Online rideshare companies like Uber may soon have to cover their drivers’ private vehicles with $1 million auto policies even before drivers accept a fare, in what would be the most stringent standard in the nation if adopted.

Lawmakers supporting the measure say it would close dangerous lapses in coverage for the drivers, while an Uber representative said Monday that such a proposal could seriously jeopardize the fast-growing rideshare industry.

“This type of legislation affects whether Uber will be able to operate in the state, and certainly impacts whether we would be able to expand to other cities in the state,” Uber Midwest General Manager Michael White said shortly after the Senate Commerce Committee passed the measure. “We’ve never operated under legislation as onerous as the legislation in Minnesota. We would have to seriously look at whether this is a model under which we could operate.”

Minneapolis, St. Paul, and six other cities and states across the country, have already passed their own ordinances mandating $1 million in commercial insurance policies for drivers of the companies, who connect fares exclusively through smartphone apps. But that coverage does not kick in until the driver accepts a ride request through the app.

A bill sponsored by Sen. Kari Dziedzic, DFL-Minneapolis, goes a step further, requiring that commercial coverage begin as soon as a rideshare driver turns on the app, indicating that he or she is willing to pick up a fare. When the app is off, drivers revert to their personal policies, which have a minimum coverage of $30,000.

The legislation is a response to concerns from 26 state commerce commissioners about insurance coverage gaps. The concerns stem from the 2013 death of 6-year-old Sophia Liu of San Francisco, who was struck and killed in a crosswalk by an Uber driver who was awaiting a fare request. That incident led to a lawsuit against Uber over insurance liability. As a result, California became the first state to pass a measure requiring that Uber supply its drivers with $50,000 in death and injury liability coverage, $100,000 in total coverage and $30,000 in property damage, along with an additional $200,000 in excess liability coverage. Minnesota’s legislation, which advocates say is modeled after that, goes significantly farther.

“What we cannot have in Minnesota is a situation similar to what we saw in California,” said Commerce Commissioner Mike Rothman, who testified on behalf of the bill. Senate Commerce Committee Chairman James Metzen, DFL-South St. Paul, is a cosponsor of the bill.

The proposed policy requirement is more stringent for than for taxicab companies, who in Minneapolis must offer $300,000 in coverage. The Metropolitan Airports Commission requires cabs to carry $600,000 in coverage. Cap O’Rourke, a lobbyist for taxicab companies, told the committee that the larger cab companies he represents voluntarily take on insurance policies averaged at $2 million.

Open for business?

White, of Uber, was reluctant to share specific numbers for proprietary reasons, but said hundreds of thousands of Minnesotans use Uber, and the company employs thousands of drivers. He said it is unreasonable for the company to provide coverage for drivers who may have the app on, but aren’t actively picking up or transporting a passenger.

“They may be sitting in a coffee shop, just running errands, they may be driving home from work or any other activity,” White said. “During that time there hasn’t been any commitment to providing transportation to somebody. They’re not being paid for that time and this is not, in our minds, commercial activity.”

Sen. Paul Gazelka, R-Nisswa, who works as an insurance agent, said it’s paramount that Minnesota does not repeat incidents like what happened to Liu, and the ongoing insurance battle behind it.

“Your model is still going to be great, we’re still going to love it, but we have to make sure someone is responsible for those gaps,” Gazelka said.

Sen. Ron Latz, DFL-St. Louis Park, said it’s difficult for him to embrace $1 million coverage when the app is simply turned on, “when they’re really engaging in no different conduct than you or me driving from work today.”

“I’ve got my phone on when I’m driving in the car. It doesn’t mean anything, I’m not doing anything in connection with the phone, but unless I were to get a call that said, ‘You’ve got to come pick me up,’ I’ve changed modes,” said Latz, who voted against the measure. “But until I get to that point I’m still having trouble determining why there should be $1 million coverage just in that first period.”

Sen. Vicki Jensen, DFL-Owatonna, countered that insurance is about determining exposure to risk, and when an entity decides to be open for business, whether part time or not, insurance is covering that exposure to risk.

“If you turn on that app your insurance company doesn’t know if you’re doing regular stuff or you’re going around the airport checking traffic or you’re going around a mall. Does that increase the level of exposure and the level of risk?” asked Jensen, an insurance agent. “It should be that they said, by clicking that app, ‘I’m open for business,’ just like when you turn on the ‘Open’ sign on your storefront, somebody might not come in all day, but then you might have a thousand people.”

The bill heads next to the Senate Transportation Committee, and is scheduled for a hearing Tuesday in the House Commerce Committee.