Accident with borrowed car -- whose insurance will apply to satisfy legal requirements?

Question

Assume my friend and I are both licensed and have insurance for our own cars, but we're (obviously) not listed under each others' insurance plans.

Let's say one of us borrows the other one's car (with permission) and has an accident.

Whose coverage is responsible at that point to satisfy the legally mandated insurance coverage? I am trying to figure out whether I would have all the insurance that I would be required to have if I borrowed another driver's car instead of using my own, and if so, who would be providing it. I assume that's only coverage against damage to others (which should go under liability insurance?) but if I'm wrong please correct me.

1. Is the lender's insurance supposed to cover it?
   If so, wouldn't this not make sense? Insurance companies look at your driving history (& risk) when they offer you a plan, and if the borrower has a poor history, you've increased the company's risk without their knowledge, right? It would seem to open insurance rates to abuse.

2. Is the borrower's insurance supposed to cover it?
   If so, wouldn't this not make sense? Insurance companies charge you differently based on what and how many vehicles you want covered, so wouldn't borrowing someone's Lamborghini suddenly open your insurance company to a massive risk without their knowledge again?

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My guess would be that only my own insurance should matter for this regardless of what car I use, but I don't know how insurance companies do their risk modeling.

If they think people might be riskier with different cars (e.g. maybe I'm riskier with stick-shift than with automatic transmission, I don't know...) then I could see this not automatically being the case, since suddenly I have a higher chance of having an accident and harming someone else, and they might demand more to protect against that. Or maybe the other driver's insurance comes into play too, maybe because, who knows, insurance companies might think risky people are more likely to lend to risky people.

Answer 1

Let's say one of us borrows the other one's car (with permission) and has an accident.

Whose coverage is responsible at that point to satisfy the legally mandated insurance coverage?

I assume that's only coverage against damage to others (which should go under liability insurance?) but if I'm wrong please correct me.

There are different types of insurance that may be required:

• liability insurance - pays damage to others (usually including your own passengers) which you are responsible for. This is legally required almost everywhere (both in the USA, where this depends on the state, and elsewhere). Rules vary on the required minimum amount, and the exact coverage (e.g. whether lost wages are covered in case of injury).
• uninsured motorist coverage - pays damages you or others suffered, which are the responsibility of another driver who is not insured. This is mandatory in some states of the USA. In some other countries, these damages are covered by a public insurance or trust (such as the Verkehrsopferhilfe in Germany).
• personal injury protection - pays your own medical costs, no matter who is at fault. Required in some states of the USA.

Is the lender's insurance supposed to cover it?

This depends on the insurance policy, but in almost all cases the policy is for the vehicle (and often has to be, under the laws requiring insurance). So if yes, if you lend your car to someone else, your insurance will cover them. Note, however, that some insurance policies restrict your right to lend your car - read the fine print!

There is one situation where your own policy may be relevant: If the damages exceed the limit of the vehicle's insurance policy, your own policy may pay the rest - again, this will depend on the policy.

If so, wouldn't this not make sense? Insurance companies look at your driving history (& risk) when they offer you a plan, and if the borrower has a poor history, you've increased the company's risk without their knowledge, right? It would seem to open insurance rates to abuse.

Yes, exactly. That is why many (if not most) insurance policies place limits on lending your car. You may only be allowed to lend it to people over 21 years of age, or only to people who you have registered as car users with the insurance company.

Is the borrower's insurance supposed to cover it? If so, wouldn't this not make sense? Insurance companies charge you differently based on what and how many vehicles you want covered, so wouldn't borrowing someone's Lamborghini suddenly open your insurance company to a massive risk without their knowledge again?

No, the borrower's insurance does not usually apply.

Making the borrower's insurance apply would be problematic because the risk is based on the vehicle (type), too.

Also, the borrower may not have insurance (e.g. may not own a car). In particular, enforcing the mandatory liability insurance is easier in practice if it is per vehicle, because you can check the insurance at vehicle registration (which practically all countries already require). If the liability insurance were per driver, it would be difficult to prevent a person w/o insurance to borrow a car (as in your example).

Finally, sometimes after an accident there is a dispute about who was driving the car (especially with hit-and-run accidents), but there is usually clear evidence (collision damage) what vehicle was involved. If insurance applies to the vehicle, a dispute over who was driving will not interfere with the victim's restitution._{Thanks to supercat for pointing this out}.