The Transportation Network Companies (TNCs) have been dragged — kicking and screaming — into a closer approximation of an ethical business position. First they offered no coverage. Then they purchased excess auto liability policies. Then they added Uninsured Motorist and Underinsured Motorist coverage. Our laws have long held that culpability in auto accidents should be assessed against those accountable. Why the TNCs have seemingly tried to dodge their responsibility is a mystery, as their financial responsibility is inevitable. They need a Lyft out of an Uber mess.
The regulators have danced around the issue while appearing partially blind by apparently eagerly checking the “insurance box” when such a position is patently ridiculous. Imagine providing a policy to your home’s mortgagee that includes coverage for half of the market value and covering only the peril of theft, while ignoring windstorm, fire, hail, and all the other common causes of home loss. Your mortgagee wouldn’t stand for it, and neither should the regulators allow the TNCs to provide inadequate coverage.
The TNCs started out by trying to avoid insurance expense by calling themselves “ride-sharing” companies. They did this with a purpose. Ride-sharing is allowing someone to ride in your car while you travel to a destination you would have gone to otherwise. That additional person (or persons) can share expenses. One common form of ride-sharing is a carpool to work. “Ride-sharing” is specifically allowed under a private passenger auto policy. “Livery” is excluded, which is carrying a passenger for hire. The TNCs are not “ride-sharing” because “but for” the profit motive the passenger would not be in the car and/or the car would not be going to that particular destination.
They compounded this ruse by telling their drivers that the individual’s policy would cover “ride-sharing” which was technically true, but when taken in context, quite false.
The average cab, in the United States, pays about $1.00 per fare for auto insurance. It seems churlish for TNC’s to not keep enough of the gross fare to cover their expense, including adequate insurance. They have worked extremely hard to avoid rate regulation, which allows them to charge surge rates, so charging enough gross fares doesn’t seem overtaxing. Instead, they have actively engaged in activities that have resulted in their drivers avoiding proper disclosure to their individual private passenger auto carriers, action that has been described as insurance fraud.
I’ll try in this article to pass along information, but mostly I’ll ask questions that have been bothering me for some time.
Why did James River Insurance Company write the commercial auto insurance for Uber and Lyft after the liability policy became primary instead of excess?
James River Insurance Company is a non-admitted carrier in all states but one. A non-admitted carrier is also called a surplus lines company. A non-admitted carrier meets a lower standard to be approved to do business in a given state. For example, they aren’t required to file rates or forms for approval. Admitted companies must have their rate/form filings approved in order to write business.
In many states, primary auto liability is not eligible for exportation to the surplus lines market. Non-admitted insurance companies are subject to fines and other disciplinary measures if they write primary auto liability in those states. Excess auto liability is eligible for exportation to the surplus lines market.
The same could be said of Nautilus Insurance Company, who is another non-admitted carrier providing coverage for TNCs. Since Nautilus is part of W.R Berkley Insurance Group, it is baffling why they didn’t issue the coverage in an admitted market.
There are many companies who will allow other companies to issue policies on their paper. This practice is usually used when a company like James River Insurance Company wishes to assume a primary auto liability risk in a state where they’re non-admitted. This common process is called “fronting.” It usually involves the fronting company receiving a fee plus one hundred percent reinsurance from the non-admitted market.
A certificate for a TNC in California shows National Fire and Marine, a Berkshire Hathaway company, as the carrier. That company is an admitted market and may well be “fronting” for another company.
More salient to my question, James River Insurance Company had at least limited experience as a primary auto carrier. Why would a company who rarely wrote auto insurance suddenly decide to take on a very esoteric auto risk? A check of their website on 12/22/2014 indicated the following.
Years ago I was an excess and surplus lines underwriter (non-admitted). The list of coverage provided by James River Insurance Company is common for that industry. Writing primary auto would be unusual for a non-admitted market.
Insurance companies are highly reliant on reinsurance in most instances. Reinsurance is the formalized process of one insurance company sharing a risk it has assumed with another insurance company. The documentation of the reinsurance agreement is often called a treaty. Companies that don’t write primary auto insurance would probably have that kind of exposure excluded from their treaty.
In order for a company to change their treaty, the reinsurer(s) would have to agree and would certainly be diligent in determining if the insurance company had the underwriting acumen needed.
Of course, James River Insurance Company could have hired the auto underwriting talent, or may have decided to keep the entire risk in-house without reinsurance.
Nonetheless, it is extremely strange for an insurance company to step so far outside of its core discipline.
I have not seen the current policies for Uber and Lyft and can only rely on the certificates of insurance filed with the California PUC. The Uber certificate makes no mentioned on UM, UIM or PIP coverage, which are all important in my state of Minnesota. The Lyft certificate indicates the policy provides UM and UIM.
Why aren’t regulators requiring the individual drivers to meet statutory requirements for transportation providers?
The Uber site says, “We are not a transportation provider.” The TNCs have repeatedly asserted this position in trying to avoid regulation.
Legally regulators have danced around the issue, and in the process have seemingly missed the logical point: If the TNCs are not “transportation providers” and someone is being hauled from point to point for profit, than the only logical conclusions is that the individual taxicab owners are “transportation providers” and should be individually regulated.
It’s possible drivers are using multiple TNCs. Which policy will respond when all of their apps are turned on? This confusion could be avoided through regulation of the individuals and not the TNCs.
Now that Erie Insurance Company has started to write an insurance policy to cover inadequate insurance, why don’t regulators recognize the problem of inadequate insurance?
Erie Insurance Company is a highly regarded insurance company. They’re known as one of the most conservative and service-oriented companies in the property and casualty business. There is simply no way they would sell an insurance policy that isn’t necessary.
One of the big holes that they fill is that period when a driver leaves his home to go to a part of town where fares would be more likely. “But for” his TNC related activities he wouldn’t be driving. Therefore, his private passenger auto carrier is well within their rights to deny coverage for a loss that occurs during that time.
That period is part of the transportation service and as such should be regulated.
TNC drivers are now hiding the fact of their TNC employment from their private passenger auto insurance companies, before and after claims occur.
With over 32,000 traffic deaths annually in the United States, adequate auto insurance is not a nicety. It is an underpinning of our social fabric.
You will defend, indemnify, and hold Us and Our officers, directors, employees, agents and any third parties harmless for any losses, costs, liabilities and expenses (including reasonable attorneys’ fees) relating to or arising out of Your use of the Service, including:
- Your breach of this Agreement or the documents it incorporates by reference; or
- Your violation of any law or the rights of a third party, including, without limitation, Drivers, Riders, other motorists, and pedestrians, as a result of Your own interaction with such third party,
- any allegation that any materials that You submit to Us or transmit to the Services or to Us infringe or otherwise violate the copyright, trademark, trade secret or other intellectual property or other rights of any third party;
- Your ownership, use or operation of a motor vehicle or passenger vehicle, including Your provision of rides to Riders; and/or
- any other activities in connection with the Services. This indemnity shall be applicable without regard to the negligence of any party, including any indemnified person.
You agree to indemnify and hold Uber and its officers, directors, employees and agents, harmless from any and all claims, demands, losses, liabilities, and expenses (including attorneys’ fees), arising out of or in connection with: (i) your use of the Services; (ii) your breach or violation of any of these Terms; (iii) Uber’s use of your User Content; or (iv) your violation of the rights of any third party, including Third Party Providers.
Given these contractual terms how do regulators believe drivers and riders are properly covered?
If you were getting into a taxi and the driver handed you an agreement to sign that contained the above, would you sign, or get out?
As a rule, I tend toward favoring less regulation. However, in this instance it appears the TNCs are forcing the current taxi industry out of existence using the regulators as a blunt instrument.
If the regulators aren’t going to do their jobs, they should at least get out of the way and allow the free market to work.
Other Enhanced Insurance articles related to the sharing economy:
Enhanced Insurance is not written by attorneys. If you’re looking for legal advice, you need to contact a lawyer. Further, insurance practices and forms change constantly and are varied from state to state. For definitive answers in your area, contact a local agent.
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