BILL ANALYSIS                                                                                                                                                                                                    Ó




                                                                AB 2293
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        ASSEMBLY THIRD READING
        AB 2293 (Bonilla)
        As Amended  May 15, 2014
        Majority vote 

         UTILITIES & COMMERCE               13-0             INSURANCE   11-0
         
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        |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 effect.

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

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

           b)   Allows the PUC to fix rates and establish rules for the  









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             transportation of passengers and property by transportation  
             companies.

        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  
          PUC.  

          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  









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          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 pay.

        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 model.  

          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 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  
          requirements:

          a)   The TNC must register with the PUC.




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








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

          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 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  









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          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  
          lawsuits."  

          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.  Recent amendments specifically  
          reference existing law within the Insurance Code to ensure that  
          the intent of this provision takes effect.
         
         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  


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








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          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 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) 319-2083 


                                                                  FN: 0003400









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