Division of Insurance Issues Consumer Alert On Ride-Sharing And Car-Sharing Apps

The Division of Insurance has issued a consumer alert for consumers who either let someone else drive their car for a fee (car-sharing) or who use their vehicle to transport another rider for a fee (car-sharing).

The alert results from the proliferation of companies such as Uber, RelayRides, Lyft, FlightCar, and Zimride that provide smartphone app-based services to match individuals who want to earn money by renting their personal autos to other drivers or individuals who want to chauffeur riders in their personal auto for a fee.

The Division’s warning to consumers who use their personal auto for such car-sharing and ride-sharing is clear and unequivocal:

….all insurers in Massachusetts will deny coverage should an incident occur if you use your vehicle to provide rides to strangers for a fee or other economic inducement.

A link to alert is at the bottom of this article.

Alert focuses on coverage risk to consumers engaged in ride-sharing programs.

The division directed its alert to three specific classes of consumers that have a coverage risk under these programs: (1) persons who own a vehicle and make it available for a car-sharing program; (2) persons who may rent a vehicle through a car-sharing program; and (3) persons who drive passengers for a fee.
Some of the points made to consumers in the division’s alert are:

• Most Massachusetts insurers will not consider using your vehicle for a car-sharing service “permissible use,” and are unlikely to cover claims arising from such use.
• An insurance policy is a contractual agreement, and all insurers in Massachusetts will deny coverage should an incident occur if you use your vehicle to provide rides to strangers for a fee or other economic inducement.
• Most insurers in Massachusetts will also exclude coverage when you “rent” your car to another driver through a car-sharing service.
• If you participate in a car-sharing service, your insurance policy may be non-renewed if your vehicle is involved in an accident while being used in this manner.
• Car-sharing companies may offer insurance coverage, but probably with limitations and exclusions.
• If your liability in an accident exceeds a car-sharing company’s coverage limit, you could be liable for the remaining cost of the damages or the medical care required by the injured party or parties.
• If you are renting a “car-sharing” vehicle, you may not be insured for that vehicle unless the car-sharing service provides coverage.
• If you, as the renter, get into an accident, you may have to pay out-of-pocket for injuries or damage to the rented car which result.
• And if the car-sharing service’s insurance coverage limit is lower than the cost of all damages—a situation which could occur if there are multiple passengers who are all badly hurt in an accident—you may be personally liable for those costs as well.

Supreme Judicial Court decision on car-sharing and ride-sharing programs exclusion

Agents or companies advising insureds trying to make money through ride-sharing or car-sharing programs should be familiar with the decision of the Supreme Judicial Court in the case of Lodge v. Bern, 328 Mass. 42 (1951) as well as the Automobile Insurers Bureau’s endorsement on personal vehicle sharing programs.

The standard automobile policy has always contained a provision excluding optional coverages “while the motor vehicle is used as a public or livery conveyance” The present form of this exclusion applies to property damage and all optional coverages and reads the same except that the words “motor vehicle” now reads “your auto.”

In the Lodge case, a person rented a vehicle from precursor of the present car-sharing programs before there were smart phone apps. The company provided a vehicle insured for personal use to a third-party for a fee.

The driver who rented the personal auto through a ‘rental system’ caused an accident that resulted in bodily injury to a third person. The injured person recovered a judgment in excess of the compulsory coverage limit of $5,000. The insurer contested liability for any amount over the $5,000 basic limit based on the ‘public or livery conveyance’ exclusion.

The Supreme Judicial Court found for the insurer and denied recovery of the optional bodily injury limit, leaving the owner and renter of the vehicle personally liable for the judgment in excess of the compulsory limit.

While the ‘public or livery conveyance’ exclusion clearly applies by its terms to any personal auto that is used for fee-based ride-sharing programs, the Lodge case, which is still good law today, extends the exclusion to car-sharing programs as well.

If there were any doubt, however, a recently approved endorsement applicable to the Massachusetts automobile insurance policy states:

We will not pay any claim for injury or property damage under the policy, while your auto is being used in a personal vehicle sharing program. Such programs or the use of your auto by a person other than you or a household member under an agreement and with payment to you. This exclusion does not apply to personal injury protection.

(See also Agency Checklists’ prior article “New Endorsement Makes It Clear: No Coverage For Personal Vehicle Used In Ridesharing Program“)

Anyone advising insureds about their using personal automobiles in car-sharing or ride-sharing programs should focus on the personal lines auto policy’s ‘public or livery conveyance’ exclusion, the Lodge case, and the ‘personal vehicle sharing program’ endorsement. Each of these can exclude optional coverages for personal vehicles involved in accidents while being used in these programs.

Advising insureds about the coverage issues in the division’s alert

The best advice to insureds about insurance coverage for any  arrangement where they loan their personal vehicle to other people for compensation or where they use their personal vehicle transporting passengers for hire may be that the insured should expect that the only coverage available will be what coverage the car-sharing or ride-sharing program they plan to use may provide, if any.

The Division of Insurance consumer alert is here: Consumer Alert – Car-sharing & ride-sharing. Please feel free to download, print out, add to a website or to send the link to insureds.