You’re a trusting soul — a nice guy. Your best friend Tom tells you how disappointed he is that his Ferrari is in the shop for an extended stay and he has to miss the next Ferrari Club weekend drive. You have already agreed to spend that weekend with your in-laws, so you tell your friend, “Don’t sweat it. Take my 488 — just be careful with it!” Tom is as careful as you would hope — attentive driving, no excessive speed, no stupid passing, and cautiously parked at the drive’s lunch stop where no one could possibly bang into it. When he leaves the restaurant after lunch, he gets a little distracted by the rapid exodus of Ferraris, turns late to avoid an incoming car, and snags a telephone pole with your right front fender. Tom is a stand-up guy and calls you right away. “I am absolutely mortified to have made such a bonehead error. But don’t worry about it, I’ll have my insurance company take care of it, and I will cover the deductible. After all, you were doing me a huge favor lending the car to me, and it’s all on me.”

Primary and secondary coverage

Tom promptly submits the claim to his auto insurance carrier, and they ask him for your name and insurance information. Next thing you know, you get a call from your insurance company’s adjuster telling you not to worry, they are going to fix your 488 “as good as new.” You express surprise as to why your insurance company is doing this instead of Tom’s. “Hey, look, I don’t want this on my insurance policy record. I want Tom’s insurance company to pay the claim.” Unfortunately, that is not how the insurance world works. In the United States, automobile insurance is tied to the car, not to the driver. That means that your policy provides primary coverage, and Tom’s policy provides secondary coverage. In secondary position, his carrier pays the claim only to the extent that the damage exceeds your coverage. That is because all policies insure not only your errors but also any damage caused by anyone whom you allow to use your car, also known as a permissive user. You can’t change this with an agreement with your friend. Even if you have a written agreement, signed in blood and notarized, that your friend and his policy will be fully responsible for all damages, your insurance coverage remains primary. Even if your friend agrees not to submit a claim to your insurance company, his insurance company will do it for him. There is no good way around this.

Unintended consequences

This can easily wreak havoc on your insurance coverage. Let’s say your insurance carrier isn’t terribly happy about having to pay $30,000 to repair a dented fender and scratched bumper. They hit your policy with a chargeable claim, which can increase your future insurance rates. It might even result in the cancellation of your policy. Of course, this is totally unfair. You do a friend a favor and you end up screwed. Can you make your friend pay to bring your car to a repair shop? Unfortunately, that’s not likely. His error damaged the car, but your insurance company paid the claim and repaired it. The secondary “(consequential” in legal-speak) damages are not related directly enough to his error to be actionable.

Bad-boy behavior

Let’s spice up the story a little bit. Let’s say Tom was not very careful, drove recklessly, and got into a crash that severely injured or killed an innocent person in another car. Of course, your insurance carrier will cover the claim. Now that it’s a really big one, you can probably kiss your policy goodbye. But what if the claim exceeds your insurance coverage? Once your insurance company pays its maximum coverage amount, secondary liability moves to your friend’s policy, and his carrier pays the claim to the extent of its coverage limit. If it carries a low, legal-minimum level of coverage, the injured parties can recover from your friend’s assets. Can they also come after you? That depends, of course. As the owner of the car, you are not automatically liable for everything your friend does while driving it. We have a fault-based system, so the injured parties can only hold you liable if you were negligent in some way. You weren’t in the car, so your friend’s bad driving isn’t your negligence. However, if you had reason to know that your friend was a reckless driver who took too many chances and could be expected to get into a crash, then you could have been negligent in lending him the car to begin with.

Lost parts

Let’s switch to a different — but related — situation. Let’s say you are restoring your 1957 Porsche Speedster and decide that an engine shop 2,000 miles away is the right one to rebuild your engine. You carefully crate the engine and ship it to the shop by common carrier — UPS, trucking company, etc. ... You pay the shop $25,000 for the rebuild, and they put the engine back in the same crate and ship it back to you using the same carrier. Somehow, the engine never gets back to you — either it’s stolen in transit, or it just gets delivered to the wrong place and is never heard from again. Who pays? First, always, is your insurance company. But it insures your car, and you still have your car. The engine was certainly part of your car, but once you removed it from the car, it became just a car part. Does your policy still cover the loss? That depends on the policy wording. What about the engine shop? Again, we live in a fault-based legal system, and they are only liable if they were negligent in some way. They could certainly be liable for engine damage if they didn’t crate the engine properly, but to be liable for the disappearance of the engine, you would have to show that they either misaddressed the package or were negligent when they selected the carrier. However, as this story has been constructed, they used the same carrier you used, and it would be hard to say they were negligent in that selection. Note to the wise: If you’re the shop, it’s best to insist that the customer select the carrier and mode of shipment. That leaves the carrier. If the package just mysteriously disappeared, they are probably liable. If the engine was stolen, then their liability would depend upon whether they took reasonable precautions to safeguard the package. If they did, and it still got stolen, like a hijacked truck in the old gangster movies, then they may not be liable for the loss. Also, their transport agreement may limit their liability to the replacement cost of the lost item, or perhaps even to some minimal value per pound. For this reason, it is always critical to make sure you have adequate insurance to cover the parts being transported. If your automobile policy does not cover this, you can always buy insurance to cover the parts while being transported. Most transport companies simplify that by offering it to you when you place the shipping order. Another note to the wise: If you’re the shop, advise the customer to buy adequate insurance.

How much is enough?

We’ve scratched the surface of the ultimate question here. Let’s say some insurance company buys you a replacement engine for your Speedster. Is that enough? You once again have a complete car, but it is no longer a numbers-matching Speedster. That can mean as much as a $100,000 in diminished value. Can you recover that? Unfortunately, that does not seem likely. You separated the engine from the car. The intrinsic value of the engine is its replacement cost. It is only when the engine is mated with the original car and all the other original parts that it contributes to the enhanced value of a numbers-matching car. Separated from the car, the engine is just a car part. The carrier, the shop and your shipping insurance company are going to insist that their liability is limited to the replacement cost of the engine. That would seem to hold true even if you paid for an extra $100,000 of value when buying shipping insurance. The higher value likely serves as a ceiling on the amount of coverage. In essence, the insurance coverage is likely to be “replacement cost not to exceed the coverage amount.” These policies are not agreed-value policies, as we are familiar with when insuring our cars with collector-car policies. Oddly enough, you might be better off shipping the whole car to car removal. If the whole car is lost, the full value can be insured. And if it suffers partial damage, the diminished value may be recoverable. But, of course, you can’t always ship a whole car to an engine shop, so practicality comes into play. It may be that there is no good answer, and you just have to take your chances when shipping precious, original parts. ♦ John Draneas is an attorney in Oregon. He can be reached through His comments are general in nature and are not intended to substitute for consultation with an attorney.

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