Car sharing, the newest way to rent a car, is catching on in the U.S., Canada and Europe. But both renters and the car owners they rent from may be taking on risks they don’t fully understand.

At least one fatal accident involving car sharing has already occurred, resulting in litigation over financial responsibility. In February 2012, the 24-year-old driver of a car rented from one of the so-called peer-to-peer rental companies caused an accident in Boston, injuring four other parties. The driver died in the crash.

All four surviving parties sued the estate of the driver who died and caused the crash as well as the car's owner, a former Google systems administrator named Liz Fong-Jones, and RelayRides, the peer-to-peer company which arranged the rental, according to William Doyle Jr., the attorney for Kevan Knecht, one of the injured passengers. After some legal wrangling, the four cases were settled out of court for an undisclosed amount, said Doyle, who is based in Boston.

The dispute over the RelayRides accident in Boston illustrates one big caveat about using car sharing services: Most state insurance laws haven’t yet caught up with this relatively new industry. Insurers and legal experts suggest drivers, and those who lend out their cars to peer-sharing services, should check their insurance coverage before using the services.

Car sharing was pioneered in the U.S. by ZipCar, which created a club that allows participants access to a fleet of vehicles owned by the company for hourly rentals. Another form of car sharing called peer-to-peer rental is used by companies such as RelayRides, Getaround and JustShareIt. Under peer-sharing, car owners put their personal cars up for rent.   

Big players such as Enterprise Holdings Inc. and The Hertz Corp. are getting into the fleet subscription car-sharing business. In January 2013, Avis Car Rental bought ZipCar, which serves more than 20 metro areas and 300 college campuses with 11,000 vehicles and has 760,000 club members. The services are growing in San Francisco and Los Angeles and spreading fast elsewhere. The car-sharing industry is expected to grow to $6 billion globally by 2020, according to the CarSharing Association. 

Insurers and regulators complain that some subscription car-sharing outfits provide renters with only the minimum state requirement for liability insurance, which is often far below the level needed to be completely protected against million-dollar liability verdicts. Liability insurance is the part of an auto policy that pays for bodily injury and property damage to others in an accident. Liability insurance can be as little as $20,000 for all injuries and $10,000 for property damage.

They also say folks who allow their personal vehicles to be rented out using peer-to-peer services may not be adequately covered for their risks, either. By renting out their vehicles to others through RelayRides, Getaround and JustShareIt for as little as $25 to $65 per day car owners can earn $5 to $12 per hour, according to a research report by the University of California at Berkeley.

Only California, Oregon and Washington have revised their insurance laws to cover these types of peer-sharing services, by spelling out where the vehicle owner’s policy ends and the car-sharing services’ commercial policy begins, according to the National Conference of State Legislatures. Insurance in the U.S. is regulated by the states.

In May 2013, San Francisco-based RelayRides was forced to suspend operations in New York after the state Department of Financial Services ordered it to “cease and desist” advertising and alleged violations of insurance law. The department accused the company of offering insurance that wasn’t state approved and could leave New York customers and car owners liable for death, injury, theft or property damage that occurred during the rental. The company had claimed that car owners were covered for up to $1 million liability in an accident. RelayRides Chief Executive Andre Haddad stated the company would work with authorities to address their concerns. Emails and phone calls to the company were not returned. 

 The New York Superintendent of Financial Services, Benjamin M. Lawsky, in May warned consumers using car sharing services that their personal auto policies wouldn’t cover them for liabilities in the state, saying “New Yorkers who rent their own vehicles through RelayRides and other car-sharing programs may be left paying out of their own pockets for damages and injuries stemming from any accidents that occur during the rental period.” 

At the very least, car owners need a commercial auto insurance policy that fully protects them if they choose to rent out their cars to others using a car sharing service, insurance industry officials say. 
            “If you are participating in peer-to-peer sharing you should have a commercial policy because if you are in an accident, from a liability perspective, most likely your insurer will not cover you because you are using it as a commercial venture,” said Loretta Worters, a spokeswoman for the Insurance Information Institute, an industry non-profit organization. Drivers renting from peer-to-peer services also should be concerned, she said.

Some auto insurers are considering revising their policies to address car sharing. Allstate, the country’s second largest auto insurer by premiums, warns policyholders against renting out their cars. “Allstate is watching the rideshare movement and, as the practice gains larger scale, we are considering possible policies and products that may address the insurance implications. That said, our current standard policy excludes coverage for commercial use. If somebody rents their vehicle to another party, their vehicle would not be covered by their auto policy,” said Justin Herndon, an Allstate spokesman, in an emailed statement.

Here are some other tips to consider before you rent from, or agree to rent out your vehicle to, a car-sharing service:

1) Even if the rental company provides the state minimum liability insurance per rental, consumer groups recommend that lenders take a minimum of $100,000 bodily injury and $300,000 per accident and property damage up to $100,000 to be safe. High net-worth individuals should carry higher limits. Consider buying supplemental auto coverage from the rental car company, if available, to bring you up to this level of coverage, which can cost from $7 to $14 per day extra.

(State minimum liability requirements can be as low as $10,000 per injury per person; $20,000 for all injuries and $10,000 for property damage per accident, but that is not enough to protect anyone with substantial personal assets.)

2) For those renting a car who don’t own a car or whose companies don’t offer supplemental coverage, non-owner vehicle liability policies are available from some insurers, though they are not widely promoted. They are recommended for those who rent more than 10 days a year or who borrow vehicles for sporadic use. They do not cover physical damage to vehicles, however.

3) If you have dropped collision and comprehensive coverage from your policy on an older car to save money, you will not be covered for these on any rental vehicle; you need to purchase additional insurance coverage when you rent a car to be covered in the event the car is lost or stolen.

4) Both subscription car sharing companies and peer-to-peer services may impose fees, including towing and storage, ranging from several hundred to several thousands of dollars for damages incurred in accident, so check the fine print of any agreement you sign as a vehicle renter or lender.  

5) Finally, a note to parents of teens and young adults who may avail themselves of car-sharing services: If the child driver is on your policy, inadequate rental coverage may leave you at risk.

The Bottom Line

Car sharing services may seem like a good deal, but liability insurance hasn't kept up with businesses. Make sure you're covered before you rent or lend out your car to peer-to-peer services.


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