Community-based ride/taxi services VS personal chase tours

Jan 14, 2011
St. Louis
This might have some relevance to small-time storm chase tour operators. There are a couple of startup companies - Lyft and Uber - that have launched a sort of "crowdsourced" ride service to compete with taxis. There's a major controversy in progress. Authorities and taxi drivers are crying foul because the Lyft/Uber drivers are soliciting "passenger for hire" services using their personal vehicles on a personal insurance policy, which is (by the book at least) illegal. Some cities are fining the drivers as much as $1,300 each. Here in St. Louis, a judge has just ordered the service shut down in the city limits.

You can see the point of the taxi side. They have to pay for the commercial passenger-for-hire insurance policies (which can run as much as $10,000 per vehicle) as well as comply with all of the DOT regulations (vehicle maintenance, hours-of-service limits, etc). The Lyft drivers don't have those costs, and can offer the same service as a taxi for much less. Proponents of the crowdsourced ride services cite the lower fares that will benefit the community. The critics point out that the personal vehicles aren't 'legal' and are not insured in the event of accidents.

There are a lot of parallels in this story with the issue of using a personal vehicle to offer storm chasing tours. I once considered doing this, but I discovered the costs of insurance, compliance with regulations and associated permitting and red tape would make it too expensive. Not to mention a paperwork nightmare. With the capacity for only 2 or 3 guests in a car or SUV, it would be virtually impossible to break even on costs without charging guests exorbitant rates. The solution is to buy a large van and book it full each season to maximize capacity/revenue, which is why you see that with all of the tours that are operating legally. But, I decided that was too much of a financial/business commitment for me to make.

The biggest issue with running a chase tour is insurance coverage. Though the Lyft drivers are getting fined, the authorities likely will not raid a chase tour operator who doesn't have a DOT number or a commercial policy. But that operator will be in serious trouble if an accident occurs and his guests are hurt. That could be a storm-related incident or just a car accident on the road. In the Lyft story I see a lot of misinformed people saying that the personal policies will be enough - that would be nice, but they wont! Insurance companies have the right to deny coverage (and they certainly will) if the operator does not have a commercial policy. In fact, they can pursue insurance fraud charges for someone who tries to claim an incident this way on a personal policy. The Lyft/Uber drivers seem to be skirting the regulations by calling the payments donations instead of fares - but that's a semantic argument that may not help the driver in the case of an insurance claim. The driver will be at the mercy of the insurance company if he/she has an accident with just a personal policy.

The crowdsourced ride service controversy may eventually be battled out in the courts. Who knows - if the Lyft/Uber side of the issue wins, the legal requirements for a personal-vehicle-based chase tour service may become easier logistically. However, even if that happens, the insurance companies won't be obligated to provide commercial-grade coverage on a personal policy. In the end, they hold all the keys to what the premiums will be. Those premiums are the single biggest cost factor of whether a personal-vehicle chase tour service will be economically feasible.
There's a similar battle I saw a story on in San Francisco. These startups are going to lose huge, because they ARE illegal, and they ARE a serious liability and safety issue (not to imply in any way that a 'licensed' yellow or black car driver can't a model of stupidity either - I've seen my life flash before my eyes on more than one occasion in an NYC taxi). However a chase tour operation can't be regulated under livery codes because it isn't a 'ride for hire' to take you from point A to point B, and it isn't a traditional tour operation because it does not have a set schedule or route. So long as you are properly licensed for the class of vehicle you are driving, you are not exceeding the maximum capacity of the vehicle, and you have a proper insurance policy that has a high enough GA and per-person/per-incident limit to cover your ass from potential injury/wrongful death lawsuits (think easily $5 million per person), then you can't be fined for anything because by the book you're not doing anything wrong. A passenger van only requires a regular license, and does not require a DOT number. BUT, the insurance company probably can not and will not issue such a policy to an individual to do tour in a personal-owned vehicle. You would have to form a legitimate business entity with a corporate veil. Meaning you have all the crap and costs and taxes and such associated with that.
Using those definitions, I do think the case can be made that a chase tour is different in the eyes of the law (semantically at minimum) - but the insurance companies will probably still see the source/destination as irrelevant to the risk factor. To them, they simply see a financial transaction taking place that involves a customer (not a friend or family member) riding in the vehicle. I would think they'd see 10 hours on the road in a taxi, 10 hours on the road in a bus or 10 hours on the road in a personal vehicle on a storm chase as exactly the same in terms of risk - the risk of an accident and the paying passenger being a liability to the underwriter having to pay out a large claim. I'm not siding with or against the insurance companies, I just know that it's entirely up to the underwriter whether or not the activity is covered as personal or commercial.

Whether I was a Lyft driver or a personal-vehicle chase tour operator, I'd want an in-writing document from the insurer saying I was fully covered for exactly what I was doing. I'd want them to know *everything* up front. (They're going to find out one way or another anyway.) From my own experience, I haven't found any insurer willing to offer that at a premium that would have me even breaking even after a full season. I'd hate to find out after an accident that not only I wasn't covered, but was going to face insurance fraud charges for trying to claim an incident done during a passenger for hire activity (by the underwriter's definition) on a personal policy. With insurance, one can't assume something is covered (which seems to be the mistake that the majority of Lyft proponents are making).
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How do you insure an exceptionally risky activity such as storm chasing? The high costs are needed to make up for the increased risks. I am not really seeing anything to change the equation here unfortunately.

I think the company approach is probably the best strategy because you can limit your personal liabilities that way, but very expensive at the cost of completely separating business from personal expenses. The actual paperwork around the business isn't that much, and most states don't charge taxes unless you make a rather large amount of profit. However, doing things like purchasing a separate vehicle used only for the business for chasing may be a deal breaker.
You insure it the same way you insure a skydiving school - you use a company that deals specifically with high risk activities. While there are probably a lot of things in chase tours that their actuaries will not have considered, I don't think one would have an issue finding a suitable policy if they went to the right place.

And it's obvious you've never created and run your own business if you think there isn't a lot of paperwork and that "states don't charge taxes unless you make a rather large amount of profit".. There's a TON of recordkeeping and paperwork, and you pay taxes on every penny - and then some.

Dan there is a huge difference between a taxi or tour bus being on the road for 10 hours, someone chasing in their personal vehicle, and a chase tour taking paid customers to seek out tornadoes. Two are not normally considered hazardous. One can usually be explained away as "wrong place/wrong time" if something tornado related happens.. And the last one is bringing paying customers into a potentially deadly situation. Especially given all the negative press that the yahoos have drummed up for us, and ESPECIALLY now post-Tim/Paul/Carl with what - more than half a century of weather expertise in that car and they made a deadly mistake.. So when you want to take 8-10 people's lives in your hands who are paying you to put them in that kind of situation but also trusting you to keep them safe... It will have any company that issues that kind of policy recounting the beans for any newcomers.. And considering you'd need upwards of $60 million general aggregate, it isn't going to be cheap. If Tim Samaras, the quintessential anti-yahoo could make that mistake, anyone can.
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Using a personal vehicle for Uber or Lyft or a paid-for chase service are going to run afoul of one insurance personal policy will cover commercial use of that vehicle. If two (or more) people agree to share ride expenses, and ONLY actual ride expenses (gasoline, oil, breakdowns, etc), like you and a buddy chase in your own vehicle and you each pay 50 percent of the expenses, then its not considered "commercial". And as far as commercial use versus personal use goes, the insurance companies don't care diddly whether its a chase company or "I'll drive you two blocks to the doctor for $20."
As I have mentioned before & to correct some information in this thread…

For-hire motor carriers of passengers operating in interstate or foreign commerce, with a seating capacity of 15 passengers OR LESS are required to have 1.5 million in insurance. Via FMCSA 387.33
Note FMCSA 387.33 does not specify whether the motor carrier receives DIRECT or INDIRECT compensation for transportation. In the case of typical van storm chasing tours, they are INDIRECTLY compensated for transportation. Thus while they are (in many cases) not required to have a usdot number, inspections, etc (like with some directly compensated operators)… they are STILL required to maintain financial responsibility of 1.5 million (note I was partly wrong about this last point two or so years ago).

Summarizing above, if you operate the vehicle, and you provide tours, no matter what sized vehicle or number of passengers, you should have 1.5 million in insurance (again assuming you'll be crossing state lines on your tour, which I'll guess and say yes...).

As mentioned the insurance policies can be audited (and no you can't get these types of policies from your typical auto insurance provider, usually), and the applications do ask for what the business does (with great confidence I can say if you tell the truth and/or they understand what you do, you won't be touched with a ten foot pole by an insurance company).

As mentioned before yes I do provide a type of tour, so you can say I am biased… However, I will no longer be providing tours at the end of this season, so you can’t say that in a month or two, and I will still be saying the same thing.

BTW federal regulators have mentioned to me over the phone that yes they won’t really do anything about the uninsured storm chasing tours till there is an accident (where lawyers and courts get involved), despite assuring me that the insurance is required.

Well yay for beating a dead horse...
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$1.5 million isn't going to cover dick if you have a mishap and people get hurt. It DEFINITELY won't cover dick if someone gets killed. Hell, I have to carry $2 million in liability for my computer business, plus riders for data loss and loss to customer equipment in my possession - just to cover my ass in case I screw something up and get sued. Now think about all the accident lawyer commercials bragging about how many millions they got their clients.. And now multiply that by 10 passengers. And that's just civil damages, not even counting the medical bills you'd be on the hook for.
$1.5 million isn't going to cover dick if you have a mishap and people get hurt. It DEFINITELY won't cover dick if someone gets killed. Hell, I have to carry $2 million in liability for my computer business, plus riders for data loss and loss to customer equipment in my possession - just to cover my ass in case I screw something up and get sued. Now think about all the accident lawyer commercials bragging about how many millions they got their clients.. And now multiply that by 10 passengers. And that's just civil damages, not even counting the medical bills you'd be on the hook for.

Agreed, simply stating the MINIMUM requirements set forth by fmcsa regulations. That may not cover what you'd end up being liable for after an accident, just what is required by fmcsa regulations... I'll be interested to see what happens when there is an accident (not if).