This week Uber and Lyft, two ridesharing companies, announced that their insurance policies have been extended to cover drivers who are logged into the companies' networks but are not transporting any customers. Previously, drivers were covered only while transporting passengers. Lyft will cover these drivers subject to a $1 million limit, while Uber will provide a limit of $50,000 per person and $100,000 per accident.
While this extension of insurance is a positive move, it does not address the primary problem. Drivers for these companies are relying on their personal auto policies to cover a risk that most personal policies exclude. Clearly, this is a bad idea.
There are three major players in the rideshare business: Lyft, Uber and Sidecar. Drivers for these companies use their personal vehicles to transport customers. Both Uber and Lyft use a smartphone app to match passengers with drivers. Sidecar riders use their smartphones to choose the driver they want based on price, arrival time and other factors.
All three companies have a similar business model. They recruit non-professional drivers to use their personal vehicles for transporting passengers. All of the companies' websites state that drivers must have personal auto insurance. Each of the three companies provides a $1 million limit in excess commercial auto liability coverage.
The three rideshare companies' business model has a serious flaw. When drivers are transporting passengers, they are using their vehicles as a livery (a vehicle for hire).
Virtually all personal auto policies contain a livery exclusion under liability coverage. This exclusion prohibits the operation of any covered vehicle as a livery conveyance. The owners of these companies must have known about this exclusion when they drafted their business plans. They have put their drivers in a precarious position.
Suppose that a driver is sued as a result of an at-fault auto accident that occurred while the driver was transporting a passenger for hire. The driver will file a claim with his or her insurer. If the driver is lucky, the insurer will provide a defense. However, the insurer may at some point cease that defense and refuse to pay any damages based on the livery exclusion. At that point, the driver (who is probably not feeling very lucky) should be covered by the company's excess auto liability policy. But will $1 million limit be enough? Any auto accident can cause serious injuries. If an accident involves multiple injured parties, $1 million may not cover the damages. Inadequate insurance could leave a driver with a large out-of-pocket expense.
Ideally, each rideshare driver would purchase a commercial auto policy. This isn't practical because the coverage is too expensive. What's the solution? I don't know but the companies need to find one. Until they do, the rideshare companies are putting their drivers (and probably the rest of us) at risk.
Finally, be sure to read my new articles on business insurance. The topics are rental reimbursement coverage, signs of a dishonest agent, computer fraud coverage, and utility interruption coverage.