Summary: Ride-sharing and car-sharing are new methods people are using for transportation made possible by smart phone applications. There are large issues in both, from the exclusions on the personal auto policy to the regulations that are followed by taxis and limos, but are not being applied to the ride-sharing companies. This topic changes rapidly as states consider legislation, suits are filed, and ride-sharing becomes more common.

Topics Covered:

Summary

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Introduction

 With the use of smartphones and smartphone apps, it has become possible to link two previously unknown people together for various purposes if the right app exists. This has led to the creation of Transportation Network Companies, referred to as TNCs. Uber and Lyft are two of the most well-known TNCs. These organizations arrange rides between owners of private passenger vehicles and people who either want to use the car or need a ride. The application allows them to make contact and coordinate the use of the vehicle.

 While at first this sounds like a great idea, there are many issues involved. Taxis and limousines are highly regulated services and believe that these regulations should also apply to the TNCs. States have concerns about consumers and drivers not being aware of the insurance issues involved and finding themselves not covered by insurance if an accident occurs.

 Ride-sharing

 Ride-sharing is the practice of using your personal automobile to pick up someone and give them a ride to a specific destination for a fee. The potential driver signs up with a TNC that generally checks the individual's background, driving record, and inspects the vehicle. Once the person is approved as a driver, that person is then allowed to sign in to the app as a driver and can begin to pick up riders. Different companies have different requirements, although requirements are similar.

 Most companies require the driver to be at least twenty-one years of age, have a valid license, pass a background and driving record check, and have a vehicle meeting certain conditions. See Ride-sharing Provisions.

 There are three distinct periods when ride-sharing. The first is when the driver turns on the app to indicate that he is available to give a ride; the second is when the driver is matched with a passenger and is on route to that passenger; the third is when the driver is actually transporting the passenger to his desired location. These three periods have varying insurance issues that will be discussed later.

 Proponents of ride-sharing claim that benefits of ride-sharing are that in rural areas or areas with limited taxi service it is providing a much needed community service. It also removes drunk drivers from the road, is cheaper than a taxi service, and lets the driver make extra money from a vehicle that otherwise would not be in use.

 However, the taxi and limousine companies, and some state legislatures, see it differently. Taxis and limos are regulated industries. Many areas require taxis to have a medallion; the medallion gives them the right to operate a vehicle as a taxi. Many medallions are purchased by individuals who then lease the medallions to drivers. In Chicago a medallion can lease for $74 for a twelve-hour shift or $707 for a week. A medallion can sell for as much as $300,000 to $1 million. Medallions can be revoked if the drivers do not follow the laws. Fares are regulated, and taxis may be required to have cameras, radios, credit-card readers, fare charts, and decals. The fine for not having a decal reminding passengers to look for passing pedestrians and cyclists is $100 in Chicago. This is so that passengers do not open doors suddenly on passing pedestrians and cyclists. TNCs are not sustaining any of these fines or fees; they are acting as taxis free of regulation.

 The National Limousine Association (NLA) is concerned with TNCs performing similar actions but not adhering to the regulations. Of concern is that some TNCs do not independently verify validity and currency of an applicant's driver's license or insurance, do not require commercial auto insurance, do not obtain necessary authorities to operate at airports, as a taxi, or chauffeured transportation, and are dispatching drivers using personal vehicles or unauthorized employer vehicles. The NLA points out that state laws vary as to required insurance agreements, but that some require up to five million dollars of liability with vehicles with larger seating capacity. The NLA is concerned that TNCs are not providing sufficient insurance coverage.

 Ride-sharing organizations counter that taxis are not totally serving the public and that some drivers will refuse certain rides or refuse to go into certain neighborhoods regardless of the law. Uber tracks drivers and passengers via GPS and knows which areas are unserved and which drivers do not pick up certain fares (Uber will then remove that driver from use). TNCs also assert that the vehicles are not being used 24/7 and are only used on a part-time basis.

 State opinion varies; New York has required ride-sharing companies to adhere to certain requirements including insurance coverage, or be stopped by a restraining order against the company. Colorado has set up a framework for TNCs to operate in and provide insurance to drivers. Legislation is discussed below.

Car-sharing

 Car-sharing is different from ride-sharing; instead of transporting someone to a destination, someone engaged in car-sharing is letting a stranger use his vehicle for a fee, similar to car rental. Like ride-sharing, the potential driver signs up with a TNC that checks the driving record, credit report, and other background services. Owners sign up to share their vehicles, and the vehicles must meet certain requirements, although it is not indicated that the vehicles are inspected by the TNC. Once a match is made, the owner and the renter meet and keys are exchanged although an electronic access is available through some TNCs. See Car-sharing Provisions.

 When Operating for Hire

 As mentioned earlier, there are three different stages of ride-sharing with separate insurance issues. In stage one the driver is simply available for hire and is not actively driving an individual to a location.

 Uber provides contingent coverage for ride-sharing for stage one; limits are 50/100/25, which is higher than any state minimum coverage. Coverage is contingent on a denial from the personal auto policy carrier. Lyft also has contingent coverage for stage one. While Sidecar's website states that $1 million is provided when a driver has accepted a ride, the certificate of insurance page indicates that Sidecar provides $1 million csl when the auto is being "used in connection with the Insured's passenger transportation operation"; this is ambiguous and implies coverage for when the insured is just looking for a fare and not on the way to pick up a passenger. This is likely to be ultimately decided by the courts.

 Stage two is when the insured has accepted a fare and is on his way to pick up a passenger. Uber and Lyft provide $1,000,000 liability coverage beginning at this stage; Lyft provides contingent comp/coll, and Uber's physical damage coverage follows the driver's vehicle coverage. Therefore, if a driver does not have physical damage on his vehicle when driving for Uber and has an accident, he will not be compensated for the loss to his vehicle. Sidecar provides $50,000 physical damage coverage while on an active ride with a $500 deductible. Sidecar's coverage is also secondary to any other existing coverage.

 Stage three is when the insured is actually transporting a passenger and continues until the passenger is dropped off. The same coverages that took effect in stage two apply in stage three. These stages apply when an insured is participating in ride-sharing and is picking up passengers for profit.

 In car-sharing, there are no such stages. The car is listed as available for rental, and possession occurs when the driver hands the renter the keys or the renter activates an automated system.

 Insurance Gaps

 In this scenario, what happens if the driver has an accident? Is he covered under the TNC's policy, his personal auto policy, both, or neither? The standard personal auto policy has an exclusion for coverage when a vehicle is being used as a public or livery conveyance. "Livery" is defined by Merriam Webster as the business of keeping vehicles that people can hire. Someone could hire the insured to drive him to a designated location or could hire the vehicle alone and use it similar to a rental vehicle. Both uses are excluded. The personal auto policy is designed for an individual or family's use, not for commercial use.

 ISO has developed a new endorsement that strengthens the public or livery exclusion. The endorsement is the Public or Livery Conveyance Exclusion Endorsement, PP 23 40 10 15, and it defines Transportation Network Platform and clarifies the public or livery exclusion in the auto policy. It excludes liability, medical payments, and physical damage while the auto is being used by an insured who is logged into a transportation network platform as a driver, whether or not the insured has a passenger in the car. The endorsement took effect October 1, 2015, in Iowa, Maine, Montana, New Mexico, Wisconsin, and Wyoming. It became effective November 1 2015, in Colorado, Indiana, and Nevada and December 1, 2015, in Delaware and Idaho.

 There is an endorsement for the umbrella policy as well, DL 99 12 10 15 Personal Umbrella Liability Policy Public or Livery Conveyance Exclusion Endorsement. Currently only Alabama, Iowa, Maine, Montana, North Carolina, New Mexico, Wisconsin, and Wyoming have adopted this umbrella form as of its effective date, October 1, 2015, and in Colorado, Indiana, and Nevada it was effective November 1, 2015. Its principle is the same as the auto endorsement, to clarify and strengthen the livery exclusion. The form defines "transportation network platform" as an online enabled application or network that connects passengers with drivers using their own vehicles for the purposes of providing a ride. The form then excludes coverage anytime an insured is logged into a transportation network platform, whether or not a passenger is present in the vehicle.

 Both ride-sharing and car-sharing create underwriting issues. With car-sharing, when the vehicle is driven by the insureds, the carrier has rated the policy based on those individuals' driving experience. However, when the vehicle is available for hire by others, the vehicle is being used significantly more and is at greater risk of accidents. The carrier has no way to review driver history or experience of those unknown drivers and cannot develop a rate for the exposure. Rates can then be actuarially unsound, thus causing the carriers loss and expense ratios to rise.

 With ride-sharing, insurance commissioners are concerned that people are exposing themselves to losses without being fully aware that they may have no coverage. Many states have issued consumer alerts warning owners of vehicles, potential riders, and potential renters that there may not be insurance coverage in event of an accident. The following states have issued alerts: Alaska, California, Connecticut, DC, Hawaii, Idaho, Indiana, Kansas, Kentucky, Maryland, Maine, Michigan, Minnesota, Nebraska, New Hampshire, New Jersey, New Mexico, Nevada, Ohio, Pennsylvania, Rhode Island, Tennessee, Utah, and Washington. Coverage provided by the TNCs can be either primary or secondary; many of those TNCs whose carriers provide excess coverage maintain a reserve in order to handle issues as they arise.

 Not only are there gaps in the personal auto policy, but there are workers compensation issues as well. RelayRides clearly states that the drivers are not employees of RelayRides. TNCs often state that drivers are independent contractors using their own equipment, setting their own hours, and are invested in the vehicle they drive. Counterarguments are that the TNCs are providing work for the driver and are providing a driver for hire. Concern centers around what happens in event of an injury to the driver while on duty. If the driver is incapacitated and loses wages, there is no compensation for the driver. This is a huge issue; many cases are being filed to try to determine whether drivers are employees or independent contractors. Many carriers are also providing defense costs outside of policy limits; the cases are significant for the long term, and carriers want to establish precedents beneficial to the industry as a whole.

 In an August 25 settlement, Uber paid Alaska a $77,925 fine for unpaid workers' compensation insurance for its drivers. Uber admits no wrongdoing and has ceased doing business in the state, agreeing not to return until it is in compliance with state workers' compensation laws. However a bill that would exempt TNCs from classifying their drivers as employees has been sent to the House Labor and Commerce Committee to be reviewed when the committee reconvenes in January of 2016.

 In the Amended Complaint and Demand for Jury Trial, Zine v. Uber Technologies Inc. et. al., No. BC591351 (Cal. Super. Ct., L.A. Cnty. Aug. 14, 2015) a class action suit has been filed accusing Uber of failing to provide workers' compensation insurance for its drivers. The driver was assaulted and claims loss of income while recovering and permanent disability. Zine claims that drivers are not independent contractors as Uber claims, they do not have their own customers, cannot book rides outside of Uber's application or generate business for themselves.

 Related to this is that the California Employment Development Department (EDD) determined that a former Uber driver was an employee, not an independent contractor as Uber claimed. The ruling was upheld twice by an administrative law judge and the California Unemployment Insurance Appeals Board. The administrative law judge determined that based on the facts that Uber has sole discretion over fares, can charge drivers a cancellation fee if they do not take a ride, prohibit drivers from picking up passengers not using the app and suspend or deactivate drivers' accounts, that these factors establish an employee/employer relationship.

 In O'Connor v. Uber Technologies, Inc., 82 F. Supp. 3d 1133 (N.D. Cal. 2015), the court ruled that (1) drivers were presumptively application developers employees, (2) a genuine issue of material fact existed as to whether drivers could be terminated at will and (3) a genuine issue of material fact existed as to the amount of control the application developer exerted over drivers. The court also certified a class action to pursue the claim that Uber violated California law. In Cotter v. Lyft, Inc., 60 F. Supp. 3d 1067 (N.D. Cal. 2015), former drivers sued Lyft, claiming that they had been improperly misclassified as independent contractors. On March 11, 2015 the court ruled that genuine issues of material fact existed as to whether Lyft maintained the right to control drivers. The court decided to leave the question for a jury to decide, reasoning as it did in O'Connor, that California's traditional test results in an ambiguous answer in such cases.

 Insurable interest has also been raised; if the TNC does provide insurance for the vehicle, what is its insurable interest? It does not own or maintain the vehicle and minimally stands to lose financially if the vehicle is out of commission. TNCs state that their interest is in public safety by ensuring that drivers are covered, and they are stepping into the shoes of the owners and drivers of the vehicles.

 Sidecar drivers are allowed to advertise extras provided in their vehicle to riders such as water and snacks. This could turn into a product liability issue; if a driver provides homemade snacks that make someone ill, is the driver or Sidecar responsible for the medical bills? One insurance program that is offered provides limited products exposure as long as the driver/owner of the vehicle is not preparing the food that is offered. The carrier does however require them to carry a food handler's license. If the TNC has a system that maintains a database of the licenses of drivers and shows that they perform license checks quarterly, a small sublimit is available. Generally policies state that the driver is at his own risk if he provides food, drinks, or legal marijuana and that the TNC is not responsible for any illnesses that may result from the purchase of said products.

 Cases

 As mentioned earlier, lawsuits have already been filed and are continuing. One raises a huge issue; that of use of cell phones in states that restrict cell phone use or the use of texting. The case is Ang Jiang Liu v. Uber Technologies, Inc., No: CGC-14-536979 (San Francisco Sup. Ct.). In this case pedestrians were crossing the street when a person driving for Uber collided with them. While not carrying a passenger, the driver was logged on to the app and was actively looking to pick up a rider. One of the pedestrians died, and the family sued the driver, Uber, and Raiser LLC, a subsidiary of Uber and parent company Rasier CA-LLC, the insurance certificate holder for the coverage carried by Uber.

 The plaintiffs argued that Uber owed the public the duty of care in hiring, training and supervising its drivers, and that Uber negligently developed, implemented and used the app in a way that led drivers to be inattentive or distracted while driving. This violates many states texting and cell phone regulations. See Cell Phone Restrictions by State. The plaintiffs argue that Uber is strictly liable for the app and its interface, and either knew or should have known that the use of the app would violate California vehicle codes regarding use of cell phones and texting. The court found for the plaintiffs and a tentative settlement has been reached. This could have a significant impact on a burgeoning industry. This is especially important for Uber as it provides its drivers with cell phones. Uber is now offering cell phones that restrict the use of texting. However, it is virtually impossible to control the judgment of drivers once they are on the road; unless they are grossly negligent, assigning liability may be difficult.

In Chant v. Warren, No: CSM-14-846518 (San Francisco Sup. Ct.), a driver for Sidecar collided with another vehicle. The plaintiff sued and argued that the driver caused damage while driving negligently and in the course and scope of his employment for Sidecar. The plaintiff recovered $3,800 from both defendants.

 Meanwhile, taxicab drivers in San Francisco have filed a class action suit claiming that Uber is acting illegally by "partnering with unauthorized and unpermitted drivers to unlawfully compete with law abiding taxi drivers." The case is Goncharov v. Uber Technologies, Inc., No: CGC-12-526017(San Francisco Sup. Ct.). They claim that Uber is denying that it is a cab company in order to evade regulations. Uber states that all causes of action are barred by judicial abstention, which states that the court should abstain from adjudicating the case in deference to the state and local agencies charged by the statutes with regulation of motor vehicles for hire. This case is undecided. This is not the only state in which taxicabs and limousines are concerned about ride sharing duplicating taxi services; it is likely there will be other cases in other states.

 Page v. Dawson, No: CGC-14-537297 (San Francisco Sup. Ct.) highlights another issue, that of taxi drivers moonlighting as ride sharing drivers. In this case a taxi driver in a taxi responded to an Uber request for a ride; he struck a pedestrian in traveling to the pickup location. The pedestrian sued Uber and the driver. Uber contends that it is not responsible for misuse of the Uber app or device, it is not liable for acts of others over whom it is not responsible, that the driver was regulated by the San Francisco Municipal Transportation Agency, that the driver was an independent contractor, and that Uber is not a common carrier. In this case Uber is doing what the Goncharov case claims it is doing—denying that is a taxicab company and does not have to answer to regulations. There is a separate issue of the driver using a company taxicab that does not seem to be addressed here, but it is certain to be an issue over time.

 As mentioned earlier, several cases concerning workers' compensation have been filed in various states. The issue is whether ride-sharing drivers are employees or independent contractors. This is beginning to be addressed by state legislation.

 Cases have been brought in San Francisco and Los Angeles against both Uber and Lyft because their background checks have come up lacking. The district attorneys said that Uber continually misled consumers about methods used to screen drivers, and that they failed to uncover criminal records for twenty-five drivers in the two cities. Drivers had been convicted of things such as felony sexual exploitation of children, felony kidnapping for ransom with a firearm, robbery, assault with a firearm, identity theft, driving under the influence, and welfare fraud. Lyft has settled for $500,000 in civil penalties and a permanent injunction prohibiting it from making misleading statements about its background checks, requires Lyft to submit its App to the California Department of Agriculture's Division of Measurement Standards for evaluation of its accuracy, and requires Lyft to obtain express authorization from the California airports to operate on their premises.

 A racketeering case including fifteen Connecticut taxi and limousine companies claiming that Uber was competing unfairly, tried to lure away their drivers, misrepresent fees, services and insurance companies was dismissed in august. The case was Greenwich Taxi Inc. et al v. Uber Technologies Inc. et al, U.S. District Court, District of Connecticut, No. 14-00733 and the judge stated that the plaintiffs failed to make their case, and also rejected the argument that Uber should follow the same licensing and safety regulations required of taxi and limousine services.

 Fraud

 There is a large potential for fraud and cybercrime with ride- and car-sharing. With the TNCs providing insurance up to $1 million during various stages of the ride, it is easy to see how tempting it would be to log into a system after the accident and claim that the driver was actively looking for a fare in order to try to use the TNC's insurance coverage. Adjusters will want to be able to receive time stamps and other information from the TNCs in order to establish the legitimacy of the claim.

 The TNCs themselves are also excellent victims for hackers; they have so much personal information about drivers and riders that the data is a hacker's paradise. Not only are background checks, criminal records, and credit card numbers stored in the system, but rider's destinations and pickup points are stored as well. Information accumulated on riders could be a boon for stalkers and thieves. If a regular user's data is hacked into, regular patterns are easy to see. Uber was hacked in February, with as many as 50,000 drivers' names and license numbers potentially being exposed. Uber has since hired well-known security experts in order to prevent further breaches.

 Legislation

 A number of states have considered legislation for ride-sharing companies. For instance, Nevada has approved licenses for Lyft and Uber as transportation network companies. The licenses will allow the companies to operate within the state. Pricing will be set, with both companies being allowed to adjust pricing for prime time or dynamic pricing, which is peak times when the provider can raise rates. Lyft can raise rates to three times the base rate, and Uber has uncapped levels for dynamic pricing. Both companies are working with officials to speed business license approval for contracted drivers.

 Austin, Texas, has proposed legislation that would require a tax of $1 per ride, state background checks for drivers, and auto insurance. Ride-sharing companies are against it, and taxis are for it and even stronger regulations. The proposal was discussed when the committee met in October, 2015.

 Seattle, Washington, has proposed legislation that would allow Uber drivers to unionize, even though they are considered independent contractors. Taxi drivers are already doing this in some cities. Proposed is that drivers would vote on a non-profit organization to act as their "exclusive driver representative" which would then negotiate a contract with the company. If the two sides fail to agree, arbitration would be required. The resulting contract would be enforced in court.

 In May 2015, Tennessee signed legislation that allows ride-sharing companies to operate statewide. Statute § 65-19-202 defines "ride-sharing" as "prearranged transport of persons where transportation is incidental to another purpose of a volunteer driver" and includes car, van, and bus pools. Workers compensation does not apply to ride-sharing, employers are not liable to passengers and others from use of the vehicle, cities and towns may not impose taxes or require additional licenses for ride-sharing providers, and no additional fees may be charged to ride-sharing providers.

 Los Angeles, California, voted to allow Uber and Lyft to pick up passengers at the Los Angeles International Airport. Airport pickups are a bone of contention among taxi drivers, as they are held to stricter requirements and see the ride-sharing competition as unfair. There are some parameters for ride-sharing pickups: the ride-sharing companies will be charged $4 for rides entering and leaving the airport, only forty vehicles are allowed to circle the loop at any one time, and passengers may be picked up only at the upper departure level, where traffic is lighter. The companies must also apply for permits to pick up passengers at the airport.

 Uber is fighting legislation in Broward County, Florida, that would require drivers to be fingerprinted and would implement new insurance standards. While Uber uses a security company to check for local, state, and federal criminal records, without fingerprints it makes it easy for individuals to change names and hide criminal histories.

 Summary

 Ride-sharing and car-sharing have great potential for changing methods of transportation as a whole. While similar to taxis, limousines, and rental car services, there are many differences that set them apart. The rides and vehicles are provided by any interested person who has passed the company's specifications as to driving history, background, maintenance of the vehicle, and other parameters. As outlined, insurance issues are some of the largest and most pressing issues. Various court cases are under way, and how those will be settled will be significant. States are enacting and considering various legislations as the ride-sharing apps become more popular with consumers. The climate is rapidly changing; we will be updating this article regularly as cases are settled and legislation is enacted.

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