On March 19, 2015, the New Jersey General Assembly’s Transportation and Independent Authorities Committee voted 7 to 3 (with one abstention and one non-vote) in favor of bill A-3765 – which would impose a system of comprehensive regulation on commercial ride sharing services such as Uber and Lyft. The bill, first introduced in November of last year, is premised upon the need to impose insurance coverage requirements on ride-share services; however, the bill has quickly expanded to include additional wide-ranging regulation of such services by the Motor Vehicle Commission (“MVC”).
Introduction of A-3765 is intended to close the perceived coverage gap for accidents which occur when a ride-share driver is operating in a commercial capacity, versus a private capacity. Ride-share services such as UberX (which is Uber Technologies, Inc.’s standard service) and Lyft allow prospective passengers to hale a ride using a smartphone app. The app links passengers with ride-share drivers, who independently contract with a ride-share service to use their private vehicles to transport fare-paying customers with whom they are linked via the service’s app. The business model creates three distinct phases of operation for the ride-share driver: (1) when the driver is logged into the app and willing to accept fares; (2) when the driver has accepted a fare and is in route to retrieve a customer; and (3), when the driver is actually transporting the customer.
Uber and Lyft both currently provide primary commercial insurance coverage to their drivers when they are in the third mode identified, above – that is, when they are actually transporting customers for a fare. This coverage is critical because private passenger auto insurance policies purchased by the general public in New Jersey uniformly exclude coverage for claims arising from the use of a vehicle in a commercial livery capacity. At present, however, ride-sharing services’ commercial policies are custom-tailored to beexcess to ride-share drivers’ personal private passenger policies when drivers are operating in phases (1) and (2). Therefore in some incidents, the commercial excess carrier will only provide coverage in the event that a driver’s own carrier declines coverage. Nevertheless, both Uber and Lyft currently provide contingent excess liability coverage limits of $50,000 / $100,000 / $25,000 for their drivers’ operations in phases (1) and (2) – coverage which exceeds minimum private passenger auto coverage required by New Jersey law. When ride-share drivers pick up their customer, both Uber and Lyft’s commercial policies become primary and provide $1 million in liability coverage. Therefore, the so-called coverage “gap” exists only when a driver operating his personal vehicle has logged in but is not yet earning a fare; and even then, ride-share services operating in the New Jersey provide greater insurance coverage than required by law for private vehicles.
A-3765 would address this perceived “gap” by requiring ride-share services to provide primary commercial coverage to drivers from the moment they log into their app and become eligible to claim a fare. The bill would require ride-share services (termed by the legislation to be “transportation network companies” or “TNCs”) to increase their total liability coverage to $1.5 million per incident, and to make at least $150,000 of this coverage available during the time a driver is merely signed in to the app but has not accepted a fare. This coverage is substantially broader than what TNCs now generally provide. The critical question, however, is whether any such additional coverage is actually needed.
The “gap” which the Legislature purports to address through this bill has never been demonstrated to exist in New Jersey. No New Jersey court has yet found that when a ride-share driver is merely logged into an app such as Uber or Lyft, or is driving without compensation to retrieve a prospective passenger, that he or she is operating in a commercial capacity so as to exclude any coverage under his or her private passenger auto policy. Instead, A-3765 arguably creates this gap in coverage by proposing to statutorily prohibit private passenger carriers from covering incidents involving policyholders logged into a ride-share app. A-3765 forces “TNCs” to fill the gap with a level of commercial coverage which deviates from the ride-share industry standard across the country.
In addition to the perceived “gap” in insurance coverage discussed above, A-3765 purports to address a lack of “no-fault” (“PIP”) benefit coverage for drivers and passengers when the vehicle is operated in a commercial capacity. Again, however, there is no evidence that any such “gap” exists. Uber and Lyft, as primary examples, both represent publicly that they provide PIP coverage under their existing policies. As such, ride-sharing services in New Jersey are currently providing PIP coverage that standard commercial taxi/livery insurance policy forms issued in New Jersey does not. Commercial auto carriers in New Jersey, by contrast, rely on the Unsatisfied Claim and Judgment Fund (“UCJF”) to pay PIP benefits to pedestrians struck by commercial vehicles. Commercial carriers then absorb this shared risk through their annual assessment payments to the UCJF.
The insurance coverage requirements of the Assembly’s bill are only the tip of the proposed regulatory iceberg. Under A-3765, TNCs will be required to register with MVC and adequately demonstrate to the MVC that each driver meets statutory requirements. Each driver will then be required to obtain an endorsement from the MVC on his personal drivers’ license and obtain a placard to display on his vehicle for use in ride-sharing. The MVC will be permitted to collect fees for such approvals, endorsements and placards, in addition to a tax on each ride-sharing fare collected by a TNC.
In essence, the Legislature appears to be using uncertain concerns over insurance coverage as a basis to impose legal restrictions on ride-sharing analogous to taxis and livery. While some aspects of the bill are eminently reasonable – such as ensuring that drivers have not been convicted of DUIs or reckless driving, and ensuring drivers are not registered sex offenders – the bill’s requirement of drivers to submit to taxi-like regulation could defeat the ease of participation and flexibility that has fueled the growth of ride-sharing in New Jersey. While legislators and likely state regulators believe enhanced regulation is a necessary preventative measure, taxi-style regulation may be pre-mature as the perceived “gaps” in insurance coverage have not come to fruition in the eighteen months Uber has been operating in New Jersey.