Mar 14, 2014 · 4 minutes

Uber and Lyft have announced increased insurance coverage for their drivers that will reportedly cover incidents that occur whenever their respective apps are open, not just when drivers have passengers in their cars. The increased coverage will remove the ambiguity for drivers involved in accidents while they are on call for one of these services -- and on their way to a pickup -- but aren't actually ferrying passengers.

The announcements follow a wrongful death claim filed against an Uber driver who killed a 6-year-old girl on New Year's Eve. Uber claimed that it wasn't liable for the incident, because the driver "was not providing services on the Uber system during the time of the accident." The new insurance policy means that, so long as the driver has Uber's app open on his phone at the time, the company's insurance will cover up to $100,000 in damages.

But Uber and Lyft's new insurance policies will only go into effect if a driver's personal insurance doesn't cover an incident. Since many insurance providers have argued that personal policies shouldn't cover accidents that occur while a car is rented out, and some have threatened their customers' insurance coverage after finding out they drive for these services, the policies announced today might be used more often than either Uber and Lyft forecast.

Insurance coverage has been a contentious issue for ride-sharing services. Seattle, Chicago, and the state of Colorado have all questioned the expansion of these services because of their insurance policies. New York sent a cease and desist to RelayRides last year because of its insurance policies, and fined the company $200,000 earlier this month for the same reason.

The backup policies announced today might allow Uber and Lyft to fill the gap between what they cover and what these regulatory bodies think they should cover. Taking responsibility for their drivers is a good marketing tool, and it might be good for business, too.

Reactions from around the Web

Lyft explains the new insurance policy in a statement to Re/code:

Lyft’s liability policy was designed to cover the time when drivers have passengers in their cars, as well as the period when a driver is on the way to pick up a passenger. While we do expect personal carriers to cover the time period prior to carrying a passenger, in order to erase any uncertainty, Lyft will now provide additional protection. This new protection will provide backstop coverage to drivers when they are in match mode and are not providing rides. We will be rolling this out state-by-state in the days to come.
GeekWire notes that this isn't a definitive end to ride-sharing's insurance woes:
It’s unclear if the expanded insurance coverage will do enough to ensure that drivers are covered when working for Lyft. Insurance companies argue that drivers who work for ridesharing companies need to carry commercial insurance policies, which often cost thousands of dollars a month. Drivers have reported having their personal policies cancelled when their insurers find out that they are driving for a ridesharing company, while others have had their claims denied if they’re in an accident on the job.
The Atlantic Cities writes that the wrongful death claim will define Uber:
A case like this has inevitably hovered over the so-called "sharing economy" for some time now: Someone was bound to be badly hurt – or in this case, killed – forcing the question of who bears responsibility when strangers rent rides or cars (or power drills) from each other, all with scant regulation.
Reuters reports on cities' reluctance to accept ride-sharing services until they get better insurance:
Using mobile apps to connect passengers with drivers, ridesharing services like UberX and Lyft say they are bringing new zip to transportation. But a number of cities say they don't want to share the road until they get something utilitarian: better insurance.

If the cities insist, they could slow or halt the services' expansion. The conflict poses the latest challenge to the nascent "sharing economy," which allows people to rent out personal property and services, often on an ad hoc basis. Pando weighs in

Pando alum Richard Nieva wrote about insurance's effect on ride-sharing last April:

But even with the long laundry list of attacks by city hall, the trickiest obstacle for sharing economy companies – particularly in the car-sharing space – is the arms length relationship they have with the insurance industry. Early adopters — call them the Napster generation — are happy to break the law within reason. Putting their savings at risk by lending an asset that insurance won’t cover (up to a certain point) may be another matter.
Carmel DeAmicis wrote about Uber's liability in the wrongful death case in January:
To be clear: Uber is well within its rights taking this stance as a platform company, and it is the textbook, best way to avoid future liability. This is what MySpace, Craigslist, and plenty of other platforms have done in the past when they’ve inadvertently set tragic events in motion.

But in the interest of building a lasting, trusted consumer brand, Uber may be making a major, risk-the-company mistake with this approach — particularly with something as horrific as the death of a child. She then condemned the closed-door meetings of Lyft's P2P Rideshare Coalition in February:

At this point, information about insurance for private hire vehicles is a matter of public safety. We can look to the pedestrian injured by a fire hydrant when an Uber driver hit another car, or to the family suing Uber for compensation for their daughter’s death. People have a right to know more about ridesharing insurance practices, before they get hit and the company washes its hands of responsibility.