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Transportation Network Companies (TNCs) provide for pre-arranged transportation services for compensation through online-enabled applications or platforms (such as smart phone apps) that connect passengers with drivers who provide the services in their personal vehicles. The three most widely used TNCs are UberX (available in 53 countries and more than 140 U.S. cities), Lyft (available in at least 60 locations) and Sidecar (available in Boston; Charlotte, NC; Chicago; Long Beach, Los Angeles, Oakland, Marin and other San Francisco Bay Area cities; San Diego; Seattle; and Washington, DC).

Regulation of TNCs is in its infancy. The first step in regulating TNCs is to determine which state or local entity has authority over TNCs. Regulatory authority varies from state to state. California was the first state to regulate this new industry. Legislation is now pending in at least 35 other states. In California, TNCs are regulated on a statewide level by the California Public Utilities Commission (CPUC), while taxis are regulated by municipalities. The CPUC asserted jurisdiction over TNCs by classifying them as charter-party carriers, or transportation providers that provide pre-arranged services for a fee and are subject to regulation by the CPUC. Limousines and many shuttle services are examples of charter-party carriers. State law delegates authority for regulation of taxis to cities or counties since taxis are not classified as charter-party carriers since their services can be pre-arranged or on demand such as hailing a cab on the street.

The insurance issues associated with TNC activities arise because TNC drivers use personal cars for that commercial activity but do not have commercial auto insurance. The California Department of Insurance held an investigatory hearing March 21, 2014, relating to insurance issues for TNCs. As a result of the hearing, Insurance Commissioner Dave Jones recommended TNCs provide $1 million in primary liability insurance that begins the moment the driver switches on the app. The issue of Worker’s Compensation benefits and insurance has yet to be considered by regulatory bodies.

So now the issue of workers’ compensation coverage must be resolved in the courts. According to an article in Business Insurance, drivers for ride-sharing services Uber Technologies Inc. and Lyft Inc.,argue in two cases that they are employees and not independent contractors. This could put the tech upstarts on the hook for workers compensation costs if court challenges succeed. In separate lawsuits filed in U.S. District Court in San Francisco, plaintiffs seeking to represent Uber and Lyft drivers nationwide base their allegations on California’s labor law, since both Uber and Lyft reference the state’s law in their driver contracts, said Shannon Liss-Riordan, a plaintiff attorney in both cases and a partner at Lichten and Liss-Riordan P.C. in Boston. Judges in both cases have limited the potential classes to drivers in California, but Ms. Liss-Riordan said those decisions likely will be appealed.

If Uber and Lyft drivers are deemed employees, the companies would need to evaluate providing workers comp coverage, said officials at the National Council on Compensation Insurance Inc. Court transcripts are sealed, but, according to wire service reports, in a January hearing in the Lyft case, U.S. District Judge Vince Chhabria said rulings in other California cases typically have found that “people who do the kinds of things that Lyft drivers do here are employees.”  U.S. District Judge Edward Chen reportedly said “I don’t find that a very persuasive argument,”in a separate January hearing in the Uber case, in which the company argues it is a software platform, not an employer. Final rulings have not yet been made in either suit, both of which have been pending since 2013

The insurance industry is watching the cases closely. For example, NCCI identified ride-sharing services as one of the top emerging comp issues for 2015. The National Association of Insurance Commissioners (NAIC) adopted a white paper addressing the insurance coverage gaps associated with ridesharing services offered by Transportation Network Companies. The white paper was issued to assist state insurance regulators and state legislators throughout the United States who are considering how best to address insurance coverage gaps associated with TNCs and ridesharing. The paper recommends a range of potential state based regulatory solutions. Issues including insurance coverage gaps, coverage amounts and types of coverage are discussed, as well as the need for consumer outreach and education regarding these new transportation services.