BILL ANALYSIS �
AB 2293
Page 1
Date of Hearing: May 7, 2014
ASSEMBLY COMMITTEE ON INSURANCE
Henry T. Perea, Chair
AB 2293 (Bonilla) - As Amended: April 10, 2014
SUBJECT : Transportation Network Companies: insurance coverage:
disclosure
SUMMARY : Defines when Transportation Network Companies (TNCs)
must ensure that commercial insurance is covering the vehicles
being operated in the network, and requires specified
disclosures be made to TNC drivers. Specifically, this bill :
1)Codifies the California Public Utilities Commission's (PUC)
definition of TNC.
2)Requires TNCs to inform drivers about the insurance coverage
and limits offered by the TNC when providing TNC services and
that a driver's personal automobile insurance coverage may not
provide coverage when providing TNC services.
3)Specifies that the TNC's insurance policy shall cover losses
or injuries at any time after the TNC driver logs on to the
TNC's application program ("app on") and up until the driver
logs off the TNC's application program ("app off").
4)Provides that a TNC's commercial automobile insurance coverage
is primary to a private passenger insurance policy in any case
where both policies might be applicable.
5)Specifies that if a driver or registered owner of a vehicle is
named as a party in a civil action for losses or injuries that
occur when a personal automobile is being made available for
TNC services, the insurer providing the insurance to the TNC
has the duty to defend and indemnify the driver.
EXISTING LAW :
1)Establishes, based on Article XII of the California
Constitution, that private corporations and persons that own,
operate, control, or manage a line, plant, or system for the
transportation of people or property, and common carriers, are
public utilities.
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2)Allows the PUC to fix rates and establish rules for the
transportation of passengers and property by transportation
companies.
3)Establishes, by PUC Decision 13-09-045, that TNCs must
maintain, and file with the PUC evidence of, insurance
covering not less than $1,000,000 per incident for vehicles
while they are providing TNC services, but does not define
"while they are providing TNC services".
4)Requires all owners and operators of motor vehicles that are
driven on California roads to maintain "financial
responsibility" for accidents where the driver of the vehicle
is at fault in causing property damage or personal injury due
to the operation of the vehicle (the Financial Responsibility
Law, or FRL). Subject to exceptions, "financial
responsibility" generally means the purchase of an automobile
liability insurance policy. Maintaining financial
responsibility is a condition precedent to lawfully driving a
vehicle on California roads, and failing to do so is a
violation of the Vehicle Code.
5)Provides that the minimum coverage limits for an automobile
insurance policy meeting the requirements of the FRL are
$15,000 bodily injury per person, subject to a $30,000 cap for
aggregate bodily injury per accident, and $5,000 property
damage liability (15/30/5 coverage limits).
6)Requires the Director of the Department of Motor Vehicles to
adopt a higher mandatory financial responsibility coverage
limit, at the coverage limit mandated by the PUC, for vehicles
used to carry passengers for hire.
7)Provides for private passenger automobile insurance, which
cannot include coverage for vehicles used as a public or
livery conveyance for passengers, nor rented to others.
8)Establishes a comprehensive system of "prior approval" rate
regulation for property-casualty insurance, including special
rules governing private passenger automobile insurance. These
rules include limitations on the factors that insurers may use
to rate private passenger automobile insurance policies, and
consumer rights to guaranteed issue of, and special discounts
for, these policies.
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FISCAL EFFECT : Undetermined
COMMENTS :
1)Purpose . According to the author, "Transportation Network
Companies (TNC's) are an exciting new technology that connects
drivers with passengers in search of transportation. However,
it is important that we ensure sufficient consumer protections
are in place as this technology advances. AB 2293 ensures
that drivers are aware of the insurance coverage and limits of
liability that a TNC provides while a driver makes him or
herself available for TNC services. This ensures that a
driver is clear about the coverage offered and is not left
with the false impression that personal auto insurance will
cover TNC activities. Most importantly, AB 2293 clearly
defines when this insurance coverage applies, eliminating the
gray area that currently can lead to insurance gaps. The bill
clarifies that TNC insurance coverage applies when the driver
logs on to the TNC application and coverage ends when the
driver logs off the application. AB 2293 creates clear
parameters of when TNC insurance covers a driver and as a
result, protects the driver, passengers, pedestrians, and
third parties from potential gaps in insurance where a driver
may find himself without any coverage and an injured third
party may be left without coverage to pay for medical bills or
property damage."
2)What is a TNC, and how is it regulated ? A TNC is a new
technology-based mechanism whereby willing riders and willing
drivers connect with each other to arrange transportation
services. While the TNCs would likely object to the
characterization, they provide taxi-like services as an
alternative to traditional taxi companies, albeit with
substantial differences. The TNC recruits drivers who will
use their own vehicles, and who will be connected to riders
via the TNC's program, typically a smartphone application.
This is a new application of technology and, until recently,
an unregulated business.
In theory, and undoubtedly in certain circumstances, TNC drivers
can be casual participants, accepting riders in their spare
time or under certain circumstances (e.g., Friday or Saturday
nights in entertainment districts). But it is also true that
many TNC drivers are engaging in full time employment. In
fact, numerous taxi companies have represented that they are
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losing a substantial number of their drivers to TNCs,
apparently because these drivers prefer the TNC business
model.
In December, 2012, the PUC initiated a Rulemaking proceeding
to determine whether and how services arranged through
online-enabled applications might affect public safety. The
PUC sought comment on issues including: how the PUC's existing
jurisdiction should be applied to businesses such as Uber,
SideCar, and Lyft; the consumer protection and safety
implications of these new methods for arranging transportation
services; whether and how the new transportation business
models differ from longstanding forms of ridesharing; and the
new transportation business models' potential effect on
insurance and transportation access.
In a September, 2013, Decision, the PUC established a new
transportation business model called Transportation Network
Companies (TNCs). The PUC defined TNCs as an "organization
whether a corporation, partnership, sole proprietor, or other
form, operating in California that provides prearranged
transportation services for compensation using an
online-enabled application (app) or platform to connect
passengers with drivers using their personal vehicles." AB
2293 codifies this definition. As relevant to AB 2293, the PUC
mandated that TNCs carry at least $1,000,000 per incident
liability insurance for incidents involving vehicles and
drivers "while they are providing TNC services." The PUC did
not, however, define "providing TNC services." It has,
nonetheless, initiated proceedings to potentially update its
regulations.
3)Two key insurance issues . Services provided by TNCs raise two
key insurance issues that are being addressed by the bill.
First, the bill attempts to ensure that innocent
third-parties, people who have no connection to TNC activity
other than the misfortune to have been harmed in an accident,
are protected by liability insurance that is reliably
available to cover damages. While the 2013 PUC Decision
addresses this issue generally, the bill provides
significantly more certainty that appropriate insurance will
be available. It does so by specifying a bright-line, easily
determined rule that the TNC insurance coverage is responsible
from the time the driver logs on to the TNC application, until
the driver logs off. The rule would significantly reduce the
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risk that a TNC driver could cause an accident, and both his
or her private passenger insurer and the TNC's insurer could
each claim that the other was responsible - with the potential
result that neither insurer might be responsible.
The second key insurance issue addressed by the bill involves
the relationship between a driver's private passenger
automobile insurance and commercial insurance, whether that
commercial insurance is the policy procured by the TNC, or
otherwise procured by the TNC driver (see discussion, below,
on issues associated with TNC driver-procured commercial
insurance). While all insurance involves organizing different
classes of policyholders into classifications to (hopefully)
fairly apportion the costs among the population of insureds,
automobile insurance, and in particular private passenger
automobile insurance, is among the most structured type of
insurance. Based on an initiative statute (Proposition 103 of
1988), automobile insurance is subject to a rigorous rate
regulation program that tightly controls rates charged for
this insurance, and grants consumers of this insurance a
series of important rights. The goal of the initiative, with
respect to private passenger automobile insurance, was to
ensure that consumers of this insurance received the fairest
premium costs possible. If commercial activity is conducted
with vehicles that have private passenger automobile coverage,
and loss costs associated with that commercial activity are
paid by the private passenger automobile insurer, then all
private passenger drivers will end up subsidizing the
commercial activity, even though they never themselves engage
in commercial activity in their vehicles. The bill addresses
this problem by the same bright-line rule noted above - it
clearly spells out where personal driving activity ends, and
commercial driving activity begins.
4)"App-on, App-off" . AB 2293 does not expressly define the
phrase "while they are providing TNC services." However, it
provides a functional definition by specifying that the
insurance coverage provided by the TNC, as mandated by the
PUC, covers incidents that occur from the time the TNC driver
turns the application that provides the connection between
driver and rider on, and continues that coverage until the
time the driver turns the application off. This principle is
one of the points of contention as between proponents and
opponents. Opponents, TNC companies that are registered with
the PUC, argue that the TNC policy should not be triggered
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until the driver has accepted a "match" with a rider, and
should terminate when a particular rider is dropped off at his
or her destination.
5)Private Passenger Automobile insurance - livery exclusion .
Both by statute, and by exclusions written into insurance
policies, commercial driving activity is not covered by
private passenger automobile insurance policies. This fact is
not always known to TNC drivers, who may believe that their
regular automobile insurance policy is in force when they are
engaging in TNC driving. The bill addresses this issue by
mandating that the TNC disclose to its drivers the scope of
insurance being provided by the TNC, as well as the fact that
their personal insurance may not provide coverage.
A related "livery exclusion" issue is that actual policy
language defining the exclusion varies greatly from insurer to
insurer. While it is a fairly simple process for an insurer
to file with, and obtain approval from, the Insurance
Commissioner (commissioner) changes in policy language, the
bill functionally addresses the scope of the livery exclusion
(at least for TNC activity) by the "app on, app off" rule.
6)Primary/excess . The bill provides that the TNCs commercial
insurance coverage is "primary." The issue of whether an
insurance policy is "primary" or "excess" arises when there
are, or may be, two policies that could provide coverage for a
particular incident. The law currently provides that if there
are two policies that provide coverage "it shall be
conclusively presumed that the insurance afforded by that
policy in which the motor vehicle is described or rated as an
owned vehicle shall be primary and the insurance afforded by
any other policy or policies shall be excess." While the "app
on, app off" rule is intended to ensure that the commercial
insurance of the TNC and the personal insurance of the driver
do not overlap, it is difficult to ensure that no fact pattern
might occur that could result in more than one policy
providing coverage. Because personal automobile insurance
policies name the insured vehicle and rate it specifically,
while the TNCs policy does not list the vehicle of each of its
drivers, existing law could operate to make the personal
policy primary, despite the commercial TNC activity. For this
possibility, the bill declares that the commercial policy is
primary if the loss occurs during commercial activity. The
author may wish to consider an amendment specifically
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referencing existing law in order to ensure that the intent of
this provision takes effect.
7)Duty to defend and indemnify . The bill contains language to
the effect that the TNC's insurer has the duty to defend and
indemnify in the event a TNC driver is named as a party in a
civil action for damages resulting from an accident that
occurred while the driver's vehicle was made available for
transportation network services. In addition to paying
damages to an accident victim, an insurer owes a duty to its
policyholder to provide a defense in the event that the
policyholder is sued for damages. The private passenger
insurers are concerned that TNC commercial policies will be
narrowly drafted, and that TNC drivers will fear being left
without a defense once they are sued, and will turn to the
private passenger automobile insurer and invoke the duty to
defend. As with the primary/excess issue, above, the bill is
designed to minimize the opportunity for these uncertainties,
and the express language that the commercial insurer has the
duty to defend and indemnify is included to eliminate any
remaining uncertainty.
8)Market-based solutions vs. statute . TNCs have acknowledged
that there might be coverage issues that can result in
litigation about which insurance policy must cover injuries in
different fact patterns. In particular, they recognize that
there is wide variety in the commercial activity exclusion
language in its drivers' personal insurance policies, and that
insurers are likely to amend those provisions to more
carefully exclude TNC activity. However, the TNCs argue that
there is no need for a statute to mandate when the TNC must
provide the insurance, because the market for driver-purchased
commercial coverage will develop. They argue that the market
will be able to provide adequate seamless coverage, and the
"app on, app off" statutory mandate, which places full
commercial responsibility on the TNC, is unnecessarily
burdensome on a developing industry. In fact, one opponent,
Uber Technologies, argues that it already has a partial market
based solution, as its policy already covers the "gap" between
"app on" and "match". However, that a policy has a coverage
limit lower than the $1,000,000 PUC mandate, but 3 times the
minimum FRL limit required of all drivers (see discussion of
FRL, below).
According to the Department of Insurance, there is currently no
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insurance policy or rider available for TNC drivers to
purchase that would operate to ensure that there are no gaps
in protection for the public as between the TNCs commercial
insurance and the drivers' personal insurance. In order to
market such a policy or rider, an insurer would have to go
through the formal Proposition 103 prior approval process,
which can take months or longer, depending on the
circumstances. Nonetheless, the author may wish to consider
an amendment that allows other commercial insurance coverage,
aside from the coverage procured by the TNC, to satisfy the
bill's intent that personal insurance not cover commercial
activity.
9)Financial Responsibility Law . The FRL makes it illegal for a
vehicle owner or driver to drive on California roads, unless
at the time of driving there is sufficient "financial
responsibility" in place in case of an accident that causes
harm to others. Violation of the FRL can involve suspension
of a driver's license, impoundment of the vehicle, fines and
other potential penalties. To the extent that TNC drivers are
driving while mistakenly believing that their personal
insurance is in force, and the TNC commercial insurance fails
to fill all of the gaps between the two policies, the TNC
activity is occurring in violation of the FRL. AB 2293 does
not expressly address the FRL, but its provisions specifying
when TNC commercial coverage takes effect, and the provisions
requiring disclosures to drivers, go a long way to eliminating
the risk that gaps in coverage that constitute a violation of
the FRL will occur. However, absent a clear definition of
when "TNC services" commence, it is unclear whether a standard
15/30/5 FRL policy, or the PUC's $1,000,000 policy limit
applies during the period after "app on" but before "match.".
10)Other insurance issues . A typical "full coverage" personal
automobile insurance policy includes several different
coverages in addition to property damage and bodily injury
liability coverage. Additional coverages typically include
medical payments (coverage for medical bills for injuries
sustained by the driver and passengers),
uninsured/underinsured motorist coverage (in the event a
driver with no or limited insurance causes an accident that
injures the driver or passengers), and collision and
comprehensive coverage (for damage to the vehicle either by
accident or vandalism/other non-driving causes.) Once a TNC
driver commences providing transportation network services,
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none of these protections from the personal automobile
insurance policy apply. Currently, the PUC's insurance
requirement for TNCs does not extend beyond liability
insurance. While the bill does not address the scope of
coverage that ought to be afforded by a TNC (in particular
protections for riders), it requires the TNC to disclose to
drivers the extent of coverages that do apply.
REGISTERED SUPPORT / OPPOSITION :
Support
Allstate
American Insurance Association
Association of California Insurance Companies (ACIC/PCI)
Independent Insurance Agents and Brokers of California (IIABCal)
National Association of Mutual Insurance Companies
Pacific Association of Domestic Insurance Companies
Personal Insurance Federation of California
San Francisco International Airport (SFO)
State Farm
Opposition
Lyft
Uber Technologies, inc.
Analysis Prepared by : Mark Rakich / INS. / (916) 319-2086