Tag Archives: hit-and-run

First Lyft Fatality Shows Inadequacies of California Law

A Lyft passenger was killed over the weekend near Sacramento, an incident that underscores inadequacies in California’s insurance laws. As reported in Forbes, the Lyft driver saw a stalled Kia on Interstate 80 and swerved to the right, hitting a tree. One passenger died. The second passenger and the Lyft driver were injured. An incident like this causes one to ponder the arbitrary rules governing life, death and the arbitrary rules governing uninsured and underinsured motorist coverage (UM/UIM) in California.

For example, the news article asserts that “if the death had been caused by a hit-and-run driver, the accident would be covered under Lyft’s $1 million uninsured/underinsured motorist policy.”

Not so.

Lyft does not disclose on its web site the provisions of its UM/UIM coverage, so let’s assume it tracks California Ins. Code sec. 11580.2 governing UM/UIM coverage. Subsection (b)(1) requires “physical contact” with the UM/UIM vehicle. If the Lyft driver hit a tree rather than the car, there is no physical contact with the UM/UIM vehicle. The nimble driver who avoids the pile-up but comes to grief on a tree receives no UM/UIM coverage. Neither do the passengers.  It makes no difference whether a convention of 20 bishops saw the hit-and-run vehicle, or even if the accident were recorded on video.

Many jurisdictions (about half) find this restriction unnecessary, so why should California leave the passengers and driver unprotected?

Assume the hit-and-run driver is discovered and the driver carries $1 million in liability coverage (highly improbable). The pile-up included a number of cars, plus a big rig, and caused numerous injuries. By the time this $1 million is spread around, there may only be leftovers for the occupants of the Lyft car. Because the coverage is inadequate to compensate their injuries, they can, then, call on Lyft’s $1 million UM/UIM coverage, right?.

Not so.

UM/UIM coverage is triggered only when the underinsured party’s limits are “less than the uninsured motorist limits carried on the motor vehicle of the injured person [the Lyft car in this case].” Subsection (p)(2). It makes no difference that the responsible party is grossly underinsured with respect to the damages.

Again, this is a restriction many states (e.g., Arkansas) find unnecessary.

Now assume the responsible driver has a $50,000 limit, and a gravely injured Lyft passenger accepts $49,500 in settlement with the underinsured driver. Now the passenger may look to Lyft’s $1 million UM/UIM policy for compensation, right?.

Not so.

By failing to collect the remaining $500, the passenger has forfeited any claim to the $1 million UM/UIM coverage. Subsection (p)(3) provides that UIM coverage does not apply “until the limits of bodily injury liability  policies applicable to all insured motor vehicles causing the injury have been exhausted by payments of  judgments or settlement . . . .” Thus, the passenger must go to trial against the intransigent party to collect the remaining $500.

Once again, many states (e.g., Nevada, Idaho) do not follow this restriction.

Once a gravely injured Lyft passenger has collected the $50,000 limit from the responsible party, the passenger may recover any remaining damages up to the $1 million limit of Lyft’s UM/UIM policy, right?

Not so.

California allows the UM/UIM carrier to subtract from its limits any recovery from other parties regardless of the extent of the passenger’s injuries, according to Subsection (p)(4)(A).

Yes, once again, many states (e.g., Nevada, Utah) do not endorse this setoff rule.

California’s UM/UIM rules fall well below best practices in other states. If Arkansas can have better UM/UIM coverage, why not California? California should follow the lead of other states and scrap these arbitrary restrictions.

Even if California’s rules were tolerable with respect to private automobile insurance, in commercial settings the public is entitled to more protection (otherwise, why must Lyft carry $1 million bodily injury and $1 million UM/UIM coverage when only $15,000/$30,00 is required for private auto, and UM/UIM is optional?) Changes could be accomplished either by legislation or possibly by the California Public Utilities Commission’s specifying the commercial UM/UIM coverage requirements for charter party carriers. After all, if Uber, Lyft and others are to operate in other states, they must purchase UM/UIM policies that do not have these restrictions.

Insurers Rearm To Fight Professional Fraudsters

Many insurers are redesigning their strategies to deliver systems that forestall attempted fraud, adapt to changing fraud techniques, and are applied at all points of interaction between a policyholder and an insurer. This change is driven by the alarming increase in professional fraud networks in the last five years and the realization that an effective fraud strategy can provide a competitive advantage in the currently very difficult market conditions.

A number of technologies have now matured to a level where, when used in combination, they offer insurers highly effective means of detecting and preventing even the most sophisticated fraud schemes. As a result, these technologies—which include predictive analytics, link analysis, text mining, in-memory database, and cloud services—will become significant areas of investment for insurers during the next 12–24 months.

A recent Ovum report, Tackling Insurance Fraud, discusses the reasons behind the increased focus on insurance fraud and explains how a range of technologies can be applied to implement a comprehensive and effective insurance fraud system.

Professional fraudsters use sophisticated schemes—such as staged or induced auto accidents, life insurance owned by strangers, or false hit-and-run claims—to illegally obtain significant sums from insurers. Professional fraud schemes often involve complex networks of criminal players within medical services providers, auto repair centers, hospitals, insurance agents, or even insurance companies. The volume of organized professional fraud is low in comparison with that of opportunist fraud by amateurs, but the sums being claimed illegally by an individual group can amount to many tens of thousands of dollars and, in some cases, millions.

The vast majority of insurers have already invested, to some degree, in fraud technology. Although this investment has delivered benefits, it has tended to take a piecemeal approach. Investment is usually focused only on the claims phase. Technology used today is generally not sufficient to address the growing problem of professional insurance fraud.

The continued fragility of many developed economies means that insurance markets will remain extremely competitive for at least the next 36 months, with only muted premium growth, limited room for rate increases, and investment returns that will remain volatile. So, insurers are urgently seeking ways to significantly and sustainably reduce both administration and claims costs. As claims payments typically account for 80% of an insurer's costs (excluding administration costs), reducing them by decreasing the level of fraudulent payouts can have a significant impact on a carrier’s cost base and margins.

With the Association of British Insurers (ABI) estimating that fraud currently adds approximately £50 to each auto policy, an effective fraud strategy can drive significant competitive advantage in a tough market by allowing insurers to reduce premium levels. An effective fraud strategy can also bring additional service benefits. In particular, simplifying and expediting the processing of legitimate claims increases the likelihood that a policy-holder will renew a policy.

There is no single “silver bullet” technology that can fully address the issue of complex insurance fraud. However, technology areas such as predictive analytics, text mining, link analysis, in-memory databases, and cloud services, together with fraud technologies commonly used today (such as rules-based systems and anomaly detection) can be combined to create highly effective systems that detect even the most sophisticated and complex fraud schemes. These systems are able to detect and adapt even to previously unknown fraud techniques that may be employed by professional fraudsters.

To date, most insurers have focused their fraud strategies on the claims process. While this is a critical point at which to detect potential fraud, the effectiveness of a fraud strategy, particularly in avoiding organized criminal fraud, can be significantly enhanced by using technology across the entire insurance product lifecycle. It is now possible to apply technology in real time, at multiple points at which insurers and policyholders interact. For example, the use of link analysis can stop fraud by identifying applicants with connections to others that have either committed fraud or are suspected of doing so.

Professional fraudsters can be very sophisticated. Insurers need to keep rearming themselves if they are to win the battle and help themselves thrive in a tough market.