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How does insurance work for ride-share drivers?

For the purpose of insurance coverage, the activities of a ride-share driver may be classified in three stages:

1. Driver operating his/her vehicle not using the app

The first stage of activity is when the driver is operating his/her vehicle, not using the ride-share app technology or seeking riders. At this level, the driver is bound by the same insurance coverage requirements as any other motorist, although the company policy of various particular ride-share groups may impose additional requirements on their drivers, even in this relatively app-independent stage.

2. Driver using the app and actively looking for fares

The second type of activity is when ride-share drivers have activated the app of the company for which they drive, and are actively looking for fares. The driver has not at this stage accepted any particular request. During this ambulant activity, ride-share companies may only carry a contingent liability policy in case the driver’s individual insurance coverage is denied. The companies do so on the assumption that each individual driver is covered by his/her insurance policy up until the moment a passenger enters the vehicle. According to the National Association of Insurance Commissioners:

“The largest insurance coverage issue surrounds the driver’s personal auto insurance policy. The Personal Auto Policy typically excludes coverage for livery. As a result, a TNC driver’s personal auto insurance policy may not provide coverage when the driver is using his car to transport people in a ride-sharing arrangement for a fee. This applies to liability insurance, personal injury protection coverage in no-fault states, comprehensive coverage and collision, and UM/UIM.”

The Boston College Law Review emphasizes this matter, noting that, “Drivers’ personal policies usually do not cover commercial activities. In addition, most personal auto policies contain express livery exclusions stating that the policy will not cover the insured if the insured uses the vehicle to carry persons for a fee.”  This livery exclusion may apply to the vehicle operations that take drivers from one fare to the next. By comparison, a person employed by a taxicab company, even if he/she uses a personal vehicle, must purchase and maintain a commercial insurance policy. With specific reference to Uber, the article states, “misrepresentations about Uberx drivers’ inadequate insurance coverage violate established public policy. […] Uber’s knowingly misleading Uberx drivers about their inadequate insurance constitutes immoral, unethical, and unscrupulous conduct.”

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3. Ride-share drivers transporting passengers

At the third stage, drivers are transporting passengers, and are most often covered by a ride-share company’s commercial policy.

The topic of insurance coverage is complicated by the decentralized regulatory structures of states and municipalities that set various standards for the taxicab industry and for auto traffic. What is required of Texas drivers, whether they are driving for private transportation or commercial purposes, may be different from the requirements imposed by Arizona, Nebraska, or Florida. As the industry experts note, “Insuring commercial ride-sharing companies is challenging, because it is an emerging business with little data to support underwriting and rating decisions.”

Incidentally, parallel regulatory challenges constrain the establishment of standards for tech-centered start-ups, including those that provide an app-based service for peer-to-peer transportation. And in start-up dependent economies like Austin’s, onerous regulation may hinder entrepreneurial progress. It is critical to note that, while some ride-share companies insist that their product is a technology service, and that they do not themselves own any vehicles, the material damage and personal injuries that result from accidents involving ride-share cars may be just as severe as any other that occur in dense traffic.

 Very little case law exists that establishes the liability of ride-share companies for their drivers’ tortious actions. In some cases, injured parties have attempted to establish liability on the grounds that the employment relationship connecting ride-share drivers and ride-share companies creates vicarious liability. In this line of reasoning, the ride-share companies are liable under the respondeat superior principle, assuming accountability for the actions of those of whom they are in charge. Against these claims, ride-share companies have repeatedly claimed that, because their drivers are independent contractors rather than employees, no liability falls on the company. In two notable cases—one in Florida and one in California—two plaintiffs successfully demonstrated employment relationships; both of them, however, pertained to employment benefits rather than tort liability, and neither was precedential.

An article in the California Law Review argues that, rather than the employment test, which relies on antiquated labor standards, cases for the liability of Transportation Network (ride-share) Companies (TNCs) ought to be based on the “nondelegable duty” that the companies have to “protect the safety of passengers and the general public.”  The nondelegable duty principle applies “where a company is liable when it is subject to public franchise,” or “where a company undertakes an activity that is inherently dangerous to others.”  Both of these conditions apply to ride-share companies. They operate under a license granted by a public authority, specifically a privilege to “use city streets for profits.”  Moreover, the licenses extended to ride-share groups are administered to protect public safety and welfare. The article proposes that the nondelegable duty principle supplies “a means of holding TNCs liable that will recognize their unique employment structure while also confronting the not-so-unique dangers that TNC services pose to passengers and bystanders.”  Further, the author notes that, “There is precedent for extending this element [the public license] of nondelegable duty to personal transportation companies. Indeed, a number of state courts have used the nondelegable duty doctrine to hold taxicab companies liable for acts of independent contractor drivers.” Regardless of the applicable legal argument, navigating the terrain of ride-share insurance coverage in the case of personal injury and loss is difficult, and requires the experience and skill of an experienced attorney.

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