Driving for Uber, Lyft, and other ride-for-hire services can be a great way to earn income. But anyone thinking about driving for hire must first understand how this works in relation to car insurance. Because ride-for-hire services do not own or operate the vehicles, they do not treat drivers as employees. Therefore, anyone driving for these services is considered an independent contractor, which means the company is not responsible for any financial damages the driver may incur, including both property damage (most commonly to other vehicles) and bodily injury (to other drivers, passengers, or pedestrians).
Typically, any service performed for profit requires commercial insurance, rather than personal insurance, and an insurance carrier provides coverage with premiums based on the risk of having an accident and claim – higher risk means a higher price. Risk is much greater when driving for hire, simply because the amount of time on the road and miles driven is greater, so there is more chance of having an accident. However, most Uber and Lyft drivers cannot afford, and do not carry, commercial insurance.
So, what happens to a driver who causes an accident while driving for hire?
The injured party makes a claim on the driver’s personal car insurance – for property damage, bodily injury, or both. The insurance company’s claims department investigates, and when they discover that the vehicle was being driven for hire, they will deny the claim. Further, many companies will also cancel the driver’s insurance policy because the person who is driving for hire has not honored the terms of the insurance contract. The driver will have to pay out of pocket for physical damages and injuries, and will also have to repair their car at their own cost.
What, then, is the solution?
Some personal car insurance companies have provided an answer. While they do not provide coverage for driving for hire on their policies, they have created an endorsement that can be added to a policy, for a small increase in premium, which extends liability coverage for commercial use. Anyone driving for hire must carry this endorsement on their policy, or be subject to the outcome described above in the event of an accident. So, if you drive for Uber, Lyft, or any other ride-for-hire service, it is imperative to check with your car insurance provider and make sure you carry this endorsement on your policy.