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Auto insurance a big gray area at ride-sharing services

What you don't know about driving or using app-based ride-sharing services can be costly.

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There’s a heck of an auto insurance Catch-22 for ride-sharing service drivers, and few regulators seem to be stepping up to solve it.

To drive for Lyft, Uber or other ride-sharing companies, you obviously need auto insurance. Most personal auto insurance policies, however, don’t cover using your car for commercial use.

If you use your car as a taxi anyway for one of these transportation network companies, or TNCs, as they’re called, and you get in an accident, the TNC’s insurance coverage will only cover you after you first ask your personal insurer to provide primary coverage. And even the TNC coverage is questionable, depending on where you’re at in the passenger pickup process.

And here’s the final kicker: When you tell your insurer that you’ve been in an accident while providing a service it excludes, expect to have your insurance dropped.

What’s ride sharing?

If you haven’t used a ride-sharing service, or at least heard of one, you may be pleasantly surprised or horrified by it, depending on your views of driver training.

Riders can summon a ride using a phone app. To call a ride, you simply enter where you are and where you want to go. Within minutes a driver who is 21 or older, who is using their own insured car, has a clean driving record and no criminal record, picks you up. Payment is made through a credit card. Drivers pick their own hours of operation and give a percentage of their fare to the TNC.

“The economy’s been slow for a number of years and they have a car and want to drive people to the airport, why not?” says Tim Dodge, assistant vice president of research at Independent Insurance Agents & Brokers of New York.

Drivers don’t have to go to training school, as taxi drivers do, which should be enough to scare off riders from a safety standpoint, says Chris Dolan, a San Francisco attorney representing the family of a 7-year-old girl who was struck and killed by an UberX driver.  The girl was crossing a street and the driver was distracted by the UberX app on his phone while looking for passengers, according to Dolan.

California and Colorado close insurance gaps

While that civil case hasn’t been resolved in court yet, it has led in part to the passage of a law in California that takes the onus off individual drivers and puts it on the TNCs to provide insurance coverage during the entire time when a driver is working.

There are three times during a ride-sharing driver’s time at the wheel when insurance either kicked in from the TNC or there was a gap where only the driver’s insurance was available.

The first was when the driver logs into the TNC’s system, meaning they’re available for work but haven’t yet picked up a passenger. Before the deadly New Year’s Eve accident in San Francisco, this time wasn’t covered by the TNC insurance.

Lyft and UberX have since added insurance, though at levels much lower than the $1 million in liability and $1 million in uninsured/underinsured motorist coverage they offer between accepting a trip to passenger dropoff. Both companies now offer contingent coverage of $50,000 per person for bodily injury, $100,000 per accident for bodily injury and $25,000 for property damage.

The second time the status on TNC insurance changes is when the driver is matched in the app with a passenger to pick up. Again, before the San Francisco accident, matching drivers with customers didn’t cause a TNC’s insurance to kick in, Dolan says, but has since been added to the $1 million insurance required during the third and final stage of pickup to dropoff.

California law closes all of those gaps in June 2015, requiring TNC insurance from log-in to passenger dropoff. Colorado has a similar law. Other states are studying the issue, with some not allowing ride sharing at all.

Personal insurance not a good backup

Normally the policy on a car is “primary,” meaning that the insurance company that issued it would pay for the defense of the claim, as well as the damages, up to the liability limit of the policy, says John R. O’Brien, an attorney in Chicago who has represented many personal injury cases in 36 years of practicing law.

But the exclusion from using cars “for hire” hasn’t been tested in the courts yet, OBrien says.

“Because ride-share is a fairly new concept, it is not clear how the courts would apply that exclusion,” he says. “The might decide that, unlike a taxi or livery service, a ride-share arrangement is occasional and incidental, and refuse to apply the exclusion. Or they might go the other way, saying that any ‘for-hire’ use is excluded.”

The contingent coverage that takes effect when a driver logs on but isn’t yet transporting passengers isn’t adequate because a driver distracted by the app could hit someone, as happened in San Francisco, says Dolan, who doesn’t think the TNC liability coverage is enough.

“I think human life is worth more than $1 million,” he says.

The contingent coverage is just that, contingent on the driver’s insurance denying coverage, says Bob Passmore, senior director of personal lines policy at the Property Casualty Insurers Association of America, which represents insurance companies.

“Some people may be comfortable with that ambiguity,” Passmore says. No insurance companies are offering ride-share drivers coverage for using their cars for commercial use, he says, though MetLife is partnering with Lyft on offering some sort of insurance that hasn’t been detailed yet.

PCIAA advocates coverage for the entire time a driver is logged in to a TNC, and wants drivers to know what coverage they have and when, Passmore says. “Holding your vehicle out for hire” will likely result in zero coverage on a personal policy, he says, and buying commercial insurance to run a taxi is significantly more expensive.

$2,500 deductible

Along with the liability and other coverage questions about TNC insurance, there’s the added cost to drivers of paying a deductible to their TNC for collision damage, says Harry Campbell, a ride-sharing driver in Orange County, Calif., for various companies who blogs about ride sharing.

Lyft has a $2,500 deductible and UberX has a $1,000 deductible that drivers must pay to get TNC coverage after their car is damaged in a collision. It’s a cost most drivers don’t think about, or don’t know about, says Campbell, who drivers about 10 hours a week and earns $20 to $30 an hour.

“Everyone likes to hope for the best,” he says. “ ‘Oh, I don’t want to think about the costs if I get into an accident.’”

If they get into an accident, TNC drivers must first file a claim with their personal insurance company, and then the TNC will step in if the claim is denied. Which it likely will be, he says.

Campbell says he hasn’t told his insurer that he drives for Lyft and UberX because the insurer would drop him if he had an accident while driving for a TNC. The loophole, he says, is that his insurer hasn’t asked him if he’s driving for such services, which might get him coverage one time but then dropped immediately or not renewed.

“If it does (ask), I’m not going to lie at that point,” Campbell says.

That loophole really doesn’t exist, says Dodge of the independent insurance agent group. Applicants have a legal obligation to disclose if they’re a TNC driver, he says, though if they later become a TNC driver then disclosure isn’t required after the fact.

A bigger concern for such drivers, Dodge says, is what happens if they hit someone and either their coverage or the TNC insurance doesn’t cover the medical expenses and other costs of the injured.

“You’re sort of at the mercy of whatever insurance Lyft has,” he says.

Where does all of this lead? As states and insurance companies grapple with when ride-sharing drivers are responsible for insuring themselves and passengers, the ultimate solution may be driverless taxis.

That may be the grand scheme with TNCs, Dolan says. Google, a leader in driverless cars, owns Uber. Tesla Motors is backed by Google’s founders, and could someday have Google’s software in its cars with driverless Teslas picking up passengers as a taxi service, Dolan says. That’s another possible auto insurance gray area for another day.

Aaron Crowe is a freelance journalist who specializes in personal finance topics. Find him on Twitter @AaronCrowe or on his website, AaronCrowe.net.

Categories: Auto