A long-time friend asked to borrow your car to run some errands. Being a good friend, you gladly turned over the keys. Your friend failed to mention that the “errands” included driving for a rideshare company to make some extra cash. While driving your car, your friend caused a serious accident, badly injuring another driver.
You immediately contacted your auto insurer to report a possible claim. That’s when you got the bad news: Your insurance company likely would deny coverage for the claim. Are you left personally responsible for the injuries and property damage your friend caused? You might be, depending on the facts.
What's Permissive Use Car Insurance and How Does It Work?
If your auto policy includes it, permissive use insurance usually covers an accident negligently caused by someone who:
- is a licensed driver
- isn’t a member of your household, and
- was using your vehicle with your permission.
Your auto policy might have other limits on the availability of permissive use coverage. For example, some policies reduce coverage amounts or make you pay higher deductibles for accidents caused by permissive users. If you’re not sure whether your auto policy covers permissive use, or what coverage limits or deductibles apply, contact your insurance agent.
Permissive Use Isn’t Covered in All Auto Insurance Policies
Permissive use coverage isn’t included in all auto insurance policies. For example, if yours is a “named driver only” policy, it won’t insure permissive users. Low-cost auto policies often don’t cover permissive use. If you want permissive use coverage, be sure to confirm that it’s included before you buy a policy.
Permissive Use Exclusions and Limitations
Even if permissive use is covered by your policy, specific permissive use exclusions or limitations might cause the insurance company to deny or reduce your coverage. In addition, any general policy exclusions or limitations that apply to the policy as a whole will also apply to your permissive use coverage.
Below are a few exclusions and limitations to keep in mind, but make sure you check your policy for others.
Know Your Policy Definitions
Auto insurers sometimes tweak the definition of “permissive user” or “permissive use” to add other limits or exclusions, so you need to make sure you know how your policy defines those terms.
For instance, some companies limit permissive use to less than 12 occasions during the policy period. If your policy does this, you’ll need to talk to your agent about having anyone who uses your car 12 or more times listed as an insured driver.
Business Use Exclusion
Your personal auto policy almost certainly excludes from coverage business uses of your auto. This exclusion will apply to permissive use of your vehicle, too. In our opening example above, the business use exclusion is what the owner’s insurer will rely on to deny coverage for the wreck caused by the rideshare-driving neighbor.
If you plan to lend your car to someone who will use it for business purposes, you’ll have to buy a business or commercial “endorsement” (additional coverage) from your auto insurer. Otherwise, as in our example, you might find yourself without insurance for personal injuries or property damage caused by someone else.
Drop-Down Limits
In some states, insurers apply reduced coverage limits—called “drop-down limits”—to an accident caused by a permissive user. If you live in a drop-down limits state, then the insurance company will only cover a permissive use claim up to the amount of your state minimum insurance requirements, regardless of your actual policy limits.
For example, suppose you buy an auto policy with $100,000 of personal injury coverage per person. You live in a drop-down limits state with a state minimum insurance requirement of $25,000 of personal injury coverage per person.
You lend your car to a permissive user who causes a wreck. The other driver has $50,000 in personal injury damages. Your insurance policy will cover only $25,000 of those damages, the state insurance minimum. The permissive user’s auto liability coverage (if they have insurance) should cover some or all of the remaining damages.
Other Limits and Exclusions
Other limits and exclusions might apply to permissive use insurance. For example, some insurers will double the deductible you pay for collision coverage on a permissive use claim.
Before you lend your car to someone else, understand what insurance coverage you do (and don’t) have.
Are You Legally Responsible for Someone Else’s Accident in Your Car?
When someone borrows your car and causes an accident, the borrower—not you—usually is the person who’s legally at fault, or legally responsible for the wreck. In most permissive use cases, the permissive user who causes a wreck is legally responsible for the resulting injuries and damages.
Why is this important? Because if there’s not enough insurance coverage to pay for the damages a permissive user causes, the person who’s at fault, or legally responsible, will be the one who must pay.
So if you're not legally at fault for an accident when a permissive user is driving, why does your insurance pay? As a general rule, when you buy insurance, you buy it to cover your car, not a specific driver. When you give someone permission to drive your car, the insurance you've bought still covers the car. But the fact that the wreck happened in your car, or that your insurance covers the damages, doesn’t mean you were legally at fault for the collision.
That said, there are some situations where you can be at fault for an accident someone else causes in your car. You might be legally responsible when:
- an employee wrecks a company car while driving for company business
- a family member uses your car and causes an accident, or
- you know or should know that someone shouldn’t be allowed to drive, you entrust the person with your vehicle anyway, and the person causes a wreck.
An Employee Wrecks a Company Car While Driving for Company Business
An employer can be legally responsible for an employee's negligent operation of an auto if:
- the employee was doing some work related to the employee’s job, or
- the employer knew—or reasonably should have known—that the employee shouldn’t be entrusted with a company vehicle.
Doing Work Related to the Job
An employer can be held legally responsible for an employee’s negligent driving (the law calls this “vicarious liability”) when the employee was doing the employer’s work. Specifically, an employer can be legally liable for the negligence of an employee who was acting within the “course and scope” of their employment.
If the employee was running a personal errand or driving a company car on a family vacation, it will be much more difficult to hold the employer legally responsible for an accident. If it’s not clear whether the employee was driving for company or personal reasons (and sometimes it won’t be), you should bring claims against the employer’s auto policy and the employee’s personal auto policy. The insurance companies can fight it out and decide which one has to pay.
Employer Knew Employee Shouldn’t Be Entrusted With a Vehicle
An employer can be held liable for “negligent entrustment” if an employee driving a company vehicle negligently causes a wreck and:
- wasn’t licensed to drive
- wasn’t competent to drive, or
- had a habit or history of reckless driving.
Licensed to drive. Proving that an employee wasn’t licensed to drive is usually simple. An employee without a driver’s license, or whose license was suspended or revoked, isn’t licensed to drive.
But difficult questions can arise. For instance, if an employee was limited to driving during “daylight hours” and caused an accident around sunrise or sunset, it might not be clear whether the employee was licensed to drive at the time the accident happened.
Competent to drive. Competence to drive might be an issue with an employee who, by reason of advanced age, has great difficulty driving an automobile. Or it could arise in the case of an employee who, because of an emotional or intellectual disability, isn’t reliably able to appreciate and deal with the possible dangers of driving a motor vehicle.
In any case, proving that someone wasn’t competent to drive likely will involve difficult questions, often requiring expert medical and other testimony.
Habit or history of reckless driving. A single instance of dangerous or reckless driving probably isn’t enough to prove that someone has a habit or significant history of that kind of driving, unless the facts of the incident were egregious or extreme. As with driving competence, proving habit or history will probably involve some hard questions.
To hold an employer responsible for a negligent entrustment claim, the employer must have:
- actually known that the employee shouldn’t be entrusted with a vehicle, or
- been in a position to know that the employee shouldn’t be entrusted with a vehicle.
Here’s an example. Suppose that an employer gives an employee a company car without first checking to see if the employee was licensed. Had the employer checked, it would have discovered that the employee’s license was revoked for excessive driving violations and accidents.
The employee negligently causes a wreck that injures several people. The employer is probably legally responsible for the accident because the employer negligently entrusted the employee with a company car.
A Family Member Uses the Vehicle and Causes an Accident
This situation usually involves a minor child who drives a parent’s car and causes an accident. There are at least a couple of ways a parent can be held responsible for a child’s negligent driving:
- state law imposes statutory liability upon the parent, or
- the parent negligently entrusts the child with the car.
Statutory Liability
Many states have laws that hold a parent or guardian legally responsible when a child is involved in an accident. California is a good example.
A parent (or other person) who signs a minor’s application for a California driver’s license is responsible, along with the minor, for any damages the minor causes while driving. (Cal. Veh. Code § 17707 (2023).)
Another California law imposes legal responsibility upon a parent or guardian who gives a minor permission to drive if the child causes an accident that injures others. (The minor is also legally responsible.) Legal responsibility can be imposed regardless of whether the parent or guardian signed the child’s license application. Under this law, the parent can be held responsible even if the child had no driver’s license. (Cal. Veh. Code § 17708 (2023).)
Negligent Entrustment
As in the employer-employee context, a person who negligently entrusts a family member with a motor vehicle can be held legally responsible for any harm that results from the negligent use of the vehicle. In general, the person who entrusts the vehicle must actually know, or have reason to know, that the family member entrusted with the vehicle:
- was unlicensed
- wasn’t competent to drive, or
- had a habit or history of reckless driving.
Other Cases of Negligent Entrustment
We’ve already discussed negligent entrustment in the employer-employee and family contexts. But it can apply in other situations, too. A vehicle owner can be held legally responsible for negligently entrusting a vehicle to another, even if there’s no legal relationship between them. The same requirements discussed above apply in any negligent entrustment case.
Get Help From a Car Accident Attorney
When someone else causes an accident in your vehicle, questions about legal responsibility and insurance coverage are almost certain to arise. In many cases, the issues are quite complicated—so much so that even attorneys who don’t specialize in car accident cases won’t feel qualified to sort them out.
Your legal rights and options might suffer if you don’t get the right advice. If someone else wrecks your car and you might be on the hook for damages, find an attorney in your area to protect your interests.