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NEW TAXI SERVICES IN INSURANCE LIMBO?

NEW TAXI SERVICES IN INSURANCE LIMBO?

UBER, SIDEBAR, and LYFT: Are these new taxi services driving around in insurance limbo?

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 some even 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 $3.5 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 Potholes – Texas

Uber entered the Dallas scene in 2012. The push-back occurred almost immediately—an investigation conducted by the city attorney’s office concluded that Uber operated in violation of the Dallas City Code and sent a cease and desist letter, which Uber promptly ignored. Then, in August 2013, interim city manager A.C. Gonzalez attempted to sabotage Uber’s engine by quietly adding a line item onto the city council’s consent agenda, where it could have passed without discussion. This ordinance proposed changes (largely based upon Yellow Cab’s recommendations) to the code that would force services like Uber to radically change their business models by regulating who could dispatch limousines, requiring a passenger to arrange a limousine service at least thirty minutes before the service is provided, and establishing minimum limousine fares. Because A.C. Gonzalez added these changes to the agenda without first discussing them before a committee, Councilman Scott Griggs asked the mayor to apply the brakes before they hit the floor. While an inquiry into A.C. Gonzalez’s behavior determined he did not act illegally or unethically, Dallas Mayor Mike Rawlings described his actions against Uber as “highly disappointing.” In addition, a council order dismissed sixty-five citations issued to Uber drivers by Dallas vice officers in an undercover sting.

About a month after this botched attempt to fast-track changes to the city’s transportation code, Lyft pushed its way onto Dallas roadways, announcing that it wanted to be involved in the conversation and debate regarding Dallas’s rewrite of its transportation-for-hire regulations. In early 2014, the discussions began in earnest when the Dallas City Council’s Transportation and Trinity River Project Committee charged Sandy Greyson’s work group with the task of debating the merits of proposed regulations. The work group’s meetings involved representatives from both sides of the aisle—Yellow Cab and the limousine industry on one side and Uber and Lyft on the other.

After several months of debate and discussion, they all seem to agree on only one thing—they do not agree on anything else. On May 6, 2014, the work group met for the last time. At the end of the meeting, the council’s position to vote on new ordinances pertaining to TNCs does not appear to be any better than before. It may not be until August or September of this year (after the summer break) that the council makes any progress.

Austin, being ever the trend-setter, is once more considering the option of providing TNCs with a friendlier environment in an effort to curb its mounting drunk driving problem. Many Austinites continue to express concerns about the lack of adequate alternatives to driving home drunk at the end of an evening on Sixth Street. In response, Council Member Chris Riley proposed that Austin offer licensure to TNCs during peak hours, when he believes cab drivers often try to avoid being on the road because of the difficulties dealing with partygoers.

In Houston, TNCs are not fairing quite as well—Houston banned Uber drivers from receiving payment for their services; however, the company has confirmed that it will continue to charge for rides in the Houston area, despite city law. In a meeting held on April 22, 2014, city officials admitted that it simply does not have the resources to prosecute every offender. Additionally, Houston-based cab companies filed for a restraining order against TNCs; however, U.S. District Judge Vanessa Gilmore denied their request on April 21, 2014. She set an injunction hearing on July 15, 2014, but expressed reluctance in creating any roadblocks to the ongoing political process.

Legal Potholes – California

The legal issues plaguing TNCs are not limited to Texas. 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.

In addition, 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.

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.

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 an insured will attempt to hide the fact that they were driving for a TNC at the time of a loss. It is important to ask the same of the insured during their initial loss reporting, during their recorded statement, and during their Examination Under Oath, if necessary. Watch out for insureds reporting that other occupants at the time were part of shared-expense car pools or other similar groups.

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 Departments of Insurance in both Texas and California are keeping their eyes 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.

Parker Straus, LLP attorneys Michael P. Fullam and Allison R. Brauer co-wrote a full article addressing these issues that can be found on the firm’s website under the News & Events section. Fullam specializes in contracts and works in the San Diego office of Parker Straus, LLP. Brauer specializes in insurance coverage and works in the Parker Straus, LLP main office in Dallas.

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