Transportation Network Companies (“TNCs”), more commonly known as ride-sharing companies, provide transportation services to consumers using an online application or platform to match passengers with drivers using their personal vehicles to transport passengers for a fee. In recent years where these companies have seen their largest growth, motor vehicle accidents have occurred, and coverage issues arose in large part because the driver’s personal automobile insurance policies decline coverage under public livery exclusions. Most personal auto policies contain exclusions of liability coverage when the liability arises out of ownership or operation of a vehicle while being used as a public livery or conveyance. These exclusions commonly apply when the vehicle is used to carry persons for a charge, for commercial purposes, for compensation, for a fee or for hire. TNC drivers and vehicles fall into a gray area in that the vehicle is a personal vehicle, and can often be used solely as the driver’s own personal vehicle, but it is operated periodically for commercial livery purposes. As a result, insurance takes on a more hybrid quality, and state legislation needs to make clear how these companies and drivers will be treated from a regulatory perspective.
- Suggested Coverage Approaches
On March 31, 2015, the National Association of Insurance Commissioners (“NAIC”) adopted a white paper entitled, “Transportation Network Company Insurance Principles for Legislators and Regulators”. In it, the NAIC notes that insurers faced concerns of the increased risk of loss seen due to “1) additional miles driven; 2) heightened geographic hazard caused because TNC drivers typically find matches in urban, high-traffic locations; 3) unfamiliar roads; 4) driver distraction caused by TNC apps; 5) more people in the car that can be injured; and 6) the additional risk caused as drivers rush to accept matches and pick up and deliver passengers in a timely manner.” Id. at 3. The NAIC also explains there are three exposure periods in the TNC business model to which insurance considerations must be considered. Period 1 is the point where the driver logs into the TNC application but is not matched with a passenger. Period 2 is when a match is made and accepted, but the passenger is not yet in the vehicle. Period 3 is when the passenger has been picked up and is occupying the TNC driver’s vehicle. Id. at 4.
The Property Casualty Insurance Committee of the National Conference of Insurance Legislators is working on a model act to regulate insurance requirements for TNCs and their drivers which in its current form provides:
- The personal auto policy of the TNC driver will provide no coverage when TNC services are being provided unless the policy language or amendment or endorsement expressly provides for coverage during all or a specific portion of time when TNC services are being provided.
- TNC insurance is required to provide primary liability coverage, uninsured and underinsured coverage, personal injury protection, collision and physical damage coverage, and comprehensive coverage.
- The requirements are the same for periods 1, 2, and 3.
- TNCs must tell their drivers about the insurance they provide and the possibility the driver’s own personal auto policy will not cover the TNC activities. This is to be done in a written agreement with the drivers and it must be acknowledged in writing by the driver before the first use of the vehicle for TNC services.
- TNCs must also disclose information about the TNC insurance and the insurer’s obligation to indemnify loss and pay for defense to the vehicle owners.
- The insurance requirements can be met by the TNC, the driver, or both.
- Any local laws that impose or regulate insurance requirements for TNCs and their services are preempted.
- TNCs must provide information to the driver’s insurer upon request (including drive logs).
- TNC must retain records for three years.
- Violations of these requirements are a misdemeanor for the TNC and the driver.
Model Act at Sections 2, 3, 5, 6, and 7.
Similarly, the two largest TNCs, Uber and Lyft, have worked with a group of insurance companies and have developed the “TNC Insurance Compromise Model Bill”. It provides:
- The driver’s personal auto policy or amendment or endorsement may expressly provide coverage during all or part of time when TNC service are being provided but no presumption of non-coverage if policy language does not expressly provide for such coverage
- TNC insurance only required to provide primary liability coverage
- Different (and lesser) insurance requirements for the time when the app is on but no match to a passenger has been made.
- Similar disclosure requirements but required disclosures are less detailed and there is no written acknowledgment by the driver required.
- No disclosure to vehicle owners required.
- Insurance requirements can be met by TNC, driver or both
- No local law preemption provision.
- TNCs are to provide information to insurer only in claims coverage investigation but provision is to include the 12 hour periods before and after any accident.
- There is no record retention requirement.
- There is no provision for enforcement for noncompliance with the requirements set forth in the act.
- Arizona’s Solution
Upon taking office, Arizona’s newest Governor, Doug Ducey, stopped state regulators from issuing the citations to TNC drivers for violations of regulations requiring commercial drivers’ licenses and insurance. On April 9, 2015, Governor Ducey signed into law a bill that addressed all facets of TNC regulation, including insurance requirements. The legislative scheme takes concepts from both the model act and the TNC Insurance Compromise Model Bill. Unless otherwise noted, these provisions take effect July 3, 2015. Of note in the legislation:
- From and after February 29, 2016, Insurers shall not exercise their right to cancel or fail to renew an insurance policy unless an insured who operated their vehicle for transportation network services has procured an endorsement to the private passenger policy that expressly provides coverage for the transportation network services, or is covered by a motor vehicle liability insurance policy issued by another insurer expressly providing such coverage. A.R.S. §20-1631(D)(6).
- Insurers may issue endorsements to address transportation network services, but they are not obligated to provide or issue a policy or endorsement for coverage for any liability incurred relating to transportation network services. A.R.S. §20-1631(N), (O).
- From and after February 29, 2016, motor vehicle liability policies are not required to insure liability for transportation network services unless expressly authorized by the terms of the motor vehicle liability insurance policy or an endorsement or amendment to the policy. A.R.S. §28-4009(C)(4)(e).
- During the time the driver is logged in to the TNC network or software application, but is not providing transportation network services
- From now until March 1, 2016, the driver shall maintain a motor vehicle liability policy that meets the requirements of section 28-4009. The TNC shall provide motor vehicle liability insurance coverage in the amount of $25,000 because of bodily injury or death of one person in any accident, subject to the limit for one person; $50,000 because of bodily injury to or death of two or more persons in any one accident; $20,000 because of injury to or destruction of property of others in any one accident in the event the driver’s policy excludes coverage according to the policy’s terms. A.R.S. §28-4038(A)(1).
- After February 29, 2016, the TNC driver, the TNC, or both shall provide primary motor vehicle liability insurance coverage in the amount of $25,000 because of bodily injury or death of one person in any accident, subject to the limit for one person; $50,000 because of bodily injury to or death of two or more persons in any one accident; $20,000 because of injury to or destruction of property of others in any one accident. Coverage shall be through a private passenger motor vehicle policy maintained by the driver that expressly provides liability coverage while the driver is logged into the TNC’s network or application; a motor vehicle liability policy maintained by the TNC; or a commercial motor vehicle liability policy. A.R.S. §28-4038(A)(2).
- When rides are booked exclusively through the TNC’s digital network or application, the TNC, driver, or both shall maintain primary commercial motor vehicle liability insurance that covers the TNC driver’s provision of transportation network services in a minimum amount of $250,000 per incident, and commercial uninsured motorist coverage in a minimum amount of $250,000 per incident. A.R.S. §28-4038(B).
- When rides need not be booked exclusively through the network or application, the TNC or the driver shall maintain during period 1 (when the driver is logged in, but has not matched with a passenger, and is not transporting a passenger) primary commercial motor vehicle liability insurance coverage of $25,000 for bodily injury or death to any one person in any one accident, subject to the limit for one person; $50,000 for bodily injury or death of two or more persons in any one accident and $20,000 for injury to or destruction of property of others in any one accident. A.R.S. §28-4038(C)(1). During periods 2 and 3 (when driver has accepted a request through an app or a street hail, and while the passenger is being transported) the TNC or the driver shall maintain primary commercial motor vehicle liability insurance of a minimum $250,000 per incident and commercial uninsured motorist coverage in a minimum of $250,000 per incident. A.R.S. §28-4038(C)(2).
- From and after February 29, 2016, unless an insurance policy expressly provides coverage, or contains an endorsement or amendment that expressly provides coverage, the TNC driver’s insurance policy and the motor vehicle owner’s personal motor vehicle insurance policy shall not be required to provide coverage for the TNC vehicle, driver, owner, or any third party while the driver is logged into the TNC network or application. A.R.S. §28-4038(D). Such coverage may be offered through a policy, amendment or endorsement if the insurer chooses to. A.R.S. §28-4038(E). The section does not create an obligation for an insurer to issue motor vehicle liability coverage through policy, amendment or endorsement that includes coverage for liabilities arising out of transportation network services. A.R.S. §28-4038(I).
- Proof of insurance is to be carried in the vehicle and shall be provided at the scene of the accident. A.R.S. §28-4038(G).
- In a claims coverage investigation, TNCs and insurers providing coverage shall fully cooperate in the exchange of information, including the precise times the driver was logged in and out of the network or application in the 24 hour period immediately preceding the accident and shall disclose to each other a clear description of the coverage, exclusions, and limits provided under any insurance policy each party issued or maintained. A.R.S. §28-4038(H).
- Any regulation by any county, city, town, or other political subdivision of Arizona is preempted by the State legislation. A.R.S. §41-2052(A).
- The TNC shall disclose to drivers in writing or in an electronic format, and in the written terms of service to the vehicle owner, before the driver’s accept a request for transportation through the network or application:
- The insurance coverage and limits of liability the TNC provides while the driver uses the vehicle in connection with transportation network services.
- That the driver’s own insurance policy may not provide coverage while the driver uses the vehicle for transportation network services depending on the policy’s terms.
- That the driver’s use of a vehicle that has alien against it to provide transportation network services might violate the terms of the driver’s contract with the lienholder. A.R.S. §41-2139.06.
The legislation also provides for a process for permitting, presence of a statutory agent, trade dress on vehicles operating transportation network services, disclosure of fare calculation methods, electronic receipts, zero-tolerance drug and alcohol use policy requirement, driver requirements, civil penalties, record keeping, and transaction privilege tax prohibitions. A.R.S. §41-2139, et seq.
Arizona is paving the way for the growth of TNCs and their operations. This comprehensive legislative scheme to address the roadblocks faced by TNCs, drivers, and insurers in the growth and expansion of the provision of transportation network services is one of the first in the nation. Governor Ducey, and Phoenix Mayor Greg Stanton further demonstrated Arizona’s hospitality to TNCs by headlining the opening of Uber’s Center for Excellence, a driver and customer assistance center, in downtown Phoenix. As these businesses grow, insurers must consider how they wish to participate in the coverage of these activities.
ABOUT THE AUTHOR
J.P. Harrington Bisceglia is senior counsel at Tyson & Mendes, LLP. She specializes in general liability defense, insurance coverage and bad faith litigation. Contact J.P. at 602.386.5644 or email@example.com.
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