Since the launch of Uber in 2009, hailing a cab has been as simple as pressing a button on a smartphone app. Along with the convenience and lower fares associated with using the car-hailing app comes greater risks for drivers, passengers, and even pedestrians due to the controversial “insurance gap” that can appear between the drivers’ private insurance policies and Uber’s company insurance policies.
Since the launch of the San Francisco-based startup company, Uber is now operating in over 120 cities in the United States as well as forty-five countries. It is one of the most popular car-hailing apps on the market, with competitors Lyft and Sidecar offering similar services.
Most of the controversy surrounding Uber has revolved around the UberX service, largely because UberX drivers use their own cars since they are not licensed chauffeurs.
Requesting a ride on Uber is a relatively simple process. First, a customer requests a ride with Uber through Uber’s smartphone app. The request is sent to an Uber driver closest to the rider, which is determined by using the phone’s GPS. The driver picks up the rider “within minutes” of the request, after which the fare is directly charged to the customer’s credit card.
Uber provides five different types of services: UberX, which is the cheapest option that riders can order via smartphone and provides non-luxury, everyday cars; Uber Taxi, allowing the option to e-hail a real taxi; Uber Black, which allows the rider to order a private, higher-end car; Uber SUV, for up to six riders; and Uber Lux, featuring the priciest cars and rides.
Most of the controversy surrounding Uber has revolved around the UberX service, largely because UberX drivers use their own cars since they are not licensed chauffeurs. This leads to questions of whose insurance – Uber’s or the driver’s personal auto insurance – covers claims in case of accident. Uber insures its UberX nonprofessional drivers while they are on the job (i.e. driving passengers), and the drivers’ personal auto insurance covers them when they are off the clock. However, a problematic “insurance gap” is created during those in-between moments when a driver is logged onto the app and waiting to get a new pick-up request.
An “insurance gap” is created, leaving drivers uninsured and those injured in connection to Uber with potentially no remedy for damages.
According to Michael Geeser of the Nevada Insurance Council, many Uber drivers are only insured as private individuals. This is different than being insured under a commercial policy, which is significantly more expensive than private insurance. Many drivers do not realize that their private insurance policies will likely not cover accidents or damage that occurs during commercial use of their vehicle. According to Geeser, if an insurance company discovers that the insured had an Uber passenger in the car when the accident occurred, the policy will likely be revoked because this would be considered “commercial use” of their vehicle. Therefore, an “insurance gap” is created, leaving drivers uninsured and those injured in connection to Uber with potentially no remedy for damages.
The potential consequences of this “insurance gap” were demonstrated in perhaps the most tragic way possible when a six-year-old girl was killed in San Francisco on New Year’s Eve in 2013 after being hit by an Uber driver. Fifty-seven-year-old Syed Muzzafar, operating under the UberX service, fatally struck Sofia Liu and injured her mother and younger brother as they crossed the street in a pedestrian crosswalk. Sofia’s family has filed a wrongful-death lawsuit against both Uber and Muzzafar. Muzzafar was subsequently arrested on suspicion of vehicular manslaughter with gross negligence, but has since been released on bail.
Dispute has arisen over who is liable for the accident, as it happened during the “insurance gap.” Muzzafar was logged onto the UberX app and was available to provide rides at the time of the accident, but in a statement released shortly after the accident by Uber, the company claims that Muzzafar was not technically providing services (i.e. he did not have passengers in his car) during the time of the accident. The statement, in which Uber extends their “deepest condolences” to the family of Sofia, does admit that Muzzafar was a partner of Uber, but claims this account was immediately deactivated following the accident. Muzzafar’s attorney, Graham Archer, said that Muzzafar was disappointed in how Uber had gone to lengths to distance itself from him since the accident.
Due to the ambiguity regarding liability resulting from the New Year’s Eve incident caused by Uber’s piecemeal insurance policies, many criticized Uber for employing insurance practices meant to skew the blame onto unsuspecting drivers rather than themselves.
The implementation of this new policy was not solely out of concern for passenger safety, but partially motivated by desire to expand.
In March, Uber CEO Travis Kalanick issued a statement announcing a new policy meant to close Uber’s highly criticized “insurance gap.” Kalanick claims that this new policy will cover drivers using the app, regardless of if they have a passenger in their car or if they are en route to pick up a passenger.
According to Kalanick, the new policy will provide “contingent coverage for a driver’s liability at the highest requirement of any state in the U.S.: $50,000/individual/incident for bodily injury, $100,000 total/incident for bodily injury and $25,000/incident for property damage.”
Kalanick admitted that the implementation of this new policy was not solely out of concern for passenger safety, but partially motivated by desire to expand into more U.S. cities without giving lawmakers grounds to bar the company from operating in their cities.
“It gives legislators and regulators the confidence in knowing the public interest is being protected while a lot of the rules are being figured out, and allows them to be thoughtful while they work through their legislative options,” Kalanick said. “We are doing everything we possibly can to show how Uber in a city makes that city better.”
Even with this new policy, lawmakers and insurers have concerns that drivers may still not be as covered as they believe. Although Uber advertises this new policy, Jeannette Belz, a legislative representative of the Property Casualty Insurers Association of America, says that it may simply be an “excess” policy, meaning it is only applicable once the driver’s own personal insurance has already been exhausted. According to Belz, it is still unclear what would happen in the case of a driver whose insurance policy refuses to cover an accident because they were operating their vehicle for a commercial purpose. She says that it is not certain whether or not Uber’s policy would “drop down” and operate as a driver’s primary insurance policy should their original insurance policy cover nothing due to the forbidden commercial use.
Some lawmakers are still unconvinced that Uber’s new policy will not leave a dangerous “insurance gap.”
Despite these concerns, Uber has continued expanding. After the North Carolina General Assembly passed legislation allowing the company to operate in North Carolina last year, Uber began operating in Raleigh in April 2014, just one month after the company announced its new policy.
Yet, despite what Uber has announced, some lawmakers are still unconvinced that Uber’s new policy will not leave a dangerous “insurance gap.” Last week, lawmakers in Clark County, Nevada, attempted to get a restraining order to prevent Uber from operating in their city. However, the judge denied the attorney general’s request to temporarily shut down the service, reasoning that Uber is not an immediate risk to public safety.
Regardless of backlash by lawmakers, Uber continues grow worldwide, expanding from large metropolitan cities such as Las Vegas to Valencia within the last month.