The State of Washington recently became the third state to prohibit an insurer from terminating automobile liability insurance policies solely on the basis that the vehicle was made available for a personal vehicle sharing program. This prohibition was made into law by the enactment of Washington Uncodified House Bill 2384. This law becomes effective June 7, 2012 and applies to personal insurance policies issued or renewed on or after January 1, 2013.
The other two states that have a similar prohibition are California and Oregon. California was the first state to adopt this type of law. California’s “personal vehicle sharing laws” became effective on January 1, 2011. (CA Insurance Code Section 11580.24.) Oregon followed suit by making similar laws effective a year later on January 1, 2012. (OR Insurance Code Section 742.595.)
Are these three West Coast states the only ones that will prohibit the practice of dropping policyholders that get involved with personal vehicle sharing programs with their cars? Or will this prohibition be a trend? Going forward, insurers should take careful notice of any relevant state laws before they cancel or nonrenew a policyholder involved in a vehicle sharing program, especially since personal car sharing itself seems to be a trend in urban lifestyle.
What is a personal vehicle sharing program? A car sharing program, also known as peer-to-peer car sharing, enables a person to rent out his or her vehicle for a fee for short periods of time to another private individual. A car sharing company matches the car to be rented with someone who wants to rent a car for noncommercial use. A car sharing company typically handles background checks on renters, reservations and collecting the money from renters. The company and the person renting out his or her car split the money earned from the rental arrangement. Supporters of car sharing programs say that the arrangement is an alternative to owning a car where public transportation, walking or bicycling could be used most of the time and a car is only necessary for special trips or needs. Also, proponents say that such programs will reduce the amount of cars on the road thereby helping the environment.
Recently, a Massachusetts car sharing case made national news when a renter of a shared-car crashed into another car not involved with the program. There was a fatality and serious injuries to several people. Although the final amounts of damages are still being sorted out, there seems to be confusion as to who or which entity will be responsible for paying for all the costs in a seemingly underinsured situation.
The take-away from this case is an acknowledgement that car sharing programs are emerging as a personal automobile underwriting issue. If a policyholder plans to participate in a car sharing program, careful planning of coverage issues could be accomplished ahead of time. Each party should be comfortable with the policyholder’s policy provisions, including the limits of liability, and be familiar with the relevant law in the state in which the sharing is taking place. (The personal vehicle sharing laws in all three West Coast states where the laws exist have provisions relating to mandatory limits of liability of the car-sharing company.)
That means that, if there is not a law in the state that does not provide for adequate limits under the car sharing company’s insurance and if termination is not going to occur on the policyholder’s underlying policy, there could be a mechanism made available so that the insurer of the underlying policy can work with the policyholder to change the policy language if the policyholder were to become involved in a sharing program so that the car sharing program’s insurance policy would be considered in conjunction with the existing automobile policy. For example, depending upon state law, the underlying policy could have requirements of prior notice and a review of current policy language before car sharing participation could begin. After the review the insurer could have the ability to require changes to the underlying policy if appropriate. Alternatively, the insurer’s policy language could have provisions that are automatically implemented if a policyholder were to get involved with a car sharing program.
The underwriter’s goal is to write coverage that anticipates when an unexpected catastrophe will strike. Therefore, adequate personal automobile coverage should be attainable with enough planning and foresight, even if there is the added complication of participation in a car sharing program. After all, isn’t that what insurance is all about anyway?
Editor’s Recommendation: Stay up to date with termination requirements for personal automobile policies with Adverse Decision Matrices and AuthenticWeb for Cancellation & Nonrenewal.
