Have you heard about Lyft, Sidecar, Uber, or Airbnb? If not, you will. Lyft’s Wikipedia entry states they’ve started operating in St. Paul and quite a number of other major cities. Uber’s website indicates they’re in Minneapolis and a handful of other major cities. I realize many of the readers of these blogs are located outside of Minnesota, and in outstate Minnesota. But this is a national concern, and most Minnesota outstate agents have customers in the Twin Cities.
If you’re an agent, make sure you know what these entities are before the following happens to you.
It’s 8:37 in the evening and Mike and Frank are in the middle of searching for rusted gold on American Pickers on the History Channel. Your phone rings. Since it’s your smartphone, which you use for business, and not your landline, you answer.
“Jake Sumner,” you say.
“Jake, I’m glad I caught you. This is Bill Fairly. Do you have a minute?”
Bill is one of your biggest clients. You have all of his personal and business accounts, which have grown over the years into a large revenue source for your agency. “Sure, Bill, what can I help you with?”
“We’ve got a problem,” he says. “My son, Johnny, had an accident.”
“Just give me the specifics. I’ll get an adjuster right on it.”
“There’s no need for that. Johnny had the insurance company’s app on his phone and turned the report in from the scene of the accident.”
“How’s Johnny? Was he hurt?”
“No, he’s okay, but he hit a pedestrian and she was pregnant and it’s not good.”
“That’s awful. How’d it happen?”
“Johnny was checking his GPS. He was in a part of town he didn’t know too well and was feeling lost, so his attention was on that damned phone of his instead of on the road.”
“It happens all the time. It’s a different world now than it was when you and I were Johnny’s age. What is he now? He must be about twenty-four?”
You hear a female’s voice in the background say, “Tell him what that insurance company is trying to pull.”
“Is that Suzanne? Say ‘Hi’ to her for me,” you say.
“She’s a little upset right now and you’re sort of in her gun sights.”
“Really?” The hair on the back of your neck stands up. This doesn’t sound good. You think. “What’s the problem?”
“You’ve taken care of my family’s insurance for years. When Johnny moved out after college, I sent him in to your agency for auto insurance.”
“Uh huh. I put him with a very good company.”
“You think? I think they’re a bunch of crooks.”
“Why would you say that? They’re rated number one in the nation for claims handling by J D Powers.”
“Then they must pay that Powers group a bunch of money under the table, because they stink.”
“Take it easy. If there’s a problem with the way they’ve handled Johnny’s claim, I can straighten it out. I just got back from a national company meeting and, if need be, I’ll take it to the top.”
“You might just have to do that. Like I said, the pregnant woman Johnny hit is probably going to lose her child and she isn’t doing so well either. At best she’s going to need care for the rest of her life. That’s going to cost a bundle.”
Thank goodness I talked Johnny into that $5 million umbrella, you think. “The company will take care of things.”
“That’s just it,” Bill says. “They told Johnny that they’re going to deny coverage.”
“What? Why would they do that?”
“Johnny had trouble finding a job when he got out of college. He took several part time jobs and signed up for a ride-sharing program.”
“Okay . . . I don’t see a problem.”
“Well . . . you should. Do you remember when Johnny called you and asked you if his company allowed ride-sharing?”
“I do recall that.”
“It’s that ride-sharing program that’s causing the problem.”
“You can rest easy, I know for a fact that particular company allows ride-sharing. In fact, I think it might even be required by law.”
“That’s what Kevin Sharky said.”
Geez I hate that Sharky guy. He’s a barracuda lawyer who stops at nothing to win for his client, you think.
“Your insurance company says that the company that arranges rides for Johnny is a “public and livery conveyance”. They say there’s an exclusion in the policy and they won’t be covering the loss.”
“Is Johnny working for a taxi company, or driving a limousine?” you ask.
“No. I told you. He’s driving his own car for this ride-sharing service. They arrange the rides and he gets paid through some sort of donation process. Aren’t you listening? Maybe that’s your problem.”
“Bill . . . have I ever steered you wrong?”
“You’ve got some nerve! Johnny’s facing a lifetime of paying off a court award of several million dollars and you’re asking me for a critique of your job performance!”
“Settle down, Bill. If Johnny is liable, surely the company that arranges his rides is primary. They must have insurance.”
“They’ve got what’s called an “Excess Auto Liability Policy”.
“That could mean a lot of things.” A lot of bad things, if Johnny’s company denies coverage as the primary coverage.
“Besides, Johnny agreed contractually to hold them harmless, AND to provide adequate coverage, AND to even provide them legal defense if something like this happens.”
“Why would Johnny agree to that?”
“It was done over the internet and all that was in the Terms of Service. Do you ever read those things before you accept them?”
“What does Sharky say?” At least we’ve got that animal on our side!
“Sharky says the company has damned good attorneys and we’re up the creek. He says you have an insurance policy that will take care of everything.”
“I’m not sure what that means, Bill.”
“Sharky said you have Errors and Omissions insurance. You do, don’t you?”
You drop the phone and stare at the television. Perhaps Frank and Mike will buy some of the furniture and fixtures at your office when you have your going-out-of-business sale.
Our world is changing. Many, many new companies have sprung up that claim to make use of “excess capacity in your boats, cars and homes”. This phenomenon is called the “sharing economy”. These companies use internet technology to connect people who have a need with other people who want to rent space in their home or provide a ride in their car.
These companies have already handled millions of transactions. They’re a industry in its infancy that could very soon be second nature for us. At least that’s what some very smart people think. Venture capitalists have provided hundreds of millions of dollars to these companies. They aren’t going to go away simply because the insurance situation is a little dicey.
Twenty-somethings are very willing to wink at what you know will be a huge problem if the claim is serious.
AIRbnb is an international operation and helps people rent out a couch or a back room to “perfect” strangers. As the “bnb” part of their name suggests, this is “bed and breakfast” on marketing steroids.
There are dozens of companies springing up like Lyft, Uber, and Sidecar that connect riders with people who are looking to make a little extra money; poeple who probably are just like the people you insure.
These ride-sharing companies no doubt have paid huge amounts of money for legal advice as suggested by their Terms of Service. They obviously believe they’re running a legitimate business and have found deep-pocketed investors who agree. They expect the insurance world to adjust to them.
Your clients expect you to keep up on what is happening in the world and to watch out for them.
Think about the late night taxi users and imagine how perilous it is for your “Johnny” customers to drive these people around in a pseudo-taxi arrangement. Distracted driving causes a lot of carnage. How distracted would Johnny be trying to drive inebriated riders throughout a part of the city Johnny doesn’t know? One company encourages the driver and rider to fist-bump when they meet, so how does that “friend” driver get the partying drunk to turn down the radio, or his personal device?
I’ve checked with several companies and general agents. Liability for this kind of risk can be covered, but they’ll pay the same as a taxi. I think that’s generous. If I were the underwriter, I would want more premium because of the distractions. A taxi pays somewhere between ten and twenty times for liability coverage as what a private passenger auto would pay.
There is a lot of misleading information on the internet about insurance companies covering this kind of risk. There’s a lot of misleading information about what these companies do and don’t do. Encourage your customers to read the Terms of Service carefully. Here is an example http://www.lyft.me/terms
Many insurance companies have Bed and Breakfast endorsements for homeowner’s policies. You can also purchase standalone coverage through many general agents and companies, but you have to know about your customer exposure and have handled it.
If you have a means of communicating with your customers, such as a newsletter, and have not alerted them, you need to consider it. Your customers might be “sharing” their boats, cars, or homes.
American Pickers is a great television show. It would be terrible to have it interrupted — and end up across the table from Sharky.