By on October 17, 2013

Car2Go in Seattle

In cities where owning a car can be a pain (New York, Boston, Seattle), drivers are opting instead to share vehicles with other drivers, with companies such as ZipCar, Car2Go, RelayRides et al offering their services to help the public get around. All anyone needs beyond the basics is a subscription to the car-sharing service, a reservation, and a drop-off location when they are finished with their errands. Even big-name rental car companies like Enterprise and Hertz are jumping into the new business model for a test drive, Avis having gone the farthest by purchasing ZipCar in January of 2013.

However, the insurance offered by these peer-to-peer rental companies might not all that it’s cracked up to be, with severe consequences should anything remotely catastrophic occur.

Forbes illustrates the problem with the liability insurance offered to subscribers of car-sharing services: An accident that left one driver dead and four others injured in Boston back in early 2012 led to a lawsuit between the four survivors against the estate of the deceased driver, the car’s owner, and RelayRides; the case was eventually settled out of court for an undisclosed amount. With the exceptions of California, Oregon and Washington, automotive insurance polices have not caught up with this new industry, leading to most states offering only the barest of liability coverage, and to potential disasters such as the example given in the article.

Should you find yourself wanting to take part in peer-to-peer car sharing, in particular the kind involving renting out your own vehicle instead of one from an established car-sharing fleet (RelayRides is of the former, for example), Forbes recommends you take out supplemental coverage of $100,000 each for bodily injury and property damage, and $300,000 per accident, with high net-worth individuals taking out more to protect themselves and their assets. In fact, no matter what happens, you may end up needing to bulk up the inadequate coverage no matter the situation. Either that, or stick to the maxim “neither a lender nor a borrower be” when it comes to car sharing.

Photo credit: car2go/Facebook

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11 Comments on “Peer-to-peer car sharing services found lacking in substantial liability coverage...”

  • avatar
    Felix Hoenikker

    I carry a $1,000,000 umbrella policy that sits on top of my homeowner’s and auto policies. It’s quite cheap coverage for catastrophies.

  • avatar

    $1M “umbrella” policies are so inexpensive, anyone with pretty much any assets at all that are not otherwise protected should get one. (And they usually cover both homeowners and auto.)

    However, if your only asset is a little equity your house, car, personal possessions and retirement plan, it may not be worth it. A plaintiff’s lawyer is unlikely to go through all the paperwork to bankrupt you when the recovery will only be a few thousand, at best. (retirement plans such as IRAs and 401k’s) are protected in such a bankruptcy); they’ll usually take the max payment on whatever liability coverage you have and go home.

  • avatar

    Ditto on the $1 million (or more) umbrella policy.

    Also, some auto policies (in some states) now have a “permissive driver step down” clause, which reduces liability limits for anyone you let borrow your car. You’re still covered for the full amount, in the event that you are held liable for a wreck that they caused (negligent entrustment, etc.), but they’re only covered for the mandatory minimum limit under your policy. If they have their own policy on another vehicle, it should provide them additional coverage in that situation. Something to think about if you don’t own a vehicle but borrow someone else’s–if available, you may want to buy a non-owner auto policy for additional liability coverage.

  • avatar

    Zip Car isn’t peer to peer (they are backing a peer-to-peer company however). I think the author may be confusing two entirely different things.

  • avatar

    “Forbes recommends you take out supplemental coverage of $100,000 each for bodily injury and property damage, and $300,000 per accident. . .”

    This is actually really sh*tty coverage. You’ll blow through $100K on a broken arm.

  • avatar
    DC Bruce

    I think this was a rather poor re-write of the linked Forbes article. There are two separate businesses, with distinct insurance issues. One is services like Car2Go and ZipCar, in which the car you drive is owned by the company (like a rental car). Either you have to have liability insurance to cover your personal liability (which you would have if you own a car yourself), or the company has to have liability insurance covering your liability. The “regulators” who complain about the coverage limits being too low for ZipCar should raise the limits — for everyone. In fact, they are too low and could very well leave seriously injured not-at-fault drivers not fully compensated for their medical expenses.

    The so-called peer-to-peer car sharing services, where you agree to rent out the car you own to someone else is an entirely different situation. As the owner of the car, and a potentially responsible party, you need coverage for your self; and someone needs to cover the driver’s liability. I would imagine that any cheap umbrella policy may contain an exclusion for commercial activity . . . or, once insurance companies start paying claims arising out of peer-to-peer cars being in accidents, there will be an exclusion . . . or an extra-cost add-on.

    It may seem overly moralistic, but it seems to me that driving around without the financial ability to fully compensate someone that you injure through your negligence is just wrong. As anyone who’s had any kind of major medical event requiring hospitalization knows, those bills run up very quickly . . . and not everyone has “sick leave” from work. So, please, hold the rants about the “blood-sucking, ambulance-chasing lawyers.” We all make mistakes . . . and sometimes those mistakes can cause a lot of damage. We should be willing to help out those whom we injure.

  • avatar

    It really depends on how much in assets you have to protect. The typical young urban single or couple who is using Zipcar is likely to be effectively judgment proof – they don’t have enough assets for a lawyer to bother going after them. For the most part, your primary home and retirement accounts are protected. This is really a decision that needs to be made with careful consideration though.

    I’m getting into comfortable middle age and I can’t be bothered with an umbrella liability policy – I don’t have enough attachable assets. If the lawyer wants my car collection, well, they can have them. I do carry $300K in liability on my car insurance though. I won’t lose any sleep over accidents resulting in more than that – that is what un/under-insured coverage is for.

    • 0 avatar

      Most insurers want you to max out your auto liability insurance before you take out an umbrella policy. But if you have assets, you can’t afford to be without one. Plaintiffs’ lawyers will find and take your stuff — all of it — if you are underinsured, and even max auto coverage isn’t enough if you hit someone who is wealthy — or someone whose parents are. It is shocking how quickly one not-even-bad accident can eat up the standard 100/300/50 policy that lenders require.

  • avatar

    There is not a chance in hell that I would let a stranger use any of my cars.

    • 0 avatar

      Yeah gotta agree. I get weirded out when the mechanic takes my car for service at the stealership (I know, I know, I have a real mechanic back home but northern Virginia inside the beltway sucks for finding affordable AND competent mechanics). I intentionally search for self-park garages, cause I don

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