Does your auto insurance cover car sharing?

The answer may surprise you.

Every weekday, millions of Americans carpool to work or school to save money, preserve their vehicles and help the environment by reducing the number of cars on the road. The 2000 U.S. Census found that 15.6 million, or 12.2 percent, of all commuters carpool to work.

In the past decade, eco-minded motorists have taken carpooling one step further and established grassroots “peer-to-peer” car-sharing programs that enable them to share their vehicle with total strangers or forgo car ownership altogether and simply borrow a vehicle when necessary. Although their numbers remain small — 518,520 drivers sharing 7,776 vehicles through 27 programs across the country, says University of California, Berkeley researcher Susan Shaheen — the trend is growing.

“You’re seeing it primarily in college cities because it works very well for a college campus where students just need cars to do errands and not for the full day,” says Pete Moraga, spokesman for the Insurance Information Network of California.

If you drive as a member of a car pool, your auto insurance company has already given you the green light in its standard contract as long as you make no money from it. However, if you use your car as a taxi or livery service to carry people or property for profit, individual coverage is typically excluded.

“If you’re a car pooler, coverage does apply,” says State Farm spokesman Kip Diggs. “If I’m in my vehicle and you’re driving, you would be a permissive user in that case, so coverage would also apply.”

Peer-to-peer car sharing

That green light turns to caution-yellow where peer-to-peer car sharing, or P2P, is concerned. If you’ve already enlisted your car in the P2P cause or are thinking about it, there are a few potential legal potholes to be aware of on this freshly paved road.

P2P car sharing comes in two flavors: for-profit and nonprofit. For-profit programs, such as Zipcar, Getaround and RelayRides, will rent your car during times of your choosing and share the proceeds with you. Nonprofit programs may offer lower rates and other features including car pooling.

There are also a growing number of car-sharing programs offered through commercial car-rental competitors that rent their own vehicles. Some are run by auto manufacturers, such as Car2go from Daimler, and some are run by car rental giants, such as Hertz On Demand from Hertz, WeCar from Enterprise and even U Car Share from U-Haul.

Although business models vary widely, the ride-sharing concept is simple: For a nominal membership fee, you gain access to cars on demand at minimal rental rates of $5 to $15 an hour and $50 to $150 a day. You search online for the ride you want at the location nearest you, and schedule your rental time. Using a card, access code or lock box, you pick up your vehicle and return it at the assigned time and place.

Car-sharing risks

While car sharing has its obvious convenience and benefits to society, it presents several problems for auto insurance companies that could affect your coverage.

  • Livery: If you rent your ride, your personal policy won’t cover it. Many P2P programs understand this problem and provide the necessary commercial auto coverage when your car is being driven by someone else, but it’s best to confirm coverage before turning over your keys.
  • Who’s driving? Your auto policy extends coverage to those driving your car with your permission. Would that coverage also extend to total strangers? If the P2P program doesn’t offer coverage, has that driver’s insurance and driving record been vetted? “If you don’t know that person you allowed to drive your car, that’s risky,” says Mitch Wilson, spokesman at the Ohio Insurance Institute.
  • Increased risk: Premiums for individual coverage are based on personal, not commercial, use of your vehicle. Submitting your car to ride sharing exposes your auto to greater risk from weather, traffic and drivers unfamiliar with the vehicle. “Some insurers view car-sharing services as a higher risk, so they may cancel or not renew a driver’s car insurance policy or increase premiums if a policyholder’s vehicle is involved in an accident while it’s being rented,” says Loretta Worters, vice president of communications at the Insurance Information Institute.
  • Liability: “What if you don’t maintain your car properly, and there is an accident caused by poor maintenance of the auto?” says Moraga. “Does that other person’s policy then cover? Do you have any culpability?”
  • Transition: “What if there’s a dispute about exactly when a fender-bender occurred — was it while the rental company’s insurance covered the car or when your own policy did?” says Worters. Some P2P companies are experimenting with data recorders and phone apps to track time, mileage and who’s behind the wheel, says Moraga.
  • Depreciation: If a car-sharing driver wrecks your car, the P2P company’s insurance may fix it. But are you then stuck with the depreciated value on your personal auto insurance?

This year, California and Oregon passed the nation’s first car-sharing laws to attempt to address these concerns. California’s law requires all ride-sharing companies to provide insurance equal to or greater than the car owner’s coverage. Under California law, participating in a car-sharing program doesn’t constitute commercial use of your vehicle as long as the service provides the insurance and you don’t earn more revenue through the car-sharing service than the monthly costs of operating the vehicle.

“No matter how well the legislature tries to anticipate these issues, there may be some issue that the law doesn’t address that the courts will have to,” Moraga says. “There are going to be some interesting challenges to this. The minute that you have an accident, that’s going to start to test that law.”

What steps should ride-sharing enthusiasts in other states take to make sure they’re covered until their state enacts similar statutes?

Worters suggests being on the safe side. “Consumers who participate in peer-to-peer ride sharing should increase their uninsured/underinsured limits and, if they don’t already have one, purchase a million-dollar umbrella liability policy,” she says.

Moraga suggests a less-expensive safeguard.

“It really would behoove people who are going to become involved in this to know exactly what their policy covers,” he says. “One of the biggest challenges we have in this business is that most people don’t even know what their policy covers.”

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