BILL ANALYSIS                                                                                                                                                                                                    Ó

                                                                  AB 2293
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          AB 2293 (Bonilla)
          As Amended  April 10, 2014
          Majority vote 

           UTILITIES & COMMERCE               13-0             INSURANCE    
          |Ayes:|Bradford, Bonilla,        |Ayes:|Perea, Hagman, Allen,     |
          |     |Buchanan, Chávez, Dahle,  |     |Bradford,                 |
          |     |Fong, Beth Gaines,        |     |Ian Calderon, Cooley,     |
          |     |Garcia, Roger Hernández,  |     |Dababneh, Frazier, Beth   |
          |     |Jones, Mullin, Quirk,     |     |Gaines, Olsen, Wieckowski |
          |     |Rendon                    |     |                          |
          |     |                          |     |                          |
           SUMMARY  :  Establishes guidelines for regarding insurance  
          coverage for Transportation Network Companies (TNCs) to ensure  
          personal and financial safety of consumers.  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 auto coverage may not provide  
            coverage when operating as a TNC.

          3)Defines when personal and commercial auto insurance is in  

          4)Clarifies that commercial automobile insurance coverage has  
            the duty to defend and indemnify when the TNC driver is on  

           EXISTING LAW  : 

          1)California Constitution Article XII: 

             a)   Establishes private corporations and persons that own,  
               operate, control, or manage a line, plant, or system for  


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               the transportation of people or property, and common  
               carriers, as public utilities subject to control by the  

             b)   Allows the PUC to fix rates and establish rules for the  
               transportation of passengers and property by transportation  

          1)Establishes, in PUC Decision 13-09-045 (Decision), rules and  
            regulations relating to public safety risks in the operation  
            of transportation services utilizing TNCs. 

           FISCAL EFFECT  :  Unknown.  This bill is keyed non-fiscal by the  
          Legislative Counsel. 

           COMMENTS  :  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."

          1)Hire a driver via online-enabled application:  California law  
            currently recognizes and regulates three modes of passenger  
            transportation for compensation:  taxi services - regulated by  
            cities and/or counties; charter party carrier services  
            (limousines), and passenger stage companies - regulated by the  


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            A niche model of transportation services has sprung up in  
            cities across the United States, including California.   
            Patrons can simply prearrange transportation services  
            utilizing an online-enabled application on their smart phone  
            device.  Small start-up companies such as Lyft, SideCar, and  
            Uber, among others, have broadened the playing field by  
            competing with traditional charter-party carriers and taxi cab  
            services in select cities in California.

            Uber sends drivers in either luxury vehicles or personal  
            vehicles to pick up passengers whose credit cards are  
            automatically charged flat fees or fares calculated by GPS.   
            Lyft and SideCar connect people needing rides with drivers who  
            pick them up in personal vehicles.  Fares for Lyft and SideCar  
            are calculated based on distance or by the amount you wish to  

          2)How does the state regulate this new business model:  As the  
            first of its kind, this new model of transportation services  
            operated for a number of years without regulatory oversight in  
            California.  In fact, there is no evidence that any other  
            state maintains regulatory oversight of this new business  

            However, in December 2012, the PUC initiated an Order  
            Instituting Rulemaking 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  


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            passengers with drivers using their personal vehicles."<1>   
            This bill seeks to codify this definition in statute. 

            TNCs must also meet the following safety and regulatory  
            a)   The TNC must register with the PUC.

             b)   The TNC and their drivers must meet safety requirements  
               (including insurance, background checks, and vehicle  

            c)   The transportation service companies must meet PUC  
            regulatory requirements.

            d)   Prohibits TNCs from operating at airports unless  
            permission is granted by the airport.

             e)   The TNCs are required to submit a report within 90 days  
               of the decision on how they will address the potential  
               divide for services to the disabled community.

            f)   Annual reporting requirement.

            TNC's currently permitted by the PUC are Lyft, Uber-X (aka  
            Rasier), Wingz (formerly   Tickengo), and Summon (formerly  
            InstantCab).  The Decision empowers the PUC to exercise its  
            safety and enforcement authority against TNCs that violate any  
            regulatory or safety requirements.

            In its Decision, the PUC committed to revisit the issue in  
            September 2014 to review regulations, data and reports from  
            TNCs and hold an all-day stakeholder workshop. Additionally,  
            the PUC plans to review outdated safety regulations pertaining  
            to the charter-party carriers (i.e. limousines).  

          3)Drawing the bright line personal and commercial auto  
            insurance:  Last year, a TNC driver fatally struck a child and  
            injured two family members as they crossed the street in  
            downtown San Francisco.  This sparked major concern about who  
            is responsible for the loss of life and injuries sustained by  
            the pedestrians of this unfortunate accident.  

            In March 2013, the PUC issued an Assigned Commissioner's  

          <1> California Public Utilities Commission Decision 13-09-045


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            Ruling (ACR) requesting comment on proposed modification to  
            the Decision which adopted rules and regulations for TNCs.   
            According the ACR, "the proposed modifications are in response  
            to: 1) our review of the insurance requirements we adopted and  
            their potential impact on public safety, 2) our review of the  
            policies TNCs submitted with their applications, 3) the  
            absence of a definition of providing Transportation Network  
            Company services, and 4) what insurance coverage must be in  
            force and effect while a driver is providing TNC services."<2>  
             The public comment period concluded April 7, 2014.  A final  
            decision is still pending.

            In the absence of a clear definition of "providing TNC  
            services," this gray area has potentially created a gap in  
            insurance coverage.  This raises the question - does business  
            activity begin once the driver logs into the TNC's software  
            application, when the driver accepts the fare (match) or when  
            the driver has the passenger in the car?  This bill attempts  
            to provide a functional definition of "providing TNC services"  
            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.   
            Moreover, this bill specifies that commercial coverage ceases  
            when the driver logs off from the TNC's application program.   
            The author states that, "it is incumbent upon the Legislature  
            to determine a clear line for when commercial activity begins  
            and ends for TNC drivers. This will ensure drivers are insured  
            at all times, protect the public from the results of lack of  
            coverage or questions of coverage, and reduce unnecessary  
           4)Keeping the TNC driver informed:  To ensure drivers are fully  
            aware about the insurance coverage and limits when providing  
            TNC services, this bill requires a TNC to inform drivers that  
            their personal auto insurance will likely not cover them  
            should an incident occur. It is likely that many drivers are  
            unaware of the standard livery exclusion in personal auto  
            policies.  Without notice, they may not review their personal  
            policies to see if such exclusion is included in their own  
            policy.  Requiring TNCs to develop its own disclosure form may  

          <2> CPUC Assigned Commissioner's Ruling, Rulemaking 12-12-011,  
          Page 2


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            result in confusion on behalf of the drivers.  Drivers may not  
            read or understand the "fine print" describing the insurance  
            coverage and limits.  The PUC may be better suited to develop  
            a standard disclosure agreement between the TNC and  
            participating drivers given their regulatory authority over  
            this new transportation industry.

            This bill clarifies that the insurance offered by the TNC is  
            the primary policy.  For instance, if a driver is completing  
            commercial activity for a TNC, the TNC insurance should serve  
            as the primary insurance - not the personal auto policy -  
            which will likely refuse coverage.  The author opines that,  
            "clarifying the issue of primary and excess insurance ensures  
            that the TNC policy has the duty to indemnify and the duty to  
            defend the driver in the event of a claim.  It also prevents  
            the situation where both policies are somehow considered  
            primary and we see a delay in any insurance action while both  
            policies dispute the issue of primary coverage."

          5)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.
          Analysis Prepared by  :    DaVina Flemings / U. & C. / (916)  

                                                                FN: 0003395


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