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 2 2 9 3 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