California Bill Would Enable Uber, Lyft Drivers to Finally Get Insurance

AB2293, the ride-service insurance bill that passed the California Legislature last week, could pave the way for drivers for companies like Lyft and Uber to finally get coverage for both personal and commercial use of their vehicles.

The measure is supported by the insurance industry as well as Uber and Lyft, which fought tooth and nail to squash it until Assemblywoman Susan Bonilla (D-Concord) lowered the amount of coverage required. The legislation calls for the development, by July 1, 2015, of new hybrid policies that would cover drivers for both personal use of their vehicle and TNC (transportation network company) work, and directs the state Department of Insurance to expedite approval of such products.

Gov. Jerry Brown, who was involved in the final negotiations over the bill, is expected to sign it into law.

Keeping Status a Secret

Ever since we've been covering the ride-service story, we've heard from UberX and Lyft drivers that they don't want to be identified by name because they are afraid their personal auto insurer would cancel their policies.

Those policies were written with the understanding that the vehicles would be used for everyday use, not operating as a de facto cab.

Some in the taxi industry even claimed a wave of insurance cancellations for TNC drivers was on the way. The San Francisco Cab Drivers Association claimed to have compiled a database of thousands of TNC vehicle license plate numbers that it was making available to insurers.

Though mass cancellations never occurred, at least two cancellations were reported, and many drivers consider it a fact of life that they have to keep their status as commercial drivers hidden. No one was ever able to find an insurance company who would cover TNC work, with either a personal or a commercial policy. For instance, when we talked to two San Francisco cab drivers who wanted to buy their own cars so they could drive for UberX, they hit a brick wall.

“I couldn’t find anybody who would insure an UberX vehicle,” said longtime cab driver John Han. “When I talked to my personal insurance company ... I said I had just been approved for a car loan but wanted to work for UberX. They said they can’t insure that. You can’t really insure a car as both a personal vehicle and commercial at the same time. The only way I can do UberX would be to lie to my insurance company."

“Many insurers don’t know their customers are involved in these kinds of programs,” said Pete Moraga of the Insurance Information Network of California. “If these drivers aren’t telling their insurers, there’s no way for them to know.”

Drivers have fared no better trying to get commercial insurance. "They had never heard of TNCs,” said Luxor cab driver Bill Clark of commercial insurers. Musing about his quest to leave the taxi business and drive for UberX, Clark said, “I could get a brand-new Prius, drive any time I wanted to and just make money. 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.”

Policy to be Designed For TNC Drivers

Well that could very well change, according to Bonilla, sponsor of AB2293.

"For an innovative business there will be an innovative insurance product," said Bonilla. "It doesn't currently exist now. This is going to be a brand-new policy for TNC drivers that will cover them for both personal and for their commercial activities."

Armand Feliciano, vice president for the Association of California Insurance Companies, said he's confident insurers will create the new policies by the July 1, 2015, deadline.

"I know of at least one company that’s been actively working with Lyft on a product," he said. "This is something (companies) want to write, they are interested in writing. It’s a challenge here in California; we have Proposition 103 and the factors for personal auto are pretty limited: mileage driven and experience. If you extrapolate a little bit from that, how do you figure out a guy that may turn (the app) on for a good two hours a day? He goes in and out from personal to commercial. There are challenges trying to assess the risk, but there’s definitely an incentive for companies ... to provide the product."

While those who dislike hiding their TNC status from insurers may welcome coverage written specifically for their occupation, they may find it is going to add to the cost of doing business, a cost that was invisible to them because it was not factored into their personal policies. The coverage is almost certainly going to be more expensive than plain personal insurance.

"That’s a valid assumption," Feliciano said. "When you turn on that app, it’s our position that you do engage in a rather riskier behavior. You are going to places like a beerfest, or you may be driving a little faster because you want to catch that fare. So that risk is going to be a little higher, and therefore it’s going to be priced differently."

Closing an Insurance Gap

The bill also stipulates TNC drivers must be insured during the time they have their app open but have yet to accept a call (known as Period 1 in the biz). The coverage during this period must be at least $50,000 per individual, $100,000 total per incident for bodily injury, and $30,000 for property damage. An additional $200,000 in excess coverage is required.

Insurance coverage during Period 1 became a very big deal on Dec. 31, 2013, when UberX driver Syed Muzaffar ran into a family in a San Francisco crosswalk, killing 6-year-old Sofia Liu and seriously injuring her mother and brother just before 8 p.m. It soon emerged that Uber did not consider Muzzafar to be insured under its state-mandated $1 million liability policy.

Although Muzaffar had his app open and was awaiting a call, Uber said, he had yet to actually accept a fare and was thus not yet engaged in "providing TNC services," the point at which the California Public Utilities Commission requires TNC insurance to kick in. Uber's narrow definition of when TNC services began relegated coverage of the fatal accident to Muzaffar's personal insurance, which provided only a fraction of the amount to cover costs that could hit seven figures. (Sofia Liu's family is suing Uber over the incident.)

In March, in the wake of negative press coverage over the issue, as well as warnings from various state governments -- including California's Department of Insurance about insurance gaps inherent in driving for TNCs -- Uber and Lyft expanded their insurance, including coverage for Period 1. That coverage, however, was significantly lower than it was for the post-Period 1 time, when drivers are on a call.

And as the CPUC floated a proposal to require TNCs to extend their $1 million insurance to Period 1, Uber and Lyft argued against it, claiming that interval is fraught with ambiguity: What if a driver isn't really working and just turns the app on in order to qualify for the insurance? What if a driver who uses apps from different TNCs gets into an accident? Which company would have to cover that?

In the face of  of Uber and Lyft's resistance, both AB2293 and the CPUC's proposal came down significantly in terms of the final amount of coverage for Period 1.

Drivers also take note: AB2293 says either TNCs or drivers can pay for Period 1 coverage -- it doesn't have to come from the companies.

"That could become a point of competitiveness in terms of attracting drivers, the decision of who will pay what," said Bonilla.

I asked Uber who would pay for the new insurance, the driver or the company? Spokeswoman Eva Behrend did not answer the question directly, but said, "The legislation does not take effect until July 2015 and intentionally leaves the option open for either the driver or the TNC to carry the insurance. This gives the insurance industry time to develop a hybrid product."

Clarity: Personal Insurance Does Not Cover TNC Accidents

AB2293 also clears up once and for all that personal insurance will not cover TNC accidents. As noted, Uber and Lyft do currently provide insurance that covers Period 1. But that coverage is contingent on "a driver’s personal insurance policy (being) found not to cover an accident during this period."

The California Department of Insurance, insurance companies and TNC opponents such as the taxi industry scoffed at this qualification, taking the position that the TNCs' reliance on personal insurance to cover a commercial activity was based on a fiction, contingent on the erroneous view that drivers’ personal insurers would pay claims for individuals who drive commercially for TNCs.

Insurers say this shifts the cost of covering commercial activity by TNCs onto the personal insurance market.

AB2293 makes it clear that a driver's personal insurance will have no responsibility for covering TNC accidents, unless that insurance has been "specifically written to cover the driver's use of a vehicle in connection with a  transportation network company's online-enabled application or platform."

CPUC Could Require More Coverage (But it Doesn't Look Likely)

The latest proposal on TNC insurance by the California Public Utilities Commission calls for slightly greater amounts of Period 1 coverage than does AB2293. The plan calls for at least $100,000 per individual and $300,000 total per incident for bodily injury and $50,000 for property damage, in an excess insurance policy, instead of AB2293's 50,000/100,000/30,000 coverage. The commission next meets on Sept. 11 and could vote on the proposal then.

Bonilla said there is nothing in her bill that would preclude the CPUC from requiring greater amounts and even additional types of coverage than are specified in AB2293; the amounts written into the bill are minimums. The CPUC, however, appears to be moving in the opposite direction. While a provision of AB2293 requires at least $1 million in uninsured/underinsured motorist coverage for TNCs, the latest CPUC proposal does not. (AB 2293's stipulations would supercede the CPUC on this.)

Previous versions of the proposal from the CPUC required collision, comprehensive, and medical payments coverage from TNCs. Those requirements have been dropped, with the commission writing that, "We are concerned ... that imposing these additional coverage requirements may make it difficult for TNCs to satisfy these requirements through the existing insurance market, thus inhibiting the creative environment that has allowed the TNC industry to flourish in California for the benefit of California residents who wish to avail themselves of TNC services."

Since AB2293 does not require  collision, comprehensive or medical payments, these appear to be off the table for now.

Both Uber and Lyft, however, do offer some of these coverages. Uber and Lyft currently offer comprehensive and collision coverage, but only if drivers have purchased similar coverage on their personal policies. (And they do not offer this coverage for Period 1.)

Uber said it has no plans to drop this coverage. Lyft did not respond to a request for comment.

Not Everyone Happy

While the insurance industry, Uber and Lyft, and Bonilla all hailed the legislation's passage, which was the subject of some hardball political tactics by Uber, not everyone is on board. Bonilla's original proposal called for $750,000 in liability coverage for Period 1, considerably more than what finally got passed. Sen. Bill Monning (D-Carmel), chairman of the Senate Insurance Committee, was quoted as saying the bill, sold as a compromise, "compromises the public health and safety."

Bonilla said she wished she could have gotten more through. "I would have rather had a higher number," she told me. "My author’s amendments on Monday put the number at $500,000, and I believe I could have moved the bill. The problem is we didn’t have agreement from the administration, and it took negotiation to make the governor feel comfortable. As you know, it’s not enough to get a bill to the governor's desk; it’s his signature."

As for the taxi industry, its preferred bill, AB612, which would have basically treated TNC vehicles like cabs in terms of insurance and safety requirements, died a quiet death in committee.