The pace of the enactment of new laws and regulations with respect to the operation of Transportation Network Companies is steadily advancing. In the past several years, Transportation Network Companies (TNCs) have emerged where drivers use their personal vehicles to provide passengers a ride arranged through a smartphone App for a fee. The person looking for the ride can access the App and see how many cars are near them, how soon they could arrive at their location, and what each would charge to take them to their destination. This is routinely less expensive than taking a taxi. Some of the better known TNCs are Lyft, Uber X, and Sidecar. The emergence of the TNC has alarmed the taxi industry, as this is competition that not only undercuts them on cost to the consumer, but involves drivers and vehicles that do not have to go through the licensing, registration and insurance hurdles that are imposed on taxi drivers and taxi companies. Insurance regulators are concerned because private passenger auto carriers do not intend to cover this commercial-type risk, do not rate for this risk, and are rightfully denying coverage. Insurance regulators feel compelled to take action to make sure that the public is protected when these drivers cause an auto accident and are advocating for the passage of new laws. There are significant gaps in the insurance protection afforded under the current law when an auto insured as a private passenger auto is used by a TNC. The private passenger auto (PPA) insurance industry does not intend to be insuring these types of commercial risks. Carriers struggle with the cost and complexity of the issues presented by the claims that occur when their insured autos are being use as part of a TNC. These additional cost ultimately are passed on to the consumers. Insurers continue to urge all state legislators to step up and address the emerging problem.
California and Colorado are the leaders in adopting laws requiring the TNC to carry substantial liability insurance (they coined the phrase “TNC”). One component of the emerging regulations is that IF the person has the phone app on they will be deemed to be working in the course of the business of the TNC. It remains unclear as to how the PPA insurer or anyone else will prove the App is on, perhaps from the records of the TNC. A senior California insurance regulator indicated that the insurance department will also be issuing guidance in some form to companies.
Colorado law (SB 125) regulates TNCs and require TNCs to provide their drivers with primary insurance coverage. SB 125 created the framework for TNCs to provide primary insurance coverage for all commercial activity including when the driver logs onto their App and is available for hire through the time period when they have a passenger in the vehicle and until the driver logs off the App and is no longer available to accept rides. SB 125 outlines the TNCs’ responsibility for providing insurance coverage for their drivers’ commercial activities App-on to App-off, and it also states that the personal auto policy is not required to provide coverage for TNC services.
The week of July 21, 2014, the Pennsylvania Public Utility Commission gave Uber and Lyft a 60-day emergency use permit to operate in Pittsburgh but these TNCs must certify their compliance with the PUC’s requirements that they 1.) provide primary insurance coverage during the “on app” period; and 2.) drivers will notify their personal auto carriers of their intent to provide ride-sharing services before they can officially operate. These experimental use applications remain pending before the PUC and will likely be addressed prior to the close of the emergency use period.
The Virginia DMV has given Lyft temporary authority to operate through February 2, 2015.
The states of Washington and Illinois, and several big cities, are also working on new legislation with regard to TNCs. While most of these proposals mandate the TNC maintain a significant minimum amount of Liability insurance, it does not appear that the proposals uniformly state this coverage maintained by the TNC must apply on a primary basis. This would leave PPA insurers exposed to continuing litigation as they deny claims arising out of the TNC use of a private passenger auto they insure.
One private passenger auto insurer who is not content to rely on their livery exclusion or their exclusion of coverage when the insured auto is used to carry person for compensation or a fee, is adding language to their policy contract that would exclude coverage when the auto is “available for hire.” This carrier appears to be relying upon the California statutory test of whether the App is on in order to prove that the insured was “available for hire.” The carrier has, or will have to, develop claims procedures to determine what is sufficient proof that the App was on, and unless laws create a presumption that they driver is “available for hire” when the App is on, this carrier will be subject to challenges about whether the insured was “available for hire” merely because the App was on.
We anticipate a lot of activity in the legislature and in the courts with respect to the emergence of TNCs. The Nash Group intends to continue its efforts to track and report on these developments.