State legislators probe rideshare insurance

March 14, 2014

(AP/Jeff Chiu)
Illinois legislators are demanding more information about insurance policies for rideshare services, such as Lyft.

Update: This story has been updated to reflect an announcement this morning by Uber regarding insurance for its drivers.

A day after Illinois legislators threatened to pull the plug on popular ridesharing services over insurance concerns, the industry announced changes to its policies. Travis Kalanick, CEO of Uber, held a conference call with reporters to discuss an extension of its coverage to periods when drivers may be looking for passengers.

“What we’re announcing today is that for the period of time between trips, when the app is open and the driver is essentially available for requests, we are announcing that we are rolling out coverage for Uber partners on uberX nationwide, and that coverage starts today,” said Kalanick.

Ridesharing services like uberX, Lyft and Sidecar offer smartphone apps that allow regular people to offer their personal cars for hire. The companies, based in California, have been aggressively recruiting new drivers in Chicago as they race with each other to establish the greatest foothold in an unregulated environment.

But as their popularity with tech-savvy millennials appears to be growing, so has scrutiny from local governments. The City of Chicago recently moved to regulate the companies under two competing measures: one, championed by Mayor Rahm Emanuel, would create a new public transportation category for them, allowing the services to continue with some oversight by the city. At the other end of the spectrum is a resolution by Chicago Aldermen Anthony Beale and Edward Burke, calling for the services to be regulated under existing rules for the taxi industry. The latter proposal would likely force the ridesharing services out of Chicago altogether.

The insurance gap

The “insurance gap” was a key issue at Wednesday’s Illinois Senate Transportation Committee hearing, held in Chicago. Several insurance industry representatives testified that most personal insurance policies would consider that activity to be commercial, and therefore decline to cover the damages. Kalanick said his company has not seen many instances of this, but said Uber decided to extend its coverage explicitly to cover these periods to clear up any “ambiguity.”

The policy would carry up to $50,000 for bodily injury, with a total of $100,000 per incident, and $25,000 for property damage. Kalanick said the policy is not subject to any aggregate limit -- meaning there would be no limit to the total amount of all claims that may be filed.

Kalanick also said he is open to discussing his company’s insurance policies to legislators and regulators in Chicago and Illinois. “We have shown the insurance policy to a number of regulatory bodies, etc.,” he said, “and (I) am happy to do that to help different cities get over the hump.”

His remarks come the day that a response is due from Uber, Lyft and Sidecar, to a subpoena issued by Chicago’s City Council. The Council is seeking copies of those companies’ insurance policies as it considers regulations to the ridesharing industry. It was not clear whether any of the companies had complied with the deadline by time of publication.

State Senator Martin Sandoval, Chairman of the Illinois Senate Transportation Committee, was not available for comment on the changes at time of publication.

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The issue of insurance for rideshare drivers prompted a hearing Thursday morning before the Illinois Senate’s Transportation Committee in Chicago.

“When you get on a train, you’re covered,” said Committee Chairman Martin Sandoval on Thursday, referring to insurance. He continued, “When you get on a plane the consumer’s covered. When you get on a bus, the consumer’s covered. When you get in a cab, the consumer’s covered. The question is: when you get in a rideshare vehicle, are you covered?”

Sandoval said the three companies declined to attend Thursday’s committee hearing. Witnesses were on hand to testify from the taxi industry and the insurance industry.

“We’re not against Uber, we’re not against Lyft, we’re not against taxis,” testified Stephen Schneider, Midwest region vice president for the American Insurance Association. “We’re not for taxis and we’re not for Uber. We’re for the protection of the consumer, that they are adequately covered by personal insurance, and that the drivers are adequately covered by commercial insurance, and we’re here to support that.”

Uber, Lyft and Sidecar require their drivers to have personal auto insurance, and claim to offer excess liability insurance of $1 million per incident, but have declined to share copies of that policy with WBEZ and others. The problem, said witnesses at the hearing, is that the excess policies are not triggered until a driver’s personal insurance is exhausted -- and personal insurance policies explicitly preclude coverage for commercial use of a vehicle.

“Our members’ concern is, and what I think might happen is, you’ll get a lot of lawsuits,” said Robert Passmore, Senior Director of Personal Lines Policy at Property Casualty Insurers Association of America. “You’ll have a lot of disputes and a lot of litigation, a lot of lawsuits.”

Sandoval noted that Lyft and Uber recently changed their policies to “drop down” to serve as primary insurance in case a driver’s personal policy declines to cover damages from an accident. But insurance industry representatives said they could not verify if that covers the insurance gap without seeing copies of the policy. They also noted other problems with the excess policies, namely the companies’ stipulation that the coverage applies only when a driver has accepted a fare, until that ride has ended.

“More than half of the accidents -- 60-plus percent of the accidents -- occur when the vehicle does not have a passenger,” said Michael Francis, President of Transit General Insurance Company, which insures many taxi and livery vehicles. Francis said the excess policies appear not to cover accidents that may occur when drivers are circling neighborhoods in anticipation of a fare.

The lack of details about the companies’ policies raised other concerns, about whether the insurers behind them are reputable.

“One of the certificates I have, specifically for Uber, we don’t know who the insurer is,” said Michael Francis, President of Transit General Insurance Company. “The other two are by an insurer that would be not an authorized insurer.”

Francis explained that “unauthorized” insurers are not subject to the same scrutiny by the Illinois Department of Insurance as authorized insurers, and they are not backed by the Illinois Insurance Guaranty Fund if they become insolvent. He also pointed out that without seeing the companies’ policies, it’s not clear if they have aggregate limits. That is, $1 million per incident policies that are subject to a limit and could, after a certain number of incidents, deplete the insurance.

“Even if it was the real deal, it’s still subject to some kind of aggregate,” Francis explained, “which makes it very illusory because we don’t know how many events that would cover before the well runs dry.

State Senator Sandoval said he’ll seek authority to subpoena the companies’ insurance policies, and if the companies fail to comply, he may seek to ban the services altogether.

“It is very evident and very clear from industry insurance experts, (and) even the Department of Insurance, that Illinois residents and consumers are not protected and covered under these private ridesharing arrangements,” he said.

Chicago’s City Council has issued a subpoena to the companies for their insurance policies, due March 14. If the companies do not comply, city lawyers have discretion over whether or not to pursue further enforcement. 

Odette Yousef is WBEZ’s North Side Bureau reporter. Follow her @oyousef and @WBEZoutloud.