'Sharing Economy' Has Tricky Insurance Issues

Imagine the unimaginable – you accidentally injure a passenger or pedestrian with your car. How much insurance do you carry to protect them or yourself? Like many, you may carry only $15,000 per individual injury (the minimum, unchanged since 1967, required by California). If your income is low enough to qualify, you may carry a Low Cost Auto policy with only a $10,000 limit. Such minimum limits are a compromise. Insurance is expensive, and states try to balance the utility of car use against insurance costs that, if too high, would reduce that utility. You may, of course, carry higher limits. Or, perhaps, you are like approximately one in seven California drivers, and you illegally drive with no insurance. Now assume that you are among the many auto owners who have joined the “sharing economy.” You use a smartphone app to match yourself and your car with others willing to pay you for a lift. Uber, Lyft, Sidecar and others (“Transportation Network Companies,” or TNCs) offer these apps, share the fees with you and make this popular service available to thousands. Again, imagine the unimaginable – a collision injuring your passenger or a pedestrian. Keeping in mind that any insurance cost is ultimately passed on to the passenger, how much insurance should be required for a TNC driver?  $10,000? $15,000? $50,000 (the maximum required for private autos in any state and the minimum required in California if you allow others to rent your auto)? Or perhaps $106,841 (the value in 2014 dollars of $15,000 in 1967)? $750,000 (the minimum required of limousine companies)? Some other figure? Put another way, the question about how much insurance to carry is asking: How much should those who benefit from the sharing economy share the burden when the activity damages them or others? Unlike most driving for personal reasons, TNC driving generates cash flow. To many, it seems only fair that some of that be used to extend additional protection to those injured by the activity. What should trigger the additional protection – when one turns on the TNC’s app to seek a fare, when a “match” is made or when a passenger enters the vehicle? Also, who should carry the insurance - the TNC, the TNC driver or some combination? Currently, these questions are debated among legislators, regulators (such as the California Public Utilities Commission, or CPUC), TNC operators and others. Requiring lots of insurance by setting a high limit may chill innovation; setting the limit too low unnecessarily burdens injured parties or others (e.g., taxpayers, who support Medi-Cal or Medicaid and may end up paying for expenses not covered by private insurance) and may unfairly create a disadvantage for competing sources of transportation that may be subject to higher insurance limits. Raise the price of insurance, and the price of a ride goes up. (This issue is hardly unique to TNCs. Congress is also debating whether to raise the federally mandated $750,000  truckers’ minimum insurance limit.) Not only might an increase in insurance costs for TNCs stifle a popular and convenient form of transportation, but it may lead some less safe drivers back into their vehicles (e.g., teenagers, intoxicated drivers, impaired drivers, poorly insured drivers, uninsured drivers or drivers with unsafe driving records). This, in turn, may lead to the unintended result of even more unnecessary injuries and deaths. Much of the debate about TNCs is colored by a New Year’s Eve accident in San Francisco that occurred when a TNC driver with his app on (there is some evidence he may have been looking at it) struck and killed a pedestrian and injured several others. This is a tragic accident, but it also gives the debate an emotional overtone that may make it difficult to strike the correct balance. This accident could also have happened while a non-TNC driver was texting or talking, and there may have been minimal or no insurance available in that case. In this author’s view, comprehensive legislation or regulation shaping the future of TNCs is premature. These fast-moving innovations are new enough that insurers, legislatures and regulators have been caught on the back foot. At the same time that policy makers are moving forward with regulations, insurers and TNCs are developing new products and strategies to address these issues. While there is no shortage of those eager to express their opinions (perhaps this author included), there is little credible data on which to base sound policy decisions. Here are some of the many open questions: --On average, how much would different limits add to the cost of a 10-mile ride? Ten cents? Ten dollars? --How much will new insurance products cost? --As the use of TNCs expands, will overall accident rates rise, or will they fall? --If you drive to a ballgame with your daughter and a fare, will your daughter’s injuries be covered if you have an accident? (Your liability would not be covered under most personal auto policies – surprise!). Put another way, what terms and conditions will appear in any new insurance products or endorsements? --Does the display of a TNC’s trade dress (essentially, its visual appearance) create ostensible or apparent authority should a passenger suffer injury? Would liability extend to an injured passenger who hailed a car displaying the TNC’s trade dress, even though the driver did not engage the TNC's app so he could keep the entire fare? If the TNC is liable, could it seek reimbursement by claiming indemnity against the driver? --If you drive 12,000 miles a year, but 2,000 of those miles are driven as a TNC driver and are insured by some form of TNC policy, should your personal auto insurer base your rate on 12,000 miles or on 10,000 miles? If the latter, how are the different miles to be confirmed? --If you carry higher limits on your personal auto policy (e.g., $300,000 plus a $1 million umbrella), will the protection for you and anyone you injure drop to a lower TNC policy limit when you act as a TNC driver? --One current bill in California (AB 2293 -- Bonilla) provides that the TNC must assume ALL of the driver’s liability, without limit. By contrast, the CPUC’s proposed rules do not provide for unlimited liability. When is it appropriate to impose liability on the provider of an app as if users of apps were employees or agents of the app provider? Would the operator of an app that matches homes with those who want accommodation (e.g., Airbnb) be liable should a guest trip on an unsafe carpet or step? Would the operator of an app that matches car sellers and buyers be liable for an accident during a test drive? Would an app marketing tickets be liable if the bleachers collapse or the cruise line runs aground? --Should liability turn on whether the app provider is more than passive? If so, what more is required? A profit motive? This would sweep up many apps. What if the app provider imposes rules on its users (e.g., vetting drivers for their safety record, adopting a zero-tolerance alcohol policy and reviewing ratings by customers)? If so, then forcing app providers to assume unlimited liability may discourage them from taking measures that could enhance safety. For these reasons, this liability provision in AB 2293 could have enormous implications and should be carefully considered. --If, under AB 2293, the operator of the app is liable without limit, what purpose is served by mandating policy limits? If the operator of the app has sufficient net worth, it would be liable regardless of any policy limits that might be imposed. --How, if at all, should one weigh the evolving existence of near-universal healthcare under the Affordable Care Act (Obamacare)? Covered parties who suffer injuries will at least have access to healthcare without limit and regardless of fault. Depending on any number of factors, the bulk of these health costs may fall on health insurers, liability insurers, the public or some combination. Who knows answers to any of these questions? Without answers to these and related questions, it is likely that regulating in a partial vacuum will strike the wrong balance. Like emergency physicians, legislators and regulators should stabilize the patient but “Do No Harm.” In the meantime, the public deserves protection. There should be no gaps in coverage (whatever trigger or limits are chosen). To keep rates reasonable and predictable, insurers also need clarity with respect to which insurers are responsible. Prudence, however, suggests that any current legislation or regulation should have a firm sunset date. Otherwise, like barnacles, awkward legislation sticks and impedes progress. During this initial period, the legislature should require (not just request) that the Public Utilities Commission and the Department of Insurance gather appropriate data and report back to the legislature before the legislation or regulation reaches its sunset. Regulators and legislators may, then, make informed, data-driven decisions that strike the most appropriate balance among all of the legitimate interests.