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Rides-For-Donation Services Under Scrutiny

| September 4, 2012
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by Zusha Elinson, The Bay Citizen

Tired of waiting for taxis, thousands of San Franciscans have begun paying to hop into complete strangers’ cars to get around town. Two startups, Lyft and Sidecar, launched this summer with mobile apps that let passengers use their phones to hitch a ride.

Drivers for Lyft, a ridesharing service, have cars with a distinctive pink mustache. (Zusha Elinson/Bay Citizen)

Lyft drivers pull up with a giant pink mustache on their front bumper and offer passengers a fist bump when they get in. The mustaches, according to founder John Zimmer, are supposed to make people smile.

For both Lyft and Sidecar, drivers use their own cars and suggested donations replace set fares. The companies take a 20 percent cut.

They are part of the new “sharing economy” – companies that help people make money by sharing their possessions. Airbnb, a popular website where people rent out their apartments, is now used all over the world.

“It’s really cool to see us come back to this borrowing sugar from your neighbor and also make a little money from it,” said Jay Sublett, marketing manager for Sidecar.

Not everyone is feeling warm and fuzzy. Lawyers and insurance experts say that the companies’ insurance requirements at Lyft and Sidecar won’t adequately protect drivers and passengers in the event of a car wreck. San Francisco taxi drivers consider them illegal taxi services and want the city to shut them down.

The San Francisco Municipal Transportation Agency, which regulates taxis, is considering whether to take action. The California Public Utilities Commission, which regulates limos, is reviewing the operations of the two companies, according to spokesman Chris Chow. The PUC has also been looking into Uber, a slightly older company that lets people hail private car service through an app.

Lyft, which reports that it has 100 drivers, and Sidecar, which says it has given more than 10,000 rides, say drivers must have their own personal car insurance. But the state minimum coverage for auto insurance – $15,000 for injury or death of one person, $30,000 for more than one person and $5,000 for property damage – is a small fraction of what taxis and limos must carry.

In San Francisco, taxis are required to have $1 million in coverage. The California Public Utilities Commission requires that limo drivers with vehicles that carry fewer than seven people have $750,000.

Lyft and Sidecar drivers use their own cars and suggested donations replace set fares. The companies take a 20 percent cut.

“It’s very troubling that you have vehicles that are doing the amount of roadwork that taxis are but not having the minimum level insurance that is required by the PUC,” said Khaldoun Baghdadi, a partner at Walkup, Melodia, Kelly & Schoenberger, a well-known San Francisco personal injury law firm. “They’re getting a lot of the benefit without a lot of the burden.”

On top of that, insurers are unlikely to cover accidents if drivers with regular policies use their cars to make money, said Pete Moraga, a spokesman for the Insurance Information Network of California, a nonprofit trade association. Even though Lyft and Sidecar call the payments donations, he said insurers won’t see it that way.

“You’re opening yourself up to a lot of risk if there’s an accident,” Moraga said.

Zimmer, the co-founder of Zimride, which launched the Lyft app, said that “each driver is recommended to check with their insurer about their coverage.”

Drivers are screened to make sure they have clean criminal and driving records, Zimmer said, and they receive two hours of training. Riders and drivers also rate each other on the app after the ride, which he maintains increases safety.

Lyft and Sidecar representatives argue that because rides are prearranged and paid for with a donation, they don’t have to be regulated like taxi or limo companies. They also say that they’re just providing technology to connect drivers and riders. In terms of service that users agree to before using the app, Lyft says it is “NOT A TRANSPORTATION CARRIER.”

The city’s taxi drivers – who must have city-issued permits, commercial insurance, and either own or use a taxi medallion that goes for $300,000 – beg to differ.

“They’re hustlers,” said Ed Healey, a veteran cab driver. “It’s kind of a neo capitalist thing: They’re not paying anybody any benefits, but they’re going out of their way to have no responsibility whatsoever.”

Hansu Kim, president of DeSoto Cab, said the city should take action.

“These are illegal operations the city needs to enforce and shut these down,” Kim said. “Picking up the public requires proper licensing and insurance. If they don’t have that, everyone suffers in the end.”

Paul Rose, a spokesman for the SFMTA, which regulates cabs, said the city is still figuring out what to do. Rose said the newfangled companies are “not explicitly covered in the taxi code.”

The rise of these new ride services has been driven in part by dysfunction in the city’s licensed taxi industry. Anyone who has tried to hail a cab in San Francisco knows that it’s no easy task because of the paucity of cabs. The lack of a centralized dispatch or a widely recognized way to snag a cab with a smartphone compounds the problem.

Rose acknowledged that the city hasn’t issued enough taxi medallions. He said the city is working toward adding to the 1,500 existing medallions. To that end, the SFMTA board will discuss today issuing 150 to 200 temporary medallions to taxi companies.

This story was produced by The Bay Citizen, a project of the Center for Investigative Reporting. Learn more at www.baycitizen.org.

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Category: Transportation

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  • http://www.facebook.com/deanclarkstore Dean Clark

    My experience from driving a cab is that when I was hit by an uninsured motorist I was not covered while driving a taxi. The public really should be asking what exactly does taxi companies insure for up to a million. The answer may surprise you. In San Francisco, taxis are required to have $1 million in coverage. The
    California Public Utilities Commission requires that limo drivers with
    vehicles that carry fewer than seven people have $750,000.

  • http://www.facebook.com/deanclarkstore Dean Clark

    I drove a taxi and was not covered by car insurance when someone hit my car while working for National Cab Company. The accident was not my fault but yet the SFMTA told me that taxi companies are not required to carry uninsured motorist coverage in San Francisco.

  • ed

    Lyft platform now provides drivers with excess liability insurance up to $1,000,000 per occurrence through an A++ rated insurer

    • Eugene

      I am skeptical because their new $1,000,000 policy will pay in excess of the existing drivers own insurance, assuming that their insurance pays first, but the damage is over the limit of their policy.

      I am skeptical that their insurance would pay anything if they are told the truth about the circumstances of the accident. If the payout is big enough for them to do a major investigation to try to get out of it (insurance companies always look for excuses not to pay big claims) then I bet they aren’t going to buy the “donation” nonsense and would refuse to pay because they ARE driving as a business, not just doing someone a favor by giving them a ride to somewhere you are already going.

      For example, the Terms of Service for a passenger says:

      “The Lyft Platform provides a means to enable persons who seek transportation to certain destinations (“Riders”) to be matched with persons driving to or through those destinations (“Drivers”).”

      But the drivers generally wouldn’t be doing that at all. They are picking up passengers to go places where the driver had no interest in going, except for the hope that the passenger will pay them. So I think that insurance companies and courts will find this to be commercial activity. Which, by the way, requires a Commercial Driver’s license and a car registered as a commercial vehicle with various government agencies.

      So I bet when their own personal insurance company refuses to pay, the Lyft policy might not want to pay either.

      Another point: The Terms of Service for the driver has this clause:

      “Indemnity

      You will defend, indemnify, and hold Us and Our officers, directors, employees, agents and any third parties harmless for any losses, costs, liabilities and expenses (including reasonable attorneys’ fees) relating to or arising out of Your use of the Service, including:

      Your breach of this Agreement or the documents it incorporates by reference; or
      Your violation of any law or the rights of a third party, including, without limitation, Drivers, Riders, other motorists, and pedestrians, as a result of Your own interaction with such third party, any allegation that any materials that You submit to Us or transmit to the Services or to Us infringe or otherwise violate the copyright, trademark, trade secret or other intellectual property or other rights of any third party; Your ownership, use or operation of a motor vehicle or passenger vehicle, including Your provision of rides to Riders; and/or any other activities in connection with the Services.

      This indemnity shall be applicable without regard to the negligence of any party,
      including any indemnified person.”

      So if the driver causes any major injury to the passenger, they or their insurance company or the driver’s insurance company will almost certainly sue Lyft. The Indemnity clause means that the driver, personally, will be responsible for paying Lyft’s lawyers at some huge corporate rate per hour to defend them. And if Lyft is found responsible in any way for the accident, then the driver will personally will have to pay their damages for them.

      And their insurance company would not help them with any of this.

  • Eugene

    First of all let me first say I love Lyft. I love the concept, I love the service, I live the people
    involved. All are great. I use Lyft often. I sing its praises. And I hope they succeed.
    However, the liability, insurance, and legal issues, has bothered me.

    I was happy to see that they started a new supplemental insurance policy to protect
    passengers and drivers, but I am still a little skeptical because their new $1,000,000 policy
    will pay in excess of the existing drivers own insurance, assuming that their insurance pays
    first, but the damage is over the limit of their policy. I am skeptical that their insurance
    would pay anything if they are told the truth about the circumstances of the accident.

    Yes, they would pay small amounts because they wouldn’t bother to investigate for
    anything small, but if the payout is enough for them to do a major investigation to try to
    get out of it (insurance companies always look for excuses not to pay big claims) then
    I bet they aren’t going to buy the “donation” nonsense and would refuse to pay
    because they ARE driving as a business, not just doing someone a favor by giving them
    a ride to somewhere you are already going. This is the big lie that anyone can see through.

    For example, the Terms of Service for a passenger says:

    “The Lyft Platform provides a means to enable persons who seek transportation to certain
    destinations (“Riders”) to be matched with persons driving to or through those destinations
    (“Drivers”).”

    But the drivers generally wouldn’t be doing that at all. They are picking up passengers to
    go places where the driver had no interest in going, except for the hope that the passenger
    will pay them. So I think that insurance companies and courts will find this to be
    commercial activity. Which, by the way, requires a Commercial Driver’s license and a car
    registered as a commercial vehicle with various government agencies.

    So I bet when their own personal insurance company refuses to pay, the Lyft policy might
    not want to pay either.

    Another point: The Terms of Service for the driver has this clause:

    “Indemnity

    You will defend, indemnify, and hold Us and Our officers, directors, employees, agents
    and any third parties harmless for any losses, costs, liabilities and expenses
    (including reasonable attorneys’ fees) relating to or arising out of Your use of the
    Service, including:

    Your breach of this Agreement or the documents it incorporates by reference; or
    Your violation of any law or the rights of a third party, including, without limitation, Drivers,
    Riders, other motorists, and pedestrians, as a result of Your own interaction with such
    third party, any allegation that any materials that You submit to Us or transmit to the
    Services or to Us infringe or otherwise violate the copyright, trademark, trade secret or
    other intellectual property or other rights of any third party;
    Your ownership, use or operation of a motor vehicle or passenger vehicle, including Your
    provision of rides to Riders; and/or any other activities in connection with the Services.
    This indemnity shall be applicable without regard to the negligence of any party,
    including any indemnified person.”

    So if the driver causes any major injury to the passenger, they or their insurance company
    or the driver’s insurance company will almost certainly sue Lyft. The Indemnity clause
    means that the driver, personally, will be responsible for paying Lyft’s lawyers at some
    huge corporate rate per hour to defend them. And if Lyft is found responsible in any way
    for the accident, then the driver will personally will have to pay their damages for them.
    And their insurance company would not help them with any of this. Have driver’s thought about this?