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Drivers for ride-sharing services Uber Technologies Inc. and Lyft Inc., who argue they are employees and not independent contractors, could put the tech upstarts on the hook for workers compensation costs if court challenges succeed.
Both companies already provide some auto liability insurance for the drivers.
In separate lawsuits filed in U.S. District Court in San Francisco, plaintiffs seeking to represent Uber and Lyft drivers nationwide base their allegations on California's labor law, since both Uber and Lyft reference the state's law in their driver contracts, said Shannon Liss-Riordan, a plaintiff attorney in both cases and a partner at Lichten & Liss-Riordan P.C. in Boston.
Judges in both cases have limited the potential classes to drivers in California, but Ms. Liss-Riordan said those decisions likely will be appealed.
She said Uber and Lyft have shifted costs, such as auto insurance and fuel costs, onto drivers by classifying them as contractors. By making them employees, Uber and Lyft likely would have to pay such costs, as well as provide workers comp coverage and other work-related benefits.
“They save enormously on various labor costs and the drivers are losing out by the companies misusing this independent contractor label,” Ms. Liss-Riordan said. “As employees, the drivers would be entitled to the various benefits of the wage laws as well as protection for unemployment if they lose their jobs or workers comp if they get injured in their jobs.”
If Uber and Lyft drivers are deemed employees, the companies would need to evaluate providing workers comp cover, said Lori Lovgren, Boca Raton, Florida-based state relations executive at the National Council on Compensation Insurance Inc.
“It would be an additional cost that these ride-sharing companies would bear,” she said.
Court transcripts are sealed, but, according to wire service reports, in a January hearing in the Lyft case, U.S. District Judge Vince Chhabria said rulings in other California cases typically have found that “people who do the kinds of things that Lyft drivers do here are employees.”
“I don't find that a very persuasive argument,” U.S. District Judge Edward Chen reportedly said in a separate January hearing in the Uber case, in which the company argues it is a software platform, not an employer.
Final rulings have not yet been made in either suit, both of which have been pending since 2013 and both of which the companies have sought to dismiss.
Ms. Liss-Riordan said it's unclear how many drivers work for Uber and Lyft, but the total is likely to be “quite large.”
More than 162,000 drivers completed four or more trips with Uber in December, according to an Uber driver survey posted online.
In a statement to Business Insurance, Lyft declined comment on the lawsuits. However, it said Lyft provides $1 million in commercial liability cover “that acts as primary to a driver's personal policy from the time a driver has accepted a ride request until the ride has ended.”
Lyft also provides comprehensive and collision auto coverage, $1 million in uninsured/underinsured motorist coverage for bodily injury of drivers and passengers, and $50,000 in contingent liability coverage for periods when a driver is working but has not yet accepted a ride request, according to the statement. The coverage is in addition to personal or commercial auto insurance the drivers purchase.
Representatives and attorneys for Uber did not respond to requests for comment. Uber's website said, as of last July, the company provides $1 million in primary liability coverage per incident while a driver is transporting passengers, $1 million in uninsured/underinsured motorist bodily injury coverage, and $50,000 in comprehensive and collision insurance and contingent coverage for property damage and injuries occurring between trips if a driver's personal policy declines payment.
Neither disclosed the source of the insurance coverage.
The insurance industry is watching the cases closely.
For example, NCCI, the workers comp ratemaking agency for 35 states and the District of Columbia, identified ride-sharing services as one of the top emerging comp issues for 2015.
“There is a perceived gap in insurance coverage between when a commercial and a driver's personal auto policy are expected to cover unplanned accidents,” NCCI said in a presentation to Colorado workers comp professionals that was posted online in October.
“There doesn't seem to be any significant determination, either by a court yet or the legislatures ... as to what are the requirements are going to be for these companies,” said NCCI's Ms. Lovgren.
“A lot of drivers are experiencing these issues where they get into accidents and they get injured and they find themselves in a fight over who's going to pay what,” Ms. Liss-Riordan said. “If they were declared employees and were entitled to workers comp benefits, this wouldn't be a problem.”
A majority of states are working to regulate insurance issues surrounding ride sharing services, according to the Property Casualty Insurers Association of America. California enacted a bill in August requiring “transportation network companies” to provide at least $200,000 in primary coverage for drivers.
Bob Passmore, Chicago-based senior director of personal lines policy at PCI, said the group and state legislators have been largely focused on issues of auto liability coverage for ride-sharing drivers and services.
“They need to have the right tools for the job, so to speak,” Mr. Passmore said. “They need to have insurance that ... specifically intends to cover transportation network services and that's going to be the first in line as the primary coverage.”