The TNC (Ride-Sharing) Insurance Gap

By: Kelsey Brunette

Ride-sharing application companies, now designated as Transportation Network Companies (TNCs), are organizations that maintain a smartphone application that prearranges trips between consumers and drivers while logged into the TNCs’ apps. TNCs are a platform through which drivers, using their personal vehicles, can accept money to drive consumers. As personal auto insurance generally has a livery exclusion for drivers accepting money, personal auto insurers are likely to reject a claim made while using a TNC. If personal auto policies were required to cover any type of commercial liability, it is likely that the cost of personal auto policies would increase.

The California Public Utilities Commission was the first rulemaking body to address the state legislature’s newest concern—that “ride-sharing” companies were arranging ride services with drivers who were not commercially licensed by the State. In September 2012, the CPUC had proposed rulemaking that would allow Uber and Lyft to operate as TNCs with a minimum commercial liability insurance requirement.

Even though the rulemaking required commercial insurance, insurers were still unsure of when a driver changed from being covered under personal automobile insurance to being covered by a commercial policy. According to Uber, there are three stages of driver operation: (1) the driver is not logged into the application and is not insured beyond his or her personal coverage; (2) the driver is logged into the application, has not accepted a trip, and is covered under personal and contingent liability insurance; and (3) the driver has accepted a trip and is covered under commercial liability insurance.

Colorado, as the first state to pass laws regarding TNCs in April 2014, established a framework for TNCs to provide primary insurance coverage from the time the driver logs into the app to the time that an app is off and a driver is no longer able to accept rides. California has also clarified the application of personal auto coverage in a bill signed by the governor in September. Uber, however, is now operating in over 100 locations in the United States with the intent to expand. Other states are now facing a similar challenge in changing current regulations to either allow or prohibit companies like Uber and deciding how personal and commercial insurance will apply to the Transportation Network Companies in their state.