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The Debate over Commercial Insurance Coverage and Ride-sharing Reaches a Boiling Point

Commercial liability insurance protects the owner of a company against claims of liability for bodily injury and property damage. As opposed to personal passenger vehicles which only require minimum state limits for liability insurance, vehicles used in the course of a business are usually required to carry insurance with higher coverage for bodily injuries and property damage in the event of an accident. Pretty simple and not much room for debate, right? Wrong.

Ride Sharing InsuranceMuch to the dismay of both insurance companies and taxicab companies, ride-sharing start-ups such as Uber, Sidecar, and Lyft have swept across the country in the last few years. All are venture capital funded, San Francisco-based companies that have grown into billion dollar industries, operating in almost every state in the U.S.

Transportation Service or Technology Company?

These companies have long argued that they are merely technology companies and should not be subjected to all the rules, regulations, and permits that state and local agencies mandate for other transportation companies like taxi services. More importantly, they argue that they should not have to maintain the type of commercial insurance that is required for vehicles used in the course of a business. Consequently, states, counties, departments of insurance and public utilities commissions are scrambling to deal with this debate across the country. California’s struggle is a perfect example of the conflicts presented in the majority of states.

When Uber, Sidecar, and Lyft first started operating in San Francisco, they required their drivers to carry personal minimum liability insurance, which in California is $15,000 for injuries, $30,000 for total liability and $5,000 in property damage.

Taxi companies’ primary concern is eventually going out of business because, they argue, licenses, permits and insurance premiums make it impossible to compete with ride-sharing prices. On the other hand, insurance companies maintain that they want ride-sharing companies to continuing to prosper, as long as they are adequately insured. They claim that do not want to get stuck with the bill if the drivers only have personal insurance policies, but they refuse to admit they are trying to upset these companies business models.

Consequences of the Insurance Gap

Adding more fuel to the fire, in January of 2014, a 6-year-old girl was run down by an Uber driver in San Francisco. Although, Uber had a $1 million umbrella insurance policy, they maintained the driver was not covered because he didn’t have a passenger in the car. Here lies the problem. In San Francisco, authorized taxis are required to provide $1 million of liability coverage per incident, 100% of the time.

Now there were real-world consequences to the perceived gap in insurance coverage, where the umbrella commercial policy was not yet in effect because the driver did not technically have any passengers.

The insurance industry’s stance is that any time drivers are logged into a ridesharing smartphone app and looking for a ride they are providing a commercial service. The argument is that, because drivers are going to go where potential riders are, based on the pings the apps send to them, they will inevitably be driving to crowded urban areas. This often occurs at night when there is a greater chance for accidents, triggering insurance pay-outs. Therefore, when they enter these areas based on their running apps, they are engaged in “changed behavior” and transition to commercial drivers. Essentially, insurers argue, the drivers are no longer entitled to personal liability coverage and must now have commercial coverage.

In California, the Public Utility Commission (PUC) stepped in and set regulations for ride-sharing companies, such as Uber, Lyft, and Sidecar. Not technically exclusive to these companies, the regulations targeted all “New Online Enabled Transportation Services” (TNC.) They defined this as an organization that provides pre-arranged transportation services for compensation using an online enabled app or platform to connect passengers with drivers using their personal vehicles. Included are requirements that the TNC get a permit from the PUC, a criminal background check be issued for each driver, there be a driver training program, a zero tolerance policy on drugs and alcohol and increased insurance coverage. As for insurance coverage PUC mandates that a TNC maintains commercial liability insurance policies of not less than $1,000,000 per incident coverage if the accident occurs while the driver is providing services.

The new PUC regulations did little to satisfy the insurance companies and they insisted the commercial coverage extended to whenever the driver had their app running. In response, several proposals backed by insurance company lobbyists, were presented to the California legislature calling to overwrite PUC’s regulations and include stricter rules for permits and licensing. However, their principal demand was for mandatory commercial liability insurance for drivers even when they have no passengers.

The Compromise

At this point the legislature has conceded that PUC, and PUC alone, has regulatory authority over ridesharing companies. Local taxi cab regulators have no authority, meaning special city permits and licensing requirements do not apply. The bill, which was passed by the California State Assembly and State Senate in late August of 2014, will require drivers to have $50,000 coverage per person for death and injuries; $100,000 damage coverage per accident; and $30,000 coverage for property damage. The ride-share companies also must have $200,000 in excess liability to cover costs of accidents that exceed policy limits. However, the question remains, which insurance policy provides the extra $200,000 in coverage for drivers who cause accidents on personal trips while running on apps on their smartphones. This has yet to be adequately addressed and resolved.

Are There Any Other Alternative Solutions?

Many states are claiming that the ride-share companies are coming into their communities in full force, blatantly ignoring any regulations or restrictions that are passed. However, ride-shares have agreed in several states to provide $1 million in commercial coverage for whenever a ridesharing driver has a passenger. They claim to have offered solutions to deal with the insurance gap but, at this point, they have not agreed to the level of commercial coverage during the times that insurers are demanding.

State governments and other regulators have varied on their methods when trying to deal with ride-sharing companies. The following are some examples of the different approaches:

  • In Washington, D.C. the state legislature is considering a bill that would set minimum commercial insurance. There is a proposal from the D.C. Taxi Cab Commission to regulate ride-sharing companies so that their commercial insurance coverage would be the primary coverage for personal vehicles.
  • Connecticut and Kansas send alerts to ride-sharing drivers that they may not be covered by their personal auto insurance policies while driving for the company.
  • In Washington State there was a proposed state bill mandating a study of ride-sharing companies that must provide a report to the legislature examining issues such as insurance coverage requirements and safety regulations. This bill was defeated. However, the Seattle City Council passed an ordinance that requires drivers to have commercial insurance coverage whenever that driver is available for a ride.
  • The Chicago City Council passed an ordinance requiring ride-sharing companies to provide $1 million of primary noncontributory coverage. Additionally, they must have $1 million in liability coverage for themselves, and $1 million for the drivers from acceptance to the conclusion of the ride.
  • Cease and desist letters have been issued to ridesharing companies by cities in Michigan, Missouri, Nebraska, New Mexico, Ohio, Pennsylvania and the Texas cities of Austin, Dallas, Houston and San Antonio.

Although the ride-sharing companies have agreed to comply with some state legislation, critics continue to argue that the legislature is not entitled to regulate the “sharing economy” and interfere with legitimate technological business models. With the rise of technology will come an increased number of unforeseen issues concerning insurance coverage, the state legislatures will continue to wrestle with new snags in the system and the law will change at a rate that the public has never before seen?

NBA Will Likely Slam Dunk Sterling in Upcoming Lawsuits

In the aftermath of his famous racist comments, billionaire Donald Sterling has hired a posse of lawyers. Apparently he is not willing to go down without a fight. In fact, as of May 16, Sterling’s lawyers wrote the NBA, stating Sterling is refusing to pay the $2.5 million in fines, and has threatened to sue the league. The letter claims Sterling is not in violation of any rules of the NBA constitution, and the NBA is violating Sterling’s due process rights by banning him and slapping him with such a huge fine.

donald sterling lawsuitA lot has been said about this case already, from violating California’s wiretapping laws, to free speech, to antitrust suits. The problem with evaluating those issues is that they all miss the point. This isn’t a case about privacy, free speech, or corporate regulation. It’s a case about a contract, and whether Sterling has lived up to the terms of that agreement. Quite simply, it doesn’t look like he has.

What about Free Speech and Due Process?

Any concerns about free speed or due process can be dismissed immediately, because the NBA is a private organization and not the government. There is a small exemption for private organizations that receive government support, but it’s tangential to this matter. Plain and simple, Sterling does not have free speech protection shielding him from recourse from being slam dunked by the NBA. Nor is he entitled to due process; it’s a unique argument to make, but as far as legal doctrine goes, it’s a foul.

What about Privacy?

How this communication was disseminated to the public is irrelevant. Therefore, wiretapping and privacy concerns are likely not material. The only remotely relevant argument Sterling can make is that under Article 13(a) of the NBA constitution, which requires violations to be “willful.” He can argue his acts were not willful violations because they were surreptitiously and secretly documented. The weakness with that argument is that the ‘willful’ standard is not only vague, thus open to the Board’s discretion, but it is widely reported and there is ample evidence to support that Sterling knew he was being recorded, yet continued to say the things he did. This fact diminishes an argument that his actions were not “willful,” and eliminates any expectation of confidentiality, a requirement under the wiretapping statute, and along with it any wiretapping claim he may have against anyone.

What Is This Case Really About?

At the heart of the issue is “the contract”—i.e. the terms of the NBA constitution. It’s being called a contract because Sterling signed onto certain terms that go along with owning an NBA team. Specifically, Article 13(d) bars NBA owners from violating contractual obligations, and in particular the owner’s obligation not to engage in unethical conduct, or to act in a way that is adverse to the NBA. Sterling’s conduct certain appears to fit this bill, considering his remarks caused sponsors to reconsider backing the Clippers and nearly lead to a boycott by the players.

Moreover, filing a suit could be more disastrous than Sterling realizes. Over an issue such as this, California’s discovery laws and depositions could leave what little is left of his private life exposed to public view and scrutiny.

Looking at the looming legal battle between a lone billionaire and a league of basketball superstars, the outcome seems clear, and even before the start of the game. Sterling, standing down court, with the clock shot winding down, is tossing the ball from across the court, hoping to score. But as the buzzer sounds, he isn’t even close.

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Subway “Footlong” Lawsuit Is within Inches of Settling

Last year, the sandwich artists of Subway found themselves embroiled in a handful of legal battles and a potential class action lawsuit. However, it wasn’t over serving bad meat or food poisoning, but rather over the actual size of their subs that they tout as “footlongs.” As it would turn out, these sandwiches only measure up to be about 11 inches, exposing the chain to claims of deceptive sales practices.

subway footlong lawsuitAlmost instantly, business journals and news outlets started to cry “frivolous lawsuit.” After all, they’re sandwiches, who cares? This really can’t be important. Well, federal courts have clearly disagreed. And I have to admit, so do I.

Now nearly a year later, stories have begun to sprout up that a settlement agreement is approaching, with only attorney’s fees left to determine. So what was the big deal? The meat of these lawsuits are heavy allegations of “fraudulent, deceptive or improper advertising, sales and marketing practices.” But if that feels extreme, consider this: Subway averages about $2.85 billion in the sale of their footlongs, making the rough value of what that inch they have duped customers out of close to about $142 million. That’s a lot of dough.

Subway retorts that they use the same weight of dough in each sandwich, and how a loaf of bread bakes, grows, and conforms is difficult to guarantee every time. While that may be true, and it may be hard to get angry at a sandwich store for not always being accurate, if they are aware of discrepancies, they shouldn’t be advertising these subs as “footlongs.” Call them “the bigguns” or “subway cars” or anything other than something that purports to be an actual measurement. After all, I’m sure most people would have less sympathy for a bespoke chair maker who, having advertised as making a great fitting, 24” tall chair that was actually 22” and shoddily made, blamed the uniqueness of the wood for various imperfections. This would be especially true if those imperfections lead to them earning substantial profits off of unsuspecting consumers.

What these legal battles are really about is protecting consumers from companies short changing them in anyway. Regardless of how you feel about these lawsuits, one age old principal remains true: give them an inch, they’ll take a mile. Or, maybe more accurately: give them an inch, they’ll take $142 million.

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A Proposal of Punishments for GM

Despite “New” General Motor’s promises, the company looks exactly the same as “Old” General Motors. Federal safety regulators want to fine GM $7,000 a day for failure to respond to federal questions. GM CEO Mary Barra promised new standards and then answered every other question with “We’re still investigating.” Sen. Kelly Ayotte gave the response that most of the victim’s families had on their minds: “I don’t see this as anything but criminal.”

old GM

To be sure, GM is breaking more laws than I can count, if not in letter, than in spirit. For instance, GM’s bankruptcy actually gets around the rule that only individuals can discharge their debts in bankruptcy. All that talk about “new” GM and “old” GM is not metaphor. GM was literally divided into two companies, General Motors LLC and Motors Liquidation. The bankruptcy allowed GM to escape liability for its civil suits by dumping all the claims into Motors Liquidation, a “company” which holds all of GM’s debts, but none of GM’s assets.

Criminal prosecution of GM would be counterproductive at best. Even if the Justice Department could prove that GM officials and employees were guilty “beyond a reasonable doubt,” the only remedy would be lengthy prison sentences. For the families of the victims, that might be sufficient vindication of their loss. In many cases, punishment of the wrongdoer has to be enough. I think we can do better in this case though.

GM hired Kenneth Feinberg before the Congressional hearings. Feinberg is the attorney who set up compensation funds for 9/11 victims, BP Oil Spill victims, and the Boston Marathon Bombing victims. Hiring Feinberg was probably the smartest thing GM, old or new, has ever done. During the Congressional hearing though, CEO Barra reframed from promising victims a compensation fund.

That was the wrong move. The victims deserve a compensation fund, but they deserve more than money. GM engineers should repair the victims’ cars, free of charge, if the victims need car repairs. GM executives should help the children who lost their parents by training the children in business, accounting, or law if the children want to go into those fields. GM insiders should personally make amends to the families they have wronged.

These proposals are radical. They replace lost family members with GM employees and wrongdoers would be active participants in the lives of their victims. There is no judge in the country who would order these types of relationships. However, creating a support network for the auto accident victims would be a more moral solution than simply throwing GM employees in jail. Prosecutors have the discretion and the ability to craft a deal where GM insiders could help heal the victims they injured.

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Wearable Technologies Push Legal Frontiers

When I was a kid, I remember electric blankets were all the rage. However, after reports of these blankets causing fires, they quickly became a thing of the past. A few years ago, after Google Glass emerged, I couldn’t help but think of the electric blanket—an interesting, novel product, but with a slew of potential legal troubles that may ultimately leave owners getting burned. As it would turn out, Google Glass was merely the tip of the iceberg for the revolution of wearable technology. However, it seems as though concerns over the potential problems of these wearable technologies is entirely warranted. wearable technology

What Is Wearable Technology?

While it may seem like an obvious question, it deserves a bit of an explanation. “Wearable technology” describes clothing or accessories, such as a bracelet or glasses, which utilize computer technology that gives the wear some heightened sense of practicality. An early example of this is a calculator watch. In addition to giving the person the ability to tell time, they could calculate tips or other simple math equations on the fly.

The most talked-about wearable technology is Google Glass. You wear Google Glass just like any other set of glasses, except instead of polarization and UV protection, these glasses offer people the ability to surf the web, check the weather, read text messages, and even make photographs and record video in 720p.

“Smart watches” are also receiving an increasing amount of attention. These devices are similar to calculator watches, in the sense that they keep time in addition to other functions. Where they differ is that rather than just compute numbers (which they can still do), these watches also operate as .mp3 and FM radio players, cameras, GPS navigation systems, and even as a cell phones. Wristband devices can also monitor your heart rate, sleep quality, and how many calories you burned.

Clothing companies have even started entered the wearable technology field. What some of these “clothes”—if you can call them that—can do is astonishing. For instance, BB.Suit has designed a piece of clothing that makes the wearer a walking WiFi hotspot, Studio Roosegaarde has crafted a type of high-fashion dress that becomes ‘see-thru’ as the person’s heart rate increases, and there has even been talk of companies testing prototypes of clothes that can harness solar power.

Why Is Wearable Technology a Legal Concern?

Wearable technologies have the potential for causing serious privacy violations. For example, those equipped with an app called “Winky” could use Google Class trigger the camera mechanism with the blink of an eye. This not only raises concerns over privacy, but also sparks an interesting issue with various wiretapping laws.

Private establishments have every right to maintain some manner of control over the conduct of people entering their premises. Shortly after the first Google Glasses started popping in the San Francisco Bay Area, many establishments began posting signs that asked wearers to remove their glasses before entering due to privacy concerns of other customers. Casinos in Las Vegas have banned them outright.

Law enforcement has been having trouble regulating the use of Google Glass. In October of 2013, a San Diego woman was ticketed for wearing her glass while driving. Ultimately, the case was thrown due to a lack of evidence that the glasses were actually on and in use while the woman was behind the wheel. But the statement was already made: Don’t Google and drive. In other parts of the country, legislatures have made efforts to get the Google Glass put in the same category as a cellular phone.

Smart watches pose many of the same problems as Google Glass. If glasses are causing a ruckus by being able to send texts, access the Internet, and capture images in the wink of an eye, it is not unreasonable to see how the exact same privacy concerns arise over a watch that can do the exact same thing with the flick of a wrist. Similarly, using smart watches to text and talk while driving will force legislatures and law enforcement alike to figure out ways to control the use of these devices, many of which look like normal wrist watches.

Aside from criminal issues, there are also concerns over health and safety. “Fitbit,” who manufacture an athletic wristband, recalled one of its models after users began to complain of skin irritation. As the popularity of wearable technology grows, so will the lawsuits over design defects and harm caused by them.

The Legal Community Should Encourage Innovation

Regardless of the potential legal problems the legal community, it is exciting to see how much technology has grown in the last twenty years. If watches that double as phones and temperature regulated jackets are today’s hot item, it’s mind boggling to think of what type of gadgetry the next twenty years will bring us. When developing laws to regulate new technologies, the legal community should be careful to not impede future innovations.

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