Are You Insured at the Track?

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I wasn’t racing, I was honing my driving skills (photo by Greg Maythaler)

The flagger, the other driver, the organizers, the track operators, and anyone else deemed negligent could be liable

If reader response is the best gauge, then the June 2006 “Legal Files” (Carrera GT Crashes Into Court) may be the most widely-read one of all. Months after that column appeared, letters from readers continue to arrive. Just about all have been critical of the lawsuit and the plaintiff’s chances. Many have asked for updates as the lawsuit progresses, but nothing of interest has happened yet.

The significance of this situation was brought home recently when I received a call from a new client with a large problem. He had taken his mint condition 2004 BMW M3 to the race track for a club-sponsored track day. As he began to accelerate on the straightaway, a momentary lapse of attention transformed his second-to-third upshift into a disastrous downshift to first. Before he could get the clutch back in, the M3 spun straight into the concrete wall. The resulting two-corner bounce caused extensive structural damage to the car, and it was determined to be a total loss.

RACETRACK CLAIM DENIED

The biggest damage came when his insurance company denied the claim altogether, claiming that racetrack crashes were not covered. My client’s insistence that this was not a race, but merely a “driver’s education” event fell on deaf ears, and he retained our firm to attempt to talk some sense—at least from his enthusiast’s point of view—into his insurance company.

A review of his insurance policy provided no comfort at all. It contained a very well defined exception from coverage. No coverage was afforded for “loss or damage arising out of the participation in a prearranged, organized, or spontaneous:
(a) Racing contest;
(b) Speed contest; or
(c) Use of an auto at a race track or course designed or used for racing or high performance driving, or in practice or preparation for any contest or use of this type.”

Faced with this policy provision, we saw no hope of being able to force the insurance company to cover the loss, and our client was left with a very substantial economic loss.
But perhaps more alarming for readers is that the policy contained a similar exclusion in its liability provisions. That is, the insurance company’s liability for bodily injuries under the same circumstances was limited to the minimum amount of coverage mandated under the State’s insurance law, which is $25,000 per person and $50,000 per occurrence, with $10,000 damage to the property of others.

MY POLICY SCARED ME

Thinking that perhaps this policy was an aberration, I checked my own policy and found an even more alarming situation. My policy excludes coverage for damage to my car while it is:
1. Operated on a surface designed or used for racing, but not if the organized and controlled event is not a speed, performance, stunt or demolition event (i.e. low-speed parade laps are probably fine);
2. Used in a high performance driving or racing instruction course or school; or
3. Used in, or in preparation or practice for, a race, speed or performance contest.
This same exclusion applies to eliminate all liability coverage for injuries sustained by others, and even eliminates the coverage that provides automatic medical expense coverage for my own physical injuries.

BATTLE LINES DRAWN

Jim Grundy, of Grundy Worldwide Collector Car Insurance Insurance, confirms that the insurance companies have focused their attention on club track days.

“These types of exclusions are becoming the industry standard,” he says. “For years, policies only excluded coverage for ‘racing,’ which was what most people would think you were doing when you put on a helmet and fire suit, strapped yourself into a harness, and drove as fast as you could on a racetrack.”

“But sports car clubs, and the Porsche and Ferrari Clubs in particular, have notoriously interpreted ‘racing’ to exclude their ‘driver’s education’ and non-timed track events. Since club track days are so difficult to define, the industry has moved to the ‘racing surface’ approach, which leaves less room for argument.”

That’s true. A broad exclusion for occurrences “on a race track” makes it irrelevant if our club track day is a “driver’s education” event or just legalized racing.

“High performance driving” also hits straight at the heart of what the clubs and the race schools claim is something other than racing. And the broad references to “speed contests” and “surfaces designed or used for racing or speed contests” probably picks up autocrosses as well.

Of course, clever attorneys can challenge specific wording in specific policies, but it is clear that battle lines have been drawn. The insurance companies have clearly set out to protect themselves from these activities, and proving that an individual policy does not apply is going to be an expensive, uphill legal battle.

McKeel Hagerty, of Hagerty Collector Car Insurance, agrees wholeheartedly. Hagerty policies carry the same “racing surface” exclusion, which he states is quickly becoming the industry standard. “The single biggest problem has been the lack of a consistent legal definition of ‘racing.’ You can either define it as what it is, which is difficult, or where it happens, which is easier.”

Hagerty is aware of the recent Utah driving event where a participant totaled his Enzo. Utah State Police had closed a section of public highway so event participants could do a top speed test. “I think this is going to be a watershed event,” says Hagerty. “Generally, events on public roads do not cause a coverage issue, but this one is different. While this particular loss will probably be covered, I would expect to see further policy changes. The logical extension would be to expand the exclusion to cover anything that happens on a ‘closed course,’ even if it is otherwise a public road.”

BACK TO THE CARRERA GT

Now fold in two important points from the Carrera GT lawsuit story. In that case, all the organizers and some of the other participants have been sued, and the release signed by the plaintiff at the track has been challenged. Any participant whose insurance policy contains these or similar exclusions from liability coverage should be worried.

Releases are usually upheld in court because the courts are aware of the extreme risks associated with this type of activity. But what if the person injured as a result of your mistake is able to challenge the validity of the release because he was not reasonably aware of all the relevant circumstances?

Or, even worse, what if the injured person didn’t sign a release? Keep in mind that, if the plaintiff is able to invalidate the release in the Carrera GT lawsuit, the flagger, the driver of the Ferrari, the organizers, the race track operators, and anyone else found to have been negligent will be held liable. And if you are in that position and your insurance policy has these types of exclusions, you won’t have any insurance coverage at all.

VERIFY YOUR COVERAGE

Your best approach is to verify your coverage before going to the racetrack. Read your policy. Ask your agent to confirm the coverage. Hire an attorney to review the policy. Do whatever it takes to be sure. And if the coverage isn’t there, consider buying a policy specifically designed for these activities.

Don’t make the mistake of thinking that all is okay because you are willing to write off your car. Remember that insurance policies now frequently exclude coverage for bodily injuries to other persons, which can easily be a much greater liability.

ORGANIZERS, PAY SPECIAL ATTENTION

Event organizers need to be careful about things that could lead to a claim that a release is ineffective. Some examples:
• Describing track days as a “safe way to learn the limits of your car.”
• Reassuring members they will be safe because it offers instructors to help them.
• Failure to screen and train inexperienced members.
• Lack of appropriate procedures to ensure that releases are properly signed by all participants.

Be sure to check the amount of a club’s insurance coverage and evaluate its adequacy. In the Carrera GT lawsuit, the plaintiff is the estate of the deceased multi-millionaire passenger. How far do you think a $2 million insurance policy is going to go in that case?

ASSESS YOUR RISKS ACCURATELY

Unfortunately, this is the reality of our legal climate. The point is not to scare you out of participating in these events. The point is, before you do, take the time to consider what risks you are assuming, do whatever you can to insure against those risks, and then decide whether or not to participate. It’s fine to assess the risks and make a calculated decision to assume them. It’s tragic when you learn of the risks after the damage has occurred.

John Draneas is an attorney and car collector in Oregon. His comments here are general in nature and not a substitute for a consultation with an attorney. He can be reached at legalfiles@sportscarmarket.com

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