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A bill on ridesharing in Colorado passed by state Senate on Monday paints a “bright line” between when users of the app-based services are driving for personal reasons and when they are providing a commercial service.

Senate Bill 125 would allow Transportation Network Companies to operate in Colorado with limited regulation by the Colorado Public Utility Commission.

Colorado is just one among many states and cities considering laws and regulations to keep up with the growing ridesharing trend, which has taken a particularly strong hold in metropolitan areas, including San Francisco, where a young girl was killed on New Year’s Eve by a motorist on contract with cellphone app-based ridesharing service Uber.

That driver was allegedly not in the process of providing a ride, but logged was in to the Uber app as available to offer a ride. Uber has denied liability in the incident and a lawsuit has been filed by the girl’s family.

The ridesharing trend has drawn concern from the insurance industry over a gray area between when Uber’s reported $1 million commercial policy is in place and when a driver’s own personal insurance is providing coverage. Uber and Lyft have also drawn criticism from cab operators.

As a result of the death of the young girl, a San Francisco county supervisor has publicly stated interest in creating an ordinance governing TNCs. The Seattle city council has drafted an ordinance to create a two-year pilot program governing TNCs, and the city’s mayor said in late February the ridesharing providers may be shut down if they don’t carry more insurance.

A Lyft spokeswoman didn’t respond to requests for comment for this story. Uber spokesman Andrew Noyes asked to have written questions submitted to him via email, but has yet to respond to those questions.

In Colorado TNC’s like Uber and Lyft have been operating for some time, but by doing so they were in violation of state laws prohibiting the practice and CPUC had threatened to shut them down. That’s when the author of the SB 125, state Sen. Ted Harvey, R-Highlands Ranch, stepped in.

SB 125, which is now headed to the House, would enable TNCs to operate in the state under CPUC oversight. The bill includes a livery exclusion, which states that when a driver is not providing a ride or on their way to pick up a ride, they are under their personal auto policies.

It appears to be the first and farthest progressing government proposal to draw such a line.

“My understanding is that Colorado’s is the furthest along in including the livery exclusion,” said Kelly Campbell, vice president of state government relations for the Property Casualty Insurers of America.

PCI has taken the stance that TNC drivers are providing a commercial service any time they are logged in to the app and looking for a ride. The large insurers’ group has made an appearance at city council and state legislative hearings on ridesharing throughout the nation.

The one point they’ve made above others is that there exists a gap in coverage when a driver’s personal auto insurance is in play and when Uber’s commercial policy takes over, and that the personal policy should only cover drivers when using their vehicles for personal use.

SB 125 would eliminate that gap by placing coverage in the hands of personal auto policies if a driver has the app on and is waiting to be summoned for a ride. The commercial policy would kick in from the time when the driver and rider are matched until the driver finishes providing the ride.

“So by default what that means is that any other time the livery exclusion would not apply on the auto policy,” Campbell said.

Campbell acknowledged that drivers logged into the Uber app may be sitting at home, or at a coffee shop, waiting to get pinged for a ride. However, if you look at one of the apps, it’s evident that these drivers are motoring around and positioning themselves in hotspots for rides, such as large cities, malls and bars.

Being where the riders are is the best way to get a ride, because the app will ping drivers nearest the person in need of a ride, Campbell said.

“There is a real incentive on the drivers part to be as close as possible to these hotspots,” Campbell said.

Driving to urban centers, or driving late at night – in places and at times where there are greater chances for collisions and other incidents that may trigger insurance coverage – can be considered a “changed behavior” for drivers, and therefore that behavior should take the liability out of the hands of personal insurers, she said.

“So that’s really what our concern is, the motive for profit really begins once the driver has made themselves available to accept rides,” she said. “There is a reason that commercial drivers pay more for very similar activity.”

Harvey, who was emphatic that he stands against overregulation, said the bill encourages developing businesses that serve the community like Uber and Lyft to operate in Colorado.

“I am a conservative free-market Libertarian-Republican and I don’t really care to have the Public Utilities Commission in charge or regulating very many businesses unless they’re monopolies, much less those that are entering the markets to provide a service to the community when there’s a wide-open free market out there,” Harvey said.

Havery said he’s never had a ride via Uber or Lyft, but said he wants TNCs to be able to operate legally in Colorado.

“If we don’t pass something in this session, then the PUC will put these businesses out of business here in Colorado,” he said.

Harvey noted that his bill provides some regulatory framework to regulate ridesharing companies, while ensuring that TNCs can ensure their business model stays effective.

The bill outlines regulations requiring basics such as background checks and vehicle maintenance, while the insurance requirement draws a “bright line” that states when personal auto insurance carriers’ coverage stops and when the TNC’s commercial policy begins, he said.

“One of the main goals is to make sure the consumers, and the drivers and the riders and the public in general have coverage,” he added.

Harvey said his bill makes it clear that when a driver is doing anything beside traveling to a ride or transporting a ride that they are not providing a livery service.

He said the language wasn’t broadened to mandate commercial coverage whenever a rideshare driver is logged into the app, as some have suggested, because that would create a situation in which both TNCs and the drivers paying for coverage, he said.

“If we changed it then you would have double coverage,” Harvey added.

It’s his concern that if drivers are reassured they are covered under a commercial policy while logged into the app that some may take advantage of what he sees as a loophole that exists currently, enabling them to take advantage of coverage under the TNC’s commercial policy.

“That sets up a whole negative incentive system, where people would be incentivized to have the lowest private insurance policy possible and then drive around with the app on all the time,” Harvey said. “It’s a moral hazard that we are incentivizing the wrong behavior for people to be underinsured on their (personal) insurance policy and driving around with the app on.”

Former Colorado Insurance commissioner Doug Dean, who’s now CPUC director, along with current Insurance Commissioner Marguerite Salazar, if they’re required to cover TNC drivers who don’t carry livery insurance.

Not so, said Harvey, who believes his bill will ensure rates do not rise to cover any gaps left by ridesharing – such as those that exist in California and Washington.

“I think it’s just the opposite,” he said. “The way the bill is written there will be no legal liabilities for the private insurance providers when there is a connection. They will lose all of that legal liability that currently exists in California and other states.”

Harvey added: “With this bright line Colorado’s law it will specify when the private policy starts and the corporate insurance starts.”

Topics Auto Legislation Personal Auto Colorado