Not so good.
In the United States, the rule is that insurance follows the car. Your carrier and policy are going to cover the loss — no matter what deal you and your friend might make.
The technical logic behind this is pretty simple. Most policies provide that a permissive user is treated as an insured under your policy. Even if you refuse to submit the claim, your friend or his insurance carrier can submit it for you. And, since your friend is an insured, the insurance carrier cannot recover the loss from him no matter how bad he screwed up — just the same as it couldn’t recover from you if you were driving. McKeel Hagerty, President and CEO of Hagerty Insurance, puts it pretty plainly: “When you lend your car to your friend, you lend him your insurance policy too.”
Risk of cancellation or premium increases
So how does this affect your policy? Simply put, it counts as a claim, just the same as if you were driving. You probably won’t lose your coverage if it’s your only claim, but if there have been others, who knows? If your policy stays in force, your premium could increase — depending upon the severity of the claim.
Friends are risky
This can be pretty serious stuff. Hagerty reports that in one year they had four claims with fatalities — all involving the same high-performance sports car model. Every one of them involved a permissive user. And, Hagerty adds, a very high percentage of their claims involving supercars also involve permissive users.
It’s not that your friends are irresponsible. Think about it. We know that many collectors really aren’t skilled enough drivers to handle their high-performance sports cars safely in difficult situations. But at least they have had some hours in the seat — and they have some idea about when things are going to be getting dicey.
Put a friend without that experience in the driver’s seat, and it isn’t very hard to imagine that he might get into a difficult situation without knowing it. This can easily happen even if you’re in the passenger’s seat.
Another permissive user situation arises where you give your collector car to a shop for repairs, and a crash occurs while your mechanic is test-driving the car. As an example of how extreme the situation can get, you might recall the Legal Files in which the mechanic test-driving a Ford GT left the road and ended up in the tree tops (January 2011, p. 32).
Again, your policy covers the loss. But, you might ask, what about the shop’s garage keeper’s policy? Shouldn’t that cover the loss? Why should you and your policy get hammered? You shouldn’t — and you won’t — but don’t avoid reporting the incident to your insurance carrier.
Here’s how this works: Your insurance policy will provide primary coverage and fix your car. When your insurance carrier pays the claim, your legal rights against the shop are automatically transferred to your insurance carrier, and it can pursue the claim against the shop and its garage keeper’s policy. Legally, this is called subrogation. And, no need to worry, your carrier will pursue the claim, as it doesn’t want to get stuck with the bill either.
Jim Fiske, U.S. Marketing Manager for Chubb Personal Insurance, urges readers to submit their claim to their carriers and not to try to bring the claim against the shop themselves. “This is just part of the service that your premiums buy,” he said.
Bringing the claim yourself can be frustrating.
Shops are supposed to carry insurance, but their coverage limits can vary all across the board. Their deductibles can be high — sometimes too high for a marginally profitable shop to be able to pay.
Dealing with the adjuster can be difficult. Garage keepers’ policies are commercial policies issued by insurance companies that don’t often realize how expensive collector-car repairs can be, and why they are different than repairing your basic Toyota Camry.
Hagerty puts it simply: “Not many of them know, or want to believe, that a replacement windshield for a Ferrari 275 costs $30,000.”
Trying to negotiate your way through that can be like beating your head against the wall — even for a savvy insurance company.
“When we handle the claim, we just get the car fixed right and back on the road as quickly as possible,” Fiske said. “Then we pursue the subrogation claim. We’re pretty good at what we do, but I would estimate that our average recovery on a subrogation claim is about 50% of what we paid on the claim.”
Fiske reminded me of a claim Chubb covered last year involving one of my clients. His Shelby GT350 was damaged en route to one of the Monterey auctions. The transport company accepted responsibility, and then found a no-name local body shop that would handle the repair. That scared everyone. Chubb’s adjusters stepped in, found a local restoration shop to do the work, and paid extra to have them work all night long to get the Shelby ready for the auction. The damage and repair were disclosed on the auction block, and the sale fell within the estimate range.
So what does this sort of thing do to your policy? Fiske and Hagerty both say, “Nothing.” When the loss was caused by a third party, neither of them consider it a claim that would affect your coverage or premium. But if you want to be careful, ask the shop about their coverage before leaving your car.
As already mentioned, your car can be damaged while a transport company is moving it from one place to another. The good news is that your policy covers the loss. The bad news is the caliber of the transport companies’ coverages are hit and miss. Some have very generous coverage, while others are pretty skimpy.
Again, it’s okay to ask them about their coverage beforehand, but are you really capable of evaluating the nuances? If not, give your primary insurer a call and ask their permission.
Keep your policy in force
Three years ago, many collector cars were damaged in the windstorm that hit Scottsdale during the January auctions (“Legal Files,” April 2010, p. 28). It was surprising how many of the damaged cars were uninsured.
It seems that many collector-car owners are too quick to cancel their insurance coverage when they aren’t driving them. Policy premiums are pretty cheap, so this can be a penny-wise and pound-foolish scenario.
It’s not hard to see the potential for bad things to happen when you put your car on a transporter and send it across the country to an auction, where it will be driven around the auction site — and potential bidders might take it on a test drive. It’s definitely a wise investment to keep your insurance policy in force until you know the sale is final.
Similarly, when you sell your car to a buyer who gives you a check and drives off, do not immediately call your agent and cancel your coverage. Say the check bounces, and you have to track down the buyer to get your car back — only to learn that it has been crashed or stolen. That coverage you canceled would have been pretty handy to have in force.
This is less obvious, but it is a good idea to keep your car insured even when it is undergoing a restoration. While it may seem unnecessary to cover a car that is sitting in pieces, those pieces can disappear or get damaged in a fire or other casualty. The shop’s legal duty is to take reasonable care of the car — but you don’t get an absolute guarantee that nothing bad will happen on their watch. Any of these occurrences could be outside their standard of care, leaving you to suffer the loss. And even if their garage keeper’s policy does provide coverage, our earlier discussion explains why the shop’s carrier is not necessarily going to be the easiest one to deal with.
In all these situations, your best strategy is to keep your collector-car policy in full force. These are not the times to be trying to save a buck or two. ♦
John Draneas is an attorney in Oregon. His comments are general in nature and are not intended to substitute for consultation with an attorney.