Insurance for Rideshare Drivers

Is Your “Side Hustle” Properly Insured?: A Summary of Colorado’s Insurance Requirements and Considerations for Uber, Lyft, and Other Rideshare/Transportation Network Company Drivers and Insurers.
By: Hillary Patterson

Drivers of all ages, shapes, sizes, and trades are flocking to the opportunity for quick cash and flexible hours promised by the ridesharing industry.  The ease and benefits of a “side hustle” are definitely appealing – no need for a degree; no hefty investments; all you need is access to a car and some free time, so it goes.[1]  But, before you hop in and log on, rideshare drivers in Colorado would be wise to read the fine print, and state law.  The fruits of your side hustle can quickly turn rotten if drivers don’t heed the special insurance requirements Colorado has implemented in the wake of this bustling industry.

Likewise, automobile insurers who write policies in Colorado are well advised to understand the new laws, which established a new type of mandatory insurance coverage that has not been underwritten before.  While it may present the opportunity to sell new products, insurers must also consider the implications of the law and its nuances on insurance underwriting, claims, and investigations.  To follow is a brief summary of the insurance requirements affected by this legislation and considerations for both rideshare drivers and insurers who wish to benefit from the opportunities ridesharing provide.

A  Little Background

Over the last five or six years, Uber, Lyft, and a number of other ridesharing companies have entered Colorado’s transportation marketplace and greatly expanded means for Colorado citizens to get from point A to point B.  They marketed new technology and apps making it easier for citizens to both find rides and to earn money providing rides to others.  In addition to bringing innovation and economic growth to the state, these new business models presented challenges to the existing legal, regulatory, and insurance paradigms in place for traditional means of personal and public transportation.  With the advent and rapid growth of these ridesharing companies, termed “Transportation Network Companies” (“TNCs”), the Colorado legislature lead the pack in 2015 by creating new legislation to regulate this unique category of business.

Legal Mumbo-Jumbo

To understand the provisions of the new laws governing TNCs, you must also know about existing laws governing Colorado automobile insurance.  Below are some of the primary statutes that set the stage for understanding automobile insurance requirements under the new TNC statute.

Existing Colorado Law
Colorado’s Motor Vehicle Financial Responsibility Act (C.R.S. § 42-7-101 et seq.)  sets forth the financial responsibility requirements of drivers on Colorado roadways.  Colorado law also mandates compulsory liability insurance coverage for motor vehicles on public roadways.  Colorado Revised Statutes Sections 10-4-619 and 620 require motor vehicle owners to carry minimum liability insurance of “twenty-five thousand dollars to any one person in any one accident and fifty thousand dollars to all persons in any one accident and for property damage arising out of the use of the motor vehicle to a limit, exclusive of interest and costs, of fifteen thousand dollars in any one accident.” C.R.S. § 10-4-619 – 20.

The law also places limitations on what conditions and exclusions are permissible for mandatory coverages:  “The coverage described in section 10-4-620 may be subject to conditions and exclusions that are not inconsistent with the requirements of this part 6.”  C.R.S. § 10-4-623(1).

A complying “policy” under this statute is defined as:

(10) “Policy” means an automobile insurance policy providing coverage for all or any of the following coverages: Collision, comprehensive, bodily injury liability, property damage liability, medical payments, and uninsured motorist coverage,  or a combination automobile policy providing bodily injury liability, property damage liability, medical payments, uninsured motorist, and physical damage coverage, delivered or issued for delivery in this state, insuring a single individual, or husband and wife, or family members residing in the same household, as named insured, and under which the insured vehicles therein designated are of the following types only:

(a) A motor vehicle of the private passenger or station wagon type that is not used as a public or livery conveyance for passengers nor rented to others pursuant to the terms of a motor vehicle rental agreement[.]

C.R.S. § 10-4-601 (10) (emphasis supplied).

When drivers and companies are in the business of transporting passengers (“carriers”), they are subject to different insurance obligations, as well as additional rules and regulations.  Colorado has separate, extensive laws and regulations for taxis, shuttles, and limousines. These obligations impose heavy financial and compliance burdens.

Introduction of TNCs and the TNC Statute

Around 2013-2014, a new and different category emerged for drivers and businesses that facilitate ridesharing through the use of technology and software (apps) to make trip arrangements between drivers and riders.  With the advent and rapid growth of these ridesharing tech companies such as Uber and Lyft, the Colorado Legislature recognized a need to create new law to address these businesses and drivers who differ from private motor vehicle operators and carriers.  These ridesharing tech businesses were given the title “Transportation Network Companies” (“TNCs”) and the Colorado Legislature recently enacted a statutory scheme facilitating and regulating the operation of TNCs in the state.  They worked to create law that balanced public safety with a free market and public desire for ease of access to employment opportunities.

This legislation began in 2014 and additional rules and statutory additions and amendments were enacted in the years since 2014 to regulate TNCs. Colorado is in the forefront of states enacting such legislation.  Consequently, the laws and regulations are still fairly new, with little or no case law interpreting and applying these statutes.

Among the newly enacted legislation, C.R.S. § 40-10.1-604 is most relevant in terms of insurance obligations of TNCs.  The statute is titled “Registration–financial responsibility of transportation network companies—insurance.”  As the title suggests, this statute defines the financial responsibilities of TNCs (and TNC drivers) in Colorado and their insurance obligations.  The statute recognizes three distinct periods in which TNCs and/or drivers have varying insurance responsibilities: When a driver is not logged into the TNC at all (“offline”); when a driver is logged into a TNCs digital network but not engaged in a prearranged ride (“in-app”), and when a driver is engaged in a prearranged ride (“in-ride”).

Offline

When a driver is offline, the TNC is under no obligation to provide insurance.  During this period of time, the driver is responsible for complying with Colorado’s financial responsibility and compulsory insurance mandated under C.R.S. §§ 42-7-101 et seq., 10-4-619, and 10-4-620 (requiring a minimum of $25,000/$50,000/$15,000 in liability coverage).  In other words, an offline driver is simply a typical, everyday driver whose personal automobile liability policy would provide primary coverage in the event of an accident.

In-App

When a driver is in-app, the driver has logged into the TNC’s digital network in anticipation of securing a prearranged ride for compensation (but has not accepted a ride).  A driver who has logged into the Uber Driver App would be considered in-app.  During this period of time, C.R.S. § 40-10.1-604(3) requires that either the driver, or the TNC on behalf of the driver, secure a primary automobile insurance policy that:

(I) Recognizes that the driver is a transportation network company driver and covers the driver’s provision of transportation network company services while the driver is logged into the transportation network company’s digital network;

(II) Meets at least the minimum coverage of at least fifty thousand dollars to  any one person in any one accident, one hundred thousand dollars to all persons in any one accident, and for property damage arising out of the use of the motor vehicle to a limit, exclusive of interest and costs, of thirty  thousand dollars in any one accident; and

(III) Is one of the following:

(A) Full-time coverage similar to the coverage required by commission rules promulgated under section 40-10.1-107(1);

(B) An insurance rider to, or endorsement of, the driver’s personal automobile insurance policy required by the “Motor Vehicle Financial Responsibility Act”, article 7 of title 42, C.R.S.; or

(C) A corporate liability insurance policy purchased by the transportation network company that provides primary coverage for the period of time in which a driver is logged into the digital network.

C.R.S. § 40-10.1-604(3).

Thus, for the period of time when a driver is in-app, they must have purchased (or the TNC must have purchased on their behalf), either a full time policy, an insurance rider on a personal policy, or a corporate liability policy, which specifically acknowledges that the driver is a TNC driver, and with limits of 50,000/$100,000/$30,000.  These minimum liability amounts are double Colorado’s minimum financial responsibility and compulsory insurance requirements.

In-Ride

When a driver is in-ride, the driver is engaged in a “prearranged ride.”  This is defined by statute as the “period of time that begins when a driver accepts a requested ride through a digital network, continues while the driver transports the rider in a personal vehicle, and ends when the rider departs from the personal vehicle.”  C.R.S. § 40-10.1-602.  During this period of time, the TNC or driver must provide primary liability insurance coverage in the amount of at least $1,000,000 per occurrence.  C.R.S. § 40-10.1-604(2).  Below is a chart summarizing the insurance requirements for the three relevant periods of time.

TNC article - table

Significant responsibility is placed upon the TNC to provide proof to the commission[2] that either the company or the driver has obtained the required insurance.  See C.R.S. § 40-10.1-604(2) and (3)(d).  While the onus to purchase this insurance is on either the driver or the TNC, TNCs have mandatory reporting and assurance obligations and can be fined.  Thus, most all of the TNCs present in the Colorado market purchase in-ride insurance on behalf of the drivers.[3] However, some TNCs may chose not to purchase insurance covering the in-app period, leaving that responsibility to individual drivers.[4]

Importantly, the statute also states that a personal auto policy is not required to cover losses during in-app and in-ride periods, the periods when these increased insurance requirements are imposed.  “Nothing in this section requires a personal automobile insurance policy to provide coverage for the period of time in which a driver is logged into a transportation network company’s digital network.”  C.R.S. § 40-10.1-604(5).  Similarly, under the Operational Requirements section of the statute, TNCs are required to make the following disclosure to prospective TNC drivers in the terms of service: “While operating on the transportation network company’s digital network, your personal automobile insurance policy might not afford liability coverage, depending on the policy’s terms.”  C.R.S. § 40-10.1-605(1)(i) (emphasis in statute).

The statute also addresses primacy when there is more than one policy providing coverage for a loss:

(6) If more than one insurance policy provides valid and collectible  coverage for a loss arising out of an occurrence involving a motor vehicle operated by a driver, the responsibility for the claim must be divided on a pro rata basis among all of the applicable policies. This equal division of responsibility may only be modified by the written agreement of all of the insurers of the applicable policies and the owners of those policies.

C.R.S. § 40-10.1-604(6).  In effect, this provision supersedes the “other                   insurance” section of a policy and mandates the order and amount of payout across multiple policies covering the same loss caused by a TNC driver.

Finally, the statute requires TNCs to cooperate with claims coverage investigations by insurers:

In a claims coverage investigation, a transportation network company shall cooperate with a liability insurer that also insures the driver’s transportation network company vehicle, including the provision of relevant dates and times during which an incident occurred that involved the driver while the driver was logged into a transportation network company’s digital network.

C.R.S. § 40-10.1-604(7).  This is an important protection for the insurance claims process to help determine what policies were in force at the time an accident or loss occurred.  It aims to ensure that claims are paid by the appropriate insurance policies, and to protect consumers by preventing payment of non-covered claims.

What Does this Mean for You?

Takeaways for Insurers

Some insurers may choose to underwrite this new type of coverage created by the statute.  While data collection on risk is still in its early phases, the statute has been in place for over two years, which means underwriting may be easier.  However, all insurers, including those who choose not to write for these additional coverages, still need to be aware of the impact of this industry and the law on underwriting and claims adjusting.  Such considerations include, but are not limited to:

  • Assessing whether the terms of a policy afford coverage for the periods of time a driver is in-app or in-ride (whether the coverage is explicit/intentional or not);
  • Assessing whether the exclusions of a policy sufficiently and legally preclude coverage for the periods of time a driver is in-app or in-ride;
  • Modifying applications and policy obligations to account for the notice requirements for TNC driving;
  • Ensuring that claim investigations include inquiry into whether drivers were involved in ridesharing and whether they were in-app or in-ride at the time of the loss; and
  • Understanding TNCs’ obligations under the law to assist with such investigations.

Takeaways for TNC Drivers

While the law requires either drivers or TNCs to provide certain categories of insurance, drivers need to research and know exactly what insurance a TNC is providing, and whether it applies when drivers are both in-app and in-ride.  Certain TNCs advertise that they provide $1,000,000 in coverage for drivers.  What may not be readily apparent is that the TNC may only provide that coverage in-ride.  Thus, TNC drivers in Colorado would still be required to obtain additional insurance to cover losses while the driver is in-app.  This can be called the “in-app gap” – a gap in time where neither the driver’s personal automobile liability policy, nor the TNC’s liability policy applies.

Drivers who rely on their personal automobile liability insurance to cover them, without more, may have a rude awakening when coverage is denied after they are involved in an accident while logged into their TNC app.  To be sure, the statute specifically states that personal automobile liability policies are not required to cover such losses.  Sage advice for all Colorado TNC drivers is to:

  • Read and understand your insurance policy;
  • Call your insurance company and notify them that you plan to use your vehicle as a TNC driver (or ridesharing driver depending on the terminology the insurer uses);
  • Ask if they offer insurance coverage or a rider for TNC/rideshare drivers. If they do, buy it.  If they don’t, find an insurer that does.

Don’t fall victim to the in-app gap.  Don’t take the risk of driving uninsured, even if it is for that short “gap” in time from when you turn your app on until the time you accept a ride.  The unexpected can turn your life upside down in an instant.  And for those of you who worry that buying more insurance will be too costly, don’t fret!  Several major insurers in Colorado have already begun offering rideshare insurance at affordable rates.[5]

While this is by no means a comprehensive summary of the TNC industry and surrounding law in Colorado, hopefully it provides you with the important basics drivers and insurers should know.  With the right precautions and knowledge, insurers and drivers can all benefit from the flourishing rideshare industry and profit from a properly insured side hustle.

 

[1]See Is Driving with Uber the Right Side Hustle?,  https://www.moneypeach.com/driving-with-uber-side-hustle/ .

[2] TNCs are overseen and regulated by Colorado’s Public Utilities Commission.

[3] TNCs also have an incentive to purchase this insurance because it might otherwise be cost prohibitive for drivers to use the app if they could not afford to purchase $1,000,000 in liability insurance.  A prime example is the people who take advantage of the app as a “side hustle” – a second or part-time job to earn some extra cash.  These are the very people TNCs are marketing to, but would be deterred from participating if it was cost prohibitive.

[4] While we have not collected information on the specific insurance coverages purchased by the various TNCs present in Colorado, this statement is based on discussions during the legislative hearings where TNCs expressed concern with potential insurance abuse if TNCs were required to provide coverage during the in-app period.

[5] See Colorado Rideshare Insurance, https://therideshareguy.com/colorado-rideshare-insurance/ .