Fill up your cup of coffee friends. 

We need to hunker down and get real here about the dark side of ride-sharing.

  • Would you get into a stranger’s car on a street corner and ask for a ride?
  • Would you want your stranger to have adequate insurance in case of an accident?
  • Would you want your stranger to pass a rigorous test confirming his driving skills?
  • Would you want your stranger to be randomly tested to make sure he is not impaired while driving?
  • Would you want your stranger to have a safe driving & accident history for the past ten years?

How many of my Dear Readers use the convenience of ride-sharing apps like Lyft and Uber?  There are several liability issues that should be kept in mind as you ponder their use instead of taxis.

First, did you know that ride-sharing drivers are not subject to the same licensing and regulation as taxi and livery drivers?  The drivers are not required to have state-regulated vehicles, background checks, or regular drug testing.  You are at the mercy of a stranger’s good will and the votes of prior drivers.  Enough said.

Second, it is probable that the ride-share driver has inadequate insurance.  And worse, he also may not know it.  You may have to pay out of your own pocket for medical expenses or losses due to an accident in a ride-sharing car.

Uber and Lyft aren’t legal in Nebraska, said Mark Breiner, director of the motor transportation department for the Nebraska Public Service Commission.  Uber, Lyft, and Sidecar would rather have you think of them as technology companies.  As Uber wrote recently in a legal filing with the CPUC:

Uber operates no vehicles, and does not hold itself out or advertise itself as a transportation service provider. In fact and law, Uber does not provide transportation services of any kind and does not own, lease or charter any vehicles for the transportation of passengers. On the contrary, Uber is a technology company that licenses the Uber cksApp to transportation service providers. The transportation service providers pay a fee to Uber to use its software technology; the passenger of the transportation service provider pays the transportation service provider for transportation services received.

Uber intentionally, then, has left much of the insurance burden on the drivers, who are using their own auto insurance.   What these drivers may not know, however, is that their personal auto policy probably will not cover them for losses if they are driving through a “ride-sharing” app.  Notice I did not say “for” a ride-sharing app, since Uber has specifically denied this arrangement.

Most auto policies contain an exclusion for paid services.  This is commonly known as the “business pursuit exclusion.”  The underwriting purpose is to exclude losses that occur when you are using your car for business reasons.  The standard ISO personal auto policy form states that:

This coverage does not apply to:

* * * Bodily injury and property damage arising out of the ownership,

maintenance or use of a car when used to carry persons or

                   property for a charge.   (Emphasis added).

Case law has interpreted this provision as generally barring coverage for any loss that occurs when the driver collects a separate free or money for his services.  For example, an employee of a postal service was hired to deliver telephone books with his own automobile.  He was involved in an accident.  A court ruled that his own auto policy did not cover those losses because of the business pursuit exclusion.   See,  United States v. Milwaukee Guardian Ins. Co., 966 F.2d 1246 (8th Cir. 1992).

Case law has not yet answered this question definitively as to Uber or Lyft.  But I can tell you pretty confidently that a standard personal auto policy would not cover the ride-sharing driver or his passengers for any losses.  The business use exclusion in auto policies has been extensively litigated and the results are clear: if money is paid to the auto owner for the driving service there is no coverage.

Uber, Lyft and others claim they are working to close this gap.  Uber, for example, states that it has purchased an extra policy for up to $1 million dollars in coverage.  But this policy purports to be an excess policy.  It only kicks in to cover those claims over and above the claims paid by the driver’s insurance, which it considers to be primary.  If there is no primary coverage due to the business pursuits exclusion in the driver’s auto policy, the insurer’s excess policy may not be triggered at all.  The issue is winding its way through the courts in California.  But how long will you wait before you are confident that there may be coverage?  I wouldn’t bet on it.


The upshot is this:  those of us who love using these apps may be sacrificing insurance coverage if there is an accident in a ride-sharing car.  Unless and until these issues are solved by Uber, Lyft,  the insurance industry and the states, the risk is too great if an accident occurs.