insured under coverage or not. Some insurance policies include a clause clearly declaring that the bodily injury liability coverage does not apply to bodily injury to an insured. Such a limitation in the insurance contract, coverage may be denied on the basis of the exclusion.
2.4 Comment: An Appraisal of Omnibus Clauses
Expanding the scope of coverage provided by liability insurance policies has been the trend to Taiwan and the whole of the world, particularly in regard to motor liability insurance.
(1) An increased demand of insurance purchasers to have their policies extend broadly to others,
(2) An increasing recognition by both court decisions and judgments, of assuring indemnification for victims in motor accidents, and
(3) A decrease worries of insurers about the costs of providing extend coverage with omnibus clauses.
In the development of more extensive protection, insurers still have not pay attention to shortage of the omnibus clauses in motor insurance policies. Omnibus coverage focus on the existence of “permission”---that is permission to use an insured vehicle is the only standard for determining the scope of insurance coverage. This approach makes a lot of disputes. Furthermore, coverage disputes focus on permission usually involves arguments, and frequently involve large costs to resolve coverage questions.
The expenses to define “permission” ---actual or assumed--- could be avoided most of argument on whether the driver was an insured. For example, coverage could be provided for all persons using an insured vehicle unless the operator’s use to theft or other crimes of the vehicle. Although the question whether a theft had occurred may still be troublesome, it will arise in relatively few problems. Accordingly, the disputes would be significantly reduced. This approach is now construed on motor liability insurance policies in Taiwan. And few disputes and litigations occurred in the point of “permission”.
There are some reasons why extent of liability coverage provided by omnibus clauses do not increases costs produced by vehicle users. First, the savings in court expenses should partially offset the claims produce by extensive coverage from the additional insureds. Second, victims in such accidents usually are at least partially receiving compensation from some source-motor compulsory insurance, national health insurance, or social benefits,-other than compensation from liability insurance. The costs of these events are finally paid by the whole society, by all vehicle users, or by individuals. Providing more compensation for victims by extensive scope of liability insurance will only change the allocation of accidents costs. Although expansion of omnibus clause coverage would probably produce higher motor insurance costs, the net costs might not be higher to the conflicts among liability insurers, their insureds, and accident victims.
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