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Once Friendly Territory, California Looks to Toughen Rules for Uber, Lyft

| June 17, 2014
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The California Public Utilities Commission requires Transportation Network Companies like UberX to display signage. (Jeremy Raff/KQED)

(Photo: Jeremy Raff/KQED)

In February, when Lyft was battling to stave off regulations of ride-service companies in Seattle, company CEO John Zimmer pointed to California as a shining example of a fruitful partnership between a disruptive tech industry and regulators.

“California had a yearlong rule-making process with several steps,” he said in an interview about the California Public Utilities Commission’s decision last year to sanction what it calls Transportation Network Companies, or TNCs. “And they were able to come out with something that put, in many cases, more strict standards on new companies like Lyft, yet preserved innovation and consumer choice. I think that’s a fantastic model.”

Ride-service firms in a struggle with legislators and regulators over insurance and other issues.

But critics of companies like Lyft and TNC behemoth Uber were not so happy with the CPUC ruling. Taxi companies and their regulators led the charge: Despite a host of requirements the commission created as the cost of TNCs doing business in California, these were nowhere near the regulatory burden that taxis had to contend with in San Francisco and other cities, they said. The biggest complaint: The state was not saddling the Lyfts and Ubers with the same stringent insurance requirements that taxi firms must meet under local regulations.

The TNC industry has portrayed these protests as the loud protectionist rumblings of an obsolete industry. But now, nine months after the commission’s decision paved the way for ride-service upstarts to purloin large chunks of cab business, the home state of the most prominent ride-service companies may be on the verge of levying significantly more rigorous insurance mandates, either through legislation, the regulatory process or both.

A stern letter that CPUC President Michael Peevey sent last week to UberX, Lyft and three other TNCs serves as a sign of just how precarious things have gotten for the industry in California. The letter threatened to revoke the companies’ licenses unless they prevented drivers from operating at five California airports. Not only did TNCs fail to obtain the necessary permits to serve the airports, Peevey wrote, but the vast majority of drivers flaunted CPUC regulations by not displaying required insignias on their vehicles. In addition, some drivers could not provide proof of insurance, and on two occasions at San Francisco International, operated without a valid driver’s license.

Peevey expressed his “personal disappointment and concern about this behavior.”

Uber was less than contrite: “We have spent countless hours with airport managers and their staff to help develop requirements that are aligned with CPUC regulations and embrace the spirit of ride-sharing,” company spokeswoman Eva Behrend said in a statement. “The tone of the majority of these conversations has been mutually respectful and productive. It’s unfortunate the CPUC is not allowing the airport process they designed to proceed by allowing ride-sharing companies to continue working with California airport authorities on their permitting process.”

(Update June 17: A representative for Uber said at a state Senate committee hearing today that it needed to do a better job of informing drivers of the insignia requirements. But she also said drivers do not like to identify themselves as working for TNCs because of harassment from taxis. We have also heard this, especially from Lyft drivers, who frequently remove the trademark mustache from their cars for the same reason.)

But the airport kerfuffle could prove to be a mere skirmish compared to other regulatory battles brewing around an industry that has expanded globally with startling rapidity. On June 6, Uber announced it had raised an additional $1.2 billion in investment capital to up its valuation to $18.2 billion.

Sacramento Takes a Whack

On Tuesday, the Senate Energy, Utilities, and Communications Committee heard two bills intended to inject a stronger dose of regulation in the world of TNCs, especially around insurance.

The TNCs offer drivers $1 million in commercial liability insurance, the same requirement as what San Francisco taxis must carry. But TNC coverage is excess insurance, ostensibly triggered only at the point where the personal policies of TNC drivers, using their own vehicle, after all, stop paying. The TNCs contend that drivers’ personal policies should be the insurer of first resort. But both the insurance industry and the state Department of Insurance have now taken the position that this set-up is based on a fiction, contingent on the erroneous view that drivers’ personal insurers will be happy to or at least tolerate paying claims for individuals who drive commercially for TNCs, an activity that has not been factored into the price of their policies. If it is a fiction, though, it’s one that makes TNC insurance less expensive, because it assumes drivers’ own policies will pick up at least some of the liability cost for accidents.

Uber, Lyft and Sidecar, another TNC, all insist drivers’ personal insurers have paid claims for accidents occurring during a paid ride. The insurance industry says that’s because the drivers’ insurer didn’t know the accident happened on a TNC call.

The insurance industry is attempting to dismantle this two-tier TNC coverage by backing AB 2293, sponsored by Assemblymember Susan Bonilla (D-Concord). The bill, which does not set specific coverage amounts, would require TNCs to advise drivers that their personal insurance may not provide coverage during TNC work. It would also force the companies to carry primary insurance, like taxis do, and defend drivers against lawsuits for loss or injury when providing TNC services. The bill would also extend the time that drivers are insured to when they have their apps open but have yet to accept a call, so called “Period 1.”

In a statement, Uber called the bill “a back-room deal by insurance companies and trial attorneys to prematurely force the ridesharing industry to fit their special interests. The bill allows insurance companies to escape their liability for services they’ve already charged ratepayers, and helps trial attorneys work the system to ensure they get the largest payouts possible.”

(Update June 17, 1 p.m. The energy committee forwarded AB 2293 to the Committee on Insurance. The bill does not contain specific amounts of required coverage, but that is where the debate appears to now lie. At the hearing, representatives for Lyft and Uber said they support a number of the bill’s requirements: that their insurance be primary, that there be a written disclosure to drivers of TNC insurance limitations and that the period of coverage now extend from app on to app off. However, as an official analysis of the bill states, the TNCs contend that requiring $1 million in coverage for the period before a driver accepts a call would “kill their business model and service.” So the TNCs have proposed an amendment that would set a requirement of just up to $100,000 in insurance, which is what Uber and Lyft offer now for this period. Committee Chair Alex Padilla seemed to push the bill’s sponsor, Susan Bonilla, to forward the bill with those requirements. But she said, “I can’t abandon the reality that catastrophic things do happen and that $100,000 isn’t going to be enough … What happens after that is exhausted?” Bonilla did, however, say that she is “committed” to treating Period 1 with more flexibility than in the subsequent times a driver will have to covered. Interestingly enough, Kara Cross, General Counsel for the Personal Insurance Federation of California, said Uber told her in negotiations that they can’t acknowledge that Period 1 is commercial activity, because that could come into play in the lawsuit against them by the family of Sofia Liu, the 6-year-old killed in San Francisco on New Year’s Eve, by an UberX driver.

Update 6:34 p.m. Uber’s Eva Behrend, in a response to Kara Cross’s comment, said, “That’s patently false.”)

A second bill, AB 612, sponsored by Assemblymember Adrin Nazarian (D-Los Angeles), is backed by the Taxicab Paratransit Association of California and would legislate requirements closer to what local taxi companies labor under: mandatory drug and alcohol testing of drivers; closer monitoring of DMV records; mandatory criminal background checks; driver fingerprinting; and the banning of anyone convicted of a number of crimes, from burglary to credit card fraud to obstructing a peace officer. The bill also stipulates TNCs must have a preventive maintenance program for driver’s vehicles, and that all vehicles involved in TNC work must be registered with the CPUC, with an official decal affixed to every bumper.

A provision that would have required TNCs to cover vehicles around the clock was removed from the bill before the hearing.

Uber, naturally, is not a fan, calling the proposed legislation “a flagrant attempt to stymie innovation and competition by an antiquated industry. It is an obvious play by the taxicab industry to kill competition and limit consumer choice … “ Backers of the bill, the company said, wanted to “make it impossible for companies like Uber to operate.”

William Rouse, the president of TPAC and general manager of Yellow Cab in L.A., said the legislation is necessary to police companies that are plain out of control. He pointed to the violations at California airports as an example.

“There is not a single jurisdiction, whether inside or outside the U.S., where the TNCs actually follow the letter of the law,” he said. “This is the new world order, where these companies just routinely, habitually thumb their nose at the law in every single city where they operate.”

(Update June 17, 1 p.m. The committee voted to remove all but the drug and alcohol testing and background check provisions from AB 612. Representatives from San Francisco International Airport spoke in favor of the bill.)

CPUC Puts the Hammer Down

TNCs are also under the gun from the CPUC’s proposed modification of its original TNC decision. These new regulations, if approved, could significantly increase the companies’ insurance costs. The modified decision is scheduled to be heard on July 10 or after.

The proposal, released last Tuesday, makes no bones about clarifying the issue of whether drivers’ personal insurance would cover claims related to TNC accidents.

“A driver’s personal automobile policy is no way required to provide coverage or the duty to defend for TNC services,” the commission wrote. Reinforcing that stipulation, the commission states TNC policies “shall provide exclusive coverage, and assume all liability and the sole duty to defend, at dollar one,” which would prohibit the TNCs’ reliance on excess insurance. The proposal does say that a driver’s insurance can be used to cover TNC accidents, but only if it is “specifically written for the purpose of covering transportation network services.” And those policies do not currently exist.

Like AB 2293, the latest CPUC proposal also extends the time that drivers are insured to Period 1.

The UberX driver who struck and killed Sofia Liu in San Francisco was reportedly in this interval between calls, so was not covered by Uber’s policy, a limitation not widely known at the time. Subsequently, both Uber and Lyft announced they had closed this gap by offering up to $100,000 in coverage for drivers in the app on-and-waiting time. However, this won’t be good enough under the CPUC’s proposal, which appears to simply extend the $1 million insurance requirement to this period.

Uber and Lyft have also added $50,000 in collision insurance, and Uber offers $50,000 in comprehensive coverage (fire, theft and such). These are all contingent, however, on drivers having bought the same coverage on their personal auto policies. The CPUC’s proposal gives TNCs no such leeway, making collision and comprehensive mandatory regardless of a driver’s having purchased it on his own. Finally, the commission also wants to require $5,000 in coverage for medical payments related to injuries resulting from an accident. Insurance Commissioner Dave Jones is supporting the proposed CPUC changes.

TNC Arguments Against

When the CPUC first floated the expansion of the mandatory $1 million coverage to include Period 1, Uber argued it could spur drivers to “(keep) the app open at all times, regardless of the drivers’ intent to accept a request for transportation service … solely to obtain the benefit from the increased insurance.” Uber also speculated that drivers not engaged in TNC work might turn on the app “immediately following an accident in order to try to secure the potentially significant financial benefit of the higher limits.”

Lyft had similar objections: “(A) TNC driver could forget to close the app and be considered to be ‘providing TNC services’ in the middle of the night when the car is parked on the street and the driver is sleeping, or when the vehicle is being driven by another household member, or when it is being used to transport a driver’s child to soccer practice.”

Kara Cross of the Personal Insurance Federation of California says TNCs can guard against drivers gaming the system this way by monitoring their acceptance rates, tracking who has the app on while not accepting rides.

But Stuart Nelson, the president of Point West Insurance, a property and casualty insurance broker in Sacramento, says the CPUC’s mandatory collision coverage could invite fraud. “You could damage a car personally and then say it was damaged during a drive,” he says. “I could have this pre-existing damage and then claim it happened as an Uber driver, and Uber has to cover it.”

TNCs Would Pay More

Nelson, Kara Cross, and Jerry Sullivan, who runs an insurance brokerage business, all say TNCs will pay more for insurance if the CPUC changes go through.

“People who write livery are prepared to write the kind of exposure these guys will have,” Sullivan said. “But it’s going to cost them 30 to 35 percent more than they are now.” He said that increase only takes into account the greater expense of extending the period of time drivers are covered — the TNCs might incur additional increases for the additional collision and comprehensive insurance. Nelson thinks requiring TNCs to offer one-size-fits-all collision coverage to every driver could be a significant extra cost, because “there’s no way to properly insure the risk. We won’t know if we’re insuring a 1974 Volkswagen Bug or a Ferrari.”

The taxi industry, for its part, is still not happy with the CPUC, because the proposed changes would not go into effect immediately, but after the current TNC policies expire or one year from the effective date of the decision, whichever comes first.

Jerry Sullivan said he was in discussion with Lyft about 18 months ago to broker insurance coverage, but that the company balked when he quoted them a price for primary coverage from Lloyds of London. “They didn’t want to pay the price,” he says. “That’s not how they designed their business model.”

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Category: Technology, Transportation

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  • pitbullstew

    Wouldn’t it be great if we didn’t get run over today?

    (you dont need to see his identification)

    • http://twitter.com/shiraz Shiraz

      +1 for any “these aren’t the droids you’re looking for” reference

  • tom_merle

    Very well written and informative article

  • Rachel Galindo

    Lyft Drivers remove their mustache for other known reasons; many riders that use their service don’t like the mustache and drivers know is an airport police magnet when illegally picking up at the airport. I haven’t being threatened by taxi driver, on the contrary, they are in the same wagon as TNC drivers and always had friendly conversation with them.
    TNC companies found in antagonization a useful tool to manipulate their drivers and the public in their favor. They made believe naïve drivers that Primary Insurance by the Company would be a bad thing, at the same time they made them believe that their CONTINGENT, EXCESS insurance provided at their discretion is the ‘best’ way to go. It’s a relief that the State Assembly and the Senate didn’t buy into the TNC Companies BS.
    TNC drivers don’t want to see their personal insurance to be dropped after an accident and avoid reporting it to the TNC Company and don’t disclose to their personal insurance company they were providing TNC services, it is called insurance fraud. TNCs report a false high safety record, the few drivers that report their accidents, mostly because they had a passenger in the car, get rewarded with being ‘fired’, ‘terminated’, deactivated or whatever you want to call it. Is not the “sharing economy” Is the “step on economy” or the “Burden the proletariat economy”

  • Larry Best

    There is a community of Uber drivers discussing all things ride share at
    http://uberpeople.net

  • Kathy

    Besides Uber firing any driver that does not comply with their passengers request even if that includes directions given by their passengers to violate the law ( drivers must violate the law or they will be fired ) there are other examples why these Companies are illegal . Here’s another one of them they DO NOT comply with :
    Electronic Wireless Communications Device: Prohibited Use

    23123.5. (a) A person shall not drive a motor vehicle
    while using an electronic wireless communications device to write, send,
    or read a text–based communication, unless the electronic wireless
    communications device is specifically designed and configured to allow
    voice operated and hands-free operation to dictate, send, or listen to a
    text-based communication, and it is used in that manner while driving.

    (b) As used in this section “write, send, or read a
    text-based communication” means using an electronic wireless
    communications device to manually communicate with any person using a
    text-based communication, including, but not limited to, communications
    referred to as a text message, instant message, or electronic mail.
    Cal
    (c) For purposes of this section, a person shall not be
    deemed to be writing, reading, or sending a text–based communication if
    the person reads, selects, or enters a telephone number or name in an
    electronic wireless communications device for the purpose of making or
    receiving a telephone call or if a person otherwise activates or
    deactivates a feature or function on an electronic wireless
    communications device.

    • Uber Lover

      Taxis, Police, Uber, General Public…ALL VIOLATE this law. Period. It is absurd to single out Uber drivers for violating this law. How many tickets have been issued for violating 23123.5? I’m sure many, and what percentage are Uber drivers? Hmm. Probably not as many as people like you.

  • Manny and Syvia

    Uber & Lyft

    I drove for Uber for slightly under two months and here’s what I found………….Uber is dangerous for public safety and must be shut down . Having to tap a small icon on the Uber device ( phone ) to accept, cancel, arriving, etc., and more takes your eyes completely off of the road . You are oblivious to traffic for those few seconds your looking at your Uber device which can easily cause accidents resulting in immediate death & injury . Even if you, yourself cancels the fare you must proceed with why you are cancelling to the little icons on your Uber device and doing so is a distraction, period . There are 6 icons on your Uber device requesting why your cancelling & you must select one by tapping on one of the little green icons . This is frequently done while driving diverting your eyes off the traffic ahead of you . This happened often ….. the client will cancel for one reason or another . You receive the cancellation notice while your driving and while your driving your eyes are taken off the road so you can respond to the beeping sound coming from your Uber device . This beeping sound indicates that the client has cancelled the fare . When getting close to the pick up location you are required to notify the client by again having to locate your Uber device while driving then tapping on an “ arriving “ icon. This can be more dangerous then texting .
    Furthermore, there is no time limit to driving . Unlike Taxi drivers who are limited to a ten hour driving period in, San Francisco an Uber driver can drive for 20 hours straight or more . Too much driving creates fatigue often leading to confusion, , falling asleep, hallucinations, dozing off and considerably more inattentiveness which can cause accidents resulting in injury and even death .
    Being an Uber driver means you are subjected to doing unlawful things such as take eight passengers in your car when there are only four seat belts or you will lose you’re right to drive further for Uber . In my case I got a call to take nine passengers, including myself that would have been ten people total all in a mini van . The weight itself is enough to cause my tires to rub against the wheel wells of my van creating sparks from stones trapped in the threading of my tires which could ignite the fuel tank causing an explosion even killing all those passengers that are trapped inside my mini Van . It was dangerous . That much weight often causes unintentional swerving resulting in another accident with more deaths or injuries . Because I didn’t take all nine passengers out to, Isla Vista from downtown Santa Barbara and only took the legal amount of five, the passengers gave me a one rating . So, over safety concerns I was for fired for doing what was lawfully right and after I explained to my, Santa Barbara – Uber representatives via email numerous times about having to take too many passengers creating unsafe driving conditions so I could be reinstated i received no response . This will encourage Uber drivers to violate the law in order to maintain a high rating . You must also drop your passenger off at the designated location the client(s) request creating the impeding of traffic or sudden stopping so you won’t miss the client(s) destination . Again if you don’t you will be graded on your performance from 1 to 5 and in most all cases you will be given the lowest rating such as a “ one “ and you will be fired . So, refusing to take all nine passengers ( 10 including myself ) because it is unlawful , dangerous and of a safety concern to your passengers and yourself is a reason you will be fired by Uber .
    There are no vehicle inspections required by Uber drivers meaning if your car’s brakes are failing or wipers not working it’s still OK to drive in the rain . Does Uber care your brakes are failing or wipers aren’t working ? Probally not . They just want their 20% share of your fare and will claim no responsibility if your involved in an accident because they will say your an independent driver . Then if a claim is put against the driver’s insurance Company that claim will be denied because you were using the vehicle commercially . It is illegal to use your vehicle commercially unless you get commercial registration and insurance . Uber drivers do not have commercial insurance and probally most don’t get commercial registration for their vehicles or the proper insurances so driving commercially for Uber is technically illegal .

  • john

    Uber : Everyone’s privately ripped-off : My journey with a capitalistic, selfish and arrogant startup company’s

    As an Uber partner and driver in Los Angeles, I have been attracted to the company’s partnership after i heard about the concept that the startup company has invented and as any hard working american I have decided to purchase my first car and integrate the company’s service, at that time i was foolish enough to believe the word “partner” where in fact it was just meant to mean “taken advantage of”.In two weeks, I have to tell my kids that their broke dad is looking for a new job to survive.

    Uber is now about to kick thousands and thousands of drivers out of the business, so they can get bigger and add more value to the 17,2 billions company’s net worth. Until March 2014, Uber was still sending emails asking us as partners to bring 2008 and newer lincoln town cars and SUV’s to their system,after having an agreement with multiple car dealers all over the country. Uber company has quickly changed its mind and decided to cancel the activity of these cars giving a short two weeks notice to all partners and drivers.

    The result of this selfish and arrogant move will be loosing jobs for thousands and thousands of drivers, and partners will go broke when they have used loans to purchase new cars to keep up with the high quality standards required by Uber.

    After a big dissatisfaction and protest of thousands of partners and drivers afraid for their job and families, Uber keeps prioritizing their interests by proposing a finance car purchase with certain dealers, so they can increase their income by imposing a 24% high interest to finance the cars. No offices are available to start a talk process, no phone numbers are available to reply to our inquiries, we have to accept the rules, shut our mouth and follow them.

    UBER IS NOT EVERYONE’S PRIVATE DRIVER, UBER CARES ABOUT ITS OWN INTEREST AND THE MORE MONEY THEY MAKE. THIS IS A SHAME !!!!!!!!

  • ClaimsAdjuster

    It is ironic that TNCs complain that the insurance proposals by the CPUC and the California legislature will result in their own drivers committing fraud against them. The current UberX/Lyft insurance scheme requires that the drivers file against their personal policies first. This is done in the hopes that the driver’s insurance company will not notice that their policyholder is running a taxi business and will pay the claim. This is a
    scheme based on insurance fraud.

    The TNC’s position can be summarized as “Fraud is ok for thee but not for me”

  • Jane Smith

    By leveraging drivers’ personal insurance coverage first and their excess insurance second, TNCs will be driving up ALL of our personal insurance rates over time. Insurance premiums aren’t based on the cost of actually covering loss, they are based on the insurance company’s risk, including the costs associated with the loss claimed, fraud, and any potential appeals and lawsuits. As TNC drivers *commit insurance fraud by making claims during periods when they are actually providing livery services–a period not currently covered in personal insurance policies,* insurance companies will undoubtedly pass these additional costs onto the average car owner/personal insurance purchaser. The risk of an accident increases with the amount a person drives (basic odds), which is why many insurance policies offer a low mileage discount. Clearly, people operating livery services out of their own cars drive much more than those people using their cars simply for their personal transportation; one of many reasons personal car insurance policies don’t cover commercial driving activities.

    I am not a TNC hater–I was an early adopter of Uber and initially loved it. Taxis in SF have always seemed to be few and far between to hail on the street and completely unreliable when scheduled. That said, as more and more information has come out about how TNCs are operating and their arrogant assumptions of being above the law, I have stopped using them and was happy to adopt other car service apps associated with taxis (eg, taxi magic, flywheel). I also have noticed a significant improvement in taxi service in SF–they arrive more quickly, they arrive reliably, and the drivers seem to be both better drivers and friendlier than they used to be. In this sense, TNCs have raised the bar for all car services, and I appreciate that. But, I won’t be riding with them again anytime soon and sure hope I never end up in an accident with one. When people are passing the buck on insurance, the biggest payers are the people in the accidents–TNCs and insurance companies will undoubtedly be denying coverage leaving the driver and the victim to fend for themselves and/or take it to court.

  • alex

    thanks for this well-written article. i was about to start driving for one of the TNCs until i read the fine print of my insurance policy and theirs, and then saw my concerns were echoed in this article. seems like there’s a lot of gray area, and personally i’m not willing to take the risk. please provide more impartial coverage of this important topic, because right now there seems to be a lot of misinformation coming from both the taxi lobby and the TNCs.

  • Betty

    Uber continues to lie and lie by saying they are concerned over safety . They encourage unsafe and illegal driving habits by their drivers due to the rating system . If you as the driver does not due what your customer requests even if that includes violating the law you will be FIRED BY UBER . This encourages drivers to violate the law .