UBER/SIDECAR/LYFT ARE THEY IN INSURANCE LIMBO? New Taxi-Related/Ride-Share Services By Michael P. Fullam & Allison R. Brauer Over the past few years, Transportation Networks Companies (TNCs) such as Uber, Sidecar, and Lyft have emerged throughout major cities in the United States and worldwide. TNCs are defined as organizations that provide prearranged transportation services for compensation using an online-enabled application or platform to connect passengers with drivers using their personal vehicles. Uber is mobile application software that connects users/passengers with drivers of vehicles for hire and ridesharing services. Founder Garrett Camp started Uber in San Francisco in 2009 and launched publicly in 2010. Currently, Uber s estimated net worth is approximately $18.2 billion, and its services are provided worldwide. Uber initially utilized Lincoln Town Cars, Cadillac Escalades, BMWs, and Mercedes, but in 2012 it launched a new type of service UberX. UberX allows any person, twenty-three years of age or older with a valid personal driver s license and personal automobile insurance coverage to become an UberX driver, as long as their personal vehicle is a mid/full-size four door vehicle in excellent condition. UberX uses the same mobile application software as Uber, but charges cheaper rates. Unlike Uber, UberX does not utilize professional drivers. However, both Uber and UberX provide their users with the vehicle type, license plate number, and a name and photograph of the driver upon confirmation of an order. Users/passengers rate their drivers, and the drivers also rate the user/passenger. A user/passenger s rating affects the availability of rides in their location, and the driver s rating is shown to a user/passenger prior to the potential user/passenger selecting and ordering a ride. To sign up, anyone with a smartphone and a credit/debit card can download the application, input their credit/debit card information, and start ordering rides. In the wake of Uber and UberX s success, two other companies Sidecar and Lyft followed in UberX s footsteps and established nearly identical business models that allow for ride-sharing via mobile application software, completed by non-professional drivers in their personal automobiles. Sidecar also consists of mobile application software that connects users/passengers with drivers of vehicles for hire and ridesharing services. Sunil Paul launched Sidecar in San Francisco in 2012, and now operates in approximately thirteen cities in the United States.
In an effort to compete with Uber and Lyft, Sidecar allows users/passengers to select the vehicles they want to ride in, the price they want to pay, and the person who is driving. It operates in essentially the exact same manner at UberX, and nearly anyone can become a driver, as long as they are at least twenty-one years of age, have a valid driver s license, and have been a licensed driver for at least one year. Drivers must also have auto insurance and use a registered vehicle that is at least a year 2000 model or newer in great condition. Lyft, easily recognized by the large pink fluffy lips on the front of cars, is another mobile application software service that connects users/passengers with drivers of vehicles for hire and ridesharing services. John Zimmer started Lyft in San Francisco in 2012, now operates in approximately thirty-four cities throughout the United States, and has plans to expand domestically and internationally. Lyft is essentially the same as UberX and Sidecar, but seeks to set itself apart by promoting safety and trust amongst its users. Unlike the initial launches of UberX and Sidecar, Lyft s operations began with demands for DMV and criminal background checks, in-person interviews, vehicle inspections, and a two-hour safety training, in addition to requirements that drivers to be at least twenty-three years old with a minimum of three years driving experience, and a zero tolerance drug and alcohol policy. Currently, UberX and Sidecar now implement essentially the same requirements. Legal Speed Bumps California On August 15, 2012, California Public Utilities Commission (CPUC) issued cease and desist notices to Sidecar and Lyft for all advertisements and operations as charter-party carriers of passengers without valid authority in force with the CPUC. On November 14, 2012, the CPUC issued citations to Uber, Sidecar, and Lyft for $20,000.00 each, for violations of state law, including operating as passenger carriers without evidence of public liability and property damage insurance coverage; engaging employee-drivers without evidence of workers compensation insurance; failing to enroll drivers in the DMV Employers Pull Notice Program; failing to conduct pre-employment tests; and failing to enroll drivers in Controlled Substance and Alcohol Testing Certification Program. More recently, on April 10, 2014, the CPUC granted a rehearing on the insurance requirements for TNCs which were established on September 19, 2013. Uber sought and obtained a rehearing from the CPUC regarding whether it should be considered a TNC, and if not, whether its operations will allow the CPUC to assert jurisdiction over Uber and its subsidiaries. The September 2013 CPUC requirements established twenty-eight rules and regulations for TNCs, including, but not limited to: obtaining a license from the CPUC to operate in California; require criminal background checks on all drivers; establish driver training programs; implement zero tolerance policies on drugs and alcohol; insurance requirements; and a nineteen-point vehicle inspection.
The Controversy Continues Airports (California) Since the CPUC s September 19, 2013 decision to allow TNC s to operate in California, should they abide by certain rules and comply with various regulations, many of the TNC s, their employees, and their customers have voiced their contempt with the new regulations, and in various cases amounting to public protests. In response, CPUC President, Michael R. Peevey, issued a formal statement, on June 10, 2014, to the TNC s, specifically addressing Logan Green, CEO and Co-founder of Lyft, who has appeared to lead the charge in the public criticism of California s recent decisions regarding TNCs. Mr. Peevey s major point was that the safety measures and regulations imposed on TNCs were adopted solely to protect the very customers the TNCs are serving, as well as the drivers employed by the TNCs. He also sought to address the fact that the TNCs and many of their drivers were simply ignoring the rules and regulations previously imposed by the CPUC. On June 4, 2014, high level CPUC staff met with law enforcement personnel from Los Angeles International (LAX), Oakland International (OAK), San Diego International (SAN), San Francisco International (SFO), and San Jose International (SLC) airports to discuss the issues they have been having with unpermitted TNC drivers. The CPUC s September 19, 2013 decision made it clear that TNC drivers were required to abide by all airport permit regulations in order to operate at airports. The June 4, 2014 meeting found that 70% of 300 TNC drivers contacted at SFO failed to display the proper trade dress; none of the TNCs had obtained a single permit from any of the airports to operate as pick-up or drop-off carriers; and numerous drivers did not have proof of insurance. Some drivers were found not having valid driver s licenses, some were transferring the app itself between drivers, and most drivers did not even know that a permit was required. Recently, LAX Police have been citing numerous TNC drivers because of local laws that forbid passenger pick up by TNC drivers due to their lack of proper permits and insurance. Approximately 200 citations have been issued to TNC drivers at LAX in the past few months, some of which revealed that some UberX drivers had criminal records, and at least one driver was a registered sex offender. Uber s policy is to automatically reject any driver application with a criminal record for the past seven years; however, it is unclear how that procedure is implemented. Mr. Peevey s letter ended with the threat that the TNCs failure to comply with the rules and regulations set forth by the CPUC will result in the TNCs permits to operate in California being revoked. In response to Mr. Peevey, Uber spokeswoman Eva Behrend stated; We have spent countless hours with airport managers and their staff to help develop requirements that are aligned with
CPUC regulations and embrace the spirit of ride-sharing The time of the majority of these conversations have been mutually respectful and productive. It s unfortunate that the CPUC is not allow the airport process they designed to proceed by allowing ride-sharing companies to continue working with California airport authorities on their permitting process. It appears that the TNC airport permit issue is a darker mystery than the CPUC has led us to believe. While TNCs, the CPUC, and California airport authorities attempt to reach a mutual agreement about how to properly regulate and enforce the permit process now required for TNC drivers at airports, consumers and TNC drivers are left without full knowledge or disclosure as to whether a vehicle they are being transported in has any insurance coverage for them. Personal Safety Concerns (Nationwide) While the popularity of TNCs increases steadily, new concerns are being raised regarding the safety of passengers of consumers. There have been numerous complaints that the background checks, required in California, are not being followed, and TNC drivers have exposed passengers to physical abuse, verbal harassment, and claims of stalking. Once a passenger/consumer confirms a ride with a TNC, the driver has the phone number of the customer, a possible residence address, and then complete control of the ride once the customer enters the vehicle. A Chicago Uber driver was charged with fondling a passenger in March 2014; a D.C. passenger was allegedly raped by an Uber driver in December 2013, however, DNA tests were inconclusive and did not lead to charges being filed; and countless claims of passengers being stalked by TNC drivers have surfaced in the past few months. On June 3, 2014, a 28 year old UberX driver in San Francisco was charged with two misdemeanor battery counts, one of which was due to an altercation he had with a passenger while he was driving for UberX. On July 8, 2014, Ryan Simonetti, CEO of Convene, took an Uber ride with three colleagues. The driver, after being confronted by a D.C. Taxi Inspector, drove away from the Inspector, which led to a high speed chase across state lines with the passengers on board. While California and other states are attempting to enforce the background check requirements imposed on TNCs, there presently is no sufficient system in place to ensure that the TNC drivers are responsible law abiding citizens. Further, proposed bills seek to heighten the standards imposed on the TNCs to ensure the safety of its passengers and consumers. Around the Country Lyft was forced to delay its planned launch in Brooklyn and Queens due to a stay imposed by the New York State Supreme Court in response to complaints filed by the Attorney General s office. The Attorney General s office has stated that Lyft is unable to operate within New York City
limits due its failure to comply with state and local laws, despite being warned on the same by three separate regulatory and enforcement agencies. However, Uber has altered its operations in New York to abide with the state and local laws, and has been allowed to continue to operate in the city. Unlike California and New York, Seattle, Washington voted on June 14, 2014 to unequivocally allow Uber, Lyft, and Sidecar to operate within city limits. The only councilmember to vote against the legalization of the TNCs, without capping the number of allowable vehicles, cited public safety and insurance issues as the reason for his dissention. Insurance Issues Since September 2013, the TNCs have been required to 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, which is required by the TNCs as a prerequisite for employment. At first, the public generally overlooked insurance issues related to TNCs in the early stages of the TNC expansion. However, this past New Year s Eve, an UberX driver in San Francisco was involved in a motor vehicle accident, in which he drove into a family in a crosswalk, killing a six year old girl. Uber initially alleged that their $1,000,000.00 excess policy did not cover the driver because he was not engaged in a pick-up or drop-off at the time the incident occurred, although he was logged into the Uber application. Typical exclusions, found in most automobile insurance policies, generally state the following: * * * We do not insure any car while it is available for hire by the public. * * * We do not provide personal liability motor vehicle coverage for: liability arising out of the ownership or operation of a vehicle while it is being used as a public or livery conveyance. * * * In response to this event, Uber added coverage for UberX drivers in April 2014, allowing for coverage during any period while the application is turned on, even though they are not engaged in a pick-up or drop-off at that time. This excess coverage is capped at $100,000.00 per incident for bodily injury and $25,000.00 per incident for property damage. Lyft made a similar change around the same time.
Because many TNC drivers are now aware of the insurance issues related to their employment with the TNCs and their personal insurance policies, it is likely that a TNC driver-insured will attempt to intentionally omit the fact that they were driving for a TNC at the time of a loss. We recommend inquiring the same of the insured during their initial loss reporting, during their recorded statement, and during their Examination Under Oath, if necessary. We also recommend increased scrutiny for insureds reporting that other occupants were in an insured vehicle at the time of loss as part of shared-expense car pools or other similar groups. Surprisingly, TNCs have maintained that their drivers personal insurance companies have been paying for claims that were filed while the insured was operating for a TNC, and that if needed, the excess policies were triggered. However, personal insurers have repeatedly stated that if claims were paid on personal policies for TNC drivers it was solely because the insurer did not know the incident occurred during TNC operation. The California Senate adopted AB 2293, which, as amended and enacted as California Public Utilities Code Section 1, Ch. 8.5, 5430, 5431, would require the TNCs to provide their drivers notice, in writing, of the insurance coverage provided and the limits of liability provided by the TNC, as well as advising the driver, in writing, that the driver s personal automobile insurance policy may not provide coverage while the driver makes himself or herself available for TNC work. Uber has taken issue with the passage of California Public Utilities Code Section 1, Ch. 8.5, 5430, 5431, citing the insurance industry and trial attorneys as pushing the bill through to law so that coverage can be avoided by insurers and attorneys can line their pockets with cash. However, the mere fact that TNCs are now required to provide written notice to their drivers regarding the loopholes and pitfalls of their excess coverage, should not materially alter the rideshare programs. Further, AB 612, which has not yet passed, seeks to impose relatively the same requirements imposed on taxicabs on all TNC drivers. Namely, mandatory drug and alcohol testing; close monitoring of DMV records; mandatory criminal background checks; fingerprinting; preventative maintenance for drivers vehicles; registration with the CPUC; and placement of official decals on the bumpers of the drivers vehicles. Undoubtedly, the TNCs are aggressively opposing this bill. On June 10, 2014, the CPUC issued a proposed decision for the amended Rule 14.3, which would require the TNCs to maintain the $1,000,000.00 commercial liability insurance, and add requirements for $5,000.00 in medical payments coverage; $50,000.00 in comprehensive and collision coverage; and UM/UIM coverage in the amount of $1,000,000.00 per incident. In response to the proposed decision, Uber and Lyft have already added $50,000.00 in collision coverage, and Uber also provides for $50,000.00 in comprehensive coverage. However, the added coverages are contingent on the driver purchasing the same coverage on their personal automobile policy. We believe this responsive action effectively negates TNC excess comprehensive coverage.
Are We Out of Limbo? Not yet. Because insurance issues relating to TNCs are a fairly new concept, there is little to no case law or firm application of current statutory law. However, based on the popularity of these applications, their rapidly growing use and availability throughout the world, and the various local, state, and federal laws that effect drivers, we believe that insurance companies themselves can proactively begin to implement practices and procedures to avoid improper or fraudulent claim reporting, establish mechanisms to obtain evidence of TNC-related work by suspect insureds, and possibly tailor new and/or excess policies that would apply directly to TNC drivers. While the California Department of Insurance is keeping its eye on TNCs, it is important for insurance companies and coverage counsel to be aware of the issues related to these services, as well as the means by which insureds could beat the system and obtain coverage under their personal insurance policies by simply not reporting TNC activity. Parker Straus, LLP is actively reviewing any and all new developments, both locally and nationwide, in order to provide the best advice and assistance with the future handling of these rapidly evolving issues. Although California Public Utilities Code Section 1, Ch. 8.5, 5430, 5431 will serve to further protect the TNC drivers, it is still unknown whether the drivers themselves are aware of the complex nature of how the coverage applies, if at all, due to the numerous exclusions provided in almost all automobile policies. While California and New York are at the forefront of regulating and permitting TNC operations within the State, it appears that other states are either adopting similar laws, or simply playing catch up at this point, since the markets have yet to expend to all corners of the country. Parker Straus, LLP offers a wide array of coverage, claims, and litigation serves to meet the needs of any insurer. We offer training sessions and conferences to help insurers ensure compliance with all state and federal statutes relating to coverage and litigation matters. Please visit www.parkerllp.com for more information. Feel free to contact any of our offices if you would like our help training adjusters for handling claims concerning this issue, or if you have any other coverage or litigation needs. LIABILITY / LEGAL ADVICE The information contained herein has been prepared for informational purposes only, and are not intended to be a source of legal advice. Transmission of this information is not intended to create, nor does it constitute, an attorney-client relationship. The reader should not take, or refrain from taking, action on the basis of information included on this site without seeking the legal advice of competent counsel in the relevant jurisdiction. Parker Straus, LLP expressly disclaims all liability with respect to actions taken or not taken based on the contents of this publication. COPYRIGHT NOTICE 2014 PARKER STRAUS, LLP. All Rights Reserved