WHAT IF YOUR FRIEND CRASHES YOUR CAR?
How many times have you heard “hey man, can I borrow your car real quick?” Since you are a nice guy you probably allowed your friend to take your wheels to run errands or do whatever your buddy needs to do. But what happens if they cause a crash while driving your car? Whose insurance will pay for the damage caused? The answer depends greatly on the state in which you live and the specific language of your insurance policy as well as the policy language of your friends insurance policy (if applicable). This article explores just a few of the issues that surround this situation.
VEHICLE 1ST PERSON 2ND
The first thing that is important to understand is that insurance typically follows the vehicle first and the person driving it second. So if you loan your car to your buddy and he hits someone, his insurance is likely NOT on the hook for his actions, instead your insurance will have to step up. Now that doesn’t really seem fair does it? You did nothing wrong, but now you suffer increases in your rates for the next 5 years all because you were trying to be a good friend. But that is how it works so you need to be careful with whom you allow to use your car.
Is it important to note that your insurance might not be the only set of available coverage in this situation! Many states and many insurance policies allow for the driver’s insurance to come in as a backup or secondary insurance when the owner of the vehicle’s insurance policy is not enough to compensate for the harm done. For example, if your friend hit someone and caused them injury in the amount of $40,000, but your car was only insured for $25,000, then (assuming your friend had insurance) the injured party could pursue your friends insurance to pay the remaining balance (assuming that there is enough insurance between both policies to cover all of the harm).
Please Note: It is important that you look at and understand your insurance policy. Some insurance policies will exclude coverage for “permissive users” which essentially means that if you allow someone to use your vehicle they will not be covered under your insurance policy. These exclusions should be avoided if possible. Speak to your insurance agent and ask if your policy has “permissive user” exclusion.
WHAT IF THERE IS NOT ENOUGH INSURANCE MONEY?
The situation may arise where the primary coverage (the owner of the vehicle’s policy) and the secondary coverage (the driver’s insurance policy) combined are still not enough to compensate for the harm that has been done to the injured person. In this instance, the driver (your friend) who committed the negligent act will be personally responsible for any excess harm done. For example, you loan your car to your buddy and he hits a pedestrian on the street causing that person $100,000 in damages. Your insurance policy is only a $25,000 policy and your buddy’s policy is only $25,000 so there is $50,000 left that has not been paid. Your friend will be responsible to pay that additional $50,000 out of pocket. You, the person who loaned out the car will typically not have personal responsibility over and above your insurance policy unless you fall under certain exceptions that are unique to each state.
EXCEPTIONS WHERE VEHICLE OWNER IS PERSONALLY LIABLE
Each state is different but many states will hold the vehicle owner personally responsible if the vehicle was loaned out to someone that they knew was intoxicated or on drugs at the time of the crash. Also, the vehicle owner may have personal responsibility if the vehicle is given to a child in their own home (16 year old son).
Regardless of the situation it is important that you understand your insurance policy and know what is allowed and what is not. Also, you need to be cautions with whom you loan your vehicle. Good News: if your vehicle does end up causing harm to someone (and there is no personal exposure from the exceptions listed above), your insurance company has a duty to defend you and you do not have to hire an attorney or pay the costs of an attorney. That is precisely what you pay insurance premiums for every month, to protect you.