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.