Colorado on Thursday became the first state in the nation to pass a law regulating the fast-growing ride-sharing industry, addressing a host of concerns that have cropped up since the industry was launched just a few years ago.
“Colorado once again is in the vanguard,” Gov. John Hickenlooper (D) said in a signing statement, noting that the new law grants the state’s Public Utilities Commission broad power over regulating the industry. The law requires driver background checks, vehicle inspections and addresses some insurance concerns. For now it only applies to the two services currently operating in the state: uberX and Lyft.
The services, which uses digital networks to connect drivers using their own vehicles with paying passengers, are so new that there’s still inconsistency on what to call them. Lyft, uberX and competitor Sidecar all launched in 2012. In Colorado, they will be called Transportation Network Companies, as they are referred to in California. A Georgia bill referred to them as Transportation Referral Service Providers. Under a failed Arizona measure, they would have been Ride-Sharing Networks.
California is the only other state to regulate the industry. Its rules were created by the state utilities commission, while Colorado’s are the first born in a state legislature, potentially serving as a model for lawmakers elsewhere.
Throughout the country, the highly regulated taxi industry has lobbied for stricter laws over the new services, while occasional allegations of driver misconduct—ranging from alleged kidnapping to alleged physical aggression—have underscored demands for better background checks.
Some cities have moved to stop the companies from operating until regulations are set, but the companies have ignored those orders. Lyft continues to operate in Albuquerque despite a May 21 order from the New Mexico Public Regulation Commission to stop, and both Lyft and Uber said this week that they plan to continue providing services in Virginia, despite an order to cease until the proper authority is granted.
One key issue to be resolved is how to treat the services, which argue that they are merely technology companies connecting drivers and passengers. Whether and how to impose rules is complicated by the fact that any driver can switch from non-commercial to commercial activity with the press of a button.
That ambiguity was underscored by a tragic incident earlier this year. A young girl was killed in San Francisco when she was struck by a vehicle driven by an uberX driver who says he was logged into the service’s application but not yet transporting or en route to pick up a passenger. The accident — and subsequent lawsuits — highlighted an insurance coverage gap, a gray area in which it was unclear whether the driver or service should be held liable.
The Colorado law closes that gap, requiring that the services provide insurance once the driver is logged in, even if he has no passenger and isn’t yet on his way to retrieve one. Uber in mid-March announced that it would voluntarily provide backup coverage in such cases, but that would only kick in if a driver’s personal insurance policy doesn’t cover the accident. The Colorado law requires ridesharing services make such coverage “primary” by January, meaning it would kick in regardless of a driver’s policy. Without that requirement, personal auto insurers had suggested that rates could have risen for all drivers.
Until mid-January, ride-sharing companies in Colorado must only provide the minimum insurance required for non-commercial drivers—$25,000 per person for injuries with a $50,000 maximum per incident and $15,000 for property damage. After Jan. 15, that doubles.
But the law also requires the state’s Division of Insurance to study whether those amounts are adequate. If they are deemed not, lawmakers will have opportunity to increase the requirements during next year’s session.
Hickenlooper calls on his state’s utilities commission to continue monitoring the way in which background checks are conducted, too, citing concerns that private companies may rely only on publicly available information to investigate potential drivers.
He also asked the commission to review existing rules governing limousines and taxis, concluding “consumer protection is a worthy goal that we endorse, but rules designed to protect consumers should not burden businesses with unnecessary red tape or stifle competition by creating barriers to entry.”
(Disclosure: Washington Post owner Jeff Bezos is an Uber investor.)