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An exclusion in a State Farm policy barring coverage for accidents that occur while giving rides in exchange for money is not voided by the Pennsylvania Ridesharing Arrangements Act because the driver was an independent contractor and not an employee of a rideshare operator, the state Superior Court has ruled.

In Harley v. Riders’ Club Cooperative, a three-judge panel of the appeals court upheld—and largely deferred to—a Montgomery County trial judge’s ruling that driver Paul Butler was not entitled to coverage for an accident that occurred while he was working for nonprofit rideshare operator Riders’ Club Cooperative (RCC).

According to the trial court’s opinion, Butler, a driver for RCC, rear-ended a schoolbus while giving a ride to Dana Harley, who allegedly suffered injuries in the accident. Harley then sued RCC and Butler, who was informed by his insurer, State Farm, that it denied coverage, citing its policy exclusion “‘for damages arising out of the ownership, maintenance, or use of a vehicle while it is being used to carry persons for a charge.’”

Harley, Butler and RCC all filed challenges to the coverage denial, arguing that State Farm’s policy exclusion was void under the Ridesharing Arrangements Act.

The statute bars insurers from denying coverage where an accident occurs in a vehicle used in a “ridesharing arrangement,” the definition of which includes the following: “the transportation of persons in a vehicle designed to hold no more than 15 people and owned or operated by a public agency or nonprofit organization for that agency’s clientele or for a program sponsored by the agency.”

Montgomery County Court of Common Pleas Judge Steven Tolliver said that, given that definition of “ridesharing arrangement,” it was undisputed that RCC met the definition of a “rideshare operator” under the law.

However, Tolliver said, whether Butler was entitled to coverage depended on whether, at the time of the accident, his vehicle was being “operated” by RCC.

“If, at the time of the accident, Mr. Butler’s vehicle was being ‘operated’ by Riders’ Club, an undisputed ‘ridesharing operator,’ then Mr. Butler’s trip would fall under the third definition of a ‘ridesharing arrangement,’ and thus the exclusionary provision in State Farm’s policy would be void,” Tolliver said. ”Conversely, if Riders’ Club was not ‘operating’ the vehicle, the Ridesharing Arrangements Act would not void State Farm’s provision.”

Whether a ridesharing arrangement exists where a driver is operating a vehicle on behalf of a rideshare operator, rather than the vehicle being operated “by” the rideshare operator, is one of first impression, Tolliver noted.

Ultimately, Tolliver said, the answer to that inquiry had to be “no.”

First, the judge said, Butler was an independent contractor and “under black letter corporations and agency law, it is just not appropriate to impute the actions of an independent contractor to his employer.”

Secondly, Tolliver said, Pennsylvania courts ”have routinely defined the term ‘operate’ with regard to a motor vehicle as actually putting the vehicle in motion, i.e. driving it.”

“Indeed, any acts other than actually putting the vehicle in motion, such as getting into or out of the vehicle, have been deemed ancillary to the actual operation of the vehicle,” Tolliver said.

Tolliver also said Riders’ Club “cannot have its proverbial cake and eat it too” by arguing that its drivers’ independent contractor status shields it from personal liability for driver accidents but does not limit its protection under the Ridesharing Arrangements Act.

“Indeed, Riders’ Club undoubtedly designed its service precisely in this fashion to avoid a host of potential legal liabilities including responded superior tort liability, the obligation to pay payroll taxes, and other legal responsibilities flowing from a master-servant relationship,” Tolliver said. ”If it wishes to escape those various legal liabilities by constructing itself in such a way that it cannot be deemed to be operating its drivers’ vehicles under traditional agency law, it must also accept the consequences as well: namely, because it does not ‘operate’ Mr. Butler’s vehicle, the arrangement does not constitute a ‘ridesharing arrangement’ within the meaning of the statute.”

The Superior Court panel, consisting of President Judge Susan Peikes Gantman, Senior Judge Lillian Harris Ransom and Judge Maria McLaughlin, agreed.

“The record supports the trial court’s rationale, and we see no reason to disturb it,” the panel said in a June 21 opinion to which Tolliver’s opinion was attached.

Counsel for State Farm, Louis Bricklin of Bennett, Bricklin & Saltzburg in Philadelphia, said he was not authorized to comment on behalf of his client but noted that, from a personal standpoint, “it was pretty clear to me that Judge Tolliver got it correct in the common pleas court and that the Superior Court agreed.”

Counsel for Butler, Mark Turetsky of Miller, Turetsky, Rule & Mclennan in Collegeville, called the decision “disappointing.”

Riders’ Club’s attorney, James Lynn of Bonner Kiernan Trebach & Crociata in Philadelphia, did not return a call seeking comment on the ruling.

Harley’s attorney, David Dessen of Dessen, Moses & Rossitto in Willow Grove, said his client did not participate in the appeal but added that he had hoped the Superior Court would reach a different conclusion from Tolliver.