BILL ANALYSIS Ó 1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
AB 2293 - Bonilla Hearing Date:
June 17, 2014 A
As Amended: May 15, 2014 Non-FISCAL
B
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DESCRIPTION
Current law authorizes the California Public Utilities
Commission (CPUC) to regulate various transportation services,
including charter-party carriers of passengers, defined as
persons engaged in the transportation of others by motor vehicle
for compensation on a prearranged basis over any public highway,
but not including taxicabs regulated by local agencies. (Public
Utilities Code §§ 5360 and 5360.5)
Current law and CPUC decisions specify different insurance
requirements for categories of charter-party carrier vehicles
depending on seating capacity and use, including $750,000
commercial liability insurance for up to seven passengers, $1.5
million for up to 15 passengers, and $5 million for 16 or more
passengers. (Public Utilities Code § 1040, General Order 115-F)
Current law requires every city or county to regulate taxicabs
with seating capacity for up to eight passengers that are
operating in their jurisdictions. (Government Code § 53075.5)
Current law requires every owner of a vehicle used in the
transportation of passengers for hire not regulated by the CPUC,
including taxicabs, to maintain liability insurance of at least
$15,000 for death and personal injury, $30,000 for death or
injury of two or more persons, and $5,000 for property damage
(15/30/5), all per incident. (Vehicle Code § 16500).
Current law requires personal automobile insurance with minimum
liability coverage of 15/30/5 and excludes coverage for any
commercial use of a vehicle under a personal automobile
insurance policy. (Insurance Code §§ 660 and 11580.1(b).
Current law requires liability insurance for nonprofit
ridesharing vehicles, which are exempt from charter-party
carrier regulations, to be no less than three times the amount
required for noncommercial vehicles. (Insurance Code § 11580.24)
Current CPUC decision establishes transportation network company
(TNC) as a new category of charter-party carriers subject to its
jurisdiction and defines a TNC as an organization 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 (D. 13-09-045).
Current CPUC decision require each TNC to maintain commercial
liability insurance policies providing not less than $1 million
coverage per incident involving a vehicle and driver while
"providing TNC services."
This bill provides that the insurance policy of a TNC, as
defined by the CPUC, shall apply in the event of a loss or
injury during the period from when a driver logs on to the TNC
app to when the driver logs off (app-on to app-off), that TNC
insurance is primary with the TNC having the duty to defend and
indemnify a driver and vehicle owner, and that any applicable
personal automobile insurance is excess.
This bill requires a TNC to disclose in writing to its drivers
coverage and limitations of TNC insurance and advise drivers
that their personal automobile insurance may not provide
coverage while the driver is available for TNC services.
Current law authorizes the CPUC to enforce laws and regulations
applicable to charter-party carriers, conduct inspections and
investigations, suspend or revoke permits, impound vehicles, and
impose fines and misdemeanor penalties.
BACKGROUND
Smartphones Transform How to Get a Ride - The Internet and
proliferation of smartphones have transformed many aspects of
life and commerce, including how to get a ride. Instead of
hailing a cab, or calling a reservation car service, a growing
number of consumers are using new app-based services that
connect drivers with passengers. With GPS and geolocation
technology as the foundation of the business model, companies
such as Uber, Lyft, and RideShare enable customers to download
an app that alerts participating drivers in the area of the need
for a ride. Drivers with their TNC app turned on get a signal
on their smartphones and can accept or reject the ride request.
The customer can see photos of responding drivers and their
vehicles, as well as customer ratings of each driver and accept
or reject the driver. When a passenger and driver make a match,
the ride is provided, and payment is made electronically on the
smartphone, with drivers getting a portion.
App-based ride services were born in California and began
operation in the Bay Area in 2012. Uber, the largest ride
service company, is now available in more than 100 cities in 35
countries and was recently valued at about $17 billion.
Drivers with these new services use their own vehicles and most
have other jobs. Lyft reports that 54 percent of its drivers
have a full-time job, 30 percent work part-time, with more than
a third driving less than 5 hours a week, and only 10 percent
driving more than 30 hours per week. Some drivers turn on their
app and accept riders in their spare time or focus on weekends
and evenings in busy entertainment districts when "surge" fares
are in effect. Uber has two models - Uber drivers who are
licensed limousine drivers, and UberX drivers using their own
vehicles. Many taxi drivers also are signing up with the new
services to supplement taxi income or switching fulltime to the
new model.
Varied Public Safety Regulations for Different Transportation
Modes - The CPUC regulates many types of transportation,
including "passenger stage corporations" and "charter party
carriers" that transport persons by motor vehicle for
compensation on a prearranged basis. The "Passenger
Charter-Party Carriers Act," first enacted in 1961, contains
numerous special provisions, exclusions, classifications, and
permits for a wide range of transportation modes including a
limousine with seating capacity up to eight passengers, a bus
with capacity up to 15 passengers, a large bus with 16 or more
passengers, as well as vehicles used for nonprofit ridesharing,
round-trip sightseeing, youth camps, farmworkers, motel guests,
hot air balloon ride passengers, school children, and more.
Different insurance and other requirements apply depending on
the size and use of vehicles and other factors.
Taxicabs are excluded from the definition of charter-party
carrier, with the key distinction being that charter-party
carrier transport must be prearranged through written contract
or telephone and not be through street hails. Thus, taxis are
exempt from CPUC regulation and instead are regulated by cities
and counties. Airports also have regulations and permit
requirements for all types of vehicles.
The last major revision of the "Passenger Charter-Party Carriers
Act" was in 1990 in response to what news reports called a "Gold
Rush-like boom in the limousine industry" after the 1984
Olympics in Los Angeles when chauffer service proved profitable.
Taxis and licensed limousine operators called for more
regulation and enforcement against "bandit" limousines that were
operating without a license and commercial insurance, and,
according to the Los Angeles Checker Cab Company, "represent a
threat to healthy competition in the transportation industry and
to public safety and welfare." Airports especially responded
with increased enforcement, claiming the CPUC had abdicated its
enforcement. AB 1506 (Moore) clarified CPUC and airport
enforcement and revised requirements applicable to limousines,
among other changes.
CPUC Begins Regulation of Transportation Network Companies - In
a September 2013 decision, the CPUC began regulation of the new
app-based ride services. The CPUC exercised its jurisdiction
over charter-party carriers, but created a distinct new category
called Transportation Network Companies (TNCs). In order to
balance innovation, consumer choice, and public safety, the CPUC
tailored specific new rules in response to the introduction of
new technology into an existing industry. The decision requires
TNCs to obtain a permit from the CPUC, conduct criminal
background checks of drivers, establish a driver training
program, implement a zero-tolerance policy on drugs and alcohol,
conduct vehicle inspections, and obtain authorization from
airports before conducting any operations on or into airport
property. The decision also requires each TNC to maintain
commercial liability insurance policies providing not less than
$1 million per-incident coverage for incidents involving
vehicles and drivers "while they are providing TNC services."
The Insurance Gap - Several incidents in recent months,
including a death on New Year's Eve in San Francisco, brought to
light a serious gap in insurance coverage in connection with TNC
service. While the CPUC decision required coverage while
"providing TNC services," the debate has centered on how to
define "providing TNC services," generally described as
involving three distinct periods:
Period 1 - driver turns app on waiting for a passenger
match;
Period 2 - match accepted but passenger not yet picked up;
and
Period 3 - passenger in the vehicle until passenger exits
the vehicle.
On April 7th, after an investigative hearing, the California
Department of Insurance notified the CPUC of its conclusion that
"as long as TNCs are encouraging non-professional drivers to use
their personal vehicles to drive passengers for a profit, a risk
for which personal automobile insurance is not available, TNCs
should bear the insurance burden." CDI stated that drivers'
existing personal automobile insurance does not cover
TNC-related driving and that adding TNC exposure to the personal
automobile insurance pool may increase personal automobile
insurance rates. "CDI concludes that personal auto insurers
should not be mandated to cover a risk which is associated with
the business model of the TNCs." The CDI recommended that the
$1 million primary commercial liability insurance should apply
to all three periods.
New CPUC Proposed Decision Requires App-on to App-off Insurance
- The CPUC issued a proposed decision on June 11th to clarify
"providing TNC services" as whenever the TNC driver has the app
open and/or is available to accept rides from a subscribing TNC
passenger, thereby applying the $1 million commercial liability
insurance requirement as primary during all three periods. The
proposed decision also requires medical payment coverage in the
amount of $5,000, comprehensive and collision coverage in the
amount of $50,000, and uninsured/underinsured motorist coverage
in the amount of $1 million per incident. The CPUC's proposed
decision states that a TNC may satisfy the insurance
requirements with its own policy or in combination with a TNC
driver's policy specifically written for that purpose, further
stating "we encourage the insurance industry to create new
products specific to TNC drivers."
The proposed decision is open to public comment and eligible for
a vote at the CPUC's July 10th public meeting. The CPUC plans to
convene a workshop by September 2014 to get an update on TNC's
commercial insurance policies and how these policies have
performed.
Colorado Enacts First TNC Law - On June 5, 2014, Colorado became
the first state to enact a law recognizing TNCs with regulations
substantially similar to the CPUC's decision, except for
insurance requirements. For Period 1 (app-on before match), the
law requires a driver or TNC to maintain a primary auto policy
with 50/100/30 coverage that is either a commercial policy or a
rider to a personal automobile insurance policy. Recognizing
the nascent nature of the TNC business and lack of data to
establish insurance rates, the law also requires the state
insurance agency to conduct a study to determine whether the
levels of coverage required under the bill are appropriate for
the risk posed by TNC services.
COMMENTS
1. Author's Purpose . The author states that this bill
protects public safety and consumers by requiring TNC
insurance to cover the actions of a TNC driver when the app
is on until it is turned off and clarifying that TNC
insurance coverage is primary with the TNC insurance having
the duty to defend in the event a civil action is
commenced. It requires that TNCs disclose to their drivers
the TNC insurance coverage limitations and that a driver's
personal auto insurance may not cover the driver while
providing TNC services. The author states that 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. The bill defines
a TNC consistent with the CPUC definition with the intent
of preserving the CPUC decision exercising jurisdiction
over TNCs as a new category of charter-party carriers with
distinct requirements.
2. Is Insurance Requirement Too Little or Too Much ? While
this bill does not specify an exact dollar amount of
insurance coverage, its effect is to make the CUPC's $1
million coverage apply to all periods of TNC service -
app-on to app-off. The CPUC's proposed decision requires
the same, but that is not final, and a statute could
dictate the outcome.
Taxicab groups state that TNCs are de facto taxis and
should be required to have full-time commercial livery
insurance. The San Francisco Cab Drivers Association claim
to have identified 3,500 to 6,500 TNC vehicles operating in
San Francisco in recent months compared to 1,900 licensed
taxis, which "have caused extreme congestion, adding
obstacles, danger and higher risk to the roadways." They
point to dangers when TNC drivers shut off their apps while
driving from less lucrative areas to "surge pricing zones"
where they can make up to several times the normal fare,
such as entertainment districts or the ballpark when a game
ends. Opponents of the bill state that requiring coverage
only when an app is on will result in insurance fraud when
TNC drivers leave their apps on just to get coverage
through the TNC policy. AB 612 (Nazarian), also before this
committee, is sponsored by the taxi industry and requires
TNC drivers to carry primary commercial coverage effective
fulltime.
TNCs state that requiring $1 million coverage for Period 1
will kill their business model and service that consumers
find convenient and affordable, and scare off insurance
companies who are now developing TNC products. They state
that the $1 million Period 1 requirement is not based on
any data because the services are so new, is higher than
the $750,000 CPUC requirement for limousines, and is 30
times higher than the state law minimum requirement for
taxis - even though no passenger is in the TNC driver's
vehicle during Period 1.
Until data is available upon which to base appropriate
levels of insurance coverage for TNC services, it is
difficult to know what number is best. However, it is
clear that the CPUC's $1 million requirement for providing
TNC services is more than the $750,000 coverage required
for charter-party carriers with seats for 7 passengers, and
substantially more than the state law minimum for taxicabs
of 15,000/30,000/5,000, although it mirrors the $1 million
required for taxicabs in San Francisco. Moreover, the CPUC
has so far not evaluated whether the risk during Period 1
warrants a lower level of coverage than when a TNC
passenger is in the vehicle. The emergence of TNC services
only two years ago makes any insurance coverage requirement
a bit of a guess.
Uber and Lyft have proposed amendments to this bill that
recognize a different level of risk during Period 1.
Regarding insurance, the proposed amendments do the
following:
Require TNC coverage as primary from app-on to
app-off;
Require that TNC insurance (and not personal
insurance) has the duty to defend and indemnify from
app-on to app-off;
Require a lower amount of coverage for Period
1 (app-on to match accepted) that is 50/100/30, which
may be satisfied by:
o a primary personal automobile policy
that recognizes the drivers' provision of TNC
services (policies currently under development
but subject to approval - see Comment 3);
o an automobile liability insurance
policy maintained by the TNC that provides
primary coverage in the event a driver's personal
automobile policy does not recognize the driver's
provision of TNC services; or
o a combination of primary automobile
insurance policy that recognizes the driver's
provision of TNC services and an automobile
insurance policy maintained by the TNC.
Provide that none of these provisions shall
limit the liability of a TNC arising out an automobile
accident involving a TNC driver, thereby not
precluding any action for damages against a TNC for an
amount above insurance coverage.
The TNCs state that these amendments represent a compromise
that protects public safety, guarantees a minimum amount of
coverage proportional to driver activity during Period 1,
does not limit TNC liability, encourages the insurance
industry to continue developing TNC products, and does not
stifle the new TNC transportation model that growing
numbers of consumers find convenient and affordable. The
technical insurance details of these amendments and impacts
of the coverage requirements would be subject to further
review in the Insurance Committee. Thus, the author and
committee may wish to consider amending the bill to adopt
the proposed amendments.
1. Getting TNC Insurance Products Approved Expeditiously .
The CPUC's proposed decision (and the TNC proposed
amendments) provides the option of new policies for TNCs
and drivers to meet coverage requirements, and expressly
encourages the insurance industry to create new products
specific to TNC drivers. The insurance industry states
that new TNC products are in development, but note that
approval in California under Insurance Code Section 1861.05
can take more than a year if a hearing is required.
The CPUC plans to convene a workshop by September to review
its TNC insurance requirements. As Colorado did, California
could require a study to assess whether coverage
requirements are appropriate to risk of TNC service in
order to promote data-driven decisions. Collaboration
between the CPUC and Department of Insurance can help
promote public safety with adequate insurance protection in
the nascent TNC industry. Thus, the author and committee
may wish to consider amending the bill to direct the CPUC
and Department of Insurance to collaborate on a study of
TNC insurance and to express the Legislature's intent that
the Department of Insurance expedite review of any
application for approval of TNC insurance products.
2. Protecting Customers' Private Information . For
consumers, the first step to getting a ride from a TNC
driver is to download to a smartphone a TNC app, which
includes a GPS or geolocation functionality. Because
geolocation services on mobile devices result in retention
of personal location information and enable tracking,
federal and state regulators have adopted an opt-in
standard, requiring that companies obtain affirmative
express consent from the consumer with just-in-time
disclosure of how an app or service will collect and retain
geolocation data so that users can make an informed
decision on whether to opt in. Both the Federal Trade
Commission and the California Attorney General have adopted
and enforced this standard, and TNCs are required to
comply.<1>
As a charter-party carrier, a TNC is required to maintain
"waybills" indicating the date, time, destination and
charge for each passenger's ride, which for TNCs are
electronic records. The CPUC decision requires TNCs to keep
records of all trips made by all its drivers and states
that the CPUC "must have access to a TNC's records whenever
it requests them." (A separate rule states that CPUC staff
shall have the right to inspect TNC records to investigate
and resolve any passenger complaint against a TNC or TNC
driver.) Unfettered access to TNC records, with details of
where and when TNC passengers travel, may contravene
privacy protections. While the CPUC may need access to
records to investigate complaints, personal information
should be kept confidential. With insurance disputes likely
to center on whether a TNC driver's app was on or a ride
accepted, requests for customer information may be common,
and privacy protections should be required. Thus, the
author and committee may wish to consider amending the bill
to prohibit a TNC from disclosing to a third party any
personally identifiable information of a TNC passenger
unless there is customer consent or legal obligation, or to
the CPUC to investigate a complaint and under
confidentiality protections.
3. Preserving the CPUC Decision and Enforcement . Chapter 8
of the Public Utilities Code is the "Charter Party Carriers
of Passengers Act" and includes all the provisions that the
CPUC relied on for its TNC decision. This bill adds a new
Chapter 8.5 relating to TNCs, defined the same as by the
CPUC, but it includes provisions only related to insurance.
The author states an intent to preserve the CPUC decision
--------------------------
<1> "Mobile Privacy Disclosures" Federal Trade Commission
(February 2013) at
http://www.ftc.gov/sites/default/files/documents/reports/mobile-p
rivacy-disclosures-building-trust-through-transparency-federal-tr
ade-commission-staff-report/130201mobileprivacyreport.pdf :, and
"Privacy on the Go," California Attorney General (January 2013)
at
http://oag.ca.gov/sites/all/files/agweb/pdfs/privacy/privacy_on_t
he_go.pdf ?
and only require in this bill specific details on
insurance.
The new stand-alone Chapter 8.5 lacks the authority the
CPUC relied on to regulate TNCs, has no framework for
issuing TNC permits, and does not provide for enforcement
of insurance or any other requirements specified in the
CPUC's decision. The Chapter 8 enforcement provisions
authorize the CPUC conduct inspections and investigations,
suspend or revoke permits, impound vehicles, and impose
fines and misdemeanor penalties. Thus, to preserve the
CPUC's decision and its ability to fully enforce it, the
new sections added by this bill should be incorporated into
Chapter 8. A separate article within Chapter 8 codifying
TNCs as a unique category of charter-party carriers also
would alleviate legal ambiguity as to whether TNC
requirements are inconsistent with Chapter 8 under Section
5381.
The Legislature should note, however, that legislation
seeking to limit some aspect of a CPUC decision, but not
all of it, could be interpreted by a court as otherwise
ratifying all other aspects of the decision, especially
when a decision breaks new ground on the reach of CPUC
jurisdiction.<2> For example, the Legislature should not
stay silent on customer privacy issues discussed above.
Given the rapidly evolving TNC business, future legislation
to enact specific requirements or prohibitions is likely,
and at the very least, the Legislature should state its
intent of continued oversight in order to adjust statutory
authority as deemed necessary as TNC services evolve.
Thus, the author and committee may wish to consider
amending the bill to include its provisions in a new
Article within Chapter 8 with legislative findings to
reflect ongoing legislative oversight of CPUC
implementation of its TNC decisions.
4. Related Legislation .
AB 2068 (Nazarian) defines TNCs as charter-party carriers
and requires insurance coverage and disclosures. Status:
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<2> See the California Court of Appeal for the Second District's
unpublished decision in Southern California Edison Company v.
Public Utilities Commission of California (May 28, 2014).
Failed passage in the Assembly Committee on Insurance.
AB 612 (Nazarian) requires primary insurance, insurance
disclosures, background checks, mandatory alcohol and
substance abuse programs, vehicle decals, and DMV pull
notice participation for charter-party carriers including
TNCs. Status: Set for hearing in the Senate Committee on
Energy, Utilities and Communications June 17th.
SB 1408 (Hill) prohibits unregulated transportation
operators from taking passengers to public airports.
Status: Held in the Senate Committee on Rules.
5. Ratepayer Impact . TNCs pay the CPUC permit fees but do
not have regulated rates.
6. Double Referral . Should this bill be approved by the
committee, it will be re-referred to the Senate Committee
on Insurance for its consideration.
ASSEMBLY VOTES
Assembly Floor (71-0)
Assembly Insurance Committee (11-0)
Assembly Utilities and Commerce Committee
(13-0)
POSITIONS
Sponsor:
Association of California Insurance Companies
Personal Insurance Federation of California
Support:
Allstate Insurance Company
American Insurance Association
California Airports Council
Consumer Attorneys of California
Independent Insurance Agents and Brokers of California
Support: (continued)
National Association of Mutual Insurance Companies
Pacific Association of Domestic Insurance Companies
Property Casualty Insurers Association of America
San Francisco International Airport
State Farm
United Policyholders
Oppose:
Greater California Livery Association
Lyft
New York Taxi Workers Alliance
Taxicab Paratransit Association
The Internet Association
Uber Technologies, Inc.
United Taxicab Workers
Veolia
Jaqueline Kinney
AB 2293 Analysis
Hearing Date: June 17, 2014