A major battle is taking place across the country involving who can — and who cannot – legally give customers a “taxicab” ride. The dispute pits traditional taxicab companies and new, tech savvy companies such as Uber and Lyft that allow people to use their personal vehicles to offer rides to those who request one over an app.  These new companies (known as “transportation network companies (“TNC”)) enter the “taxicab” market after “rideshare-based car-sharing” companies (such as Zipcar) first began eroding the traditional taxicab business model on the east coast.

Zipcar provides short term car rentals to its members, where members pay fees and usage fees that are billable by the hour or day. Rental rates include gas, insurance, and roadside assistance-as outlined in the membership contract. Members can reserve vehicles online, over the phone, or through Zipcar’s mobile applications. (I recently posted an article about Zipcar and whether it qualified for protection from suits alleging vicarious liability under the federal Graves Amendment).

Uber and Lyft are different than Zipcar in that the Uber of Lyft driver uses his or her own personal automobile to provide “taxicab” rides to customers.

According to David Plouffe, who ran President Obama’s 2008 campaign and recently joined Uber as its Senior Vice President of Policy and Strategy, Uber believes it will “spur the creation of hundreds of thousands of small businesses and directly create millions of jobs; deliver rapid, easy and affordable transportation alternatives to workers, parents, businesses and people out having a good time; make our roads safer, drastically cutting down on drunk and distracted driving; and give those who choose not to purchase an automobile a more viable way to live their lives day to day.” (http://blog.uber.com/davidplouffe).

Minneapolis, like other cities, comprehensively regulates the taxicab industry within its city limits. See, Minneapolis, Minn., Code of Ordinances (“MCO”) § 341.300; In re Admin. Citations RFS 080611775, 2010 WL 3304318 (Minn. Ct. App. Aug. 24, 2010); Rainbow Taxi Corp. v. City of Minneapolis, 2009 WL 1444100 (Minn. Ct. App. May 26, 2009), review denied (Minn. Aug. 11, 2009). Until recently, TNC were illegal in Minneapolis. However, in mid-July 2014, the Minneapolis City Council significantly altered the MCO to legalize the operation of TNC in Minneapolis. While there were many amendments, the three most significant included redefining the definition of “taxicab” to include “a transportation network company,” eliminating the prohibition against personal use of a taxicab and dispensing with the requirement of a physical location for the taxicab license holder (MCO) §§341.10, 341.660). Under the new ordinances, the transportation network company will be the license holder (similar to the traditional taxicab “service company”) for all activity associated with its taxicab business operations.  (MCO § 341.10).

While there was significant opposition to the amendments by the traditional taxicab industry, Minneapolis Councilman Jacob Frey noted the following upon passage of the amendments: “[o]nce again, our city is on the front line in the move for progress …[w]e as a city cannot shut our doors on innovation simply because it’s new and different. While there may very well be need for amendment as the industry evolves, we are setting a strong foundation with this ordinance.” (http://www.kare11.com/story/news/local/2014/07/18/mpls-city-council–oks-uber-lyft/12841855).

One of the significant issues of concern with TNC such as Uber and Lyft has been the provision of insurance, and particularly liability insurance. The Uber and Lyft driver must obtain and maintain their own personal auto policy on the vehicle, but personal auto policies typically exclude claims for bodily injury or property damage while the insured vehicle is being used in a business.  According to the Uber blog site, the Uber policy affords $1,000,000 of bodily injury liability protection to its drivers “from the time a driver accepts a trip request through our app until the completion of the ride.” (http://blog.uber.com/uberXridesharinginsurance). The Uber policy also includes $1 million of uninsured (“UM”) and underinsured motorist (“UIM”) coverage, which applies to both the driver and passengers who are injured when another party is at fault and is uninsured or lacks sufficient liability insurance. (Id.)

These amounts are significantly in excess of the insurance limit obligations imposed on taxicab service companies in Minneapolis. Under the MCO, a taxicab service company is required, as a condition of licensing, to obtain a and maintain a commercial insurance policy (or self-insured arrangement) to legally operate: “[n]o person shall operate or permit to be operated any taxicab within the limits of the city nor shall any taxicab license be issued under this article, unless and until the applicant shall…file with the department either an insurance …or a self-insurance certificate….” (MCO § 341.500). The taxicab policy must provide $100,000 per person/$300,000 per accident of bodily injury liability coverage and $100,000 per accident property damage coverage “resulting from the negligent operation, use or defective condition of a taxicab” (MCO §§ 341.510(a), (b)). The MCO does not specify any required limit for first-party coverage such as uninsured motorist (UM) coverage, underinsured motorist (UIM) coverage or basic economic loss benefits coverage (a/k/a “no-fault” or “personal injury protection” benefits coverage).  Rather, the taxicab policy need only afford the minimum limits mandated by the Minnesota No-Fault Automobile Insurance Act. For UM and UIM coverage, the No-Fault Act requires $25,000 per person/$50,000 per accident coverage. (Minn. Stat. § 65B.49, subd. 3a).

A potential “gap” in coverage exists during the time between driver’s use of the Uber app and the time the driver picks the customer up.  However, Uber appears to have this gap covered.  It purchased a contingent risk policy which insures drivers whenever they are using the app, “whether or not they’ve got a passenger are en- route to pick one up.” (http://blog.uber.com/uberXridesharinginsurance). If the driver’s personal insurance policy is found not to cover an accident during this period, this contingent risk policy will extend coverage to the driver at the highest requirement of any state in the U.S: $50,000/individual/incident for bodily injury, $100,000 total/incident for bodily injury and $25,000/incident for property damage. (Id.) Again, this limit exceeds the limits required by Minnesota law.  The Minnesota No-Fault Act mandates bodily injury liability limits of $30,000 per person/$60,000 per accident and property damage limits of $10,000. (Minn. Stat. § 65B.49 subd. 3).

At least as of 2009, Minnesota’s $30,000 minimum liability coverage limit was on par with requirements in other states, which ranged from $10,000 to $50,000. Alaska and Maine required the highest minimum coverage limit — $50,000. See Alaska Stat. § 28.22.101(d); Me.Rev.Stat. Ann. tit. 29–A, § 1605(1)(c)(2). Florida and Louisiana maintained the lowest—$10,000. See Fla. Stat. § 324.021(7)(a); La.Rev.Stat. Ann. § 32:900(B)(2)(a). Many states required $20,000 or $25,000 in coverage. See Ark.Code. Ann. § 27–22–104(b) ($25,000); Iowa Code § 321A.1(11) ($20,000); Mo.Rev.Stat. § 303.190.2(2) ($25,000); Neb.Rev.Stat. § 60–310 ($25,000); N.D. Cent.Code § 39–16–05(3) ($25,000); S.D. Codified Laws § 32–35–70 ($25,000).

It will be interesting to see what Uber, Lyft and other similar TNC do with regard to omnibus liability coverage in those states, like Minnesota, which require auto policies to extend coverage to persons operating the vehicle with the permission of the insured.  The MCO requires that, in addition to insuring the taxicab service company, the policy must also omnibus (a/k/a “permissive user”) coverage to any person permissively using the taxicab. The policy must insure “the owner, licensee or operator of any such taxicab for death or injuries to any person or persons resulting from negligence in the operation of such taxicab, in the business of such owner, licensee or operator, by any person legally using or operating the same with the permission, express or implied, of such owner, licensee or operator.” (MCO § 341.510(a), (c)). Perhaps their insuring arrangements have this covered as well.

This blog is for informational purposes only.  By reading it, no attorney-client relationship is formed.  The law is constantly changing and if you want legal advice, please consult an attorney licensed in your jurisdiction. © All rights reserved. 2010.