In my previous column, I discussed the risk a for-hire vehicle (FHV) base or e-hail provider could face if they send a dispatch to an FHV driver, and it’s determined that receiving the dispatch via the base’s smartphone app caused driver distraction and thus contributed to the cause of an accident. While plaintiffs don’t always win lawsuits, they are on the rise and “nuclear verdicts” are becoming more prevalent. So, when an FHV base or e-hail provider is sued, they absolutely should retain counsel to defend the case. The risk of a devastating verdict is just too great.
FHV bases and e-hail providers have access to various risk management techniques and insurance that protects them, but most balk at the cost, which can then mean paying a lawyer to defend them against a lawsuit that could leave their company’s financial health and future hanging in the balance. “Risk transfer” is a risk management technique that transfers risk to a third party, meaning the third party assumes their liabilities in certain circumstances… at a cost, of course. Insurance is perhaps the most common version of this.
Of course, no one likes to pay for insurance, and most individuals and businesses only do so when the law requires it. An FHV base is required to obtain a bond that guarantees it will only dispatch to vehicles currently licensed by the NYC Taxi & Limousine Commission (TLC), who also have a current NYC commercial use motor vehicle tax stamp. FHV bases obtain this bond because the TLC mandates it to obtain and retain a base license. FHV owners buy auto insurance because New York State mandates that all motor vehicle owners meet their minimum financial responsibility requirements, which includes liability, no-fault, and uninsured motorists. While it is wise to buy auto insurance to protect yourself in the event of an accident that could trigger a lawsuit, the reality is that most only do so because the state and TLC require it.
Most FHV businesses believe that since they do not own the FHV transporting their customer and do not employ the person operating vehicle, they do not need to purchase auto insurance. While the law does not mandate that a base obtain insurance to cover them in the event a driver who receives a dispatch from them causes an accident, the reality is that every FHV base (and e-hail provider) should consider what is known as Hired Auto and Non-Owned Auto coverage.
Generally, the term “hired auto” refers to any vehicle(s) that you hire, rent or borrow. Non-owned vehicles are ones your business doesn’t own, lease or hire. These auto coverages provide liability protection if a vehicle you haven’t leased, hired, or rented is driven for your business and is in an accident. There are other insurance solutions and alternate types of coverage that an FHV base or e-hail provider can purchase to protect themselves, but again, the problem is, since bases are not required to have auto coverage, they generally don’t get it. Remember: Just because there is no legal requirement does not mean it isn’t a good idea.
Risk transfer is a risk management technique that transfers risk to a third party. Of course, this comes at a cost. The question then becomes: Do you want to buy insurance when you don’t legally have to? Can you afford the cost? Can you afford the cost of legal fees and the risk of a nuclear verdict?
Each FHV base owner has their own appetite for risk, but to truly understand what’s at stake in your particular situation, you should perform a cost-benefit analysis – performed by professionals who understand your industry. Minor fender-benders may not cost much, but just one major incident could completely disrupt the financial security of a business, putting you on the hook for hundreds of thousands of dollars. This is why it’s sensible to budget and pay for sufficient protection. The right coverage can help mitigate a business’s losses, but it should also be paired with sound risk management practices. Don’t ignore potential risks; consider your options with eyes wide open, and the long-term health of your business in mind.
