The answer lies in the pink mustaches

In Los Angeles this June, hundreds of cab drivers brought loud complaints to the ears of those in City Hall. The drivers circled the building, honking their horns, while representatives went inside to complain about the new apps offered by Lyft, Sidecar, and Uber Technologies Inc. The most high profile of these upstarts is Lyft, founded by John Zimmer in San Francisco. The vehicles running in his service all wear a pink mustache (sorry, carstache) as a hood decoration. It’s the old rule. If you want to get your new business talked about, do something slightly weird. Anyway, this new app allows you to book a ride on demand. This is not the same as Uber which only uses professional limousine drivers. Lyft is one of these community-based services where regular car owners can earn a few extra dollars by driving people around. For the record, the average cost of a ride using Lyft is about $10. This not not going to earn big bucks for car owners, but it’s a side job that will certainly help out with some of the family bills.

There’s just one problem with these new business ideas. The cars or limousines are operating a taxi business without the proper licenses and insurance. This is not the same as a ride-sharing program to ease traffic congestion by persuading several drivers to leave their cars at home and go together on longer commutes. This is exactly the same as telephoning a cab company for a pick-up except an unlicensed person comes. Now you’re saying this is a mere technicality. But the point of the licensing regime put in place by each city and state is to ensure not only that all the vehicles are properly maintained and safe, but also that all the drivers go through a criminal background check.


All three companies claim they carry liability insurance for the services provided through their apps. It’s also assumed the professional limousine drivers have full commercial insurance for the vehicles they provide. But the problem comes with private vehicle owners who operate as unlicensed taxis. The standard auto insurance policy for an individual excludes all liability when the vehicle is used for commercial purposes or private hire. The reason is simple. The model used to price the annual premium rate makes assumptions about the mileage and the time of day people are likely to be driving. If you suddenly depart from those expectations by driving thousands of extra miles at higher risk times of the day or night, you will invalidate your policy. The law is very clear. As a policyholder, you must tell your insurer whenever the nature of the risk changes. If you fail to report the use of your vehicle for hire, your insurance will be invalid. As soon as the failure is discovered, the policy will be cancelled and you will not be able to claim for any loss or damage caused. This explains why Los Angeles has just issued cease and desist orders to the three app companies.

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