Check Before You Wreck

A business engaged in a personal vehicle sharing program rents vehicles owned by private parties to customers for short periods of time. The vehicle owner receives a fee, and the customers who rent the vehicles usually pay fees far in excess of what typical rental car companies charge. The vehicles are usually very high-end brands such as Ferraris and Bentleys, which the owners do not drive very often. Usually, all parties involved are pleased with the program. 

However, when an accident occurs while a renter is driving someone else’s Lamborghini, issues of liability and insurance coverage arise. Such programs are different from Uber or Lyft, where the owner of a vehicle drives it as part of a transportation service. It also differs from normal auto rental companies that rent vehicles they own.

Since the vehicle owner is liable for injuries and property damage caused by a person driving the owner’s vehicle with the owner’s permission, the question arises as to what auto liability insurance should apply to defend and indemnify the vehicle owner and the driver of the vehicle. Not surprisingly, there is no agreement on how to deal with this issue. 

For instance, New York insurance regulators take the position that the auto insurance policy issued to the vehicle owner is primary over any other insurance provided by the business engaged in a personal vehicle sharing program. However, California, Washington, and Oregon have enacted statutes that require the business engaged in such a program to provide auto liability insurance that covers the vehicle owner and driver during the rental period instead of the vehicle owner’s auto insurance. In many states, auto policies do not allow a commercial use of a personal auto. California appears to have taken the lead in this area by enacting changes to its insurance code.

“Personal vehicle sharing program” exclusions in a personal auto policy are authorized by Cal. Ins. Code sec. 11580.24. This statute was enacted in 2011 and governs the liability and insurance coverage issues that arise under such a program. As relevant to such claims, this statute provides that a personal auto policy cannot be classified as insuring a commercial vehicle for hire if the insured auto is involved in a personal vehicle sharing program. The annual revenue received by the vehicle’s owner must be less than the owner’s annual expenses for the auto, and the vehicle owner cannot knowingly use it for commercial purposes.

This statute defines a “personal vehicle sharing program” as follows: (1) “‘Personal vehicle sharing’ means the use of private passenger motor vehicles by persons other than the vehicle’s owner, in connection with a personal vehicle sharing program,” and (2) “‘Personal vehicle sharing program’ means a legal entity qualified to do business in the state of California engaged in the business of facilitating the sharing of private passenger vehicles for noncommercial use by individuals within the state.”

Regarding the auto liability insurance coverage that the business engaging in a personal vehicle sharing program must provide, the statute requires insurance coverage for the vehicle and operator of the vehicle that are equal to or greater than the insurance coverage maintained by the vehicle owner, not less than three times the minimum insurance requirements for private passenger vehicles. 

The statute makes the business engaged in such a program liable for damage or injury during the use of the auto, as follows:

Notwithstanding any other provision of law or any provision in a private passenger motor vehicle owner’s automobile insurance policy, in the event of a loss or injury that occurs during any time period when the vehicle is under the operation and control of a person other than the vehicle owner, pursuant to a personal vehicle sharing program, or otherwise under the control of a personal vehicle sharing program, the personal vehicle sharing program shall assume all liability of the owner and shall be considered the owner of the vehicle for all purposes. Nothing in this section limits the liability of the personal vehicle sharing program for its acts or omissions that result in injury to any persons as a result of the use or operation of a personal vehicle sharing program.

The statute requires the business engaged in such a program to defend and indemnify the owner of the auto:

In the event that the owner of the vehicle is named as a defendant in a civil action for a loss or injury that occurs during any time period when the vehicle is under the operation and control of a person, other than the vehicle’s owner, pursuant to a personal vehicle sharing program, or otherwise under the control of a personal vehicle sharing program, the personal vehicle sharing program shall have the duty to defend and indemnify the vehicle’s owner, subject to [other] provisions.

The auto insurer affording coverage to the owner of the auto is authorized to deny coverage with respect to a loss occurring during such a program:

Notwithstanding any other provision of law or any provision in a vehicle owner’s automobile liability insurance policy, while a private passenger motor vehicle is used by a person other than its owner pursuant to personal vehicle sharing facilitated through a personal vehicle sharing program, all of the following shall apply: (1) The insurer of that vehicle on file with the Department of Motor Vehicles may exclude any and all coverage afforded pursuant to its policy.

This relatively new statute is one of the few exceptions to the requirement that a personal auto policy provide coverage to a permissive user of a covered auto. The statute also transfers the risk of damage to a covered auto or bodily injury to third persons to the business engaged in the vehicle sharing program. 

In response to the enactment of this statute, most California auto insurers now have exclusions authorized by this law. The key to responding to claims arising out of such a program is to tender the defense and indemnity of a vehicle owner to the business engaged in such a program and its insurer.