California lawsuit accuses insurer of charging but not covering ride-sharing customers

Every day, millions of people hop into a Lyft, Uber, or other rideshare and trust that insurance will cover them if an accident occurs.

Almost every U.S. state requires these “transportation network companies” (TNCs) to carry liability coverage for drivers and passengers.

But a new lawsuit in California seeking class-action status accuses Allstate and a subsidiary of shortchanging millions of Lyft riders by charging them for robust, state-mandated insurance but instead delivering a watered-down policy that illegally avoids paying claims.

The lawsuit calls the tactic a bait and switch that could leave Lyft riders with less coverage than they paid for, exposing them to higher financial risks in the event of an accident.

“Defendants engineered an unlawful … product that systematically violates California law,” reads the complaint, filed in federal court in the Northern District of California. “[The] defendants’ policy contains illegal provisions that render … coverage secondary, not primary, and that unlawfully excludes entire categories of damages, such as all medical expenses.”

The suit contends Allstate devised the tactic to artificially lower premiums — since it wouldn’t have to pay claims — that gave it a competitive advantage to win the state Lyft contract.

Attempts to reach the insurer for comment were unsuccessful.

What’s required in California?

California law mandates primary $1 million uninsured and underinsured motorist (UM/UIM) coverage for rideshare injuries, but the lawsuit alleges Allstate and North Light manipulated policies to bypass this requirement, putting both riders and drivers at risk.

The complaint alleges that Allstate and North Light won Lyft’s statewide insurance contract by quietly rewriting these rules. Instead of providing primary coverage, North Light allegedly rigged its policy to treat UM/UIM coverage as secondary — paying only after personal auto insurance pays.

And it excluded all economic damages (such as medical bills and lost wages) if the claimant is eligible for Lyft’s occupational accident insurance. Moreover, it reduces payouts whenever any other insurance might exist — even if that insurance doesn’t actually pay.

“This unlawful scheme was implemented despite the fact that California’s own expert regulators … had already completed a formal, data-driven study at the end of 2017, confirming that UM/UIM coverage is an ‘essential component’ of TNC insurance precisely because it covers the most severe accidents,” says the complaint. “More alarmingly, the regulators’ data revealed that, even under the then-existing legal framework, the TNC insurance system was already failing to compensate victims of uninsured or underinsured motorists for nearly a quarter of their total financial losses.”

Instead of heeding the regulatory warning about the vulnerability of insurance coverage, the lawsuit says, Allstate chose to exacerbate the crisis by issuing and charging for a legally deficient insurance product “nefariously designed to widen this already significant coverage gap.”

Also concerning is that North Light operates as a surplus lines insurer, meaning it sits outside California’s regular insurance regulatory framework and doesn’t participate in the California Insurance Guarantee Association (CIGA). The complaint says consumers would have no backup if North Light were to become insolvent.

How much an alleged scheme like this could go on in other states is unclear. California isn’t alone in regulating TNC insurance — but its rules are among the strongest, most protective, and least flexible. It has the highest UM/UIM limits in the nation, a broad primary coverage mandate, and detailed statutory language regulating TNC policies.

It’s one of the few states that prohibit TNC insurers from waiting to deny a claim until a personal auto policy is issued and mandate immediate coverage for passengers.

In most states, the TNC policy is primary only during specific ride periods, like when the passenger’s ride has begun. California explicitly overrides the general insurance priority rules and says the TNC policy shall be primary from the moment a driver accepts a ride until the ride ends.

The plaintiffs in the federal lawsuit want a declaration that Allstate’s and North Light’s policies violate California law, restitution of premiums paid, and unspecified compensatory and punitive damages.

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