Memorandum
City of Lawrence
City Manager’s Office
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TO: |
Diane Stoddard, City Manager |
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FROM: |
Brandon McGuire, Assistant to the City Manager |
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CC: |
Casey Toomay, Toni Wheeler, Randy Larkin, Maria Kaminska |
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DATE: |
June 4, 2014 |
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RE: |
Transportation Network Services |
Overview of Transportation Network Company Services
Transportation network companies (TNCs) such as Uber and Lyft provide networks and user interfaces designed to facilitate peer-to-peer for-hire transportation commerce. TNC services are not ride sharing services. Ride sharing services are a form of carpooling where a driver and a passenger who share a mutual route or destination connect and arrange a ride through a ride sharing service network. A TNC service provides a virtual marketplace that connects passengers to for-hire drivers so that driving services may be exchanged for profit. TNCs develop and maintain virtual platforms through which drivers solicit passengers, and passengers hire and pay drivers. TNCs may also provide back-end support such as network maintenance, driver vetting and marketing of the TNC network.
TNC drivers are not employees of the TNCs. For example, Uber drivers are independent contractors, not Uber employees. TNCs do not own the vehicles that TNC drivers utilize. Uber drivers use their personal vehicles to provide for-hire transportation services. A TNC like Uber generates operating revenue by taking a percentage of each transaction.
Taxicab companies commonly operate under similar arrangements in which taxicab drivers are contractors and are not employed by the taxicab company. Under those arrangements, taxicab companies may own the taxicab vehicles or the contracted drivers may use their own vehicles. Most state and/or local codes establish minimum liability insurance requirements for vehicles used for livery or conveyance purposes, including taxicabs.
TNCs represent a rapidly emerging multi-billion dollar global industry. Over the past few years all levels of government across the world have worked to develop appropriate regulations for the peer-to-peer economy, particularly for TNC services. This memorandum provides some information that is relevant to the State of Kansas and the City of Lawrence in light of the State’s efforts to develop TNC regulations.
Background on State Activities
The State recently established regulations for Transportation Network Companies (TNCs) and TNC drivers. Senate Bill 117, established TNC regulations, but that bill was later amended by Senate Bill 101. The TNC legislation focuses on protecting people, property, lien holders and consumers and addressing issues of market equity.
Uber apparently operates in the cities of Lawrence, Leavenworth, Topeka and Manhattan. Additionally, Uber reportedly serves the cities of Kansas City, KS, Johnson County and Wichita. Wichita is presently the only city in Kansas that has established TNC regulations. The City’s Taxicab Code establishes regulations for local taxicab and limousine operators. Requirements of taxi and limo operators established in the City’s Taxi Code are not currently enforced on TNCs or TNC drivers, nor are any other local business code provisions.
Primary Issues
Insurance Coverages
Personal auto insurance policies do not cover commercial activities and insurers can legally deny claims when a vehicle insured under a personal auto policy is used for commercial purposes. In the case of a TNC driver who is not covered by appropriate business insurance, the TNC driver would be solely liable for all claims. Gaps in coverage would leave claimants and lien holders with little recourse to recover damages.
Appropriately insuring a vehicle used for TNC services in period one has been a divisive legislative challenging. The insurance industry offers commercial coverages and personal coverages. Commercial coverage is significantly more expensive than personal coverage. TNC drivers, however, might only use their vehicles to provide TNC services on occasion as opposed to other types of commercial vehicles like taxis and limousines which are engaged in for-hire services the majority of the time they are operated. The insurance industry does not appear to have innovated to the point that more affordable hybrid TNC coverages are available in the market.
Transportation service provided by a TNC driver is described by three periods. In period one, the TNC driver turns on the app to advertise that the driver is available to provide a ride. In period two, the TNC driver accepts a request for a ride from a passenger and drives to pick up the passenger. In period three, the TNC driver picks up the passenger, takes the passenger to the destination, and accepts payment from the passenger.
If adopted in current form, the revised City Taxi Code would establish combined per occurrence (injury, death and property) coverages of $300,000 for taxis with a capacity of six or fewer passengers, and $500,000 for taxis with a capacity of seven or more passengers.
The State’s legislation establishes minimum insurance requirements for TNC drivers and requires policies that acknowledge that the insured is a TNC driver. During period one, the State requires a 50/100/25 policy. In other words, the minimum coverage required during period one is $50,000 for death and bodily injury per person, $100,000 for death and bodily injury per incident, and $25,000 for property damage. For comparison, a statutory minimum coverage of 25/50/10 is required for personal auto policies. During periods two and three, the TNC legislation requires combined per occurrence coverage of $1 million. Again, Uber appears to provide this coverage for Uber drivers. The TNC legislation also requires prospective TNC drivers to acknowledge their obligation to satisfy their lienholders’ insurance requirements prior to using a TNC network. The State’s TNC insurance requirements will take effect on January 1, 2016.
Background Checks
TNCs have opposed legislative requirements for TNC driver background checks. Uber, for example, contends it conducts stringent background checks on all Uber drivers. When Kansas City, Missouri imposed background check requirements for TNC drivers earlier in the year, Uber contended that the requirement violated the privacy of Uber drivers. KCMO later adopted a compromise ordinance that requires all TNC drivers to undergo background checks and for the results of those checks to be filed with the city.
The City’s revised Taxi Code would require taxi company operators to conduct background checks on prospective taxi drivers and file the results of those checks with the City Clerk’s Office. The City would conduct KBI background checks on the taxi company operators. The State’s TNC legislation requires TNC drivers to submit an application to the TNC that includes information regarding the applicant’s address, age, driver’s license, driving history, motor vehicle registration, automobile liability insurance and other information. Additionally, TNCs are required to obtain and review a driving history report for each prospective TNC driver.
The State’s TNC legislation specifies a list of crimes and violations that would disqualify an individual from becoming a TNC driver. TNCs are prohibited from allowing individuals to become TNC drivers if any item on that list applies to their record. Similar to the State’s TNC legislation, the City’s revised Taxi Code includes a list of violations that would disqualify an individual from being hired as a taxi driver and prohibits taxi company operators from hiring individuals with a record of those violations.
Licensing and Fees
TNCs have generally opposed legislation that subjects TNC drivers to the same requirements as imposed on other for-hire transportation services, including taxi and limousine operators. Uber reportedly opposes business licensing, inspections, certifications, and other such requirements characteristic of local and state regulations. The company has stated that TNCs and TNC drivers are different from traditional transportation services and should not be subject to traditional for-hire transportation regulations. Additionally, Uber has stated that traditional for-hire requirements create a cost disincentive for TNC drivers.
The revised Taxi Code includes licensing fees for taxi and limo drivers and business operators. A per-vehicle fee is currently in place under the existing Taxi Code. The State’s TNC legislation does not establish fees for TNCs or TNC drivers.
Recommendation
This memorandum is intended to inform the City Commission’s discussion on transportation network services. City staff will perform additional work on this issue at the direction of the City Commission.