“Ridesharing” has become the talk of the town lately, with companies like Lyft and Uber formed to connect people needing a ride with drivers. They claim to offer a better and more cost-effective alternative to taxis, and extra income to the drivers. They also offer their own liability insurance coverage to drivers, however in this article we will address the personal insurance policy that the typical driver carries on their own vehicle.
Ridesharing for a fee is not carpooling where a group of people agree to share a vehicle to commute back and forth to work. It is a business where people seek to make a profit on providing other people with transportation. Regular carpooling/shared expense commuting is usually covered under a personal auto policy.
When you make an application of insurance with a company either directly or through an agent, you make certain representations that form the basis of the insurance contract: who the regular drivers are, what the garaging address is, what type of vehicles are to be insured, and what the usage is (pleasure, commuting, etc). These representations are important because they allow companies to match the appropriate policy (contract) to the level of risk and determine the premium that is to be paid in exchange for the company assuming the risk.
Every company has what is called “underwriting guidelines” for each type of policy that state what sort of risk they accept for a particular policy. These can include types of vehicles, certain drivers with high accident/claim history, and certain usages. Personal Auto Policies are designed for people who use their vehicles for commuting, pleasure and general travel over the roadways. Some will accept a minor business usage like realtors or a carpenter who uses their truck to get tools to and from a job.
All of the companies that our agency represents have a similar underwriting guideline as noted below.
THE FOLLOWING VEHICLES ARE INELIGIBLE:
Used commercially, including but not limited to livery (for hire), rented to others, or delivery. (Travelers)
carrying persons or property for compensation or a fee, including but not limited
to: limousine, taxi, or other livery services (does not apply to shared-expense car
pools) or the pickup or delivery of magazines, newspapers, food, or any other
They both seem to make a usage like Lyft or Uber an ineligible use, and therefore would not offer an insurance policy if a disclosure was made that the car was being used for this purpose. “Material misrepresentation” is a misstatement to a question asked during the application process that is so important that, had the truth been known, the insurance company would not have issued the policy or would have issued it with a higher premium. Material misrepresentation is a breach of the insurance contract, which means that the company can declare the policy null and void and avoid paying damages for a claim. It can also result in the applicant being charged with a criminal crime of insurance fraud which if found guilty can result in the applicant being put in a cage.
Lyft/Uber drivers should also review their policy for exclusions on coverage, here are 2 for bodily injury and they typically also exclude coverage for damage to the vehicle.
Travelers: Exclusions: we do not provide coverage for any “insured”: for that insureds liability arising out of the ownership or operation of a vehicle while it is being used as a public or livery conveyance.
Progressive: EXCLUSIONS—READ THE FOLLOWING EXCLUSIONS CAREFULLY. IF AN EXCLUSION
APPLIES, COVERAGE WILL NOT BE AFFORDED UNDER THIS PART I.
Coverage under this Part I, including our duty to defend, will not apply to any insured
1. bodily injury or property damage arising out of the ownership, maintenance or
use of any vehicle or trailer while being used:
a. to carry persons or property for compensation or a fee; or
b. for retail or wholesale delivery, including, but not limited to, the pickup, transport
or delivery of magazines, newspapers, mail or food.
This exclusion does not apply to shared-expense car pools;
To distill all this information down, here is the warning for Lyft/Uber drivers: review your own policy carefully and consult an attorney for legal advice. Be aware that your personal auto policy insurer will likely not only not pay for any claims resulting from an incident while engaged in carrying passengers for a fee- but may also initiate criminal charges of insurance fraud which carry penalties of fines and imprisonment. At a minimum they will cancel your policy and you will have difficulty obtaining new insurance likely with a higher cost.
Ridesharing companies may have a $1,000,000 insurance policy to cover your legal liability for an accident and they claim up to $50,000 in coverage for damage to your vehicle- but be aware of the potential action that you could face from your own insurance company.
Nothing in this post is intended as or should be construed as legal advice.