Discussion Case: Insuring Uber’s App-On Gap
At around 8 p.m. on the evening on December 31, 2013, a mother and her two young children were walking
home in San Francisco. At a busy intersection, the family waited for the “walk” signal and then started across
the street. Just then, an SUV made a right turn, striking all three members of the family in the crosswalk. The
mother and her 5-year-old son were seriously injured. Her 6-year-old daughter was killed. The man behind the
wheel of the SUV identified himself as a driver for the ride-hailing service Uber.
Uber immediately distanced itself from the tragedy, saying that the driver was “not providing services on the
Uber system at the time of the accident.” The family’s attorney contested this, saying that the driver was logged
onto the Uber application, appeared on the system as available to accept a rider, and was interacting with his
device when he struck the mother and children.
s.html)In other words, the tragic incident had apparently occurred during the app-on gap—the driver was on the road
with his Uber application activated, but had not yet connected with or picked up a rider. So, who was
responsible, the driver or the ride-hailing service?
Uber was, in the words of a New York Times columnist, “the hottest, most valuable technology startup on the
planet.” The company was founded in 2009 as “everyone’s private driver,” providing a premium town car
service that could be summoned online. In 2012, it rolled out UberX, a service that enabled nonprofessional
drivers to use their own vehicles to transport riders. Customers could use the Uber app to hail a car, connect
with a willing driver, watch the vehicle approach on a map, pay their fare, and receive a receipt, all on their
smartphone. Uber provided the technology and took a commission on each transaction.
Uber’s disruptive business model caught on rapidly. By mid-2014, Uber’s ride-sharing service had spread to
more than 120 cities in 36 countries. In the United States, the service could reach 137 million people with an
average pickup time of less than 10 minutes. Demand was growing so fast that Uber was scrambling to recruit
20,000 new drivers, whom Uber called “transportation entrepreneurs,” every month. Private investors were
enthusiastic about the company’s prospects: Uber had attracted $1.2 billion in funding and was valued at $18.2
billion.
Drivers who partnered with Uber had the flexibility to drive when and as much as they wished. They could also
make a decent living; the median annual income for its full-time drivers in San Francisco, for example, was
about $74,000. But they also assumed risk. In the event of an accident, Uber instructed its drivers to submit a
claim to their personal insurance carrier first. If it was denied, Uber’s backup commercial liability insurance
would go into effect, but only after the driver had been summoned by a customer or had one in the vehicle.
Traditional taxicab companies did not welcome competition from Uber. Cabdrivers in many cities across the
world protested the entry of Uber into their markets, conducting strikes and “rolling rallies” charging Uber with
unfair practices. Uber drivers did not have to comply with many of the rules that applied to taxicabs, such as
those requiring commercial driver’s licenses, regular mechanical inspections, and commercial liability
insurance. Governments at city, state, and national levels had become involved, with some imposing
restrictions and others even banning Uber outright.
In the wake of the 6-year-old’s death in San Francisco, California, legislator Susan Bonilla introduced a bill that
would require Uber and other ride-hailing companies to provide commerical liability insurance from when the
driver turned on the app to when the customer got out of the car, thus filling the app-on gap.
The American Insurance Association, representing insurance companies, supported the legislation, saying that
personal auto policies should not be expected to cover ride-hailing drivers once they signaled availability. “This
is not someone commuting to work or going to the grocery store or stopping to pick their children up from
school,” a spokesperson said. The family of the girl killed on New Year’s Eve also supported Bonilla’s bill, as
did consumer attorneys and the California App-Based Drivers Association.
But others lined up in opposition. Uber and other ride-hailing companies strenuously objected to the bill, as did
trade associations representing high-technology and Internet- based firms, apparently concerned about
increases in their costs of doing business. The bill, said an Uber spokesperson, was “an example of what
happens when special interest groups distract lawmakers from the best interests of consumers and small
businesses.”
Discussion Questions
Who are Uber’s relevant market and nonmarket stakeholders in this situation?
What are the various stakeholders’ interests? Please indicate if each stakeholder would likely support, or
oppose, a requirement that Uber extend its insurance to cover the app-on gap.