BILL ANALYSIS                                                                                                                                                                                                              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:  
               -------------------------
          <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