'Dude, Can I Borrow Your Car?' Is Your Friend Covered?
One Saturday afternoon your friend calls you up and asks: "Dude, can I borrow your car for a few hours today? Mine's in the shop." You don't think much about it and hand over your keys. But what do you do if your friend has an accident? Will your insurance cover the damage, or does theirs?
Though policies will vary, the general rule is that anyone living in your house is typically covered when driving your car, unless expressly excluded on the policy. In many cases, everyone in the same household is actually required to be included on the vehicle's insurance policy. For those friends or family members who don't live with you but use your car every once in a while, you can typically loan them your vehicle and not worry that they'll be covered.
Permissive use generally applies in these cases. This means that if you give another driver permission to take your car, they will be covered by your car's insurance coverage. However, it's not that simple if your friend causes damage that exceeds your policy limits. In general, the vehicle owner's policy is primary and pays first in the event of a loss. If your owner's policy does not cover the loss or provide enough insurance to fully cover it, the borrower's policy will apply. For example, assume that your policy has a bodily insurance limit of $250,000 for injuries to one person, and your friend's policy has a limit of $100,000. Your friend borrows your car and has an accident three blocks from your home, and severely injures the driver of the other vehicle. The medical bills alone are $300,000.
Your policy will pay first up to the $250,000 limit, after which your friend's insurance will kick in to pay the rest.
Your insurance will also be primary for damage to the car itself. However, the borrower's insurance can make up for a difference in deductible. Suppose your friend has a $500 collision deductible on his car, and you have a $1,000 deductible. The damage to your vehicle is $6,000, so your insurer will pay $5,000 for the repairs. Your friend's insurance would pay you an additional $500 (your deductible, minus your friend's).
One very important part of all this is that anyone who borrows your car must have your permission in order for the insurance to cover them. The key here is that the insurance company will cover your friend using your car if your friend had a "reasonable belief that he could use the car." So, if you told your friend: "Steve, you can use my car whenever you need to," and Steve did borrow it a few times before, that would mean that Steve had reasonable belief that he could use your car. Permission must come from the vehicle's owner, not from a member of the owner's family. Steve will not have coverage if your son gave him permission to use it.
Before borrowing someone else's car, we advise people to do the following:
• Make certain you have the owner's permission.
• Make certain the owner has insurance.
• Check your own insurance to see if it will cover damages the owner's policy doesn't cover.