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Insurance Gaps Threaten Ride-Sharing Industry

Ride-sharing firms, such as Uber, Lyft and Sidecar, provide smartphone applications that connect people who need rides with drivers of personal, non-commercial vehicles. Such firms, categorized as Transportation Network Companies (TNCs) by the California Public Utilities Commission (CPUC), are growing in popularity as a more convenient, sometimes more affordable, alternative to traditional taxis. However, a deadly New Year’s Eve accident has brought glaring insurance gaps to light, which could create a major setback for the burgeoning TNC industry.

CPUC’s Insurance Requirements
In September 2013, the CPUC determined that TNCs are subject to CPUC jurisdiction and established rules and regulations for TNCs, including an insurance requirement that provides the following:

“TNCs must hold a commercial liability insurance policy that is more stringent than the CPUC’s current requirement for limousines, requiring a minimum of $1 million per-incident coverage for incidents involving TNC vehicles and drivers in transit to or during a TNC trip, regardless of whether personal insurance allows for coverage…” (Emphasis added).

In establishing this insurance requirement, Mark J. Ferron, Commissioner of the CPUC, stated, “We have specified our expectations for the attributes of insurance. Now the insurance market will determine the best approach to ensure that there is coverage for passengers, drivers, and third-parties at all times while these vehicles are operating on a commercial basis.” However, determining exactly when the TNC vehicles and drivers are covered by the $1-million policy could end up being settled by the California judicial system, not the insurance market, as the CPUC’s TNC insurance requirement is vague as written.

Liu v. Uber Technologies (CGC14536979, California Superior Court, San Francisco)
On New Year’s Eve 2013, an Uber driver struck and killed 6-year-old Sofia Liu who was crossing a San Francisco street with her family. Because the driver was not carrying any passengers at the time, Uber claims the driver was not covered by Uber’s insurance policy. On January 1, 2014, Uber released a statement in which it acknowledged the driver was “a partner of Uber,” but stated the accident “did not involve a vehicle or provider doing a trip on the Uber system.”

The Liu family filed a lawsuit against Uber on February 21, 2014, alleging wrongful death and negligence. The Liu family contends the driver, Syed Muzaffar, was logged into the Uber network when the accident occurred. Mr. Muzaffar had previously picked up a passenger, and evidence suggests he was waiting to be contacted by another passenger when he turned into an intersection and struck Sofia and her family as they were walking in the crosswalk.

The disputed facts of this case highlight the flaws of the CPUC’s TNC insurance requirement, which leaves application of the required $1 million per-incident coverage open for debate. Until regulation catches up, similar cases are sure to arise, presenting a common question: Who pays when something goes wrong?

Coverage Gaps
Representatives of Uber, Lyft, and Sidecar all claim they comply with the CPUC insurance requirements. Uber, valued at $3.5 billion, has long insisted the insurance it provides its drivers is sufficient to cover accidents. The California Department of Insurance is unconvinced, however, and recently posted a notice to TNC drivers, warning them of potential gaps in their insurance, stating:

“While TNCs are required to maintain $1 million in liability insurance, TNCs are not required to have medical payments coverage, comprehensive, collision, uninsured/underinsured motorist (UM/UIM) coverage or other optional coverages.”

Consequently, a TNC’s liability policy does not have to provide coverage for bodily injury to the TNC driver, damages to the TNC driver’s vehicle, or bodily injury or physical damage caused by an uninsured or underinsured motorist.

The Department of Insurance further warned TNC drivers of potential coverage gaps in their own personal auto policy. Most standard personal auto policies contain exclusions for livery. Thus, insurance companies might deny coverage to TNC drivers. The Department of Insurance suggests that TNC drivers consider purchasing a commercial policy, which covers medical payments, comprehensive, collision, and UM/UIM. TNC drivers will no doubt be reluctant to follow such advice, as commercial coverage can be as much as 10 times more expensive than personal auto policies.

Under the current system, TNC drivers without a commercial policy, like Mr. Muzzafar, could potentially be left holding the bag when an accident occurs.

Conclusion
As the startup TNC industry has thrived, regulation has lagged, leaving individuals bearing the risk. Accidents such as the Liu case will no doubt force change, which could present itself in the form of either insurance regulation or the end of the ride-sharing industry.

ABOUT THE AUTHOR: Morgan Van Buren is an associate at Tyson & Mendes LLP. He specializes in personal injury and high net worth insurance issues. Contact Morgan at 858.263.4107 or mvanburen@tysonmendes.com.

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