Ridesharing services provided by Uber, Lyft and similartransportation network companies (TNCs) rely on smartphone apps toconnect passengers with independent drivers. TNCs entered themarketplace several years ago and have been growing quickly becausethere are few barriers to entry. Initially, TNCs escapedinsurance requirements and other costly regulations imposed ontaxis. However, TNCs are now being scrutinized by insuranceand other regulators seeking to ensure that TNCs and their driversare adequately insured.

TNCs do not own the vehicles that provide ridesharing servicesor employ the drivers. The driver and the vehicle areindependent of the TNC when not “on duty.” However, going “onduty” is as simple as pressing a button on the driver’s smart phoneapp, signaling that the car is available to acceptpassengers. The driver accepts an assignment – or is“matched” with a passenger – and then proceeds to the passengerpick-up site. The assignment ends when the passenger isdropped off.

A rideshare driver is typically covered under two insurancepolicies – the driver’s personal auto policy covering the vehicleand the TNC’s commercial auto policy covering all vehicles whenoperating on behalf of the TNC. A driver’s personal autopolicy typically contains an exclusion that negates coverage whenthe vehicle is used “for hire.” Therefore, most ridesharedrivers’ personal auto policies do not provide coverage when apassenger is in the vehicle. This leaves the TNC’s commercialpolicy, which provides coverage when the vehicle is being used forTNC’s operations.

The “App On to Match” Gap

Uncertainty about how the driver’s “for hire” exclusion and theTNC’s commercial policy are interpreted in the ridesharing contextcreates a potential coverage gap. Does a personal autopolicy’s “for hire” exclusion apply when the driver’s app is on,but no assignment has been accepted? Or when the driveraccepts an assignment, but has not yet picked up thepassenger? Or perhaps only after a passenger has been pickedup? Likewise, does a TCN’s commercial policy provide coveragein any or all of the above three scenarios? Of particularconcern, if both the personal auto policy and the commercial policyexclude coverage when the app is turned on and a passenger is notassigned, an accident would not be covered under either policy.

This “app to match gap” became the focus of special concernafter a 2013 incident in San Francisco when a six-year old childwas struck and killed by a rideshare driver circling with his appon. As a result, in recent months, state and municipalregulators and lawmakers in a number of jurisdictions have raisedconcerns over rideshare insurance, leading to newly enacted andproposed legislation, including:

California: Under legislation effective July 1,2015, a policy insuring a TNC vehicle must have minimum primaryliability coverage of $50,000 per person and $100,000 per accidentfrom “app on to match,” and at least $1 million in liabilitycoverage from the time the driver accepts an assignment until thepassenger exits the vehicle.

Colorado: Legislation effective January 1,2015, will require a vehicle operating for a TNC to have liabilitycoverage of at least $1 million whenever the driver’s TNC app is on– regardless whether a passenger has been assigned or pickedup.

Pennsylvania: Senate Bill 1457 would require adriver providing TNC services to carry liability and UM/UIMcoverage limits of at least $1 million from the time the driverturns on its TNC app until the app is turned off or a passengerexits the vehicle, whichever is later.

In addition, a suit filed by New York’s Attorney General and theDepartment of Financial Services against Lyft settled with thecompany agreeing that its New York City drivers will be required tohave commercial licenses and comply with all state insurancelaws. Lyft advertising states that its drivers are coveredunder the company’s $1 million commercial policy that is primary toa driver’s personal automobile insurance policy when the driver ismatched with a passenger. However, the “app to match gap”appears to be an open issue.

The emergence of ridesharing and TNCs creates marketopportunities for the insurance industry. In states whereclear insurance requirements exist, current and future TNCs andtheir drivers will need insurance products that satisfy theserequirements. These needs will grow as TNCs increase innumber and market penetration, and as other jurisdictions in theU.S. and abroad seek to regulate the industry. An insurerthat creates an innovative product that addresses this new marketpotential – a new kind of policy or add-on that would coverridesharing drivers, passengers and the public – may increase itsmarket share while benefitting the general public.

About the Authors

Norma Levy, of counsel at Nelson Brown & Co., providesregulatory advice to insurance companies on state, national andinternational regulations, developments and best practices. Sheresides in Nelson Brown & Co.’s New York office and can bereached at [email protected].

Lou Kozloff, a partner at Nelson Brown & Co., advisesinsurers when questions concerning insurance coverage arise andrepresents insurers in coverage related litigation. Lou is alsoleading the firm’s study of autonomous vehicles and the impact onthe insurance industry. Lou can be reached [email protected].