Airbnb and Vrbo have become household names for vacation rentals, widely popularizing the idea of a “sharing economy.” A number of similar car-sharing services have also popped up in the past few years, all with a similar pitch: If you own a car, you can make extra money by renting it out through their app or website. On the other hand, if you are looking for a rental car, you can use these services to rent one directly from the owner, which opens up more interesting car choices and potentially saves money. For example, I located the owner of a 2017 […]
Airbnb and Vrbo have become household names for vacation rentals, widely popularizing the idea of a “sharing economy.” A number of similar car-sharing services have also popped up in the past few years, all with a similar pitch: If you own a car, you can make extra money by renting it out through their app or website. On the other hand, if you are looking for a rental car, you can use these services to rent one directly from the owner, which opens up more interesting car choices and potentially saves money.
For example, I located the owner of a 2017 Porsche 911 Turbo in nearby Seattle through the Turo website. The fully optioned gray Cabriolet looks to be in excellent condition, and the 33 renters have given it and the owner a perfect 5.0 score. It was listed for an entirely reasonable fee of $434 per day.
Sure, you can drive a Toyota Corolla from any of the big-name rental agencies for a lot less, but what fun is that?
What could go wrong?
A Portland, OR, couple thought car sharing would be a great way to earn a few extra bucks and offset the ownership cost of their Mercedes-AMG GT S “Edition 1.” With a twin-turbocharged V8 that makes 503 horsepower, it does 0–60 mph in 3.5 seconds. About 350 examples of this limited-edition model were built in 2016, and they carried a window sticker north of $140k.
The couple have several friends who have been renting out their cars and were making good money without any hassles. Feeling confident due to such recommendations, they listed the Mercedes-AMG on Turo. This is the largest of the car-sharing players, at least by size, with rentals available in the U.S., Australia, Canada, France and the U.K. They soon got their first booking from a renter that satisfied their requirements: at least 30 years old, with a valid driver’s license and insurance, and a willingness to commit to their mileage limits.
All looked great until they got a late-night call from the police. Their car had been crashed and badly damaged and the police needed to know what to do with the wreck.
It turned out that their renter had given the car to her 21-year-old son, which was, of course, forbidden under the rental agreement. He reportedly took the car to an area near the airport where kids were regularly street racing, lost control of the car while speeding, and crashed into a Jeep on the side of the road. With extensive damage to the rear of the car, the Mercedes-AMG was thought to be totaled.
The other shoe drops
The real shock came the next day when the owners started looking into what they could do about the crash damage. They contacted Turo, and were told not to worry, that the car would be covered under its insurance policy and perhaps under their own policy. However, they were warned that they could not bring any claims against the renter, as they had agreed to waive any such rights in the listing agreement. If they did take legal action against the renter, they would be subject to the $5,500 liquidated-damages provision in the contract.
We all know that insurance policies are not all the same. How broad will the coverage provided by Turo be? Let’s consider some possible implications of the situation.
Deductible. The deductible is $2,500 — not a huge amount in this case, but high relative to most auto insurance policies.
Determination of loss. In the event of a total loss, the policy pays the actual cash value of the car, which is based upon its condition and what it would cost to buy an equivalent replacement car. Of course, actual-cash-value policies can result in huge differences of opinion between the insured and the insurance company about the value of the car, particularly when the car is special. This is why we always recommend agreed-value policies for collector cars.
Repair standards. If the car is capable of being repaired, what standards are going to be applied? Will the insurance adjuster pay for specialty-shop rates or insist on lower consumer-shop rates? Will the insurance company be able to use aftermarket parts for the repair? Will the entire car get repainted if the paint cannot be matched properly?
Promptness. Will the insurance company adjust the claim and process the repairs quickly? After all, you aren’t really their customer.
Loaners. Will the insurance company provide a loaner car while the repairs are being made?
Diminished value. In this case, the properly repaired Mercedes-AMG will likely be worth about 25% less than it was before the damage, which is called diminished value. Will this real loss be covered?
Even giving Turo’s insurer the benefit of the doubt here, there are a lot of questions raised. We can only hope they will be answered to the satisfaction of the owners.
They can make a claim against their own insurance policy, but that may not be a satisfactory solution. Their carrier will likely look at the Turo policy as being the primary coverage, meaning that the owners’ policy will only pay what the other policy doesn’t cover. It stands to reason that the owners’ carrier will want to wait and see what happens, meaning that there won’t be any quick action. The primary nature of that coverage probably means that, as a practical matter, the repair standards of the Turo policy will prevail.
The owners’ policy might also deny coverage, based upon the Mercedes-AMG having been rented to a third party. Most auto insurance policies are limited to personal-use vehicles. The rental may be considered a business use that could exclude it from coverage altogether. Coverage could also be denied under the racing exclusion that is found in most all auto insurance policies. The final concern is that if the owners’ policy is required to provide coverage, their insurance company may choose to cancel the policy after the claim is paid.
Mechanical damage
If this crash damage situation seems bad enough, consider what would happen if the car had merely suffered some sort of mechanical damage — say, a blown engine or fried transmission. There isn’t any insurance available to cover that.
If the damage was caused by the renter, the owners should be able to bring a claim against them. But the problem is going to be proof. The renter is undoubtedly going to insist that they were driving normally when the car just broke on its own, the breakdown simply being the result of cumulative wear and tear that reached the tipping point. The owner is going to insist that the car was fine, and the renter was driving inappropriately and caused the damage. How does that debate get sorted out?
Turo, for example, requires that all disputes be resolved through arbitration using an online arbitration service named “FairClaims.” If you have opted out of arbitration, you are required to conduct your litigation in Arizona. It is unclear if these provisions apply only to claims against Turo, or if they also apply to claims against the renter. I would expect other car-sharing apps to approach these matters the same way.
What is clear is that the car-sharing companies have no responsibility in this regard. Your claims against a renter who abused your car must be brought against the renter, and your chances of collection of any damage award are uncertain. Plus, you will have to pay your attorney fees and likely cannot recover them from the renter.
Lesson learned
If you are thinking about renting your car through one of these services, and you want to know how best to protect yourself, the best one-word answer is, “Don’t!” At least not with any car that you actually care about or that is not easily replaced. While the rental rates may seem attractive, there are inherent risks of handing over your keys to a stranger, with limited ways to protect yourself. ♦
John Draneas is an attorney in Oregon and has been SCM’s “Legal Files” columnist since 2003. His recently published book The Best of Legal Files can be purchased on our website. John can be contacted at john@draneaslaw.com. His comments are general in nature and are not intended to substitute for consultation with an attorney.