The principle underlying the requirement for mandatory auto insurance is “financial responsibility”. Put simply, this says anyone who engages in an activity that puts others at risk of injury or financial loss, should be able to take responsibility to make good all losses. As applied to driving, every state requires the owners of vehicles to be able to show they could pay a guaranteed minimum amount should they cause loss or damage. In most states, this duty can be satisfied by the owner buying a valid car insurance policy. When it comes to people who want to offer a service driving people around, e.g. in a taxi or limo, there are further requirements to ensure that any passenger injured or killed during the journey can claim adequate amounts to cover medical treatment and consequential losses.
This works well and gives protection both to the immediate passengers and, if they are killed, to their families. The annual premium rates are, of course, significantly higher than those paid by the ordinary driver. The cost of this cover is included as part of the fare you pay to be carried. The problem with the ridesharing companies’ business model is that they have been encouraging ordinary drivers to carry people without having adequate insurance cover in place. Obviously, this has two downsides. First, passengers and their families have had less financial protection. Second, the fares charged to these passengers did not have to include the cost of insurance, so this was threatening the legitimate livelihood of the taxi and limo companies. Competition is acceptable so long as all the interested parties are complying with the law.
Unfortunately, the ridesharing companies are probably engaging in an unlawful activity by encouraging drivers to carry passengers without proper insurance coverage. Indeed, many insurance companies have cancelled the non-commercial policies of those people driving passengers for reward.
California has now produced a new law which clarifies the situation. This September, Governor Jerry Brown has signed a bill which applies to all ridesharing companies, i.e. Lyft, Sidecar, Uber, etc. These companies must now cover their drivers from the moment they turn on their app and not just from the moment they have one or more passengers step into their vehicles. The drivers must have $1 million cover for personal injury and damage to property from the moment the ride request is accepted to the moment the passenger(s) set out of the vehicle. This activity-specific auto insurance is in addition to the non-commercial minimum of 50/100/30. However, the new law does not require the driver to pay for the additional cover out of his or her own pocket. The rideshare company giving him or her work can pay for the cover. This would be more cost-effective because one commercial policy covering all drivers comes at a lower premium rate than individual policies. So far, none of the companies have announced who will pay for this new cover. In the meantime, rideshare drivers continue to respond to requests for rides. This uncertainty is not desirable.