BILL ANALYSIS                                                                                                                                                                                                    






                             SENATE INSURANCE COMMITTEE
                          Senator William W. Monning, Chair


          AB 2293 (Bonilla)   Hearing Date:  June 25, 2014  

          As Amended: June 19, 2014
          Fiscal:             Yes
          Urgency:       No

          VOTES:                         
          Sen.Energy,Util.&Comm.(06/17/14)10-0/Pass
                         Asm.Floor                          (05/27/14)      
                                             71-0/Pass
                         Asm. Ins.           (05/07/14)     11-0/Pass
                         Asm. Utilities & Commerce     (04/28/14)      
          13-0/Pass                          

          SUMMARY    Would establish standards for insurance policies  
          issued to transportation network companies (TNC) that cover  
          drivers and TNCs while offering TNC services.
          
           
          DIGEST
            
          Existing Law: Passenger Charter-party Carriers Act (PUC   
          5351-5363) 
            

           1.  Subject to specified exclusions, defines "charter-party carrier  
              of passengers" (CPC) as every person engaged in the  
              transportation of persons by motor vehicle for compensation,  
              whether in common or contract carriage, over any public highway  
              in this state.  

           2.  Grants the CPUC the authority to supervise and regulate every  
              CPC and do all things which are necessary and convenient in the  
              exercise of such power and jurisdiction.  

           3.  Requires the CPUC to ensure that every CPC operates on a  
              prearranged basis within the state and require a waybill or trip  
              report that includes the name of at least one passenger in the  
              traveling party or other specified information; the points of  
              origin and destination; information as to whether the  
              arrangements were made by telephone, written contract, or  
              electronic communication. 




                                              AB 2293 (Bonilla), Page 2





           4.  Directs the CPUC to require CPCs to procure and maintain  
              adequate protection against liability imposed by law for the  
              payment of damages for personal bodily injuries, including death  
              resulting therefrom; protection against a total liability on  
              account of bodily injuries to, or death of, more than one person  
              as a result of any one accident; and protection against damage  
              or destruction of property.  

           Existing Law: CPUC Decision 13-09-045 ("CPUC Decision") 

            5.  Creates a new category of CPC called Transportation Network  
              Companies (TNCs) defined as an organization, including, but not  
              limited to, a corporation, partnership, or sole proprietor or  
              other form, operating in California that provides prearranged  
              transportation services for compensation using an online-enabled  
              application or platform to connect passengers with drivers using  
              their personal vehicles.

           6.  Limits TNCs to providing prearranged services (rides solicited  
              and accepted via a TNC digital platform just before the ride  
              commences are considered prearranged).

           7.  Prohibits TNC drivers from accepting street hails from  
              potential passengers.

           8.  Requires TNCs to comply with specified safety measures  
              including instituting a zero tolerance intoxicating substance  
              policy; perform criminal background checks and prohibits persons  
              convicted of specified crimes from providing TNC services;  
              regularly subject each vehicle to a 19-point vehicle inspection;  
              implement driver safety training; and perform regular driving  
              record checks.

           9.  Requires TNCs 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 that is available to cover claims  
              regardless of whether a TNC driver maintains insurance adequate  
              to cover any portion of the claims.  The TNC must:

               a.     Disclose the insurance requirement on each TNC app and  
                 website.

               b.     Obtain proof of insurance form each driver and require  
                 drivers to carry proof of both personal and commercial  




                                              AB 2293 (Bonilla), Page 3




                 insurance.  

           10. Requires the app to display for the passenger a photo of the  
              driver and a photo of the vehicle, and allow passengers to  
              indicate whether they require a vehicle accessible to an  
              individual with disabilities.

           11. Requires TNC drivers to have a valid California driver's  
              license, be at least 21 years of age, provide at least one year  
              of driving history and meet specified driving history standards  
              before providing TNC services.

           12. Prohibits drivers from transporting more than 7 passengers per  
              ride.
           

          This bill


            1.  Would codify CPUC definition of TNC, but delete the  
              catchall phrase "other form" regarding the types of  
              organizations that qualify as TNCs.


           2.  Would require a TNC to disclose to all participating  
              drivers the insurance coverage and limits provided by the  
              TNC policy while the make themselves available for TNC  
              services, and advise the driver that a personal auto policy  
              may not provide coverage while the vehicle is available for  
              TNC services.

           3.  Would provide that, the TNC insurance policy shall be  
              primary and the TNC insurer shall have the duty to defend  
              when the driver logs on to the app until the driver logs  
              off.

           4.  Would require TNC liability insurance of at a lower amount  
              [from the moment a participating driver logs on to the TNC  
              app until the match is accepted ("Period One")] which shall  
              be at least $50,000 for death and personal injury for each  
              person up to $100,000, and at least $30,000 for property  
              damage.

           5.  Would provide that for Period One, the insurance coverage  
              requirement may be met by any of the following:





                                              AB 2293 (Bonilla), Page 4




               a.     A driver's personal auto liability policy that  
                 explicitly covers TNC activities.

               b.     A separate TNC liability policy that provides  
                 primary coverage if the driver's personal auto policy  
                 does not cover TNC services.

               c.     A combination of primary automobile liability  
                 insurance policies, including a driver's policy that  
                 covers TNC services and the TNC's policy.

           1.  Would provide that this bill does not limit the liability  
              of a TNC arising out of an auto accident involving a  
              participating driver in any action for damages against a TNC  
              for an amount above the required insurance coverage.

           2.  Would direct the CPUC and the CDI to collaborate on a study  
              of TNC services to assess whether coverage requirements are  
              appropriate.

           3.  Would prohibit a TNC from disclosing private personally  
              identifiable information of a TNC passenger unless the  
              passenger consents, or pursuant to a legal obligation, the  
              disclosure is to the CPUC to investigate a complaint filed  
              against a TNC or TNC driver and the CPUC treats the  
              information confidentially.

           4.  Would makes legislative findings and declarations:

               a.     It is the intent of the Legislature that the  
                 California Department of Insurance (CDI) expedite review  
                 of any application for approval of TNC insurance  
                 products.

               b.     The CPUC has initiated regulation of TNC as a new  
                 category of charter-party carriers and continues to  
                 develop appropriate regulations for this new service.

               c.     It is the intent of the Legislature to continue  
                 ongoing oversight of the CPUC's regulations and respond  
                 to changing conditions.

           1.  Would clarify that the provisions of this bill apply  
              notwithstanding any other law in determining which policy  
              provides primary or excess coverage and the obligations  
              under insurance policies issued to TNCs and, if applicable,  




                                              AB 2293 (Bonilla), Page 5




              TNC drivers.


           2.  Would declare that no reimbursement is required as provided  
              in Section 6 of Article XIII B of the California  
              Constitution.


           COMMENTS

          1.  Purpose of the bill   Transportation Network Companies  
              (TNC's) are a 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.


           2.  Background  : TNCs provide transportation services through a  
              real time electronic mechanism, usually a smartphone  
              application, and pair potential passengers with drivers that  
              use their personal vehicles.  Some TNCs provide an  
              alternative to traditional taxi companies, although TNC  
              drivers are not permitted to pick up street hails.    


              TNCs have proven very popular with consumers and drivers  
              alike.  Testimony at a hearing by the Committee on Energy,  
              Utilities and Communications ("Energy Committee") confirmed  
              that many drivers have relied on the income generated to pay  




                                              AB 2293 (Bonilla), Page 6




              their bills and support their families.  Drivers enjoy the  
              potentially lower cost and amenities (different drivers may  
              offer passengers waters, snacks, etc.); some TNC regulars  
              have testified that they feel safer with a TNC than with a  
              taxi cab.  In the last two years, the business model has  
              grown internationally and is heavily influencing  
              transportation options.


              Platform Provider/TNC.  The definition of TNC in this bill  
              and the CPUC Decision requires two elements: (1)  
              prearrangement through an online-enable platform and (2)  
              transportation services provided in a vehicle not owned by  
              the platform provider.


              Although the prearranged transportation services are  
              provided through the joint efforts of the driver and the  
              TNC, the bill and the CPUC refer to the platform provider as  
              the "TNC."  The TNC serves as the nerve center behind the  
              enterprise.  In general, the TNC recruits drivers and  
              passengers; provides communications equipment, software, and  
              trade dress (like the pink mustache) for the vehicles;  
              tracks the vehicle and compiles the necessary data (such as  
              the location and identities of all of the drivers and  
              potential consumers) to coordinate ride requests with  
              available vehicles; sets charges and fees; collects payment,  
              etc.


              The CPUC has issued TNC licenses to several companies  
              including Lyft, Uber (providing services as "Raiser," a  
              wholly owned subsidiary), SideCar, Wingz, and Summon.  Each  
              TNC operates differently.  Wingz only offers rides to  
              airports, charges a flat rate, arranges rides through a  
              website, and schedules rides at least two hours in advance.   
              Sidecar allows the driver to set the rates. Lyft allows the  
              rider to "donate" a contribution based on a recommendation  
              (although it's not clear if a failure to donate the  
              "suggested amount" has adverse consequence-riders are rated  
              by the drivers).  Uber provides the driver a smartphone.


              A TNC may be partnering with any number of individual  
              drivers at any given time.  Given their access to vast  
              amounts of data, TNCs have the power to coordinate a fleet  




                                              AB 2293 (Bonilla), Page 7




              of vehicles depending on the number and willingness of  
              available drivers and level of demand.  For example, TNCs  
              use a technique, called "surge pricing."  By increasing the  
              fees for passengers at a high-demand location and occasion,  
              surge pricing attracts more drivers, gives consumers access  
              to transportation services, and increases revenue for the  
              TNC enterprise.  Some ambitious drivers try to chase the  
              surge as demand shifts locations.  Surge pricing is only  
              possible because of real time data available for ride  
              requests and driver availability.  Paired with consumer data  
              being collected, like that collected by Facebook and Google,  
              one can only guess at the potential for TNCs to provide  
              tailored transportation services to consumers, marketing for  
              other business, and data sharing.  (Recent amendments  
              restrict the exchange of personally identifiable consumer  
              information.)


              TNC Partner/Drivers.  Uber refers to its drivers as  
              "partners."  This is, perhaps, the best way to describe the  
              relationship since Uber does not employ its drivers as  
              employees or independent contractors.  (See Uber's  
              "Partner/Driver Terms and Conditions.)  


              Drivers are matched with consumers when a consumer makes a  
              request through their app and the request is successively  
              forwarded to available drivers through the driver's app  
              until a driver accepts.  Once a driver accepts, a match is  
              made.  


              Drivers set their own schedule, supply the gas for the  
              vehicle and related transportation supplies and services,  
              etc.  TNC drivers may be casual participants, accepting  
              riders in their spare time or under certain circumstances  
              (e.g., Friday or Saturday nights), or engaged in full time  
              employment.


              Although many taxi cab drivers, or former taxi cab drivers,  
              partner with TNCs, the bulk of TNC partners are  
              nonprofessional drivers with less familiarity with business  
              regulations and practices.  This bill addresses the problem  
              where TNC drivers lack insurance designed for commercial  
              activities.  Personal insurance policies contain a "livery  




                                              AB 2293 (Bonilla), Page 8




              exclusion" that excludes commercial activity to one degree  
              or another.  The driver, passenger, and any other party may  
              not be protected in case of an accident.  


              The lack of professional experience also causes problems  
              when the driver is unfamiliar with commercial regulations.   
              For example, a June 10, 2014 letter from Michael Peevy,  
              President of the CPUC, to Garret Camp of UberX admonishes  
              the TNC for violating rules regarding services provided at  
              airports.  The letter describes concerns raised by five  
              major airports that TNC drivers have been operating at  
              airports without permits or following basic rules laid out  
              by the CPUC decision.  According to the letter, "numerous"  
              TNC drivers lacked proof of insurance and at least two  
              lacked valid driver's licenses.  On a few occasions, airport  
              officers have observed a TNC driver using the account of  
              another TNC driver.  San Francisco International Airport  
              alone reports that out of about 300 contacts with TNC  
              drivers, 70 percent failed to display the proper "trade"  
              dress.  Drivers will typically respond to inquiries from  
              airport officers that they did not know what they were doing  
              was illegal.  


              PUC Proposed Decision Modifying PUC Decision 13-09-045.  In  
              early June, the CPUC issued a proposal to modify PUC  
              Decision 13-09-045 ("CPUC Proposed Decision") currently  
              scheduled to be heard on July 10.


              The CPUC Proposed decision would define "TNC services" as  
              whenever the TNC driver has the app open, broken down into  
              three periods as follows:

                 Period One: Application open - waiting for a match.

                 Period Two: Match accepted - but passenger not yet picked  
                 up.

                 Period Three: Passenger in car - until passenger safely  
                 exits car.


              This would apply the pre-existing requirement to maintain $1  
              million in liability coverage to all three periods.  (Some  




                                              AB 2293 (Bonilla), Page 9




              TNCs claim that the current requirement only applies once a  
              match is made.)  It would also require other types of  
              coverage that may be affected by a livery exclusion,  
              including:

                 $5,000 for medical payments.

                 $50,000 for collision/comprehensive; and 

                 $1,000,000 for unsinsured/underinsured motorist.


              The CPUC Proposed Decision would allow the TNC to satisfy  
              the minimum coverage requirements with its own policy or in  
              any combination with a policy maintained by the TNC driver  
              that is specifically written to cover TNC services.


              The Insurance Commissioner sent a letter to the CPUC  
              President Michael Peevey encouraging the CPUC to adopt the  
              proposed decision with some minor modifications.  The  
              Commissioner commended the CPUC for maintaining the $1  
              million minimum requirement and clarifying that coverage  
              applies during Period One.


              Insurance Provisions of AB 2293. Most people could not  
              afford to pay for the damages that arise out of auto  
              accidents.  Insurance provides the basic security society  
              needs to engage in productive, but potentially risky,  
              behavior.  It does this by spreading the risk so that, in  
              the case of a catastrophic incident, the individual need not  
              bear the burden alone.  


              Liability insurance also ensures that victims receive some  
              compensation for injuries.  Without insurance, victims would  
              be most likely forced to go to court far more frequently,  
              and only if the at-fault party has the assets to pay.   
              Unlike other parties, insurers are required to set aside  
              assets to pay potential liabilities and attempt in good  
              faith to effectuate prompt, fair, and equitable settlements  
              of claims when liability is reasonably clear.  (Ins. Code   
              790.03.)  






                                              AB 2293 (Bonilla), Page 10




              Moreover, TNC contractual clauses may make litigating even  
              more difficult for passengers and drivers.  Consumer  
              Attorneys of California have expressed concerns that most  
              TNCs have complicated and extensive "agreements" which aim  
              to relieve them of any legal liability and require users to  
              give up their right to a jury trial. 


              Consumers are likely to have limited administrative  
              remedies.  The CPUC has few resources to monitor and take  
              actions against wayward TNC drivers.  In fact, the State  
              Auditor just released its report, California Public  
              Utilities Commission: It Fails to Adequately Ensure  
              Consumers' Transportation Safety and Does Not Appropriately  
              Collect and Spend Fees From Passenger Carriers, finding that  
              the CPUCs oversight of passenger carriers is insufficient to  
              ensure consumer safety.  


              AB 2293 would establish a framework for insurance that  
              specifically covers TNC drivers by determining the  
              obligations of the insurer.  The major provisions are as  
              follows.


                a.     Definition of Transportation Network Company  .  AB  
                 2293 codifies the CPUC's  definition of TNC adopted last  
                 year with a change related to the types of qualified  
                 business organization.  


                b.     Disclosure to TNC Drivers  .  Because of the livery  
                 exclusion in personal auto policies, and the limited  
                 coverage TNCs are currently required to provide, TNC  
                 drivers may be left without important types of coverage  
                 beyond liability including: collision/comprehensive that  
                 protects the vehicle from property damage;  
                 uninsured/underinsured motorist coverage that protects  
                 the driver, vehicle, and passenger in case of an accident  
                 caused by an uninsured/underinsured third party; and  
                 medical which pays for medical expenses caused by an  
                 accident regardless of fault.  

                 AB 2293 would require the TNC to disclose to the driver  
                 the coverage provided under the TNC policy and that the  
                 driver might not be covered under their own personal  




                                              AB 2293 (Bonilla), Page 11




                 policy.  A driver's understanding of the insurance  
                 coverage issues is critical, but not only for their own  
                 interests; lienholders require collision/comprehensive to  
                 protect their secured interest in the vehicle.

                 If adopted, the CPUC Proposed Decision would require the  
                 TNC to provide these types of coverage in addition to the  
                 liability insurance at $5,000 to cover medical payments;  
                 $50,000 collision/comprehensive; and $1,000,000 in  
                 uninsinsured/underinsured motorist coverage. 

                 In fact, some TNCs already offer similar coverage to  
                 their drivers.  Lyft offers $1 million in  
                 uninsured/underinsured coverage, and contingent  
                 collision/comprehensive coverage for those drivers who  
                 purchase that coverage for their own vehicles up to  
                 $50,000 per occurrence with a $2,500 deductible.  Uber  
                 offers a similar package, but with a $1,000 deductible on  
                 the collision and comprehensive coverage.


                c.     App On/App Off - All Periods  .  Both AB 2293 and the  
                 CPUC Proposed Decision frame the driver's TNC activity in  
                 terms of whether the driver is available to accept rides  
                 by whether the app is on or off.  The Proposed Decision  
                 breaks that period down into- three distinct periods.  AB  
                 2293 implicitly adopts this approach and requires some  
                 kind of primary insurance for all periods, but sets a  
                 separate liability requirement for Period One.  


                 The app on/app off approach provides a bright line, but  
                                                                         not necessarily an accurate one.  United Policyholders  
                 supports the bill, but warns that the app on/app off  
                 approach eliminates coverage for drivers that turn off  
                 the app when en route to "surge zones" as to avoid  
                 intermediate calls for service.  On the other hand, Lyft  
                 expresses concerns that the app on/app off approach  
                 creates an incentive for TNC drivers to leave their apps  
                 on, even if they have no intention of accepting. 


                 The taxicab industry urges 24 hour commercial coverage to  
                 avoid any confusion and points out that independently  
                 owned taxi vehicles are often used for personal business  
                 but must carry coverage all the time.  Both the San  




                                              AB 2293 (Bonilla), Page 12




                 Francisco Cab Drivers Association and the United Taxi Cab  
                 Workers support 24 hour commercial coverage and argue  
                 that many commercial activities will not be covered under  
                 AB 2293.  Examples include: 


                               Turning an app off to avoid sharing a  
                      percentage of the fare with the TNC or when rushing  
                      to "surge pricing" zones.


                               Servicing regular customers outside the  
                      use of the app.


                               Soliciting passengers off the street.


                a.     Duty to Defend  .  Liability policies carry with it an  
                 insurer's duty to defend the insured against civil  
                 liability arising from covered activities.  But the duty  
                 to defend is broader than an insurer's duty to indemnify.  
                  The recent amendments narrowed commercial insurer's duty  
                 to defend the driver to accidents that occur while the  
                 app is on.  By narrowing the scope of the duty to defend,  
                 the amendments introduce the possibility that personal  
                 insurance may have to pay for the defense of a TNC driver  
                 who is named in a lawsuit if the driver's app was off.   
                 The prior version of the bill would have required the  
                 commercial insurer to defend a participating driver or  
                 registered owner anytime they were named in a civil  
                 action for a loss or injury that occurs when the vehicle  
                 is made available for TNC services (before the proposed  
                 definition by the CPUC) irrespective of the status of the  
                 app.  The purpose of the original language was to avoid  
                 having a personal auto insurer defend a TNC driver and  
                 impact the rates on all personal auto insurance  
                 consumers.


                b.     App On/App Off -Period One Liability Requirements  .   
                 The bill does not set a mandatory minimum liability  
                 coverage requirement for Periods Two and Three, but  
                 leaves that determination to the CPUC.  AB 2293 treats  
                 Period One differently and would override the CPUC's  
                 Proposed Decision by requiring TNCs to carry liability  




                                              AB 2293 (Bonilla), Page 13




                 insurance lower than the other two periods.  


                 NOTE: AB 2293 was amended June 19, 2014, per an agreement  
                 with the author during the Energy Committee hearing to  
                 take amendments proposed in the committee analysis to be  
                 adopted in the Insurance Committee.  The amendments  
                 relating to insurance were set forth in Comment #2 of the  
                 committee analysis, including that TNC insurance, among  
                 other things: "Require a lower amount of coverage for  
                 Period One (app-on to match accepted) that  is  50/100/30,  
                 which may be satisfied by: [three options]." (Emphasis  
                 added.)  The bill currently states the liability  
                 requirements should be "at least"  50/100/30. References  
                 to "at least" are not mentioned in the committee  
                 analysis.   Insurance Committee staff has confirmed with  
                 Energy Committee staff that the references to "at least"  
                 were not intentional and were a drafting error.


                 Representatives of the TNC industry argue that until a  
                 passenger is matched, the driver is not providing TNC  
                 services, and that the activities in Period One pose less  
                 risk of losses, especially since there is no passenger in  
                 the vehicle.  


                 The minimum requirements suggested by the Energy  
                 Committee analysis match those recently adopted in  
                 Colorado.  It is also similar to coverage offered by Uber  
                 and Lyft, except that the TNC's operate on the assumption  
                 that the personal policies are always primary and the  
                 TNCs only provide excess coverage if the personal insurer  
                 has denied a claim. 


                 Other Standards.  The CPUC's Proposed Decision  
                 requirement of $1 million of liability insurance for all  
                 periods is based on the standards for taxis in San  
                 Francisco.  The CPUC requires other types of charter  
                 party carriers to carry at least $750,000.  Los Angeles  
                 requires $100,000 per individual for bodily injury up to  
                 $300,000.   


                 TNCs state that the 50/100/30 standards set in the bill  




                                              AB 2293 (Bonilla), Page 14




                 is more than the three times the minimum requirements for  
                 personal policies.  Committee staff notes that the  
                 mandatory minimum liability coverage set for personal use  
                 auto policies is determined as a matter of public policy  
                 to keep rates low and does not reflects actual risk or  
                 damages.  The current minimum auto liability insurance  
                 requirement of $15,000 per person for bodily injury or  
                 death up to $30,000, and $5,000 for property, was set in  
                 1974.  Adjusted to 2014 dollars, it would be about  
                 $72,000 with a maximum per incident of $145,000.


                 On the other hand, a single serious accident may cost  
                 substantially more.  Last New Year's Eve, an Uber driver  
                 struck Huan, Anthony, and Sophia Liu while crossing the  
                 street in San Francisco during Period One.  Sophia, at  
                 age six, later died at the hospital.  Her mother and  
                 brother suffered serious injuries.  Medical treatment is  
                 ongoing.  


                 It may be helpful to note that mandatory coverage  
                 minimums can set the framework for settlements since  
                 insurance is usually only realistic means of recovery  
                 unless the at-fault party has significant assets of their  
                 own.


                c.     App On/App Off -Period One.  Combining Policy  
                 Coverage  .  Consistent with the CPUC's Proposed Decision,  
                 AB 2293 would allow a TNC to satisfy the mandatory  
                 minimum insurance requirement, for Period One, through  
                 either a policy or a combination of policies purchased by  
                 the TNC and TNC driver if the driver's policy is designed  
                 to cover TNC services.  However, at this time there are  
                 no known insurance policies covering the driver that  
                 "recognize TNC services" and would work in tandem with a  
                 TNC policy.


              Impact on "Innovation."  Concerns have been raised that AB  
              2293 will "stifle innovation."  The Internet Association  
              writes that this bill would create a number of unnecessary  
              new requirements for innovative companies in California's  
              "sharing economy" which facilitates the sharing of  
              underutilized resources.  In the case of the "sharing  




                                              AB 2293 (Bonilla), Page 15




              economy," one person can leverage idle capacity in a  
              resource they own - such as a car - and make it available to  
              someone with a need for that resource.  The owner benefits  
              with additional income and the buyer by access to often  
              cheaper alternative to traditional service providers, such  
              as taxi companies.  The Internet Association argues that  
              Internet-based platforms such as those used by Uber and Lyft  
              make possible valuable interactions that were previously  
              impractical.


              Some TNCs have adapted to the CPUC required commercial  
              coverage last year.  In April of this year, Uber instituted  
              a $1.00 "Safe Rides Fee" per ride to support the increased  
              costs of background checks, motor vehicle checks, driver  
              safety education, app development, and insurance. 


               Carsharing.   As to mandatory insurance requirements, prior  
              legislative efforts are instructive.  Carsharing companies  
              facilitate the sharing of private or pooled vehicles.   
              Vehicle owners may "rent" their vehicles through a  
              third-party program to drivers who only have a minimal need  
              for a personal vehicle.  AB 1871 (Jones, 2010), Chapter 454,  
              Statutes of 2010, excluded vehicles shared in these programs  
              from the definition of commercial activity but only on the  
              following conditions:


                 Not for the Profit of the Vehicle Owner.  Owners and  
                 programs cannot knowingly share the vehicle for  
                 commercial use.  The annual revenue received by the  
                 vehicle's owner generated through a sharing program may  
                 not exceed the annual expenses of owning and operating a  
                 vehicle. 


                 Program Assumes Ultimate Responsibility.  The program  
                 must provide insurance coverage during the periods which  
                 it is being used, at no less than three times that  
                 required by private passenger vehicles.  On top of that,  
                 the sharing program must assume all liability of the  
                 owner and shall be considered the owner of the vehicle  
                 for all purposes while the vehicle is in use.






                                              AB 2293 (Bonilla), Page 16




               Innovating Insurance Products  . Much of the discussion  
              surrounding this bill assumes that new products will come on  
              line that will be priced at personal use policy rates,  
              except for periods where the vehicle is used to provide TNC  
              services.


              The fact that insurance is sort of "sharing economy" makes  
              it far more difficult for insurers to offer that type of  
              product.  Insurance is based on sharing risk within a pool  
              of insureds; ultimately, the insured in a particular pool  
              are in it together.  Public policy has dictated that  
              personal auto insureds need not share the higher rates of  
              commercial insureds.


              California insurance rates are highly regulated.  Premiums  
              must be justified with loss data.  At this time, little data  
              is available relative to TNC drivers and the probability of  
              losses; insurers are not sure how to price a new product.   
              If they offered products, they would probably play it safe  
              and charge more.  However, overpriced premiums may be forced  
              down by market forces or through the regulatory process.   
              California law provides that no rate shall be approved or  
              remain in effect that is excessive and the Insurance  
              Commissioner is prohibited from approving a rate that is not  
              justified by actuarial data.  (Ins. Code  1861.05.)  The  
              Commissioner has an implied power to force insurers to  
              justify existing rates.  While an insurer may recover costs  
              and profit for providing insurance, the rates must still  
              reflect a justifiable risk of loss.  


              The TNCs are concerned that higher minimums for Period One  
              will raise their total insurance rates as much as 30% to  
              40%, despite the argument that Period One does not involve  
              that much risk.  In California, the system is designed to  
              address this problem.  Pricing Period One rates should  
              eventually reflect actual losses when the data is in,  
              whether viewed separately or with the other periods.


              Colorado just adopted a proposal similar to AB 2293 in its  
              current form, but may not have as difficult a time offering  
              new products because they lack similar protections against  
              excessive rates.  Colorado is a competitive rating state  




                                              AB 2293 (Bonilla), Page 17




              (also known as "file-and-use") and does not require the  
              approval by the insurance regulator before an insurer may  
              implement new rates (however, rates are reviewed and may be  
              ordered corrected afterward).  California is a prior  
              approval state and requires that the Insurance Commissioner  
              review and approve those rates which may be subject to an  
              adversarial hearing or negotiations.  Estimates have ranged  
              anywhere from less than a year to eighteen months to put a  
              new product out to market (not including insurer development  
              time), but there really is no way of knowing.  



           1.  Summary of Arguments in Support.   Most statements are  
              directed at the prior version of the bill, but the arguments  
              still apply.


               a.     Insurance industry representatives argue that AB  
                 2293 provides a middle ground, merely making clear that a  
                 TNC's commercial insurance coverage applies during the  
                 time a driver is engaged in the commercial activity -  
                 from when the driver turns on the app, which indicates  
                 the driver is "open for business," and ceases when the  
                 driver turns the app off.  No other commercial activity  
                 is afforded that standard today.


               b.     San Francisco International Airport (SFO) explains  
                 that TNCs profit from their operations at SFO.  As a  
                 public agency responsible for the safety of arriving and  
                 departing airline passengers and for pedestrians at the  
                 airport, SFO wants to ensure that there is adequate  
                 insurance coverage available to compensate TNC customers  
                 and pedestrians injured as a result of TNC accidents.  AB  
                 2293 helps to ensure that adequate insurance is in place  
                 to protect TNC customers and pedestrians at SFO.


               c.     The Consumer Attorneys of California (CAOC) support  
                 AB 2293 because it protects all those affected by the TNC  
                 business model: the driver, passenger, pedestrian and the  
                 public coffers. Unfortunately, most Californians are  
                 simply unaware as drivers, users, passengers or third  
                 parties of the lack of adequate protection in the current  
                 law.




                                              AB 2293 (Bonilla), Page 18





           1.  Summary of Arguments in Opposition  . Most statements are  
              directed at the prior version of the bill, but the arguments  
              still apply.


               a.     Consistent with the position of some other TNCs,  
                 Uber Technologies states that there is no worrisome gap  
                 of insurance as some groups allege.  Uber further states  
                 that it provides insurance coverage for every aspect of a  
                 trip that is more than triple the coverage required of  
                 most drivers, even for most types of commercial drivers.   
                 Uber explains that the $50,000 per person up to $100,000  
                 coverage that it provides up to the match is three times  
                 more than the state minimum.


               b.     The Internet Association opposes the bill in part  
                 because it is based on an unsupported assumption that  
                 that being logged into an app is inherently commercial or  
                 inherently more risky than not being logged on.  This  
                 misunderstands how TNC drivers are paid; rides can only  
                 be requested via the app and so driving about looking for  
                 hails not only wastes gas, but is impractical based on  
                 how drivers and passengers are matched via the platform.   
                 Lyft notes that a driver during Period One may be running  
                 personal errands or having a cup of coffee.  There is no  
                 parallel between a taxicab roaming the streets in search  
                 of a new fare, since a TNC driver cannot accept street  
                 hails.


               c.     Lyft also objects to the potential incentive a  
                 driver may have to stay logged on or purchase less  
                 insurance because of a high insurance requirement placed  
                 on TNCs.  


               d.     United Taxicab Workers and the San Francisco Cab  
                 Drivers Association object to AB 2293 for two reasons:  
                 (1) it fails to close ride service insurance gaps,  
                 leaving the public without recourse to coverage in  
                 commonly occurring situations, and (2) it codifies in  
                 state law the CPUC's definition of ride services,  
                 preempting a pending legal challenge the CPUC's Decision  
                 as an unlawful exercise of its jurisdiction.




                                              AB 2293 (Bonilla), Page 19




           
          2.  Questions  


               a.     Operating the App while Driving.  Does operating a  
                 TNC app while driving violate Vehicle Code Section  
                 23123.5 prohibiting a person from driving a motor vehicle  
                 while using an electronic wireless communications device  
                 to write, send, or read a text-based communication (not  
                 including voice-based operations)?


               b.     Participants in a Sharing Economy Exempt from  
                 Regulation.  Whether an enterprise should be excused from  
                 standard regulation problem raises threshold questions.   
                 For one, what constitutes the "sharing economy"?  Who  
                 must be doing the sharing?  Secondly, if an enterprise  
                 constitutes part of a sharing economy, what aspects of an  
                 enterprise should be free from the regulations applicable  
                 to the nonsharing counterparts?


               c.     Partnerships and Civil Liability. TNCs have viewed  
                 themselves more as brokers of, rather than providers of,  
                 transportation services.  But a jury may just as well  
                 find them to be partners in a transportation enterprise.   
                 Partnership law holds all partners accountable for any  
                 action taken in the scope of the enterprise.  Activities  
                 occurring while "open for business" may fall within that  
                 scope.  Given the difficulties that the CPUC will likely  
                 have in enforcing TNC regulations against drivers, should  
                 the TNC partners carry insurance that reflects more  
                 closely the civil liability model?  


               d.     Multiple Aps.  Lyft expresses concerns about  
                 determining which insurers are responsible if a driver  
                 gets into an accident prior to accepting a ride while  
                 providing services through multiple TNCs at the same  
                 time.  Should each TNC insurer be responsible equally for  
                 its share of the maximum coverage of one single policy?   
                 Should each TNC policy provide for "stacking," i.e. each  
                 policy would remain liable up to each individual limit?   
                 (If three apps were open, should a plaintiff be able to  
                 seek $1 million from each insurer or only $333,333?)  If  
                 the TNCs involved maintained coverage with different  




                                              AB 2293 (Bonilla), Page 20




                 maximum limits, should each insurer be responsible for  
                 its proportional share relative to the aggregated maximum  
                 limit?

           1.  Suggested Amendments  .  Given the concerns discussed above,  
              the author may wish to adopt amendments as provided below.


               a.     Definition of TNC.  The current definition in the  
                 bill does not quite conform to that offered by the CPUC  
                 and lacks a catchall provision.  This might exclude  
                 limited liability companies.  Amendments would place "or  
                 other form" after "sole proprietor." 


               b.     Definition of TNC Services.  Would define  
                 "Transportation Network Services" in a way to follow the  
                 app on/app off model including the descriptions of  
                 Periods One through Three, consistent with the CPUC  
                 Proposed Decision.


               c.     Periods Two and Three Insurance Coverage.  Would  
                 revise and recast the mandatory coverage requirements for  
                 Periods Two and Three, and would also permit a TNC to  
                 satisfy the requirement through the purchase of its own  
                 policy, a policy purchased by the driver, or combined  
                 coverage for the purposes of satisfying the minimum  
                 coverage requirement.  The TNC may only meet the  
                 requirement through a combination of policies or through  
                 the driver's policy if it verifies that the participating  
                 driver obtains and maintains a policy that is  
                 specifically written to meet the TNC coverage  
                 requirement. If the participating driver-obtained policy  
                 ceases to exist at any time, including but not limited   
                 to lapses, denial of claims, and cancellations, then the  
                 transportation network company's insurance shall provide  
                 all required coverage beginning at dollar one.


               d.     Additional Coverage.  Would require the TNC to  
                 provide coverage for medical payment,  
                 comprehensive/collision, uninsured/and underinsured  
                 motorists, including Period One, as required by the CPUC.






                                              AB 2293 (Bonilla), Page 21




               e.     Period One Coverage.  Would revise and recast the  
                 mandatory coverage requirements for Period One, and  
                 require a minimum of $750,000 in commercial liability  
                 insurance and would also permit a TNC to satisfy the  
                 requirement through the purchase of its own policy, a  
                 policy purchased by the driver, or combined coverage for  
                 the purposes of satisfying the minimum coverage  
                 requirement.  The TNC may only meet the requirement  
                 through a combination of policies or through the driver's  
                 policy if it verifies that the participating driver  
                 obtains and maintains a policy that is specifically  
                 written to meet the TNC coverage requirement. If the  
                 participating driver-obtained policy ceases to exist at  
                 any time, including but not limited to lapses, denial of  
                 claims, and cancellations, then the transportation  
                 network company's insurance shall provide all required  
                 coverage beginning at dollar one.


               f.     TNC Assumes Liability for TNC Drivers in the Course  
                 of Providing Services.  Would require the TNC or any  
                 affiliated parent or subsidiary or limited liability  
                 company to assume the liability of the driver in the  
                 event of a loss or injury that occurs while a driver is  
                 providing TNC services for Period One.


               g.     Personal Auto Firewall.  Would deem the vehicle as a  
                 public or livery conveyance and prohibits a personal auto  
                 policy from providing coverage, including the duty to  
                 defend or indemnify, for that purpose, unless those  
                                                         services are specifically provided for in the policy  
                 which must be priced and approved by the Department of  
                 Insurance for that purpose.


               h.     Legislative Declarations.  Would declare that the  
                 Legislature does not intend to prohibit the CPUC's  
                 exercise of rulemaking authority or limit the liability  
                 of the TNC driver. 


               i.     Duty to Cooperate with Insurer.  Would require the  
                 TNC to cooperate with insurers involved in a claims  
                 investigation, including providing required information.   
                 The amendment should specify that this is deemed a legal  




                                              AB 2293 (Bonilla), Page 22




                 obligation for the purposes of sharing personally  
                 identifiable information in Section 5435 of the bill in  
                 print.  


               j.     Proof of Coverage.  Requires TNC drivers to carry  
                 evidence of financial responsibility and exchange  
                 appropriate information at the time of an accident.
           
          1.  Prior and Related Legislation  .  AB 612 (Nazarian) would have  
              treated TNCs as standard charter party carriers and set  
              additional public safety standards.  Recent amendments  
              struck the provisions specific to TNCs and those that relate  
              to insurance.
           

          POSITIONS
          
          Support
          
           Association of California Insurance Companies (sponsor)
          Personal Insurance Federation of California (sponsor)
          Allstate Insurance Company
          American Insurance Association
          California Airports Council
          Consumer Attorneys of California
          Independent Insurance Agents and Brokers of California
          Paul Koretz, Councilmember, City of Los Angeles 
          National Association of Mutual Insurance Companies
          Pacific Association of Domestic Insurance Companies
          Property Casualty Insurers Association of America
          San Francisco International Airport
          State Farm
          The Sullivan Group
          The Surplus Lines Association of California
          United Policyholders  


          Oppose
           
          Google Inc.
          Greater California Livery Association
          The Internet Association
          Lyft
          San Francisco Cab Drivers Assocation
          Taxicab Paratransit Association of California




                                              AB 2293 (Bonilla), Page 23




          Uber Technologies, Inc.
          United Taxicab Workers
          Veolia


          Consultant:   Hugh Slayden (916) 651-4773