by Galen Hayes, President of Hayes Brokers, originally published on Property Casualty 360
The ads are enticing:
“Make $35/hour driving with us!” “You could make $800 a week or more!”
Ridesharing services, or Transportation Network Companies (TNCs), are everywhere. Uber alone signs up an estimated 20,000 drivers each month worldwide.
You have a nice car and could use extra cash. You sign up to be a driver, install the app and soon you are driving people around and making money. Too good to be true?
1) It Isn’t “Ridesharing”
The term “ridesharing” is a misnomer. Ridesharing is “the act or an instance of sharing motor vehicle transportation with another or others, especially among commuters” which sounds more like carpooling. This arrangement doesn’t involve a fee or contract.
TNCs use apps to connect a driver with a passenger for a fee. This is one definition of “livery.” Livery or for-hire companies typically charge a fee, and some employment contract between company and driver exists.
The definitions and usage of a personal vehicle are important when determining insurance coverage and even more important in the event of an accident.
On December 31, 2013, six year old Sofia Liu, her mother and her brother were crossing the street in San Francisco when Syed Muzzafar struck them in a crosswalk, killing Sofia. Mr. Muzzafar identified himself as an Uber driver and indicated that he was driving around awaiting a new transaction when the accident occurred.
Uber released a statement saying that the driver was “not providing services on the system at the time of the incident.” A $20 million wrongful death suit was filed by the family of Sofia Liu, naming Uber and Mr. Muzzafar as defendants. In a legal filing in May 2014 the company denied coverage under their own liability policy since the driver wasn’t engaged in a transaction at the time of the accident. It is unclear whether Mr. Muzzafar’s personal insurance has also denied coverage.
2) How Much Does TNC Coverage REALLY Protect?
According to most TNCs, automobile liability insurance coverage is offered to drivers. Coverage carried by TNCs may change without notice. (You can find the descriptions of coverage here: Uber / Sidecar / Lyft).
As a driver, these policies allegedly become your insurance policies from the moment you get a fare until the transaction is closed, where coverage presumably reverts back to your personal auto insurance policy.
What does your personal auto insurance carrier say about this?
3) Your Own Insurance Probably Won’t Protect You
TNCs require that drivers provide license, registration, and a copy of a current personal auto insurance policy. Some TNCs require background checks while others don’t. You may believe your insurance policy offers some protection while you are working for a ridesharing service. This is typically not the case.
Typical personal automobile liability policies exclude coverage for business conducted via personal vehicle.
Most insurance companies now include an additional question during the application or renewal process: Are you currently working with, or have you in the past worked with any ridesharing services?
The best way to know if your insurance carrier covers you while you are working is to ask your agent, preferably before you sign up with a TNC.
4) Don’t Ask, Don’t Tell
Last fall on a rideshare driver forum, a user asked: “Does your insurance company know you Uber?” The answer was a resounding “no”.
An Uber driver posted a video of himself calling his insurance carrier to find out if the company would cancel a driver if they found out he was working for a TNC. The agent said these matters were handled on a case-by-case basis, but may be referred to a commercial auto insurance company for coverage. The driver’s advice? “Don’t tell them.”
Don’t ask, don’t tell just might work if you don’t have an accident. If you do, you could lose your personal auto policy coverage for several reasons:
- Failure to disclose. Nearly every auto insurance application includes a warranty just above the applicant signature line that reads similar to this: “I/We understand and agree that any misstatement of warranty or fact on this application shall be considered a violation of coverage afforded under any policy issued on the basis of this application. I/We understand and agree that this application shall form part of any policy issued.” If you answer “no” when the truth is “yes,” this is material misrepresentation.
- Usage is important. When applying for auto insurance your agent will ask how many miles driven per month and the usage of your vehicle. Driving for a TNC changes not only the usage description of your vehicle, but also your exposure to accidents. Driving back and forth to work is significantly less exposure than driving around town for fares all day.
The possibility of having your coverage cancelled by your personal auto insurance carrier is real. TNC drivers have provided evidence of coverage being cancelled due to business usage of their personal vehicle for rideshares.
5) Make Money Or Lose Your Shirt?
Inc.com did research on the time and effort required to earn a living wage working for a ridesharing service. They found that once you factored in insurance, fuel, and maintenance charges, it takes a lot of rides to earn a solid wage.
But these costs don’t take accidents into consideration. An accident while driving for a ridesharing company can reach deep into your wallet.
You are a rideshare driver. You have a fare and are involved in an accident. The $1,000,000 company liability policy pays the damage to the other vehicle and the medical bills for your passenger. Consider these scenarios:
- The damage to the other vehicle as well as the damage to the passenger’s belongings and the passenger’s medical bills exceed $1,000,000 (as in the case of Mr. Muzzafar). You are on the hook for anything exceeding the $1,000,000 threshold. Your personal auto policy will likely deny coverage under the no passengers for a fee exclusion (and cancel your policy).
- Your vehicle is badly damaged in the accident. The TNC offers physical damage coverage for your vehicle, but usually only after your personal auto policy denies the claim (and cancels your policy).
- You are badly injured in the accident. Because you are a 1099 contract employee there is no workers compensation policy to cover injury or disability. You are responsible for purchasing disability and/or life insurance on your own, as well as a medical insurance policy that covers you while on the job, many don’t. Failure to carry correct medical insurance coverage means your medical bills come out of your pocket.
- Your injury and the injury for your passenger(s) may not qualify for the Personal Injury Protection (PIP) portion of your policy (if applicable), since the coverage is excluded.
Aside from medical bills and lost wages, an accident can have large financial consequences. Replacing cancelled coverage can be difficult and expensive, with increased premiums lasting years into the future. These costs should be considered when determining how much you can really make.
To Drive or Not to Drive?
There are many pending insurance issues involving TNCs. California (among other states) as well as Germany, Thailand and other countries have issued Cease and Desist orders based on situations where TNCs have avoided taking responsibility for cases that involved injury, rape, and death.
The insurance industry is also trying to catch up, but in the meantime there are huge gaps in coverage for TNC drivers. Until a hybrid or multi-use policy rolls out nationwide, drivers risk their personal auto insurance coverage and financial ruin well into their future every time they pick up a passenger.
TNCs haven’t yet taken responsibility for insurance in certain cases of serious injury, rape or death. The sharing economy is still in its infancy and changing every day. Current and prospective TNC drivers must be wary of the assumption that these companies provide coverage.
You may wonder how much you could make as a driver, but how much can you afford to lose?
The information in this article is current as of April 29, 2015. The opinion in this article is not a legal claim.