Transportation Network Companies: Continuing Impacts on the Regulatory Landscape.

Transcription

1 126 th Summer Meeting July 21-24, 2016 The Omni Homestead Resort, Hot Springs, VA Transportation Network Companies: Continuing Impacts on the Regulatory Landscape. A presentation by the VBA Administrative Law Section

2 Presenters* Richard D. Holcomb As Commissioner of the Virginia Department of Motor Vehicles, Richard D. Holcomb manages a state agency with a budget of approximately $234 million and a statewide workforce of more than 2,000 employees. Holcomb oversees the collection of approximately $2.3 billion in revenue annually, which funds a significant portion of the state's new roads, and highway construction and maintenance. In addition, he is the Governor's Highway Safety Representative and serves on the Washington Metropolitan Area Transit Commission. He is chairman of the Virginia Motor Vehicle Dealer Board and chairman of the American Association of Motor Vehicle Administrators International Board of Directors. This is Holcomb's second stint as the leader of the state agency that serves more than eight million customers each year and provides an impressive selection of service options to the citizens of the Commonwealth. Governor Terence R. McAuliffe is the fourth governor to entrust Holcomb with the top post at DMV. Prior to his 2010 appointment by Governor Robert F. McDonnell, Holcomb was named DMV Commissioner in 1994 by Governor George F. Allen and reappointed by Governor James S. Gilmore in During Holcomb's initial seven-year tenure at DMV, this proven change agent revolutionized the agency to provide the ultimate in customer service, surpassing public and private sector service organizations. Under his leadership, Virginia became the first state in the world to offer secure online driver's license renewals. During his most recent term as Commissioner, Holcomb has launched the robust DMV 2 Go mobile operations program. Five customer service centers on wheels provide all DMV transactions at convenient locations such as military bases, corporate and government complexes, senior communities. DMV s mobile operations expanded in 2012 with the introduction of the DMV Connect program. A nationally-recognized program, DMV Connect teams provide ID card services to incarcerated individuals prior to their release which contributes to Virginia s reduced recidivism rate. DMV Connect teams also serve customers at nursing homes and group homes. A champion for customer service, Holcomb s one-stop shopping philosophy led to the expansion of government services through partnerships with other state agencies. DMV customers can now apply for and receive Virginia birth certificates, obtain E-ZPass transponders, purchase hunting and fishing licenses, and title and register boats at all DMV customer service centers. Holcomb also believes our dedicated military members who have given so much for our nation deserve every effort we can make to provide opportunities for their futures. Conceived by Holcomb, DMV established Troops to TrucksSM, which provides testing, training and potential career opportunities for military members after service. This *The biographical information is provided by the speakers or collected from their websites.

3 outreach effort, recognized by the White House, is a collaboration between DMV, Virginia military installations, and private transportation industry groups. The program helps provide employment opportunities to our military as truck or bus drivers, or in other transportation-related jobs after service. Holcomb also served as the General Counsel and Senior Vice President for Law and Regulatory Affairs for the American Trucking Associations, the national trade association for the trucking industry. In this capacity, he managed the in-house staff of attorneys and outside counsel on an array of complex legal matters such as corporate compliance, tax, employment law, election law, patents, copyrights, trademarks and anti-trust. Holcomb advanced the association's interests through the court system, protected the association from legal action, managed legal defense through the interpretation of legal documents, and advised ATA leadership on legal and regulatory matters. On Capitol Hill, Holcomb served as Chief of Staff to Congressmen Craig T. James, D. French Slaughter Jr. and John Linder. In addition, he served as Deputy General Counsel to the 1992 Bush-Quayle Committee, Legal Counsel to the National Republican Congressional Committee, and General Counsel to the U.S. Senate Judiciary Subcommittee on Security and Terrorism. Holcomb served as chief of staff to three members of Congress and as General Counsel to the U.S. Senate Judiciary Subcommittee on Security and Terrorism. He served as a law clerk for a federal judge and also worked in private practice. Holcomb holds an undergraduate degree in political science from Hampden-Sydney College and a Juris Doctorate degree from the University of Richmond School of Law. He is also a graduate of Virginia Commonwealth University's Virginia Executive Institute. J. Christopher LaGow Chris LaGow has more than forty seven (47) years of experience working with the Virginia General Assembly. While counsel to the Richmond firm of Sands Anderson Marks & Miller, P.C., he was the co-chair of that firm s lobbying practice group. For the past thirty five (35) years, he has been actively lobbying on behalf of various corporations and trade associations including the Property Casualty Insurers Association of America, Nationwide Insurance, The Alliance of American Insurers, Liberty Mutual Group, the American Council of Life Insurers, BellSouth Cellular Corporation, the National Council of Compensation Insurers, ACE Group- North America, AIG, Allegheny Energy, Inc., various local governments, AAA, 360 Communications, Virginia Special Olympics, Mothers Against Drunk Driving, the National Safety Council, Virginia Cable Telecommunications Association, AT&T Wireless Services, AT&T, The Virginia Municipal League, the Virginia Thoroughbred Association, The Virginia Equine Alliance and several allied health care professional trade associations. After more than five years with Sands Anderson Marks & Miller, Mr. LaGow opened his own law office in 1999, where he continues to represent his clients. *The biographical information is provided by the speakers or collected from their websites.

4 Mr. LaGow s practice is exclusively dedicated to counseling these clients on legislative and regulatory affairs, and in appearing before various state agencies and General Assembly committees. Mr. LaGow is actively involved with a number of different public policy groups studying an assortment of insurance, corporate and utility-related issues, has served on the State Chamber of Commerce Business Coalition on Workers Compensation steering committee, and previously served on their Civil Justice Task Force. He served on the Public Protection Task Force established by the VSB and continues to serve on the Virginia State Bar Special Committee on Personal Insurance for Members. He also has served as a member of the evaluations committee of Virginia FREE, and plays an active role on behalf of candidates in numerous local and statewide elections. In the spring of 2002 and again in 2012, he received the Governor's Transportation Safety Award in the Legal Category for his work on behalf of various transportation safety initiatives at the General Assembly. Mr. LaGow received his B.A. degree from the University of Richmond in 1972 with a double major in history and political science and his J.D. degree from Loyola University in He also attended Oxford University in Mr. LaGow is admitted to practice in the Commonwealth of Virginia and in the United States District Court, Eastern District of Virginia. He is a member of the Virginia State Bar, Virginia Bar Association, Richmond Bar Association and the Henrico Bar Association. Edward A. Mullen Edward is a partner in Reed Smith s Global Regulatory Enforcement group, focusing on administrative practice before all Virginia state agencies and legislative practice before the Virginia General Assembly and the Virginia congressional delegation. In addition to his practice, Edward serves as an adjunct professor at the University of Virginia School of Law, teaching a course in legislative drafting and statutory interpretation. Edward serves on a variety of boards and advisory committees across the Commonwealth and has been recognized by Virginia Business Magazine as Legal Elite for Legislative/Regulatory/Administrative Law in each of the past five years ( ). Honors & Awards Selected by his peers and the publishers of Virginia Super Lawyers Magazine as one of Virginia's "Rising Stars" for his Administrative Law practice ( ). Rising Stars names the state's top up-and-coming attorneys. Recognized by Virginia Business Magazine as Legal Elite for Legislative/Regulatory/Administrative Law ( ). *The biographical information is provided by the speakers or collected from their websites.

5 Employment History Reed Smith One Virginia PAC - Deputy Finance Director (while on leave from the Governor's Office, September 2004 to December 2004) Commonwealth of Virginia, Office of the Governor - Senior Aide to the Governor (November 2001 to July 2005) MRW Enterprises/Warner Staff Aide (October 1999 to November 2001) Professional Affiliations Adjunct Faculty University of Virginia School of Law Sorensen Institute for Political Leadership Fellowship (2005) Virginia Scenic River Board Member ( ) Virginia Chamber of Commerce Civil Justice Committee Member (2012- present) Virginia Administrative Law Advisory Committee Member (2013-present) Virginia Foundation for the Humanities and Public Policy- Board Member (2013- present) *The biographical information is provided by the speakers or collected from their websites.

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9 7/20/2016 TNCs in Virginia A Model for Success Richard D. Holcomb Commissioner, Virginia DMV July 23, 2016 Background Transportation Network Companies (TNC) connect drivers and riders through smartphone apps Uber and Lyft operate in Virginia No street hails Not full time drivers; use personal or approved rental vehicles 2 The Beginning Drivers were operating for hire with no government oversight TNC position Technology not transportation companies Existing regulations didn t apply Rather than seek legislative authority, TNCs moved into Virginia with the expectation that laws would be adapted for their business models 3 1

10 7/20/2016 Finding a Solution Short term Attempted dialogue with TNCs Issued cease and desist letters TNCs engaged gg Granted temporary operating authority Long term Conducted 10 month legislative study Brought together over 100 stakeholders Researched other jurisdictions 4 The Legislative Process Key stakeholders came together for negotiations Legislators TNCs Taxi/ Limousine industry Insurance lobby DMV Result a bill on which all could agree and model legislation for the United States 5 Success Story 6 2

11 7/20/2016 Law Highlights TNCs licensed by DMV Driver screening the responsibility of each company Drivers must be at least age 21 with valid driver s license Criminal and sex offender background checks required prior to hire and every other year with certain barrier crimes as a bar to entry Driver s license record checks required prior to hire and annually thereafter 7 Law Highlights Driver s personal vehicles must: Meet standards, i.e. registration and safety inspections Seat no more than seven passengers, excluding the driver Have insurance coverage for commercial operations Register with DMV for TNC use 8 Law Highlights Vehicle markings required: Trade dress DMV decals In state special registration year decal for plates Out of state sticker for back window display 9 3

12 7/20/2016 Law Highlights Insurance liability minimums during a prearranged ride: $1 million in primary liability coverage $1million in uninsuredmotorist and underinsured motorist coverage 10 Law Highlights Insurance liability minimums at all other times a TNC driver is on the app: at least $50,000 per person/ $100,000 per incident for death and bodily injury in primary liability coverage at least $25,000 per incident for property damage 11 Law Highlights TNC must disclose insurance requirements provided to TNC partners TNC must credential each driver; may be displayed through the app App must provide passenger with driver name, photo, and license plate E receipts required Zero tolerance policy for drugs and alcohol No discrimination 12 4

13 7/20/2016 Law Highlights Street hails prohibited; drivers may only accept riders through the app If a driver engages in off app rides, the TNC is required to remove the driver from the app for at least 12 months No airport operations unless pre approved by the airport authority 13 Law Highlights DMV conducts periodic compliance reviews TNCs to maintain records for three years Records must be made available to law enforcement 14 Implementation Implementation planning began in February 2015 More than 180 employees, 14,000 hours Estimated cost: Year 1 $640,000 Annual recurring $430,000 Six additional employees hired 15 5

14 7/20/2016 Vehicle Registrations Registration began a month ahead of the law s effective date Registration options include: Customer service centers dmvnow.com Mail Fax TNC initiated registration through a new secure portal 16 Vehicle Registrations Most registrations received through the secure portal More than 23,000 TNC vehicles by July 1, 2015 the law s effective date Now more than 108,000 vehicles registered 52,000 in state 55,000 out of state Most registrations from Virginia population centers 17 Enforcement DMV enforcement efforts show compliance increasing each month Minor violations Education ongoing Virginia is studying to see if TNCs have had an effect on drunk driving MADD and Uber DUI study: Report.pdf 18 6

15 7/20/2016 Planning Ahead The technology of transporting passengers and property continues to evolve Next trend property/goods transport arranged via apps DMV is issuing a temporary operating authority as we study this trend to make permanent legislative recommendations Uber subsidiary, Portier, was granted TOA 19 Rental Vehicles as TNCs Insurance, rental car and TNC industries wanted to be able to use rental vehicles to provide TNC services DMV returned to stakeholder group to develop a balanced approach Rental companies can register any or all of their qualifying Virginia vehicles for TNC service Company can then authorize a specific customer to use the vehicle for TNC service 20 Rental Vehicles as TNCs Customer must be authorized by a TNC and notify TNC of his use of specific rental car Customer and vehicle are subject to all TNC requirements DMV issues a special decal: Short term: Black and white paper decal for back window Long term: Orange and black year decal for license plate 21 7

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18 The Virginia Bar Association 126 th Summer Meeting Transportation Network Companies: Continuing Impacts on the Regulatory Landscape J. Christopher LaGow July 23, 2016

19 TNC Outline for VBA Conference July 23, 2016 The Virginia Bills That Passed: Identical bills SB 1025 and HB 1662 were both signed by Governor Terry McAuliffe on February 17, 2015 with no additional amendments from the Governor. The law took effect on July 1, 2015, establishing a regulatory framework for TNC s operating in Virginia, and requiring the TNC company or TNC driver to keep in force TNC insurance. o TNC insurance does not have to be maintained by a TNC driver, and if the driver s policy has lapsed, the TNC company is responsible for providing primary coverage beginning with the first dollar of a claim and has the exclusive duty to defend. A driver s personal automobile policy does not have the duty to first deny a claim, or provide primary and excess coverage. o All Virginia personal auto policies include a livery exclusion that would prohibit a driver s personal insurance policy from covering a TNC driver while they are operating as a TNC driver. o The TNC must disclose in writing the nature and limits of the TNC insurance. The limits of coverage are based upon whether the TNC driver is engaged in a prearranged ride, or if they have logged on to the digital platform but have not yet accepted a ride request. o This amount of coverage must be applied from the moment a driver accepts a prearranged ride, until they complete the transaction on the digital platform or the ride is complete, whichever is first: $1 million minimum liability coverage $1 million uninsured/underinsured motorist coverage o These amounts of coverage apply to the period from when a driver logs onto the digital platform until they accept a ride request, and also the period after the completion of a ride request, or until the driver accepts another ride request or logs off of the platform. $125,000 liability per person $250,000 per incident for death and bodily injury $50,000 property damage As of January 1, 2016, these amounts of coverage changed to: $50,000 liability per person $100,000 per incident for death and bodily injury $25,000 property damage

20 Lienholders must be notified that a driver intends to use their vehicle for commercial use in connection with a TNC. Proof of coverage must be carried by TNC drivers at all times. The TNC has a duty to cooperate with insurers in a claims coverage investigation, and provide the dates and times of any accident involving a TNC partner and the precise times that the TNC partner logged in and was logged out of the transportation network company's digital platform. After 1/1/16, TNC s no longer have the duty to advise their partners that their personal auto policies may not cover them on collision and comprehensive claims. In fact, those coverages were subject to the livery exclusion before and after that date, so the personal policy of the driver would deny coverage if the claim arose when the app was on. o Comprehensive and collision coverage are optional in Virginia, but lienholders routinely insist on being named as additional named insureds under the borrower s policy. Will the lending community resort to force placing that coverage when they learn that their borrower is operating as a TNC partner without those coverages available to protect their lien interest? Writing the Bills: The DMV began a TNC study in January 2014 that was released in December 2014 that drew from the input of a broad range of stakeholders that met throughout the year, including insurance companies, TNC companies, the Bureau of Insurance, taxi companies, and others. o The goal of the meetings was to establish a framework that would address the new TNC companies, and support the new technological solutions they were using, while still ensuring public safety and that TNC drivers are protected. The bills that were introduced with the cooperation of DMV were heavily influenced by the California legislation, AB 2293, which was the most comprehensive bill that had been passed in the United States at the time. The DMV bills were more comprehensive as introduced, however most of the insurance provisions came out intact. o The provision that the TNC must advise the driver that their personal policy will not provide liability or comp/collision coverage per the livery exclusion was removed. o The UM coverage is only effective from the time a passenger enters a vehicle until they exit. The language that stipulated UM coverage for all other app on periods was deleted before the bill passed. However, there is no livery exclusion in Virginia for UM/UIM coverage in personal auto policies.

21 o The enrolled bill deleted language that required the TNC to verify whether a driver had insurance coverage if they were going to rely on it as primary coverage. However this is covered by the TNC s responsibility for providing liability coverage. o The TNC insurance coverage was originally secondary to the driver s personal policy. UBER was extremely adversarial throughout the entire process, as they did not want to be subject to regulations like taxi companies, due to classifying themselves as a technology company and not a transportation company. Virginia was the first state where Uber and Lyft did not fight for more concessions and amendments after the committee action was completed. After much consternation and meetings lasting late into the night, the committee chairs asked for the stakeholders to take an oath not to attempt to change the bill once it left the committee. Uber/Independent Contractors: Many TNC s claim that their drivers are not in fact employees, but independent contractors, and therefore are not receiving the same labor protections and benefits that an employee would. The Virginia legislation as it passed included insurance coverage for Drivers so that they would be protected if they or their passengers were injured in an automobile-related accident. California s Labor Commission ruled in June 2015 that Uber drivers must now be classified as employees, as opposed to independent contractors. o Defendants hold themselves out as nothing more than a neutral technological platform, designed simply to enable drivers and passengers to transact the business of transportation. The reality, however, is that Defendants are involved in every aspect of the operation. o Uber initially filed an appeal to the ruling, but decided not to fight further as the decision only applied to one driver and they decided to devote resources to the class action against them in federal court addressing similar issues. Uber recently settled two class action suits that were brought in California and Massachusetts that challenged the driver s independent contractor status, asserting that drivers deserved reimbursements that employees would normally receive. They must pay up to $100 million to about 385,000 drivers per the stipulations of the settlement. They will be able to maintain the driver s classification as independent contractors in exchange for greater transparency about their driving quality ratings if approved by the court.

22 Uber has been slapped with a number of lawsuits challenging their driver s independent contractor status, most recently in New York City on June 2 nd. Uber and their competitors have fought tooth and nail against requirements to background check their drivers, going so far as to cease service in Austin, Texas in May after voters approved a fingerprinting requirement. They have been sued by drivers there for violating a law that requires 60 days notice before a mass layoff. o Virginia does not have a fingerprinting requirement. The Virginia bill bans hail rides, which drivers were soliciting from passengers illegally without using the digital platform. o The Pennsylvania PUC found that Uber was encouraging its drivers to solicit hail rides in an attempt to edge out the competition from other TNC companies. o The PUC levied an $11.4 million fine against Uber on April 21, 2016 for operating without a license in 2014 that has yet to be paid. This is the largest fine ever issued by the utility regulators. Facing pressure from Uber s business and political allies to reduce the fine, the PUC voted 4-0 on June 9, 2016 to conduct a rehearing of the decision. They have not yet set a date. Most headlines involving Uber are extremely negative, suggesting the company routinely and knowingly cuts corners in background checking employees and questioning whether the company adequately protects their partners and the public. TNC Use of Rental Cars: November 2015 meeting of stakeholders was an extension of 2014 stakeholder meetings that resulted in 2015 legislation. Rental car use had not been part of the overall TNC business model, so it had not been part of the 2015 legislation. Not prohibited under the 2015 Act. Insurers had an interest in putting TNC partners into a rental vehicle to continue earning an income and thereby reduce his lost wages claim in a third party claim. Issues: o Rental car indicators o TNC vehicle registration and identification markers o Ensure that TNC insurance covers rental cars being used to provide TNC service o Pairing the TNC driver to the rental car o Automating the process where possible o Stakeholders argued that if app is on, and the rental car company consented that its vehicle may be used for TNC purposes, that TNC insurance will cover the vehicle. [Again, TNC insurance is a defined term. It is motor vehicle liability

23 insurance that specifically covers liability arising from the TNC partner s operation (also a defined term) of a TNC partner vehicle.] o If app is not on, and TNC driver is in an accident and he has no personal auto insurance, he is personally liable for all losses. o Per Uber, their insurance applies to any vehicle associated with its app. TNC Transport of Property: Caveat: The deadline for submitting my prepared materials was one day before the first DMV stakeholder meeting to address this subject was scheduled. I am sure that will be the first of several and nothing is likely to be resolved before 7/23/16. My preliminary remarks follow. In the 4/86 policy form in Virginia, the livery exclusion language read as follows: 5. For that person s ownership or operation of a vehicle while it is being used to carry persons or property for a fee. This exclusion (A.5) does not apply to a share-the-expense car pool. In the policy form in use since 12/89, the exclusion has read as follows: 5. For that insured s ownership or operation of a vehicle while it is being used as a public or livery conveyance. This (A.5) exclusion does not apply to a share-the-expense car pool. In many states, and perhaps even most states, the older version is still used. There apparently was some question over the scope of the exclusion, and the Insurance Services Office (ISO) came up with the 12/89 form to bring clarity to the exclusion s scope. There is nothing to suggest, however, that the new language was intended in any way to limit the exclusion to the transport of people, and in fact the new language is unquestionably broad enough to include both the transport of people and property. This 12/89 terminology could equally apply to the operation of a vehicle to pick up property of any description for a fee, as opposed to a wage as in an employment setting. There will no doubt be some effort by the new app driven businesses to say that their business is no different from the delivery to a particular destination of a pizza or Chinese takeout. That situation is entirely distinguishable. In the latter, the consumer will call a particular pizza establishment, and the employer sends his employee to make the delivery in the employee s personal vehicle. Compare that to the consumer with an App on his cell phone, who makes contact with a delivery business unrelated at all to the pizzeria, and instructs them where to make the delivery and a fee is charged for the service. The delivery business hires independent contractors who use their personal vehicles. The question to ask is whether the risk is greater than what was contemplated by the personal lines carrier issuing the auto policy to that independent contractor?

24 Different state courts have reached inconsistent conclusions on pizza and newspaper delivery cases, and the like. Some have upheld the exclusions and denied coverage, some have found the exclusion language to be ambiguous, even when it was not, and ruled in favor of coverage. Some creative arguments were made about permissive users, and even that the exclusion for livery violated that state s Minimum Financial Responsibility laws. These cases tend to be very fact specific, one way or the other. Most of the cases I have read that involve the livery exclusion are concerned with at least some if not all of the following factors: o Whether a definite amount was charged for the delivery/transport. o Was the amount charged proportionate to the actual trip expenses? o Was it a voluntary contribution or was the amount paid to the driver consideration for the service provided? o Were the driver and the person (or thing) transported engaged in a common enterprise? Anyone with an App on their cellphone and a credit card can use the new TNC business model. The service is indiscriminately offered to the general public, with no apparent connection to any retail business from whom they are picking up merchandise, presumably on a 24/7 basis. The new business model is not transporting property to any predetermined group of paying customers as instructed by their employer (as in a newspaper delivery situation). One court has succinctly stated that the most important factor in determining whether the livery exclusion applies was whether the group of the public served was selected by a predetermined standard or selected itself indiscriminately. In the new TNC business model to whom DMV issued a Temporary Operating Authority recently, the selection is completely indiscriminate and thus the livery exclusion applies. As stated in the earlier TNC stakeholder meetings, the livery exclusion is important to insurers. Personal lines policies are not priced to include commercial activity. Businesses such as the new TNC model need to obtain commercial auto coverage to meet their needs and to protect the motoring public and their customers against loss. The livery exclusion in the personal auto policy will be used to support a denial of coverage when the insured is operating his vehicle as a public or livery conveyance in the transport of property. There are more than a dozen sections of the existing Act that need clarifying amendments to make it clear that the insurance requirements are as applicable to the transport of property as they are to the transport of passengers. Disclaimer: The comments expressed herein and in my part of the oral presentation are from my personal perspective and should in no way be attributed to any of my clients.