Riding in another’s car is something we all have to do sooner or later. You might let a friend drive your car to go pick something up, or you might drive a family member’s car while your is getting fixed. Either way, it generally works out okay. But when an accident occurs, things can get very complicated. One of the big questions is: whose car insurance policy pays for the repairs, the owner’s or the driver’s?
Understand how insurance is handled in such situations and you will save yourself from headaches and financial stress. Although the exact answer depends on state laws, insurance policies, and the specific situation of the accident, there are certain simple rules and common situations that are worth exploring.
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The General Rule: Insurance Follows the Car
In most states and with most policies, however, the insurance on the car is tied to the car, not the driver. That would be that if you’re driving someone’s car with permission and you’re involved in an accident, the owner’s automobile coverage is the first coverage.
This is sensible from the point of view of insurance because what is being insured is the vehicle, not who happens to be driving it. If damages do exceed the limits on the owner’s policy, then secondary coverage can be obtained from the borrower’s own insurance.
What Is Permissive Use?
The key concept in such situations is known as “permissive use.” What this means is that the owner of the automobile granted either express or implied consent for the borrower to drive the car. Permissive use is part of most standard policies.
For example, let’s say your neighbor has given you permission to use his vehicle to run out and pick up groceries and you rear-end another driver. The neighbor’s insurance would be primary payment for damages. If the claim exceeds their policy limits, your insurance might provide backup protection, provided that you maintain a policy which offers it.
Exceptions to the Rule
Despite the fact that the “insurance follows the car” practice is prevailing, there are considerable exceptions, which can reverse the situation:
Exclusions in the Policy
Some drivers are excluded from some insurance policies. For example, if an owner excludes a risky member of the family from the policy by name, the latter is not insured even if he or she borrows the car with permission.
Unauthorized Use
If an individual borrows a vehicle without permission, the owner’s insurance typically will not pay out for them. The borrower’s insurance may be on the hook, or no insurance at all, and the driver becomes responsible personally.
Commercial or Business Use
If a car is borrowed to drive for business purposes, such as deliveries or driving for a rideshare company, private auto insurance may not suffice. The driver may need commercial insurance, and driving the vehicle without it can result in denied claims.
Non-Permissive Accidents by Household Members
In some states, if a family member takes the car without express permission to do so, the situation becomes more complex. Policies assume household members have implied access, but coverage varies among insurers.
How Insurance Priorities Work
In attempting to make better sense of how coverage works, consider the typical order of responsibility after an accident with a borrowed vehicle:
Owner’s Insurance
The owner’s policy usually comes first. It covers damage to property and injury to the body to the policy limits.
Borrower’s Insurance
If the damages exceed the owner’s limits, the borrower’s insurance can be used as secondary coverage. Not all policies cover this way, so drivers should know what is in their own coverage.
Out-of-Pocket Costs
If both policies are exhausted or there are damages not covered, the at-fault driver may have to pay the rest himself. These can be medical fees, damages on cars, or even court judgments.
Real-Life Example
John lends his car for the weekend to his friend Sarah. Sarah has an accident and causes $50,000 in property damage and medical bills. John’s policy limits liability to $30,000. As insurance comes with the car, the initial $30,000 is covered by John’s policy.
The remaining $20,000 can then be covered by Sarah’s insurance, provided her policy covers liability on non-owned cars. In case Sarah is not insured, she might need to pay the balance herself.
It is obvious from this example how much it pays to know what the risks are for both the owner and the borrower in the event of lending or borrowing a car.
What about Collision and Comprehensive Coverage?
Liability protects other people from harm that you do to them, but what about harm to the borrowed car itself? That is where collision coverage comes in. The owner’s policy usually covers physical damage to the vehicle, but policy deductibles and policy limits still apply.
If the borrower has collision coverage on their own policy, it will not necessarily transfer to the borrowed car unless you state so. Comprehensive coverage, also against theft, vandalism, or natural disasters, also typically follows the car owner’s policy.
Steps to Protect Yourself
Lending your car or borrowing someone else’s, take the following steps to cut back on your risks:
- Understand the Insurance Information: Before lending or borrowing, find out what is covered on the vehicle and if the borrower has their own policy.
- Steer Away from High-Risk Scenarios: Never lend your vehicle to a driver with a bad record or for commercial or rideshare use unless appropriate coverage is available.
- Check State Laws: Laws governing insurance vary greatly by state. Some states follow “insurance follows the car” statutes closely, while others will have more onus on the driver.
- Understand Your Own Policy: Read your own policy to see if your policy covers cars you do not own. This is money-saving information.
Accidents involving borrowed cars can lead to complex insurance situations. As a rule, the owner’s policy will be the primary protection, and the borrower’s policy can serve as secondary protection if needed. Exceptions such as policy exclusions, drive other car exclusions, or commercial use can shift responsibility.
If you lend and borrow cars on a regular basis, it is advisable to speak to your insurance agent regarding how your policy works. Taking the initiative helps ensure that you and your family members are covered in case something unexpected occurs.
