BILL ANALYSIS Ó AB 2293 Page 1 Date of Hearing: May 7, 2014 ASSEMBLY COMMITTEE ON INSURANCE Henry T. Perea, Chair AB 2293 (Bonilla) - As Amended: April 10, 2014 SUBJECT : Transportation Network Companies: insurance coverage: disclosure SUMMARY : Defines when Transportation Network Companies (TNCs) must ensure that commercial insurance is covering the vehicles being operated in the network, and requires specified disclosures be made to TNC drivers. Specifically, this bill : 1)Codifies the California Public Utilities Commission's (PUC) definition of TNC. 2)Requires TNCs to inform drivers about the insurance coverage and limits offered by the TNC when providing TNC services and that a driver's personal automobile insurance coverage may not provide coverage when providing TNC services. 3)Specifies that the TNC's insurance policy shall cover losses or injuries at any time after the TNC driver logs on to the TNC's application program ("app on") and up until the driver logs off the TNC's application program ("app off"). 4)Provides that a TNC's commercial automobile insurance coverage is primary to a private passenger insurance policy in any case where both policies might be applicable. 5)Specifies that if a driver or registered owner of a vehicle is named as a party in a civil action for losses or injuries that occur when a personal automobile is being made available for TNC services, the insurer providing the insurance to the TNC has the duty to defend and indemnify the driver. EXISTING LAW : 1)Establishes, based on Article XII of the California Constitution, that private corporations and persons that own, operate, control, or manage a line, plant, or system for the transportation of people or property, and common carriers, are public utilities. AB 2293 Page 2 2)Allows the PUC to fix rates and establish rules for the transportation of passengers and property by transportation companies. 3)Establishes, by PUC Decision 13-09-045, that TNCs must maintain, and file with the PUC evidence of, insurance covering not less than $1,000,000 per incident for vehicles while they are providing TNC services, but does not define "while they are providing TNC services". 4)Requires all owners and operators of motor vehicles that are driven on California roads to maintain "financial responsibility" for accidents where the driver of the vehicle is at fault in causing property damage or personal injury due to the operation of the vehicle (the Financial Responsibility Law, or FRL). Subject to exceptions, "financial responsibility" generally means the purchase of an automobile liability insurance policy. Maintaining financial responsibility is a condition precedent to lawfully driving a vehicle on California roads, and failing to do so is a violation of the Vehicle Code. 5)Provides that the minimum coverage limits for an automobile insurance policy meeting the requirements of the FRL are $15,000 bodily injury per person, subject to a $30,000 cap for aggregate bodily injury per accident, and $5,000 property damage liability (15/30/5 coverage limits). 6)Requires the Director of the Department of Motor Vehicles to adopt a higher mandatory financial responsibility coverage limit, at the coverage limit mandated by the PUC, for vehicles used to carry passengers for hire. 7)Provides for private passenger automobile insurance, which cannot include coverage for vehicles used as a public or livery conveyance for passengers, nor rented to others. 8)Establishes a comprehensive system of "prior approval" rate regulation for property-casualty insurance, including special rules governing private passenger automobile insurance. These rules include limitations on the factors that insurers may use to rate private passenger automobile insurance policies, and consumer rights to guaranteed issue of, and special discounts for, these policies. AB 2293 Page 3 FISCAL EFFECT : Undetermined COMMENTS : 1)Purpose . According to the author, "Transportation Network Companies (TNC's) are an exciting new technology that connects drivers with passengers in search of transportation. However, it is important that we ensure sufficient consumer protections are in place as this technology advances. AB 2293 ensures that drivers are aware of the insurance coverage and limits of liability that a TNC provides while a driver makes him or herself available for TNC services. This ensures that a driver is clear about the coverage offered and is not left with the false impression that personal auto insurance will cover TNC activities. Most importantly, AB 2293 clearly defines when this insurance coverage applies, eliminating the gray area that currently can lead to insurance gaps. The bill clarifies that TNC insurance coverage applies when the driver logs on to the TNC application and coverage ends when the driver logs off the application. AB 2293 creates clear parameters of when TNC insurance covers a driver and as a result, protects the driver, passengers, pedestrians, and third parties from potential gaps in insurance where a driver may find himself without any coverage and an injured third party may be left without coverage to pay for medical bills or property damage." 2)What is a TNC, and how is it regulated ? A TNC is a new technology-based mechanism whereby willing riders and willing drivers connect with each other to arrange transportation services. While the TNCs would likely object to the characterization, they provide taxi-like services as an alternative to traditional taxi companies, albeit with substantial differences. The TNC recruits drivers who will use their own vehicles, and who will be connected to riders via the TNC's program, typically a smartphone application. This is a new application of technology and, until recently, an unregulated business. In theory, and undoubtedly in certain circumstances, TNC drivers can be casual participants, accepting riders in their spare time or under certain circumstances (e.g., Friday or Saturday nights in entertainment districts). But it is also true that many TNC drivers are engaging in full time employment. In fact, numerous taxi companies have represented that they are AB 2293 Page 4 losing a substantial number of their drivers to TNCs, apparently because these drivers prefer the TNC business model. In December, 2012, the PUC initiated a Rulemaking proceeding to determine whether and how services arranged through online-enabled applications might affect public safety. The PUC sought comment on issues including: how the PUC's existing jurisdiction should be applied to businesses such as Uber, SideCar, and Lyft; the consumer protection and safety implications of these new methods for arranging transportation services; whether and how the new transportation business models differ from longstanding forms of ridesharing; and the new transportation business models' potential effect on insurance and transportation access. In a September, 2013, Decision, the PUC established a new transportation business model called Transportation Network Companies (TNCs). The PUC defined TNCs as an "organization whether a corporation, partnership, sole proprietor, or other form, operating in California that provides prearranged transportation services for compensation using an online-enabled application (app) or platform to connect passengers with drivers using their personal vehicles." AB 2293 codifies this definition. As relevant to AB 2293, the PUC mandated that TNCs carry at least $1,000,000 per incident liability insurance for incidents involving vehicles and drivers "while they are providing TNC services." The PUC did not, however, define "providing TNC services." It has, nonetheless, initiated proceedings to potentially update its regulations. 3)Two key insurance issues . Services provided by TNCs raise two key insurance issues that are being addressed by the bill. First, the bill attempts to ensure that innocent third-parties, people who have no connection to TNC activity other than the misfortune to have been harmed in an accident, are protected by liability insurance that is reliably available to cover damages. While the 2013 PUC Decision addresses this issue generally, the bill provides significantly more certainty that appropriate insurance will be available. It does so by specifying a bright-line, easily determined rule that the TNC insurance coverage is responsible from the time the driver logs on to the TNC application, until the driver logs off. The rule would significantly reduce the AB 2293 Page 5 risk that a TNC driver could cause an accident, and both his or her private passenger insurer and the TNC's insurer could each claim that the other was responsible - with the potential result that neither insurer might be responsible. The second key insurance issue addressed by the bill involves the relationship between a driver's private passenger automobile insurance and commercial insurance, whether that commercial insurance is the policy procured by the TNC, or otherwise procured by the TNC driver (see discussion, below, on issues associated with TNC driver-procured commercial insurance). While all insurance involves organizing different classes of policyholders into classifications to (hopefully) fairly apportion the costs among the population of insureds, automobile insurance, and in particular private passenger automobile insurance, is among the most structured type of insurance. Based on an initiative statute (Proposition 103 of 1988), automobile insurance is subject to a rigorous rate regulation program that tightly controls rates charged for this insurance, and grants consumers of this insurance a series of important rights. The goal of the initiative, with respect to private passenger automobile insurance, was to ensure that consumers of this insurance received the fairest premium costs possible. If commercial activity is conducted with vehicles that have private passenger automobile coverage, and loss costs associated with that commercial activity are paid by the private passenger automobile insurer, then all private passenger drivers will end up subsidizing the commercial activity, even though they never themselves engage in commercial activity in their vehicles. The bill addresses this problem by the same bright-line rule noted above - it clearly spells out where personal driving activity ends, and commercial driving activity begins. 4)"App-on, App-off" . AB 2293 does not expressly define the phrase "while they are providing TNC services." However, it provides a functional definition by specifying that the insurance coverage provided by the TNC, as mandated by the PUC, covers incidents that occur from the time the TNC driver turns the application that provides the connection between driver and rider on, and continues that coverage until the time the driver turns the application off. This principle is one of the points of contention as between proponents and opponents. Opponents, TNC companies that are registered with the PUC, argue that the TNC policy should not be triggered AB 2293 Page 6 until the driver has accepted a "match" with a rider, and should terminate when a particular rider is dropped off at his or her destination. 5)Private Passenger Automobile insurance - livery exclusion . Both by statute, and by exclusions written into insurance policies, commercial driving activity is not covered by private passenger automobile insurance policies. This fact is not always known to TNC drivers, who may believe that their regular automobile insurance policy is in force when they are engaging in TNC driving. The bill addresses this issue by mandating that the TNC disclose to its drivers the scope of insurance being provided by the TNC, as well as the fact that their personal insurance may not provide coverage. A related "livery exclusion" issue is that actual policy language defining the exclusion varies greatly from insurer to insurer. While it is a fairly simple process for an insurer to file with, and obtain approval from, the Insurance Commissioner (commissioner) changes in policy language, the bill functionally addresses the scope of the livery exclusion (at least for TNC activity) by the "app on, app off" rule. 6)Primary/excess . The bill provides that the TNCs commercial insurance coverage is "primary." The issue of whether an insurance policy is "primary" or "excess" arises when there are, or may be, two policies that could provide coverage for a particular incident. The law currently provides that if there are two policies that provide coverage "it shall be conclusively presumed that the insurance afforded by that policy in which the motor vehicle is described or rated as an owned vehicle shall be primary and the insurance afforded by any other policy or policies shall be excess." While the "app on, app off" rule is intended to ensure that the commercial insurance of the TNC and the personal insurance of the driver do not overlap, it is difficult to ensure that no fact pattern might occur that could result in more than one policy providing coverage. Because personal automobile insurance policies name the insured vehicle and rate it specifically, while the TNCs policy does not list the vehicle of each of its drivers, existing law could operate to make the personal policy primary, despite the commercial TNC activity. For this possibility, the bill declares that the commercial policy is primary if the loss occurs during commercial activity. The author may wish to consider an amendment specifically AB 2293 Page 7 referencing existing law in order to ensure that the intent of this provision takes effect. 7)Duty to defend and indemnify . The bill contains language to the effect that the TNC's insurer has the duty to defend and indemnify in the event a TNC driver is named as a party in a civil action for damages resulting from an accident that occurred while the driver's vehicle was made available for transportation network services. In addition to paying damages to an accident victim, an insurer owes a duty to its policyholder to provide a defense in the event that the policyholder is sued for damages. The private passenger insurers are concerned that TNC commercial policies will be narrowly drafted, and that TNC drivers will fear being left without a defense once they are sued, and will turn to the private passenger automobile insurer and invoke the duty to defend. As with the primary/excess issue, above, the bill is designed to minimize the opportunity for these uncertainties, and the express language that the commercial insurer has the duty to defend and indemnify is included to eliminate any remaining uncertainty. 8)Market-based solutions vs. statute . TNCs have acknowledged that there might be coverage issues that can result in litigation about which insurance policy must cover injuries in different fact patterns. In particular, they recognize that there is wide variety in the commercial activity exclusion language in its drivers' personal insurance policies, and that insurers are likely to amend those provisions to more carefully exclude TNC activity. However, the TNCs argue that there is no need for a statute to mandate when the TNC must provide the insurance, because the market for driver-purchased commercial coverage will develop. They argue that the market will be able to provide adequate seamless coverage, and the "app on, app off" statutory mandate, which places full commercial responsibility on the TNC, is unnecessarily burdensome on a developing industry. In fact, one opponent, Uber Technologies, argues that it already has a partial market based solution, as its policy already covers the "gap" between "app on" and "match". However, that a policy has a coverage limit lower than the $1,000,000 PUC mandate, but 3 times the minimum FRL limit required of all drivers (see discussion of FRL, below). According to the Department of Insurance, there is currently no AB 2293 Page 8 insurance policy or rider available for TNC drivers to purchase that would operate to ensure that there are no gaps in protection for the public as between the TNCs commercial insurance and the drivers' personal insurance. In order to market such a policy or rider, an insurer would have to go through the formal Proposition 103 prior approval process, which can take months or longer, depending on the circumstances. Nonetheless, the author may wish to consider an amendment that allows other commercial insurance coverage, aside from the coverage procured by the TNC, to satisfy the bill's intent that personal insurance not cover commercial activity. 9)Financial Responsibility Law . The FRL makes it illegal for a vehicle owner or driver to drive on California roads, unless at the time of driving there is sufficient "financial responsibility" in place in case of an accident that causes harm to others. Violation of the FRL can involve suspension of a driver's license, impoundment of the vehicle, fines and other potential penalties. To the extent that TNC drivers are driving while mistakenly believing that their personal insurance is in force, and the TNC commercial insurance fails to fill all of the gaps between the two policies, the TNC activity is occurring in violation of the FRL. AB 2293 does not expressly address the FRL, but its provisions specifying when TNC commercial coverage takes effect, and the provisions requiring disclosures to drivers, go a long way to eliminating the risk that gaps in coverage that constitute a violation of the FRL will occur. However, absent a clear definition of when "TNC services" commence, it is unclear whether a standard 15/30/5 FRL policy, or the PUC's $1,000,000 policy limit applies during the period after "app on" but before "match.". 10)Other insurance issues . A typical "full coverage" personal automobile insurance policy includes several different coverages in addition to property damage and bodily injury liability coverage. Additional coverages typically include medical payments (coverage for medical bills for injuries sustained by the driver and passengers), uninsured/underinsured motorist coverage (in the event a driver with no or limited insurance causes an accident that injures the driver or passengers), and collision and comprehensive coverage (for damage to the vehicle either by accident or vandalism/other non-driving causes.) Once a TNC driver commences providing transportation network services, AB 2293 Page 9 none of these protections from the personal automobile insurance policy apply. Currently, the PUC's insurance requirement for TNCs does not extend beyond liability insurance. While the bill does not address the scope of coverage that ought to be afforded by a TNC (in particular protections for riders), it requires the TNC to disclose to drivers the extent of coverages that do apply. REGISTERED SUPPORT / OPPOSITION : Support Allstate American Insurance Association Association of California Insurance Companies (ACIC/PCI) Independent Insurance Agents and Brokers of California (IIABCal) National Association of Mutual Insurance Companies Pacific Association of Domestic Insurance Companies Personal Insurance Federation of California San Francisco International Airport (SFO) State Farm Opposition Lyft Uber Technologies, inc. Analysis Prepared by : Mark Rakich / INS. / (916) 319-2086