Renting a car to a friend

Question

Lets say there is a person who wants to rent his car out to his friend for a month In the United States and In Pennsylvania . He calls up the insurance company and lets them know his friend should be driving the car for a month. He then collects money for rent each month from his friend. He does this for several months. Then the friend gets in a car crash.

Who is held responsible for the damages caused in the crash? or would it depend on the insurance policy? Was it insurance fraud to rent the car out to the friend? or would that also depend on the insurance policy?

If it depends on the insurance policy then please base your answer on what the most standard car insurance policy looks like.

Answer 1

This is tricky. In the UK, your "normal" car insurance covers private usage. That includes driving to work, driving on a private holiday to southern spain, lending your car to a friend who drives it for private use.

Commercial use is not covered (you can get insurance for commercial use which is substantially more expense). That's what an Uber driver would need, for example. If you rent your car to a friend, not lend it for free, and the accident is expensive, your insurance may very well refuse to pay.

It could be insurance fraud if you asked the insurance to pay for the accident, and you didn't tell them truthfully who was driving, and if you told them you didn't tell them that you rented your car out.

Your "friend" may be guilty of driving without insurance, if the insurance doesn't cover him. That would in the UK be very expensive for your friend, and could cost them their driving license. You may be guilty of defrauding your friend who obviously expects to be insured.

On top of everything else, surely you told HMRC (or Inland Revenue, or Finanzamt, depending on where you are) of your income and paid income tax, right? Because if you don't that can be more trouble for you. Plus I have no idea what legal obligations car rental companies have.

Unless you have in writing from your insurance company that it is Ok to rent your car to a friend, and that your friend is insured, don't do it.

Answer 2

Lets say there is a person who wants to rent his car out to his friend for a month In the United States and In Pennsylvania. He calls up the insurance company and lets them know his friend should be driving the car for a month. He then collects money for rent each month from his friend. He does this for several months. Then the friend gets in a car crash.

Was it insurance fraud to rent the car out to the friend?

No. If you told the insurance company what was going on, by definition, you did not defraud them. Fraud means lying about something or concealing something from someone. Nobody did that.

But, you may have violated the state law that requires you to have car insurance in force on the people driving your car up to certain dollar amounts, because you don't say what happened after the call with the insurance company to let them know this was being done.

Who is held responsible for the damages caused in the crash?

The driver of the car is always responsible for the damages caused in the crash by the driver's negligence (except in cases covered by Pennsylvania's "choice" no fault system discussed below). The injured person has to sue the driver not the insurance company (sometimes an owner of a car will also be responsible, but almost never an insurance company, except in the rare cases where the driver is insured but dies before being sued and has a closed probate estate).

The question is whether the driver is insured or uninsured for liability that is primarily the driver's responsibility, and if the driver is uninsured, what impact that has on the owner of the car.

Of course, if the accident is another driver's fault, your injured renter and companions can sue the at fault driver, and you can sue the at fault driver for the damage to the car that you owned (subject to no fault insurance considerations discussed at the end of this answer). You and/or the driver might get a ticket for being uninsured if either of you are uninsured, however.

The owner of the vehicle is, at a minimum, responsible for making sure that the vehicle and the driver have the state required insurance policies in place covering the vehicle and the driver.

Normally, if you contact the insurance company in advance, they would modify the insurance policy to provide additional coverage to this rental driver in this vehicle for an additional charge (which you can pay for with part of the money paid to rent the vehicle). The policy would have to be modified because usually a non-commercial automobile insurance policy will expressly exclude from coverage insurance on driver's who are renting your vehicles. This is what should happen.

For example, if your car is part of a car sharing program, usually it is necessary to get special additional insurance policies to do this.

Normally, people who rent cars can allow the driver to waive insurance from them if the driver has car insurance of the driver's own that covers their limited use of a rental car instead of the car car that the driver owns and usually uses (which is common, but is sometimes not a part of a bare bones car insurance policy), and if they also sign a form waiving coverage (which is usually required by state law).

If you rent your car to someone without having insurance coverage in place on the rental driver from either you or the driver, then you are violating state law by having an uninsured motorist. This violation, in addition to being punishable with a fine and maybe even a comparatively minor criminal incarceration sentence, also would usually make the car owner vicariously liable for any liability that the driver incurs in an accident (which would not be covered by the car owner's insurance policy).

Pennsylvania recognizes a cause of action for negligent entrustment (see also here) of your car in the hands of someone who owns the vehicle who you have reason to know is likely to get into an accidents (e.g. the driver has a suspended license or a history of drunk driving), but does not have general car own liability.

If both the car owner ands the driver have insurance that covers the accident (because the car owner's insurance covers accidents involving a rental driver), then the car owner's insurance pays first and the renter's insurance pays second if the car owner's insurance limits are exhausted.

If the driver did have insurance in an amount required by law and the owner did not have insurance in place, and the limits of liability were exceeded, the driver would still definitely be liable for the excess liability, but the owner would not.

All of the above is predicated on the assumption of a "fault based" insurance system, but Pennsylvania has a hybrid system that is a mix of fault based and no fault car insurance.

Pennsylvania is a "choice" no-fault car insurance state. That means, if you choose no-fault coverage when you purchase a car insurance policy, after a car accident you typically need to file a claim under your own personal injury protection coverage to get compensation for medical bills and other financial losses, regardless of who caused the crash. Only if your injuries are serious enough can you step outside of no-fault and bring a claim directly against the at-fault driver.

If the driver has no fault insurance and is insured, the driver goes to the driver's own insurance company for the driver's injuries and damages to the car, rather than suing the at fault driver, in a minor accident. Likewise, if the driver hits someone else and is at fault, but the person hit has no fault automobile insurance, the driver and the car owner won't be sued.

Answer 3

australia

Liability for injury

Every state and territory in Australia runs a no fault insurance scheme for personal injury. That means, no matter who is at fault, the medical, rehabilitation, and lifetime care and support of anyone and everyone who was injured is covered.

A motor vehicle cannot be registered unless and until this insurance policy is paid. Notwithstanding, the scheme still covers uninsured vehicles and collisions where the vehicle involved isn’t identified, that is, hit and runs.

This has been the system for more than 20 years and it is far cheaper and leads to better outcomes than suing each other.

Insurance premiums are higher for commercial rather than private vehicles so paying for the latter but doing the former is subject to fines but it doesn’t invalidate the insurance.

Liability for property and other damage

The at fault driver of the car is liable. In addition, if the driver is an agent of the owner (e.g. an employee), the owner is also liable. Contributory negligence rules apply where more than one driver (or pedestrian, cyclist etc.) is at fault.

Whether an insurance policy will respond to indemnify the driver/owner depends of the policy.

In general, auto insurance companies in Australia operate on a knock-for-knock basis and don’t bother trying to work out which driver was liable. The way this works is that if two insured vehicles collide, each insurer will repair their own and split the costs of any third party damage. In aggregate, they figure it all balances out in the wash and is cheaper than hiring lawyers to sue each other.