Uber has transformed the public transportation industry. Riders love it due to costs that are a fraction of a traditional taxi. Cabbies and taxi companies aren't big fans, using a variety of regulatory maneuvers to try and stop Uber's phenomenal growth.
After spending $100 dollars on a cab, I can certainly understand the allure of Uber. As an insurance claims consultant, I can also understand some potential liability issues that could arise if an Uber driver does not have the proper insurance.
According to a recent investigative report, Uber may be instructing its drivers that purchasing personal insurance is sufficient to cover them in the event of a loss. Having spent the better part of the last 25 years handling both personal and commercial auto, this is an area that should be of particular concern.
Most private passenger automobile insurance policies contain standard exclusions to limit exposures related to the commercial use of a vehicle. In reviewing the standard ISO policy, the exclusion reads, "We do not provide liability coverage for any insured for that insured's liability arising out of the ownership or operation of a vehicle while it is being used as a public livery or conveyance." This exclusion also applied to other coverages, including uninsured motorist and collision.
Uber drivers may be in for quite a surprise in the event of an accident that could leave them personally liable following a valid insurance coverage denial. In some states, failure to disclose commercial use of a vehicle would be classified as a material misrepresentation, subjecting the policy to be void ab initio (from the beginning).
Another potential issue arises with the registration of a vehicle. In some states, a car must be registered for either personal use or commercial use. This could put Uber drivers in the awkward position of having to misrepresent facts on state registration documents that could subject them to potential penalties.
The reality is that most people outside of the insurance industry don't fully comprehend the terms and conditions of an insurance contract. While an insurance professional may take the time to read and understand the coverages and exclusions, that isn't a realistic expectation of the average consumer or Uber driver. Rather, Uber drivers are relying on the company to provide them with the salient information to make their business thrive.
According to a source who attended a recent meeting held by Uber for its potential drivers, an Uber employee suggested that drivers did not need commercial insurance because when they are on an Uber trip they are covered by Uber.
What Uber is not telling their drivers is that failure to disclose commercial use of a vehicle may render their personal auto policy null and void. While Uber has expanded its own insurance policies and now carries $1 million in liability protection, there still remain some gaps in coverage. It is also important to note that Uber's policy only covers drivers once they have been matched with a fare and when they are carrying a passenger.
So what happens during the period of time between fares? This is called a trolling period, or the time when drivers are logged into the Uber app, waiting to be matched with a fare. During this time the Uber policy does not apply and quite possibly neither does the Uber driver's personal auto policy.
Uber maintains that isn't a problem because drivers' personal insurance will cover the trolling period. The company's website claims that some transportation providers are rideshare drivers providing transportation with their personal vehicles. Rideshare providers carry personal insurance policies. In response to queries by Buzz Feed reporters, Uber maintained that "when the app is on but no ride has been accepted, many personal policies provide coverage."
Having not only handled claims for a number of years, but also haven written and interpreted a number of personal auto policies, it seems quite a stretch to suggest that there would be coverage for drivers using personal vehicles in a commercial venture such as ridesharing.
Let's consider a scenario where an Uber driver not carrying a fare collides with another vehicle, causing injury to the occupants. In a situation involving a private passenger auto policy it is routine to ask the insured what they were doing, as well as conducting a coverage investigation to validate that a vehicle is not being used for commercial purposes.
In many jurisdictions the mere non-disclosure of a material fact can render a policy null and void. In even more jurisdictions there are viable exclusions for vehicle use as a livery or conveyance. In the above scenario, the Uber policyholder may have their entire claim denied, leaving them personally liable for damages they caused.
In scanning some of the Uber driver portals, there seems to be a proliferation of advice about how and why you should lie to your insurance company. In one post a driver said that "I have not told my insurance company that I Uber even though they asked if I use my car as a taxi. Sorry, but I know for a fact your insurance company will deny a claim or cancel your policy if you are Ubering. Allstate, State Farm, they're all catching on to this. If you are involved in an accident, even while on your own time, if your insurance company finds out you do this, you are busted."
Another post said, "What we are doing is blatantly ILLEGAL. We drive when app off with no insurance, period. And we HOPE the insurance companies will play nice and 'cover us.' What a freakin' JOKE! Do you really think they are on your ILLEGAL side."
Given both the regulatory issues and the insurance coverage issues that exist with Uber, it may seem obvious to steer clear, at least for the time being. But that isn't proving to be much of a deterrent as this and other similar companies such as Lyft are taking off.
Some state insurance commissioners have weighed in on insurance coverage and have encouraged carriers to develop a hybrid policy that would cover rideshare activities. Carriers on the other hand, have adopted a different stance, often sticking by the existing terms of their contracts.
According to a report by SFGate, State Farm, the nation's largest insurer, said that it would not cover ride-service activities.
"We do not insure livery use, therefore, customers should not depend on their personal auto insurance coverage to protect them while driving for a ride-sharing service like Uber or Lyft," State Farm spokesman Sevag Sarkissian wrote in an e-mail. "A commercial auto insurance policy is needed to insure against livery use exposures."
Allstate, the third-largest carrier, has a similar policy. "In California, Allstate personal auto policies do not provide coverage if the car is for-hire, so the car and its owner-operator are excluded from personal auto coverage when used in this manner," e-mailed spokesman Jim Klapthor.
These two are not alone, as a myriad of insurers from coast to coast have lined up with policies that limit or exclude using one's personal vehicle as a taxi.
From both an insurer and a consumer perspective, this makes a lot of sense. For an insurer to maintain any semblance of profitability, it must be able to accurately underwrite an insurance policy. There is a reason that commercial and livery policies are anywhere from three to 10 times more expensive than private passenger auto policies, and that is due to risk.
While Uber is an interesting concept that has turned the taxi industry on its ear, it is not one that provides a foolproof solution to ridesharing. As I discuss in Re-Adjusted: 20 Essential Rules for Taking Your Claims Organization from Ordinary to Extraordinary, there are three key elements in every claim: coverage, liability and damages. Without coverage, the other two simply don't matter.
Uber is an interesting concept with tremendous populist support. However, there could be coverage issues lurking around the corner for drivers who may find themselves without coverage in certain scenarios. This is a gap that needs to be addressed to make Uber a long-time, viable competitor to traditional taxi services.
Christopher Tidball is a casualty claims consultant and author of multiple books including Re-Adjusted: 20 Essential Rules to Take Your Claims Organization From Ordinary to Extraordinary! He spent more than 20 years as an adjuster, manager and business leader with multiple top tier insurance companies. To learn more, visit www.christidball.com.
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