State regulators are not only concerned that the Lyft ride-sharing service runs afoul of public transportation rules. Insurance regulators are warning that drivers probably are not properly insured in New Mexico when they give people a lift.
Lyft Inc., the San Francisco company whose mobile applications connect people with cars to people who need a ride, says the state has no reason for concern. Lyft says it is not operating an unlicensed livery service and its drivers are adequately insured.
Lyft provides a mobile device application that allows a passenger to request a ride directly from a driver. The drivers use their own vehicles. They do not work for Lyft.
Lyft says drivers do not charge passengers a fee for the ride, but the company does suggest a donation. That suggested donation, based on miles driven and time spent, comes to the passenger’s mobile device when the ride is finished, courtesy of Lyft’s application. Lyft makes its money by collecting a portion of the driver’s take.
Last month, the state Public Regulation Commission ordered Lyft to cease operations in the state and answer charges the company is operating an unlicensed taxi service. Lyft contends the PRC has no authority over its business, since it says it does not operate a taxi service.
State Insurance Superintendent John Franchini applauds the PRC’s efforts. If drivers using Lyft applications can be forced to comply with state livery regulations, they will be required to carry commercial auto insurance. That will guarantee drivers, passengers and innocent bystanders will have adequate coverage in the event of an accident, he said.
As it is, he said, a Lyft driver’s personal car insurance likely will cover nothing if an accident occurs while the driver is acting in a commercial capacity.
“Under the personal auto insurance policy, their insurance company doesn’t even have to respond” to a driver’s claim, Franchini said. Lyft and drivers who use the application “aren’t violating the insurance law,” he said. “They’re just not covered.”
Carrie Ann Drinville, who used Lyft’s application to find passengers to ferry until the PRC issued its cease-and-desist order, said her reading of her own auto insurance policy satisfied her that she had coverage.
“I understood from the way we read our policies is that folks in my car were covered by my insurance,” she said. “My insurance would kick in.”
Drinville said she also is covered by insurance Lyft carries.
Lyft spokeswoman Paige Thelen says Drinville is correct.
“There have been multiple instances of drivers’ insurance policies kicking in” after an accident, Thelen said in a telephone interview.
Lyft also carries insurance so that if personal car insurance doesn’t provide coverage when the driver is carrying a passenger, $1 million in liability, uninsured motorist and underinsured motorist coverage provides “first dollar coverage and acts as the primary insurance in the event the driver’s personal policy is uncollectable.”
Thelen said drivers are covered by Lyft insurance even when they are not carrying a passenger. If the driver has logged into the application, which means he or she is ready to accept requests for rides, Lyft has contingent liability coverage that will pay a total of $100,000 for personal injury and $25,000 for property damage. Contingent liability coverage is designed to pay for what the driver’s primary insurance does not cover.
The insurance industry supports “emerging business models” like Lyft’s and Uber’s, a competing ride-sharing application.
“But insurance risk doesn’t change,” said Carole Walker, executive director of the nonprofit Rocky Mountain Insurance Information Association in Denver.
Ride-sharing applications “grew faster than insurance was able to catch up,” she said. “Now insurance is catching up.”
Insurers and their trade associations are pushing states to create new regulations that take into account the new world of ride sharing. Arizona, California and Colorado are promulgating new regulations, she said.
All auto policies exclude coverage for personal cars engaged in livery service, which Walker defined as “transporting people for a fee.” The contingent insurance Lyft offers may not be nearly enough to cover accidents when the driver’s own insurance company denies a personal claim.
An even bigger concern, Walker said, is deciding when the ride-sharing driver is on the job. Lyft’s contingent coverage is available when the driver turns on the application, but insurance companies could argue the driver is working as a livery before that.
Walker says drivers will position themselves near events, like concerts or sporting events, where they are likely to find a passenger. They may not turn on their application until the event is nearly over. An insurer could deny a claim because the act of getting to the event constitutes livery, even if the application has not been activated.
Colorado enacted a law earlier this month requiring Lyft, Uber and other ride-sharing companies to obtain permits from regulators and carry at least $1 million in liability insurance. The companies or the ride-sharing drivers will also have to carry primary coverage, not contingent coverage, for periods when the driver is available to take passengers but hasn’t yet found one.
Franchini believes insurance companies could require ride-sharing drivers in New Mexico to carry commercial insurance if they want to be covered.
“If that only doubles their insurance premium, I would be surprised,” he said. “Livery coverage per vehicle is a minimum of $3,000 a year just for liability. It’s expensive because there is a lot of risk.”