Confusion Over Insurance for 'Ride-Sharing' Drivers

This is Part Two of our series on the risks and benefits to drivers who sign up with the networked ride-service companies like Lyft, Sidecar and UberX versus those who work for the traditional taxicab industry. Part One — Will 'Ride Sharing' Kill San Francisco's Taxi Industry? — focused on tensions between the two pools of drivers and the declining income earned by taxi drivers. Part Two looks at insurance issues related to the new ride services.

Veteran San Francisco cab driver Ed Healy says he'd never ever drive for Lyft, Sidecar or any of the other smartphone-driven ride-service  companies operating in the city.

It doesn't matter that many of those driving for what state regulators call "transportation network companies" (or TNCs) say they're making better money than old-school taxi drivers. It doesn't matter that many cab drivers have moved over to the TNCs. Healey says his decision comes down to one issue.

“I wouldn’t ever drive in one because of the insurance,” Healey says. "I wasn’t going to leave my car exposed to an accident.”

Healy's sentiments echo those of many in the taxi industry and point to a big unknown at the heart of the popular new ride-service companies: If a driver gets into a wreck, who pays? More specifically, what insurance is in place to cover injuries, property losses and damage to passengers, passers-by and the driver's own car?

Lyft and the other TNCs point to the $1 million per incident excess liability coverage that the California Public Utilities Commission (CPUC) requires them to carry. The policies are designed to deal with liability claims a driver's insurance doesn't cover. But the policies won't cover drivers' cars. That means the drivers must rely on their personal auto insurance policies — which still may leave them uncovered since insurers typically, though not always, bar claims if a driver's vehicle was in commercial use when an accident occurred.

And that's not the only uncertainty surrounding insurance coverage for ride-service drivers and passengers. The ride services' terms of service require users to waive liability claims. Lyft's founder says that's just a standard bit of contract language while the taxi industry and San Francisco's chief taxicab regulator say the terms could raise questions of who will pay in case of an accident.

All of these issues, TNC opponents claim, amount to incentives for people to keep their status as ride-sharing drivers secret from their insurance company. I found that to be the case with at least some of the drivers I spoke to.

I spent the last couple of months talking to drivers, the ride services, their competitors in the taxi trade and insurance industry representatives to try to get answers about insurance coverage. What I found was a thicket of contradictions and complications in figuring out who will pay if something goes wrong during a ride-service trip. For instance:

• Ride-service companies like Lyft and Sidecar say drivers' personal insurance policies will cover some claims. The insurance industry says the policies won't provide any coverage.
• The insurance industry says ride-service drivers will have to buy commercial insurance to be covered when they're driving for hire and maybe even when they're not.
• At least some ride-service drivers are keeping their status secret from their insurance companies because they're afraid of losing coverage. (See sidebar: Are Ride-Service Drivers at Risk of Losing Their Insurance?)

A Topic of Conversation

The insurance issue is definitely a topic of discussion among Lyft drivers, according to Alice, who has been driving for the company since April. (Most ride-service drivers spoke to me on condition we would not use their full names.)

“There’s a lot of conversations going on [about insurance] in the Lyft Driver’s Lounge," she said, referring to a company Facebook page. She says some Lyft drivers have quit over the issue.

“Some people are like, 'Yeah, I’m really bummed, but until the insurance thing is settled, I’m not going to drive for Lyft anymore.' A lot of the new drivers have asked multiple times on the Facebook page, 'What do we do about insurance?' Lyft’s answer is you have to figure that out on our own.”

Alice says she and about a dozen other drivers were invited to lunch with Lyft CEO John Zimmer over the summer to discuss the issue. “I got a phone call from Lyft, they were doing damage control,” she says, adding that Zimmer told the drivers the company was working on getting an insurance carrier that would cover them for both personal use of their car and for ride-service work.

Zimmer told me the company is now in discussion with insurance companies to offer "expanded types of coverage."

The insurance industry has stated clearly that a driver’s personal policy is not going to cover any accident in which the insured was using his or her vehicle for commercial purposes.

In a filing with the California Public Utilities Commission in 2012, the Personal Insurance Federation of California, an industry group made up of State Farm, Farmers, Progressive, Allstate, Liberty Mutual, Mercury and Nationwide, said it asked its members to determine how they would treat liability claims in ride-service accidents.

In response to the Commission’s inquiries, we surveyed our members regarding coverage issues in the above described situations. It appears that the industry standard for personal auto insurance policy contracts is to exempt from insurance coverage claims involving vehicles used for transporting passengers for a charge. Thus, in situations where a vehicle is insured as a private vehicle and is used to transport passengers for a fee, no insurance coverage would exist...

In a press release after the CPUC ruling, the Association of California Insurance Companies, a trade association and lobbying group, said, “Both drivers and riders must understand that an accident in a ride-sharing vehicle will not be covered under a personal auto insurance policy.”

The California Department of Insurance also weighed in on the issue in an advisory letter it sent to the CPUC before its final decision: "Based on informal conversations with TNCs and auto insurers, we understand that personal lines auto insurers have both paid claims and denied claims when drivers with personal lines insurance were transporting a passenger referred by a TNC."

Despite statements like that, the ride-service companies insist drivers' insurance companies will cover claims arising from their paid work and in fact have already done so.

Margaret Ryan, vice president of communications at Sidecar, said in an email that the company has yet to see an incident in which a driver's personal insurer has denied a claim. Erin Simpson, director of communications at Lyft, says she is aware of "multiple instances" in which an insurer has known that drivers were working for Lyft and still approved a claim under the driver's insurance policy.

And indeed, one Lyft driver I talked to said that when he got into an accident in 2012 while carrying a paying passenger, his insurance company was aware of the circumstances and still approved the claim.

That was last year, though, and things may be different now that the CPUC issued regulations for the TNC industry. One of the commission's major findings: The TNCs are commercial enterprises,

Pete Moraga, a spokesperson for the Insurance Information Network of California, an industry group, says personal auto policies typically exclude coverage for vehicles when they're in commercial use.

“If you are (working for a TNC) and you have your own personal policy, the minute you pick up your rider that policy will cease to cover you,” Moraga says.

Lyft, Sidecar and UberX instituted excess liability insurance policies of $1 million per incident for their drivers, a level of coverage that the CPUC now requires. The commission found that coverage to be more than adequate for the TNCs and noted that the San Francisco Municipal Transportation Agency also requires the $1 million amount for cab companies.

What Those $1 Million Policies Cover

The excess liability policies are supposed to supplement a driver's individual coverage, providing coverage at the point where personal policies leave off. Which is interesting, if you consider that the insurance industry says that a driver's personal policy will exclude ride-service claims.

Kara Cross, general counsel for the Personal Insurance Federation of California, says that's a potential problem.

"Their coverage kicks in after any other coverage is paid first, "Cross says. "You might wind up that TNC (insurance) carriers are starting to find more and more situations that the personal carriers are not covering, and then you can have a problem with the TNC carriers.”

Lyft's Erin Simpson says even though the company's policy is called excess insurance, it has been custom-designed to “drop down” and cover any amount that a driver's personal policy doesn't. And the CPUC regulations specifically state that "the insurance coverage shall be available to cover claims regardless of whether a TNC driver maintains insurance to cover any portion of the claim."

Pete Moraga, from the Insurance Information Network of California, is skeptical that the drop-down feature resolves questions about coverage. "There was little involvement if any from the insurance industry in these regulations," he says. "The regulations that the CPUC enacted haven't stood the test of real-life situations. In real-life situations you may find there are a lot of gray areas where there’s going to be disputes, claims aren’t honored, and probably litigation at some point."

As the CPUC hammered out its TNC rules earlier this year, the California Department of Insurance said its preferred option would be to require the companies to carry $1 million in primary insurance for each driver — meaning policies that pay first if there's a claim. The insurance department said excess insurance would be acceptable as a lower-cost option for the TNCs. But it added such a dual system of insurance, depending on both a driver's insurance and a company's excess liability coverage, could result in confusion to consumers who need to file claims.

"It's a confusion issue," agrees Kara Cross of the Personal Insurance Federation of California.

In a written statement, the CPUC did not answer a direct question about the excess-versus-primary policy issue, saying only that its Safety and Enforcement Division is reviewing the TNC policies to "make its independent assessment as to whether the existing coverages conform to the CPUC's insurance requirements.”

John Zimmer says Lyft's policy has already been tested a few times and that there have been no problems getting claims through.

Uncertainty About TNCs' Terms of Use

Questions about insurance coverage also extend to the terms of service that the ride-service companies require drivers and passengers to accept. Among those raising that issue is Christiane Hayashi, director of taxi services for the San Francisco Municipal Transportation Agency.

“If there happens to be an accident involving the Lyft or Sidecar service," she says, "there’s the uncertainty of how the terms and conditions that people have to sign in order to participate in these services will affect the insurance coverage, because it disclaims all liability for anything whatsoever.”

The state Department of Insurance isn't fond of the terms either. The department wrote to the CPUC that "a disclaimer of liability in the TNCs Terms of Service could mislead a consumer into thinking that they do not have a recourse against a TNC, when in fact the TNC will be required to maintain $1,000,000 in coverage. The CPUC should prohibit waivers that will prevent consumers from having recourse to the insurance."

The CPUC did insert specific language in its final ruling to address this issue:

Nor can any Terms and Conditions in a TNC’s Terms of Service be used or relied on by the TNC to deny insurance coverage, or to otherwise evade the insurance requirements established in this decision.

Lyft CEO John Zimmer says the issue is a total red herring concocted by ride-service opponents. The disclaimer language used by his and other companies, he says, is “legal protection that any website will have, completely standard practice.”

What About Collision Coverage?

Even if you’re a TNC driver covered through the companies’ liability policies, that only covers damage to the other vehicle and passengers. If the accident is judged to be your fault, the liability coverage won’t help you pay for damage to your own car. That would require collision coverage, and the TNCs don’t offer that.

Erin Simpson of Lyft says drivers "would need to check with their personal carrier and check on their specifc policy” to make sure their collision coverage applies while working as a Lyft driver.

But Josh Wolf, a journalist who did a story for the Bay Guardian about his experiences driving for Lyft, says he ran into trouble when looking for coverage on a new car:

I was told that personal automobile insurance was insufficient. The insurance companies that cover limos and taxis said they couldn't help me either since my car wasn't registered as a commercial vehicle. Although Lyft provides a $1 million excess liability policy, there was no way to insure my own car against an accident. The lack of available insurance has left many drivers afraid to continue shuttling passengers, despite decent pay and flexible hours.

Kara Cross of the Personal Insurance Federation says there is definitely a gap in coverage for TNC drivers. “No coverage for collision, comprehensive coverage [theft, vandalism] medical payments,” she says.

But she adds that could change.

“It’s not to say that somebody might develop a product,” Cross says. “There’s been talk that maybe an insurance carrier will offer the marketplace (a policy) so you still have your personal coverage but there would be some language to cover these situations. As far as I know this product has not come out yet.”

One cab driver I spoke to who’s considering driving for UberX said when he tried to get collision coverage through his insurance company, he was told he had to go through a commercial carrier and get livery insurance. He called one up and was able to get a quote. That, coupled with the $1 million liability insurance requirement, has made him more comfortable about making the switch. (Update Jan. 17, 2013: The driver now tells me although he did get a quote originally, the company ultimately rejected his application because he was a TNC driver, and he was not able to get commercial insurance.)

Pete Moraga of the Insurance Information Network of California says drivers need commercial insurance, which is more expensive than a personal auto policy, if they want to be covered for anything more than basic liability on their ride-service vehicle.

For most of the ride-service drivers I talked to, though, these issues are somewhat abstract, if not confusing.

But Brad Newsham, a 28-year veteran cab driver, gives a glimpse of the reality that underlies all the talk about insurance. He says he once worked a year-and-half in an underground mine, and he puts cab driving 'right up there with it' in terms of stress, much of it due to being wary of "not killing somebody, not killing yourself."

"Sometimes when I'd have a close call, I would lose my nerve for awhile. You come to realize how dangerous it is," Newsham says. "You’re driving this one-ton piece of machinery at high speeds. To come within inches of killing someone or killing you, it’s a very, very dangerous activity.”

Just how dangerous, you can see in the case of the flying San Francisco fire hydrant. In that accident last March, a black town car on an Uber call collided with another vehicle while turning left on Divisadero. One of the cars hit a fire hydrant, sending it flying through the air. It struck a pedestrian, who sustained severe injuries. Uber is fighting a lawsuit over the incident, essentially arguing it bears no responsibility for the driver's actions.

The ride-service drivers I talked to aren’t focusing on that risk. Right now, they seem to be enamored of the good pay, flexible schedule and social aspects of their jobs. Any insurance concerns they may have aren’t serious enough to spur them to quit, with many citing the TNCs' $1 million liability policies as a mitigating factor.

Lyft driver Dan summed it up this way:

“Am I worried about the sky falling when I walk out the door? No. Is it more of a distinct possibility that when I’m driving for Lyft in the city? Yeah. But I’m not thinking about it.”

Part Three takes an in-depth look at a complaint of many cab drivers: payments demanded of them from cab company employees.