UBER, LYFT & TURO: THE CAR SHARING MARKETPLACE : The Implications on Coverage and Liability from Always Developing Technology

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UBER, LYFT & TURO: THE CAR SHARING MARKETPLACE : The Implications on Coverage and Liability from Always Developing Technology by Berton K. May, Esq Garan Lucow Miller P.C. Kent County Office 300 Ottawa N.

1 UBER, LYFT & TURO: THE CAR SHARING MARKETPLACE : The Implications on Coverage and Liability from Always Developing Technology by Berton K. May, Esq Garan Lucow Miller P.C. Kent County Office 300 Ottawa N.W., Suite 800 Grand Rapids, MI Phone: (800) Fax (616) bmay@garanlucow.com some materials originally prepared by David A. Couch, Esq dcouch@garanlucow.com GARAN LUCOW MILLER SPRING BREAKFAST SEMINAR MAY 23, 2018 D e t r o i t T r o y P o r t H u r o n G r a n d B l a n c L a n s i n g A n n A r b o r G r a n d R a p i d s T r a v e r s e C i t y M e r r i l l v i l l e, I N

2 UBER AND LYFT: TRANSPORTATION NETWORK COMPANIES AND THE EFFECT ON MICHIGAN NO FAULT COVERAGE AND LIABILITY CLAIMS Developing technology has undoubtedly changed the way that we travel and will continue to do so over the coming years. It also promises to change the way that insurance claims and lawsuits arise, because this new technology, and these new forms of transportation, will inevitably shift liability and complicate Michigan No Fault claims. Transportation Network Companies Most people have heard of Uber and Lyft, the best known transportation network companies (TNCs) operating in Michigan. A new player in the mix is Turo, they offer a different service and will be addressed in the next section. TNCs are simply online, ride-sharing companies in which the fare is paid in advance through application software, or an app. There are no meters, and the drivers do not carry cash. This business model is believed to greatly reduce the potential for danger to the driver and result in more convenience for the rider. For the time being, at least, TNCs are not a passing fad. General Motors invested $500 million in Lyft. However, as autonomous vehicles continue to emerge, TNCs are likely the first to be affected. Uber is already planning for that future by investing in autonomous vehicle programs in San Francisco, Pittsburgh, and Tempe, hoping to maintain its market share as these changes occur. This was set back in March 2018 with the death of a pedestrian from an autonomous vehicle in Arizona. Uber and Lyft currently operate in almost every major area in Michigan. Lyft, for instance, has a presence in various Michigan cities, including; Ann Arbor, Detroit, East Lansing, Farmington Hills, Flint, Grand Haven, Grand Rapids, Jackson, Kalamazoo, Lansing, Marquette, Midland, Mt. Pleasant, Saginaw, South Haven, Traverse City, Troy, and Warren. The same is essentially true for Uber. Both recently became a presence in Muskegon and Holland. What effect, though, does the business model of a TNC have on Michigan No Fault claims? MCL (2) clearly states that a person suffering accidental bodily injury, while an operator or a passenger of a motor vehicle operated in the business of transporting passengers, shall receive PIP benefits from the insurer of the motor vehicle. This section does not apply, however, to passengers in taxi cabs, unless the person is not entitled to PIP benefits under any other policy. Courts have traditionally applied a primary purpose v. incidental use test to determine both whether the primary use of the vehicle was to transport passengers and also whether transporting passengers was a primary purpose of the owner s business. Taxi cabs and buses have been excluded from this section since the late 1970s, but more recent litigation has arisen following accidents involving hotel shuttle vans and funeral home limousines. Generally speaking, both have been deemed to fall under Section 3114(2). However, a motor vehicle used in a carpool, even if money is exchanged, is not considered a vehicle in the business of transporting passengers.

3 Prior to the enactment of recent legislation, TNC drivers were not treated the same as taxi drivers. Rather, their actions fell more accurately under Michigan s Limousine Transportation Act, MCL Indeed, by definition, taxi cabs are metered vehicles. Under the law prior to March 21, 2017, most for-hire drivers were subject to the Limousine Transportation Act, but metered vehicles identified as taxis were not. The act defined a limousine as a for-hire vehicle with a seating capacity of fifteen or less. However, TNCs argued that, because their business model was fundamentally different from a traditional taxi or other vehicle-for-hire model, they should fall outside the act. Because they only own and operate the platform through which the rides are arranged, rather than own the vehicle or employ the driver, they wanted to be regulated differently than other for-hire transportation entities, such as traditional taxis and limousines. Before the recent legislation, taxis were regulated at the state level while TNCs operated with a patchwork of agreements in local communities. Previously, only some municipalities, such as Lansing and East Lansing, had entered into joint operating agreements allowing TNCs to operate in their communities. In 2013, the Michigan Department of Transportation (MDOT) sent letters of noncompliance to Uber and Lyft, alleging violations of the Limousine Transportation Act in multiple areas, including not registering with MDOT and not properly insuring and inspecting vehicles used to transport passengers. However, no enforcement action was ever taken. New legislation clarifying the rights and responsibilities of this business sector quickly became a priority in Lansing and was signed into law by Governor Snyder in December of The operating agreements referenced above have now been superseded by the regulations contained within the bills. Currently, more than three dozen states have similar laws in place. Effective on March 21, 2017, Michigan law now requires TNCs to follow the same rules and regulations as taxis. Under MCL , et seq., Public Act 345 of 2016, the Limousine, Taxicab, and Transportation Network Company Act, TNCs are required to register annually with the state and pay a per-vehicle fee. TNC drivers register through the companies and not through the state as individuals do on their personal vehicles. TNCs are also required to conduct background checks and have annual inspections performed on certain vehicles by licensed mechanics. Essentially, the Michigan legislature wanted to make using TNCs safer. Taken together, the package of Michigan bills created a regulatory framework governing the operation of companies with apps designed to connect drivers and passengers. Taken together, HB 4637, HB 4639, HB 4640, and HB 4641 created a new act to regulate the operation of TNCs and their drivers. HB 4641, for instance, amends the Michigan Vehicle Code to exempt drivers for TNCs from obtaining a chauffeur's license and to delineate the kind of insurance that satisfies the financial responsibility requirements of the code. Those requirements parallel insurance requirements found in HB HB 4639 and HB 4640 make complementary amendments to the Insurance Code applying to vehicles being operated by a TNC driver. The bills were tiebarred, so that none could take effect unless all were enacted. The new law still does not make clear, however, that a passenger who is injured while riding in a TNC vehicle must make a claim for PIP benefits to their own insurer. In other words, MCL , et seq., does not change the priority section set forth in MCL The former statute simply requires that TNC drivers have insurance. As such, Section 3114(2) would appear to still be the primary avenue for obtaining PIP benefits following an accident.

4 Insurance companies can certainly write their personal auto policies in such a way that if their insured uses a personal vehicle to drive for a TNC, and is injured in an accident while doing so, then all coverage that would have otherwise been available under the policy is excluded, i.e., unavailable. Uber and Lyft drivers in Michigan also do not have many options to purchase rideshare insurance. Beginning in August of 2016, Farmers was the only company to offer this type of unique coverage in Michigan. Progressive and State Farm began offering such coverage more recently. Drivers could always form a company and purchase a commercial auto policy, but that is cost prohibitive and not done by someone who is seeking to make an extra $300 per week. Returning to the effect that the business model of a TNC has on Michigan No Fault claims, a close reading of recent cases in this area suggests that there still remains an expensive loophole through which additional, unaccounted for claimants may slip. The recent published decision in the case of Shelton v Auto Owners (Michigan Court of Appeals, February 14, 2017) states that, as long as a claimant is seeking benefits under Section 3114(4), as opposed to 3114(1), any fraud provision in the insurance contract will not apply, and the issue of entitlement will be decided by statute, i.e., Section 3114 of the No Fault Act. In essence, the abrogation of the innocent third party doctrine for PIP claimants in Bazzi v Sentinel, 315 Mich App 763 (2016) has arguably been limited. Shelton involved a situation in which an innocent third party was entitled to recover benefits. Bazzi is currently pending in the Michigan Supreme Court. Oral Argument was made January 11, 2018, but no opinion has been issued as of the preparation of this material. Due to the similarity in case names, Bazzi is sometimes confused with Bahri v IDS, 308 Mich App 420 (2014). Shelton and Bahri are more similar. Bahri dealt with a contractual defense to a PIP claim that was applicable where the claimant committed fraud in connection with the claim. Shelton makes the point that, because the contract is with the named insured (and, by extension, with the named insured's spouse and household family members), the insurer cannot assert a contractual policy exclusion on a mere passenger or pedestrian who is not connected to the policy contract. Rather, that person s claim is based on the statute, either Section 3114(4) or 3115(1). The logic in Shelton relies on the proposition that such individuals are not intended third party beneficiaries of the contract. Rather, their claims are purely statute based. Bazzi, on the other hand, concerns an insurer declaring a policy void ab initio based on misrepresentation in the insurance application, not fraud in connection with a particular claim. The innocent third party rule previously prohibited an insurer from denying coverage to a person, post-accident, who was innocent with respect to the policyholder's misrepresentations in the insurance application. Under Bazzi, the entire policy goes away, even as to innocent persons who otherwise might have claimed benefits under it. The question persists, though, whether Bazzi would apply to a situation involving an Uber or Lyft driver who has a passenger in the car and who is injured in an accident? That person would appear to still claim PIP benefits under either 3114(2) or possibly 3114(4). Furthermore, assuming that the driver did not procure the policy fraudulently, but decided during the policy period to begin driving for a TNC on the side to supplement income, Bazzi arguably would not apply. In that instance, the situation would be viewed as more analogous to Shelton which allowed an innocent third party to still obtain her PIP benefits.

5 MCL , et seq., has been effect just over year and is not even close to being interpreted by a Michigan appellate court. The new statute does not conflict with the No Fault Act, insofar as it does not change the priorities set forth in Section Rather, it simply requires in Section 2123 that TNCs must carry insurance. How this new legislation will be construed by courts when innocent third party claimants seek No Fault benefits remains to be seen, but the current state of the law suggests that TNC drivers continue to expose personal auto insurers in Michigan to additional risk not taken into account by underwriting departments when premiums were set. There is one No Fault case involving Uber in the Michigan Court of Appeals. Christina George v Allstate Insurance Co (Docket ) for which a delayed application to appeal was taken. As of writing this the application had not been granted and no briefs had been filed. There are a number of Ride Sharing cases across the country that have some form of opinion attached to them, though most deal with liability issues rather than PIP benefits. In Phillips v Uber Technologies, 2017 WL , the United States Southern District of New York Court determined that Uber drivers are not employees and Uber is not liable for their intentional criminal acts, under New York law. In Search v Uber Technologies, 128 F. Supp.3d 222 (9/10/15, District of Columbia), the DC District Court determined that under DC Law an Uber driver is an independent contractor. In Jane Doe v Uber Technologies, 184 F. Supp.3d 774 (5/4/16 N. D. California), the court determined declined to grand Uber summary disposition on the claims of vicarious liability for the sexual assaults performed by their driver upon a customer. In these cases there is little discussion of statutory requirements for criminal background checks of such drivers as Michigan now requires under MCL TURO: A NEW PLAYER PROVIDING "CAR SHARING" SERVICES AND CREATING INSURANCE UNCERTAINTY I first became aware of Turo (turo.com) when I was in New Orleans. I heard a radio ad and saw a billboard for a company that allowed you to "share" someone's car, while you are on vacation or out of town on business. They claimed to be much cheaper and easier than a car rental company. A few weeks later I was in Florida and saw a television ad for this same company. I was intrigued and looked them up. (see attachments pages 1-20). Airbnb is an online company that allows you to rent someone else's home, cottage, apartment, etc. for a short period of time. In looking at Turo, they are providing the same type of service, but with cars. In other words, take a photo of your car, find some dates you are not going to be needing it and list it with Turo to be "shared" with one of their customers. They claim to be a car "share" service, but their website uses the word "rent" repeatedly. Anybody subscribing to Turo's website, or their now available smartphone app, can simply rent a car from an individual in a multitude of cities in Canada, Germany and the USA. As of preparing this material, Turo listed cars available in more than 4,500 cities and at more than 300 airports. Pick the type of car you want and the owner will meet you and give you the keys to his/her personal vehicle.

6 Car Rental Companies are protected from owner liability bodily injury claims for injuries caused by the negligent driving of those renting their vehicles pursuant to the Graves Amendment 49 USC Individual car owners have no such protection under Federal law or Michigan law. So, this will fall to the car owner's insurance carrier. Turo does claim to have optional owner liability coverage up to $1 Million available for owners through Liberty Mutual they also offer property damage and rental coverage. Turo claims they have the following coverage options. BASIC Coverage - Physical Damage to the Vehicle 20% for the first $3,750 and then 100% after that. So, the owner is responsible for the 80% of the first $3,750 which turns out to be $3,000. Does the owners insurance carrier then have to cover the rest if the owner has a zero deductible? They also offer up to $1 Million in liability coverage for injury or property damage lawsuits. Further, they indicate that "certain comprehensive and collision losses" are covered, without a delineation of specifics. They do indicate, without specifics, that their insurance comes "Basic" or "Premium" and that all coverage can be declined and the owner can obtain a commercial policy on the vehicle from their own carrier. Their website makes no mention of No Fault coverages at all. Despite this, in looking online, there were over 2 dozen cars available through Turo within 30 miles of my office. There is no indication in the website material of any screening of potential renters or their driving history. Only that they driver needs a valid license. Pursuant to MCL , the "owner" or "registrant" of a vehicle is required to provide the statutorily required insurance, including No Fault coverages. Turo does not seem to fall under the definition of a "Transportation Network Company" as that definition requires the use of "pre-arranged rides". Therefore, the No Fault PIP mandatory coverage under MCL , et seq would not apply. The default priorities under the No Fault Act would become applicable under MCL and This means that the insurance company for the owner of the vehicle could likely be held responsible for injuries to a driver, passenger, motorcycle rider or pedestrian injured by a vehicle rented out under Turo. Many insurers have policy language affecting coverage when a motor vehicle is used for business purposes. However, whether a specific carrier's policy terms may limit that exposure will depend upon the wording of the policy. The exposure Turo might create to Michigan No Fault Insurers is no presently known. It is a new company and no known litigation under the No Fault Act has ensued as of writing this material. However, it certainly appears that there is some degree of exposure to those insuring the owners of vehicles offered up to the Turo services. Between Uber, Lyft and Turo a rewriting of Michigan No Fault policy coverages might be something worth exploring for carriers.

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The Innocent Third Party Rule Remains Alive, as Applied to Michigan PIP Claims... But for How Long?

A VERSION OF THIS WAS PREVIOUSLY PUBLISHED IN THE OCTOBER 2014 ISSUE (VOL 7, NO 4) OF THE JOURNAL OF INSURANCE AND INDEMNITY LAW The Innocent Third Party Rule Remains Alive, as Applied to Michigan PIP