Update: Future Of Ride-Sharing Industry Remains Murky

Last year, we reported on the challenges facing the 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. Although some of the challenges have been addressed, regulation remains a serious threat to the business model that has made the startup ride-sharing industry wildly successful in California.

CPUC’s Initial Insurance Requirements for TNCs

In September 2013, California became the first state to regulate the ride-sharing industry when the California Public Utilities Commission (“CPUC”) determined that ride-sharing firms – categorized as Transportation Network Companies (“TNCs”) – are charter-party passenger carriers and subject to its jurisdiction. The CPUC required that TNCs hold a commercial liability insurance policy with 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. This vaguely worded insurance requirement, as well as insurance gaps in both the TNC insurance coverage and the drivers’ personal insurance policies, left the drivers stuck in insurance limbo.

Litigation Sparks Increased Regulation

The issues with TNC insurance coverage were brought to the public’s attention on New Year’s Eve 2013, when an Uber driver tragically struck and killed 6-year-old Sofia Liu in San Francisco. Because the driver was not carrying any passengers at the time, Uber claimed the driver was not covered by Uber’s insurance policy. On January 27, 2014, the Liu family named Uber in a wrongful death suit, contending the driver was logged into the Uber network and waiting to be contacted by his next customer when the accident occurred. (Liu v. Uber Technologies (CGC14536979, California Superior Court, San Francisco.)

Amid fears of the insurance gaps highlighted by the Liu case, California regulators proposed significantly expanding coverage requirements imposed on TNCs.

Uber Expands Insurance Coverage

Uber responded to the mounting legislative pressure on March 14, 2014, when it expanded its insurance coverage it offers to its drivers. Uber’s new policy provides up to $50,000 in coverage per individual for bodily injury, per incident, capped at $100,000 total for the incident for bodily injury, plus $25,000 per incident for property damage. The policy aims to resolve the so-called coverage gap created when the driver is in between rides, and comes into effect only if the driver’s personal policy does not cover an accident incurred between rides.

Travis Kalanick, Uber CEO, stated the new insurance coverage “allows [the legislators] to be thoughtful as they work through the legislative options,” adding that Uber wants to give policy makers “confidence in knowing public interest is protected while the rules are being figured out.”

California Senate Approves Ridesharing Insurance Bill

On August 27, 2014, the California Senate approved a bill to amend State law and clarify insurance requirements for TNCs. The Senate voted 30-4 to pass Assembly Bill 2293, authored by Assemblywoman Susan A. Bonilla, D-Concord. The bill amends the Passenger Charter-Party Carriers’ Act to enact specified requirements for liability insurance coverage for TNCs and their participating drivers. According to Bonilla, the bill addresses the “dangerous gap in insurance coverage” for drivers who utilize ride-sharing options.

The bill, which becomes operative on July 1, 2015, lowers the primary insurance requirement. Under the new provision of the bill, TNCs will be required to maintain primary insurance of at least $50,000 for death and personal injury per person, $100,000 for death and personal injury per incident, and $30,000 for property damage to cover any liability from a participating driver using the companies’ online-enabled platforms. In addition, the TNCs will be required to maintain excess coverage insuring the company and the driver in the amount of $200,000 per occurrence. The amendments to the bill also include the creation of a “personal insurance firewall” to ensure policyholders will no longer subsidize the commercial activity of TNCs.

The bill recognizes that the TNC industry is nascent and evolving, requiring ongoing legislative oversight. The changes will speed up approval of new TNC insurance products and ensure that the CPUC regulates the TNCs. Ultimately, the bill establishes the legal framework for commercial use of personal vehicles, authorizing one of California’s fastest growing industries.

California DMV Advisory: TNC Vehicles Must Register as Commercial Vehicles

On January 5, 2015, The California Department of Motor Vehicles issued the following advisory:

Any passenger vehicle used or maintained for the transportation of persons for hire, compensation, or profit is a commercial vehicle. Even occasional use of a vehicle in this manner requires the vehicle to be registered commercially.

The DMV’s advisory essentially ignores Assembly Bill 2293. Assemblywoman Bonilla’s opinion of the advisory is no doubt shared by all TNCs:

I believe that what the DMV is engaged in really is over-regulation, and it potentially can hurt what really is an emerging business model. The point of [Assembly Bill] 2293 is showing we can be adaptable and flexible, that we want to welcome a new marketplace in California and find a new way to do it.

The DMV maintains that its advisory is not a new policy, but rather a reminder that California Vehicle Code Section 260 provides that a “‘commercial vehicle’ is a motor vehicle of a type required to be registered under this code or maintained for the transportation of persons for hire…” A DMV spokesperson pointed out that this law has “been on the books in California since 1935,” but added, “of course, if the law changes we will update our notices accordingly.”

The DMV’s application of a nearly 80-year-old law to the novel ride-sharing industry undermines the legislature’s careful efforts to regulate the industry without creating unnecessary logistical challenges, and could potentially derail an innovative and hugely profitable enterprise.

This latest challenge to the ride-sharing industry leaves a yet-to-be-determined question that is all too common among most startup enterprises: will policymakers treat the novel business differently from its predecessors? Only time will tell.

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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