Is That Uber Driver Covered? Coverage Issues for Today’s Ride-Sharing App Drivers

Uber, Lyft, Sidecar, and other ride-sharing taxi companies—known as “Transportation Network Companies,” or TNCs, in the biz—are growing in popularity, not just in the United States, but in other countries as well. They’re growing so fast that insurance coverage for these companies has not fully caught up—and there are major gaps in coverage that affect the companies, the drivers, and the passengers.

There are two ways TNC drivers get covered: either the company provides the coverage, or the driver does. The problem with individual coverage is that personal auto policies don’t usually include livery coverage—so anything that happens while the driver is being paid to drive isn’t covered. In addition, commercial coverage isn’t always readily available to individuals.

The biggest TNC companies do provide commercial coverage to their drivers, but even those that don’t provide it also don’t require drivers to maintain commercial coverage of their own. The problem with the type of coverage the companies do offer is that it usually doesn’t offer the same provisions for uninsured and underinsured motorist accidents, medical coverage, comprehensive and collision coverage that drivers get through personal auto policies.

Most TNC companies patch together coverage using both their own commercial insurance and the personal auto insurance maintained by the drivers, and many drivers don’t understand how gaps in coverage affect their own finances if they get in an accident with their own vehicle. If they’re renting the vehicle, the lienholder can be affected too—as well as any passengers or other drivers involved in an accident with a TNC driver.

The biggest TNC companies are starting to attempt to close coverage gaps arising from livery exclusions in drivers’ personal auto policies by offering liability coverage, uninsured / underinsured motorist coverage, and comprehensive / collision coverage during the time the driver is working. The difficulty is that it’s a little more complicated than you’d think to determine when the driver is driving for a fee and when he is using the vehicle for personal purposes, as both might happen in a day; and these patchwork policies can vary greatly between companies.

The biggest TNC companies are starting to attempt to close coverage gaps arising from livery exclusions in drivers’ personal auto policies by offering liability coverage, uninsured / underinsured motorist coverage, and comprehensive / collision coverage during the time the driver is working. The difficulty is that it’s a little more complicated than you’d think to determine when the driver is driving for a fee and when he is using the vehicle for personal purposes.

The way it’s most commonly broken down these days is into three exposure periods. During Period 1, the driver turns on the app, but doesn’t yet have a passenger. During Period 2, the driver has accepted a passenger match, but the passenger isn’t yet in the car. During Period 3, the passenger is in the car.

Uber’s insurance, for example, only fully covers drivers during Periods 2 and 3, with a lower-limit contingency policy covering Period 1. This isn’t unusual in the industry, where TNCs only cover claims made during Period 1 if the driver’s personal auto insurance doesn’t cover it.

There is a dispute in the industry about the risk involved in Period 1, however. During this time, the driver hasn’t yet matched with a passenger. The typical TNC position is that there is no increase in risk during this time. However, both insurers and consumer protection groups have argued that drivers are likely to be distracted during this time—looking at the rideshare app on their cell phones and looking for a match. They may also be driving faster than usual to get to passenger pickup points.

Legislation is catching up to the issue, but slowly. In Nevada, for instance, if a driver working for a ride-sharing company doesn’t tell their insurer that they use the car as a taxi sometimes, the insurer can cancel the driver’s policy or deny coverage—if they find out. In California, the law requires ride-sharing companies to provide a $1 million primary liability insurance policy for most of the duration of the driver’s commercial activity.

In coming years, we’re expecting the legislative landscape to catch up further—and for the patchwork of laws currently on the books in disparate states to start to come together into a more coherent whole. This will be better for the industry, the drivers, and the passengers—as well as the safety of everyone on the road.

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