Insurance Rules for Ride Services Like Lyft and UberX May Get Tougher

In the past two weeks a lot has happened on the increasingly volatile ride-service front. The California Public Utilities Commission will revisit the issue of insurance coverage for drivers who use their cars to carry paying passengers through companies like Lyft and UberX. As a result, these two firms are opposing the changes the CPUC is proposing.

On April 10, the CPUC granted a rehearing on the insurance requirements it issued last year. At that time, as part of a decision that laid out rules and regulations for what the commission formally calls transportation network companies, or TNCs, the CPUC required the companies to provide at least $1 million in commercial liability insurance.

Now the CPUC is considering extending the time period during a driver's shift for which TNC coverage must be valid. A significant gap in this regard came to light on New Year's Eve, after a fatal accident involving an UberX driver in San Francisco. Although the driver's Uber app was open as he waited for another call to come in, Uber said he was excluded from its $1 million policy because he was not carrying a passenger or on the way to pick one up. That left the driver and the victim's family reliant on his much more minimal personal policy, which almost surely won't come near to paying the eventual liability costs. (The family has filed a lawsuit against the driver and Uber.)

The CPUC is proposing that this gap be explicitly closed, by adding language that changes the definition of when a driver using his personal vehicle is "providing TNC services" to include "when the TNC app is open and available to accept rides from a subscribing TNC passenger until that app has been closed."

The CPUC hopes to issue specifics about the rehearing in the next few weeks.

Both Lyft and Uber have filed comments opposing the change. Uber wrote, "Adoption of this modification would result in a significant expansion of the period in which the TNC insurance requirements would be required." More specifically, Uber is objecting to the extension of the $1 million liability insurance requirement to this expanded time period. Last month, Uber said it had expanded its insurance to include a new policy that partially closes this gap, providing coverage for drivers logged onto its app but not currently on a call. However, the new policy's liability limit for drivers in that situation is only $50,000, a fraction of the $1 million the CPUC is now considering. Lyft announced on April 11 that it had added similar coverage.

Uber wrote to the CPUC that requiring its insurance to cover the expanded period would be problematic, citing a scenario in which drivers have "contracted with multiple TNCs and keeps all applications open at all times, in order to maximize the likelihood of procuring a (request)." The company also wrote that the change might incentivize drivers to "(keep) the App open at all times, regardless of the drivers' intent to accept a request for transportation service...solely to obtain the benefit from the increased insurance...." Uber also speculated that drivers not engaged in TNC work might turn on the app "immediately following an accident in order to try to secure the potentially significant financial benefit of the higher limits...."

Lyft has similar objections: "(A) TNC driver could forget to close the app and be considered to be 'providing TNC services' in the middle of the night when the car is parked on the street and the driver  is sleeping, or when the vehicle is being driven by another household member, or when it is being used to transport a driver's child to soccer practice."

In addition, the CPUC proposal would require TNCs to add the following coverages:

• Provide $1 million per-incident coverage in uninsured/underinsured motorist coverage, if there's an accident where the driver of another vehicle is at fault and does not have the proper insurance (UberX and Lyft say they already offer this.)
• Provide $50,000 in comprehensive coverage related to theft, fire, natural disasters, vandalism and similar circumstances that can cause damage to a TNC vehicle. (Uber says it offers this.)
• Provide $50,000 in collision coverage, related to damage to the driver's own vehicle when the TNC driver is at fault. (Lyft and Uber say they provide this coverage currently, but only if drivers have purchased it on their personal policies.)
• Provide $5,000 in medical payments coverage, related to expenses due to bodily injury of TNC drivers or their passengers

Department of Insurance Slams TNCs

As we reported last year, a number of other issues have emerged concerning TNC insurance:

• Ride-service companies like Lyft and UberX say drivers’ personal insurance policies will cover some claims, while the insurance industry has repeatedly stated personal policies routinely exclude coverage when vehicles are used commercially.
• The insurance industry says ride-service drivers will have to buy commercial insurance to be covered when they’re driving for hire and maybe even when they’re not.
• Many ride-service drivers are keeping their status secret from their insurance companies because they’re afraid of losing coverage. There have been at least two reported instances in which drivers have been dropped by their insurance companies when the companies discovered the drivers were working for TNCs.

In January, the California Department of Insurance issued a warning to TNC drivers about some of these risks. Last month, the department held an investigative hearing on the issue. On April 7, California Insurance Commissioner Dave Jones wrote a letter to CPUC President Michael Peevey offering recommendations for more stringent insurance requirements. Jones was blunt in describing the discrepancy between what TNCs such as Lyft, Uber and Sidecar have been claiming about the validity of drivers' personal insurance in TNC accidents and what the department found is the reality:

TNCs are under the mistaken impression that personal automobile insurers cover now, planned to cover, or will cover the risk of TNC-related for-hire transportation.

Instead, CDI finds that personal automobile insurers never planned or intended to underwrite for this risk, which did not exist, when the current policies were written. Insurers did not incorporate for-hire use when developing their rates. Adding this new TNC exposure to the personal automobile insurance "pool" may increase personal automobile insurance rates. The fact that some exclusions in personal automobile insurance policies may not be clear on this point should not be misinterpreted as an agreement to cover this new TNC risk.

The department also found to be true what some drivers have told us: When prospective TNC drivers have been up-front with insurance companies about intending to use their vehicle for ride-service work, they have been unable to obtain coverage. Furthermore, the department said personal insurers do not plan on offering coverage for this type of mixed personal/commercial use of vehicles. That would leave ride-service drivers with seemingly only one option: to buy more expensive commercial insurance. But the department found even that option is not currently available to drivers:

"Insurance companies and brokers tell CDI that Californians cannot purchase ... livery insurance on a personal vehicle."

Bill Clark, a driver for Luxor Cab in San Francisco who wanted to switch to UberX, expressed his disappointment after hitting an insurance roadblock. Clark wanted to quit the declining taxi business and experience the freedom that many drivers have told us is one of the biggest attractions of working for Lyft and UberX. But he aborted his attempt at purchasing an Uber-financed vehicle due to the lack of available insurance.

“I could get a brand-new Prius, drive any time I wanted to, and just make money," Clark said. "That’s like a dream; too good to be true. In fact, it was too good to be true. You can’t get insurance on them.”

Overall Decision Won't Be Reversed

The TNCs won a victory of sorts when the CPUC said it will not be reversing itself on its overall decision to allow ride-service companies like Lyft and UberX to operate in the state.

The CPUC on April 10 rejected a request for a rehearing of the September 2013 ruling, which created the category of TNCs. The decision gave official state sanction to these firms that had once been hit with cease-and-desist letters.

The rehearing was requested by the Taxicab Paratransit Association of California (TPAC). Local taxi companies, of course, have been bleeding customers in towns where Lyft, UberX and other ride-service companies operate. In San Francisco, at least, cab drivers have been defecting from taxi companies in order to work for the new companies.

TPAC made several arguments in trying to get the decision overturned:

• That the decision violated the California Environmental Quality Act (CEQA)

The CPUC responded that CEQA does not apply because the regulations the TNC regulations the commission issued have no "direct physical impact," not do they create a "reasonably foreseeable indirect change" in the same.

• That the CPUC does not have jurisdiction over TNCs because they are, in reality, taxis, and therefore subject to local oversight.

The CPUC responded that TNCs are not cabs, because they operate strictly on a "prearranged basis," as opposed to being able to pick up street hails, as taxis do.

• That the decision violated the equal protection clauses of the U.S. and California constitutions.

The CPUC said invocation of equal protection laws requires the two relevant parties to be "similarly situated" under the law, and that because TNCs are not cabs, this is not the case.

• That the decision violates the Public Utilities Code because it exempts individual drivers from having to obtain permits, as opposed to individual companies.

The CPUC responded that the utilities code allows for firms or corporations as well as individuals to be licensed.

Mandatory Drug Testing, Commercial Plates

In addition to the insurance considerations, the CPUC granted a rehearing on the issues of mandatory drug testing and commercial license plate requirements, which are currently not mandated for TNC drivers and vehicles.

The commission wrote: "We acknowledge that the decision does not fully address" the code sections that address these issues, and that it would grant a limited rehearing on them."

In other ride-service news, according to the San Francisco Chronicle, the receipts of UberX passengers will now include a $1 "safe rides fee." Lyft has been charging a $1 "trust and safety fee" since December.

Chronicle reporter Carolyn Said wrote: "San Francisco's Uber said the fee demonstrates its 'continued commitment to safety' and helps fund increased costs for background checks, motor vehicle checks, driver safety education, current and future safety features in its app, and insurance."