Transportation Network Companies (TNC) have arrived in force and established a foothold throughout the entire country. Needless to say, that means that at one time or another, you have used a ride sharing vehicle from companies known as Uber or Lyft. Their convenience comes from the use and large numbers of car owners who are willing to become independent livery drivers (or “Gypsy Cabs”). The ease of ride hailing through the use a smart phone app allows a person to find a ride within minutes and at a pre-negotiated, pre-arranged fare. With such convenience, the “Ride Sharing” concept has caught on like wild fire for those in need of a taxi or airport ride.
Unfortunately, with a livery operation come insurance exclusions for owners and drivers of those private vehicles for which the personal automobile policy was never meant to cover.
According to noted insurance consultant, Brian Boucher, “…It’s important to note that there are three separate working phases when a driver requires liability insurance coverage. Phase 1 is working and waiting for a ride match; Phase 2 is when a match with a passenger has been made; and Phase 3 is when the passenger is picked up in the car.”
What does all this mean for the occasional Uber driver using his private car to pick up passengers? Well, it means he has no coverage under the personal automobile policy in Massachusetts while he is providing a livery service to the public. The policy was never meant to cover a commercial vehicle exposure.
So what does the TNC driver do to protect himself? The answer to that question is based upon three possible options.
1.) The owner can buy a commercial automobile insurance policy to cover his exposure as a livery driver. The cost is substantially higher than his current personal auto policy, but the potential of loss is greater while driving a paying passenger. Still, it is the best solution to the problem.
2.) The private owner can buy a new type of endorsement that personal auto insurance companies are starting to produce for a limited part of his claims exposure. It will provide coverage while the driver is in transit to pick up the passenger. The endorsement will be fairly inexpensive and the reason for that is that bodily injury coverage has a maximum limit of $35,000 per person and $80,000 per occurrence. Once the driver picks up the passenger, then his policy coverage ends and the TNC policy commences protection.
Note: My staff canvassed several auto insurance carriers about the coverage endorsement and two things became clear. Not every carrier is adding this endorsement to their policies at this time. Also, underwriters advised us that, if the insured driver has an Umbrella policy, then they will cancel it due to the increased exposure of driving for hire.
3.) TNC driver and owner can completely rely on the TNC’s insurance program to provide coverage for his passenger transportation. As an example, Uber’s policy provides $50,000 per person and $100,000 per occurrence while the driver is in transit and a $1,000,000 bodily injury limit while carrying a passenger.
Note: The TNC’s contingency liability coverage of $50,000/$100,000 would probably never come into play, because the TNC policy is secondary and excess to a driver’s personal insurance policy. In Massachusetts, since the compulsory bodily injury limits of $20,000/$40,000 would still be payable even with the ridesharing exclusion and may cause a gap in coverage for the driver. In addition, the current TNC policies are written by insurance companies that are non-admitted in most states. “They are not highly regulated by the state. Should there be any issue with the carrier, such as outstanding claims, then the state insurance division will have very little regulatory control or power to do anything.”
While each option has pros and cons, the most comprehensive choice is to switch to a commercial livery policy. The cost could be very high, but so is the protection afforded to the driver and their personal assets. The other options are less expensive or no cost at all, but the old saying comes to mind in that “you keep what you pay for.” The question then becomes whether or not ride sharing is worth it to the driver and owner of his own car? ___________________________________________________________________________
A very big shout out and thanks to Owen Gallagher of the Agency Checklist at www.agencychecklist.com and Brian Boucher, livery and taxi insurance expert for their help in providing their research as well as their articles for this story.
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