Ride-sharing has become a convenient alternative to hailing a taxicab. A person fires up an app on their smartphone and it locates the nearest ride. But the practice also comes with unseen dangers – specifically, who is responsible for the costs associated with injuries and damages in an accident.

Drivers working for transportation network companies (TNCs), such as Lyft and Uber, typically do so under their own personal insurance policies. Most of those don’t cover commercial activities, however, leaving the TNCs’ “excess” contingent liability coverage to cover the gap. But drivers and their passengers can still be on the hook for unexpected costs, if claims on a TNC's insurance are denied.

The ride-sharing companies have developed strict lines when they consider one of their drivers to be “working,” and therefore covered under excess liability policies. Lyft changed its policy to provide primary coverage from the point a driver accepts a ride request until the time the ride has ended in its app, according to Chelsea Wilson, public policy communications manager for Lyft.

But the different standards being used have caused confusion for the insurance industry, passengers and riders, resulting in some states introducing legislation to regulate coverage levels and paint a clearer picture for all parties involved.

Colorado Gov. John Hickenlooper recently signed a law that outlines the rules by which TNCs must operate in the state. Colorado mandates background checks for drivers using publicly-available data and requires ride-share drivers to carry primary insurance during the “gap period” when soliciting a fare, according to the Denver Post. In addition, the TNCs will have to obtain permits from the Colorado Public Utilities Commission to operate, and have at least $1 million in liability insurance.

Illinois has a bill pending where the TNCs would have to carry the same liability insurance as taxis do, capping-off at $350,000 for each accident. Coverage from the TNC also applies from the moment a driver logs into the ride-sharing app, until they logged off, eliminating part of the risk when drivers are seeking rides. That bill is being considered by Gov. Pat Quinn.

But while the legislation to clarify ride-sharing insurance questions looks like progress, representatives from the insurance and taxicab industries still have major concerns with what lawmakers are doing.

Bob Passmore, senior director, Personal Lines Policy, with the Property Casualty Insurers Association of America (PCI), felt the Illinois legislation has the right coverage by kicking in whenever a driver logs into a TNC’s mobile app to seek a passenger. But he’s still concerned that a number of coverage gaps exist that aren’t being addressed.

For example, if someone looking for a ride spots a driver from Uber or Lyft and hails them down without using the company’s app, and the driver is not logged into the company’s system, it could pose insurance coverage problems if an accident occurs. Those “under-the-table” rides are common, according to Dave Sutton, spokesperson of “Who’s Driving You?” a public-safety initiative involving ride-sharing launched by the Taxicab, Limousine & Paratransit Association (TLPA).

“If I’m a ride-sharing driver, and I see somebody on the street and they see my Uber logo, if I pick them up, I’m going to get the money,” Sutton said. “It’d have to be cash, but I’m not going to have to pay Uber, so I’ll make more.”

Passmore added that the preference of insurance companies is that drivers purchase a commercial policy, or obtain something that provides them with 24x7 coverage. He also felt the term “app-on, app-off,” in regard to when a particular insurance level applies isn’t sufficient, because whenever a driver is looking for a passenger, the nature of their activities and of the risk presented by it have significantly changed.

“You can understand why it is important these people have coverage when they are making themselves available, because their behavior changes,” Passmore said. “They are trying to get in position to get a ride, just like a taxi.”

Government Technology reached out to Uber for comment on the issue, but did not receive a response by press time.

California Influence

The three major TNCs in operation -- Uber, Lyft and Sidecar – all started and are based in San Francisco. So it’s not a surprise that the Golden State is also working on legislation to address the insurance coverage concerns.

California Assemblywoman Susan Bonilla, D-Concord, introduced AB 2293 earlier this year, creating tougher insurance requirements for ride-sharing companies. As proposed, the measure establishes three separate time periods that make up TNC services and sets forth specific insurance needs for each.

“Period One” runs from the time a driver logs onto the TNC’s application and continues up until a match with a rider is secured. The period also covers the time from when a matched person exits the private passenger vehicle until the driver either logs off the system or accepts another rider match.

“Period Two” pertains to the time a driver accepts a match on the TNC’s app until the driver picks up that specific passenger. “Period Three” covers the actual ride being given until the passenger’s exit.

AB 2293 also mandates that a TNC will maintain an insurance policy that assumes all liability for Periods Two and Three. A total of $750,000 in coverage in some combination between the TNC and the driver’s personal coverage is needed during Period One.

The bill was introduced in part as a reaction to an accident on New Year’s Eve, when six-year-old Sofia Kuang was killed in San Francisco by an Uber driver looking for passengers. The driver -- Syed Muzzafar -- didn’t have a commercial insurance policy, and because his personal policy didn’t cover commercial activity. But at the time of the accident, Muzzafar had already dropped off his last passenger.

As a result, Uber claimed he wasn’t on its system and not “driving” for the company at the time he struck Kuang. Therefore, Uber’s excess insurance policy wouldn’t cover costs associated with the Kuang family’s injuries and Sofia’s death.

“While Uber is touting itself as the future of transportation, it has thrown transportation back into the wild-west era by trying to walk away from problems its drivers cause from the time the app is turned on until there is a match,” said Christopher Dolan, attorney for the Liu family, in a statement. “Here’s a company worth billions of dollars that would put the burden of paying for the harm caused to the Liu family on the San Francisco taxpayers.”

While a hearing is set to discuss the bill further in August, both Passmore and Sutton weren’t convinced the measure would adequately address the insurance gap problem. Sutton said the TLPA doesn’t support AB 2293 because it doesn’t address the “street hailing” that goes on when a TNC’s app is shut-off or the rider doesn’t login.

Potential Solution?

Passmore explained that the insurance companies understand the dilemma lawmakers, the TNCs and the taxicab industry are struggling with – whether the TNCs are technology or transportation companies and where they fit in the established regulatory framework. But PCI’s primary concern is making sure the insurance rules are clear so people get paid when something bad happens.

“However you look at it, these drivers are engaged in a commercial activity,” Passmore said. “They’re carrying people in exchange for compensation. Regardless of how long … that’s a significant change in the risk that their vehicle habits present, as compared to someone who just uses it for commuting and doing normal personal errands.”

The solution could be any easy fix in the future, however. Instead of legislating rules that dictate when and how much coverage a TNC carries, a driver’s personal insurance policies could be modified to permit commercial activities up to a certain level, in exchange for a higher premium.

MetLife and Lyft announced a partnership in May to work on solutions that will expand insurance coverage for ride-sharing companies and drivers. Details aren’t available yet, but Passmore believes the doors are open to having an endorsement option on a driver’s personal policy to cover ride-sharing work.

“I know Uber and Lyft have made no bones about it that they’ve outreached to different companies to see if something can be developed in that way,” Passmore said. “As of now, I’ve not heard that anything is being offered.”

Editor's Note: This story has been updated to clarify when Lyft's insurance is considered the primary coverage of a driver's vehicle.

Brian Heaton  |  Senior Writer

Brian Heaton is a senior writer for Government Technology. He primarily covers technology legislation and IT policy issues. Brian started his journalism career in 1998, covering sports and fitness for two trade publications based in Long Island, N.Y. He's also a member of the Professional Bowlers Association, and competes in regional tournaments throughout Northern California and Nevada.