Pub. 4 2015 Issue 5

July 2015 11 l e a d i n g a d v o c a t e f o r t h e b a n k i n g i n d u s t r y i n k a n s a s N EEDLESS TO SAY, THE “HERE TODAY, gone tomorrow” attitude of one Transportation Network Company in Kansas did not deter the state legislature from placing some requirements for the safe operation of all TNC’s in the form of substitute for SB 101, which was recently signed into law. Of great interest to lenders who finance motor vehicles, is the section which requires drivers, if the vehicle being used is subject to a lien and the lienholder requires comprehensive and collision insurance in its agreement, to ensure the driver has comprehensive and collision insurance that covers all phases of the TNC engagement. This includes the notorious “Phase I” where a driver turns the TNC app on, and is trolling for a fare. This provision does not go into effect until January 1, 2016. There is also a requirement in the bill that the TNC disclose prominently, with a separate acknowledgement of acceptance for the driver, that if the lienholder requires comprehensive and collision insurance on the vehicle, using the vehicle for TNC services without such insurance may violate the obligation to the lienholder under Kansas law. The bill also provides that if a TNC’s insurer makes a payment for a claim covered under comprehensive or collision coverage, the TNC shall cause its insurer to issue the payment directly to the business repairing the vehicle or jointly to the owner and the primary lienholder on the vehicle. Practically, this means that until January 1, 2016, there is no state law requiring a driver, if he or she decides to drive a vehicle subject to a lien, to obtain additional comp and collision coverage during the time the vehicle is used for TNC purposes. On the other hand, if a lender’s loan agreement requires the vehicle to be covered by comp and collision during the term of the loan, the borrower is in violation of the loan agreement should he or she begin using the vehicle for TNC purposes, as the insurance industry has stated publicly that private insurance will not cover this commercial activity. As always, knowledge is key in protecting the collateral. First, a check of the bank’s vehicle loan agreement to be sure that there is a clause which requires comp and collision insurance during the term of the loan. Second, a question during the loan application process about whether the borrower intends to use the vehicle for TNC purposes. If the answer is, “yes” or “maybe”, inform the borrower about the need for additional insurance for this activity. Third, for those vehicle loans that have already been made, consider what action should be taken if you learn the vehicle is being used for TNC purposes. Informing the borrower of the need for additional insurance and a grace period to obtain it might be in order. There is some question whether a Kansas lender could call the loan based solely on the failure to maintain comp and collision insurance due to Kansas case law. Please consult your attorney before taking this action. After January 1st rolls around, TNC drivers should be much more aware of the need for additional insurance on their vehicles with liens, but maintaining procedures to arm borrowers with this knowledge would continue to be a good practice. ENSURING TNC DRIVERS ARE INSURED By Kathy Taylor, SVP, General Counsel