BILL ANALYSIS                                                                                                                                                                                                    



                                                                  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.









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          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
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           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  








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            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  








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            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  








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            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  








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            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  








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            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,  








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            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