Ride-sharing companies, now being referred to as Transportation Network Companies (TNCs), including companies such as Uber, Lyft and Sidecar, have exploded in popularity in the past three to four years. If you have not heard of these companies, the concept is simple. The companies are essentially taxi services that you hail through a smartphone app. After downloading the companies’ app to your smart phone, you can request a driver to pick you up at your current location. Once a request is sent, you will be matched with a driver in your vicinity. The driver’s smartphone navigation will then direct the driver to your location.
The passenger can then enter their destination into the app, which syncs with the driver’s phone and directs the driver to the final location. Payment is made through the smartphone app, so no money is physically exchanged. Drivers and passengers never have to speak or interact unless they choose to do so. The ease and convenience has caused TNCs to explode in large metropolitan areas and they continue to spread into smaller markets.
TNCs differ from traditional taxi operations, not only in the amount of technology utilized, but in the very structure of the business as well. TNCs, from the outset of the business concept, have distanced themselves from the traditional norms of taxi services. These differences are:
• TNC drivers are independent contractors, driving their own personal vehicles.
• TNC drivers go through minimal background checks and do not have any specialty driver’s license.
• Most TNCs do not consider their business to be taxi or shuttle service, but instead, they are technology companies.
• TNCs have taken every step and means possible to deviate from the traditional taxi business model.
One issue that TNCs and their drivers have been forced to navigate is how to insure thousands and thousands of personal vehicles operating under the TNC business’s name.
Uber is the largest and most popular TNC and will be the focus in this writing, although all of the current TNCs now in operation face similar insurance issues. Uber, which has more than 450,000 drivers on the road daily, was recently valued at over $60 billion. It should be noted that with innovation comes new challenges. Uber is a privately held business. One issue with Uber and other TNCs is how to properly insure a private vehicle that is also used as a commercial vehicle.
Nearly all personal vehicle insurance policies exclude coverage when the vehicle is used commercially. This includes receiving payment for ride sharing. Accordingly, Uber drivers and their passengers are not covered by the driver’s personal insurance policy if the driver is engaged in commercial activity, or ride sharing. The obvious next question is when does a vehicle go from a personal vehicle to a commercial vehicle, and is there any insurance coverage available to the driver, passenger or others on the road while ride sharing?
In an effort to standardize how this was handled, Uber has set a policy for insuring their drivers while ridesharing. However, the amount of coverage depends on exactly when during the ridesharing process an incident occurs. Uber breaks the ride sharing process down into three periods for insurance purposes.
• Period one is when the Uber driver is in their personal vehicle, using it for their own purposes and “offline.” During period one, Uber provides no insurance coverage and the driver must maintain personal insurance at this time.
• Period two starts once the driver activates the app and begins to search for potential passengers. During period two, Uber provides insurance with a $50,000 liability limit per person with $100,000 total per occurrence.
• Period three begins once the Uber driver accepts a passenger, picks the passenger up, and drops the passenger off. During period three, Uber provides insurance to the driver with a $1,000,000 liability limit and a $1,000,000 uninsured or underinsured provision. Once the passenger is dropped off, the coverage goes back to period two, with $50,000/$100,000 limits until a new passenger is accepted.
There is obviously a large gap between the $1,000,000 coverage available in period three when a passenger is in the vehicle and the $50,000 coverage available in period two when the driver is in search of a passenger. Interestingly, a large portion of an Uber driver’s time will be searching for a passenger, or driving with the app on to areas where passengers are likely to be.
All the while, the driver will undoubtedly be looking at his smartphone in an attempt to match with a passenger. In essence, during the time period that a driver is likely to be distracted, insurance drops to a minimal $50,000. Additionally, during period two, personal insurance will likely be voided as the driver is using the vehicle for commercial purposes, leaving only $50,000 available to an injured person.
Although Uber has standardized how their drivers are insured, there are obvious gaps in the coverage. A company that is valued at more than $60 billion should certainly maintain insurance in excess of the $50,000 minimum required by most states. Unfortunately, the independent contractor relationship between the drivers and Uber shield the company from liability. Action will likely have to come in the form of legislation and government regulation to force TNCs to adequately insure drivers operating under their name.
With nearly a half million Uber drivers on the road daily, folks will be injured and will find they won’t have adequate recourse until this coverage gap is corrected. If you need more information on this subject, contact Evan Allen, a lawyer in our Personal Injury & Products Liability Section, at 800-898-2034 or by email at Evan.Allen@beasleyallen.com.
Sources: CNBC and UBER Newsroom
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