As the popularity of rideshare programs and apps, such as Uber and Lyft, grows, an increasing number of riders and drivers are being put at risk of falling through the insurance gaps of a regulatory system that has not caught up.

Benefits of Rideshare Programs

In California, and in many metropolitan areas around the nation, so-called "ridesharing" applications, such as Uber, Lyft, and Sidecar, are gaining popularity, not just with users but with drivers. These programs represent an extension of the sharing economy that has boomed in recent years and are touted for providing needed income to drivers, environmental benefits, and cheaper, arguably better, riding experiences for users. These apps show no sign of disappearing, and are likely to become a permanent option for future transportation: In August 2013, it was disclosed that Uber raised $361 million in additional venture capital funding and is now valued in excess of $3 billion.

How Riders and Drivers are Protected

Regulators have struggled with how to ensure that riders and drivers are protected in these new forms of transportation. In California, these concerns led to the creation of a new label - Transportation Network Companies (TNCs) - regulated by the California Public Utilities Commission (PUC). The PUC regulates TNCs differently than taxis and other livery services, while holding that TNCs are providing commercial services. The PUC requires that, in addition to registration, TNCs must maintain a minimum $1 million excess liability insurance policies. However, unlike taxi drivers, who are required to maintain livery policies, which are commercial auto policies, TNC drivers rely on their personal automobile policies. Unfortunately, the combination of these two insurance policies leaves a large gap in coverage of which many drivers and riders may not be aware.

Coverage Gaps Exist

Just last week, the California Department of Insurance issued a notice to TNC drivers, informing them of possible gaps in coverage. Specifically, the $1 million liability policy may not cover medical payment coverage, collision, or uninsured/underinsured motorist coverage (UM/UIM). Notably absent, to most drivers, is that the policy would not cover damage to the driver's vehicle. These gaps have been highlighted by a tragic accident in San Francisco on New Years' Eve, where an Uber driver struck and killed a six year old pedestrian. Uber's liability policy has disclaimed coverage since the Uber driver was between rides and did not have a passenger in the car. Yet, the driver's personal policy specifically excludes coverage for these types of claims.

In fact, most personal auto policies exclude coverage for claims occurring while the insured is using the vehicle "as a livery conveyance." Therefore, an incident occurring while a driver is working for a TNC is likely to be excluded. TNC drivers have had disparate responses from insurers regarding coverage - sometimes claims are denied, while other claims are paid. In some cases, insurers have cancelled or non-renewed TNC drivers' policies. These disparate results are likely based on the degree of disclosure by insureds as to their participation as TNC drivers. Specifically, many TNC drivers never disclose that they were driving for a TNC when the accident occurred. This issue is a new one for the insurance industry, and many companies do not yet know how to address the problem, how to properly investigate such issues, and how to change underwriting and claims processes to ensure that companies are not paying out for excluded incidents. Recognizing the popularity of these programs, incorporating questions to insureds regarding possible activities with TNCs in an insurer's underwriting and claims procedures may be in order for insurers to best protect themselves from paying such claims.