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

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 49503
                              Phone: (800) 494-6312
                              Fax (616) 742-5566
                              bmay@garanlucow.com

                              some materials originally
                              prepared by
                              David A. Couch, Esq
                              dcouch@garanlucow.com

       GARAN LUCOW MILLER SPRING BREAKFAST SEMINAR
                                MAY 23, 2018

 Detroit   ●   Troy ●   Port Huron ●    Grand Blanc ●      Lansing ●     Ann Arbor
               Grand Rapids ●   Traverse City ●       Merrillville, IN

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 500.3114(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.

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 257.1901. 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 2016. 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 257.2101, 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 4637. HB 4639 and HB 4640 make complementary amendments to
the Insurance Code applying to vehicles being operated by a TNC driver. The bills were “tie-
barred,” 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
257.2101, et seq., does not change the priority section set forth in MCL 500.3114. 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.

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.

MCL 257.2101, 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 3114. 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 341876) 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 2782036, 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 257.2107.

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.

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 30106. 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 500.3101, 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 257.2101, et seq would not apply. The default priorities under the No
Fault Act would become applicable under MCL 500.3114 and 500.3115. 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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