California forces ride-hailing services to bolster insurance
California has installed strict new insurance laws aiming to clear up ambiguity when drivers are on the roads. As of today, Uber and other transportation network companies (TNCs) must provide primary third-party liability insurance—covering the costs of injury, death, and property damage to third parties when a driver is in a car without a passenger during working hours. They must also maintain $200,000 of excess liability coverage in the case of particularly bad accidents. In effect, the companies are now liable from the time drivers open their apps to the time they close them.
Starting today, California's strict new insurance rules for Uber and its ride-hailing rivals take effect. The law, passed close to a year ago, aims to clear up the ambiguity around when drivers are truly on the roads working versus just driving around in their private cars, and whose insurance kicks in as a result. That may sound wonky, but it's much more than legalese: as the tragic case that helped spur the legislation shows, it's a genuine matter of life and death.

On New Year’s Eve 2013, a driver for UberX—the company's lower-priced service in which drivers use their own private vehicles—ran into a family in a San Francisco crosswalk, killing a 6-year-old girl and seriously injuring her mother and brother. Uber said that the driver wasn't covered by its insurance at the time, because while he did have the Uber app open and was waiting to book a ride, he hadn't actually accepted a fare and had no passenger in the car. As such, the company said, he wasn't technically working for Uber.

This blurry phase is what's referred to as Period 1—the time during which a driver has logged into the app but has not yet booked or picked up a passenger. As of today, Uber and other so-called transportation network companies (TNCs) must provide primary third-party liability insurance—covering the costs of injury, death, and property damage to third parties—during Period 1. They must also maintain $200,000 of excess liability coverage in the case of particularly bad accidents. In effect, the companies are now liable from the time drivers open their apps to the time they close them.

The law also clarifies that drivers' personal insurance for their private vehicles can no longer cover Period 1. This prevents ride-hailing companies from claiming their insurance policies shouldn't kick in because drivers already have personal coverage.

"The bill not only recognizes the innovation of technology within the ride-sharing world, it’s also spurred innovation in the insurance world,” says Assemblywoman Susan Bonilla, sponsor of AB 2293. “A policy always needs to be looking forward, not backward or to the status quo."

The new law kicks in at a time when Uber, Lyft, and other ride-hailing companies are surging in popularity and reach. Uber says more than a million people have already driven for the startup, and both companies use aggressive recruiting tactics to get even more people driving on their platforms. But a lack of clarity around insurance rules has left everyone—the companies, drivers, passengers, and insurers—fumbling to manage risk and assign responsibility.

Taking on the Risk

Many on-demand drivers have kept their insurance companies in the dark about their status as Uber and Lyft drivers in hopes of keeping their rates down1.

"I think it’s smart to stay out of the limelight so they don’t decide to target drivers and somehow get more money out of us," says Doree Kaplan, a San Diego resident waiting on approval to drive for Uber.