In the last few years, transportation network companies (TNC) such as Uber, Lyft and Sidecar have become very popular alternatives to taxis. This has provided the public with another convenient form of transportation, but it has created confusing challenges about liability and collision insurance coverage when drivers and their passengers are involved in accidents. In many cases, drivers feel they have to lie to their personal insurance companies. In more extreme situations, drivers are committing insurance fraud.

Drivers for TNCs are private individuals who use their own car to provide rides to customers via the smartphone app of the TNCs. Because these drivers are private individuals, the only insurance they typically have is their personal insurance. According to a recent Forbes article, drivers receive mixed messages from TNCs about the insurance that is needed. Uber and Lyft tell drivers that personal insurance will suffice, but personal insurers who are unwilling to cover commercial activity have canceled drivers’ policies if this commercial activity is discovered. Full commercial insurance can cost up to 10 times as much as a personal insurance policy making it too expensive for most drivers. Hybrid policies are not yet available on the market for these drivers who will still give millions of rides in the interim despite this insurance gap.

Uber, Lyft and personal insurance companies have slowly begun to create a compromise: The TNC’s insurance covers on-duty accidents, and personal insurance of drivers covers off-duty accidents. This agreement is based on the primary insurance taking responsibility first when more than one policy could be used. If the TNC provides the primary insurance, this should mean that the TNC agrees to pay for damages from a driver’s accident without the driver’s personal insurance having to decline the claim as a first step. Some states such as California and Colorado passed laws that go into effect in 2015 to ensure that this happens.

While insurance companies and industry associations such as the Property Casualty Insurers Association of America support this compromise and legislation, the actions of TNC companies have not yet mirrored this support. Despite TNCs knowing that the personal insurance companies are likely to cancel the drivers’ policies if they report they are in an accident while working for a ridesharing company, the TNCs still have asked the drivers to report the accident to their personal insurance companies first to see if the companies will cover the accident. To avoid the possibility of having their insurance policies cancelled, some drivers believed their only option was to tell their personal insurance companies that they were not working for a TNC at the time of an accident when in fact they were doing so. Such a misrepresentation on an insurance claim is insurance fraud.

Although the California and Colorado legislation is a starting point which could resolve some issues, it only applies to liability insurance at this point. Collision insurance is still a gray area. Hybrid insurance policies are likely to be on the market by spring, but work still needs to be done to address the collision insurance problem and to get consistency across the country so that drivers and passengers are appropriately covered.


Ryan Lahti is the founder and managing principal of OrgLeader, LLC. Stay up to date on Ryan’s STEM-based organization tweets here: @ryanlahti

(Photo: TheTruthAbout, Flickr)