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All You Ever Wanted to Know About Insurance

Loaning Someone Your Car? Think Twice and Double Check.

A Cautionary Tale on the Concept of “Permissive Use”

By Lauren Dallas, Personal Lines Manager

Most certainly you’d have the best of intentions. A friend in need comes seeking help in a time of distress. An unexpected and unforeseen set of circumstances leaves her without a car for an extended period of time. Of course, you want to help this dear friend, and you have a car that you can part with for a reasonable amount of time. So, for seemingly all the right reasons, you offer to lend your friend your car.

While you come to the rescue, and your friend’s story of woe seems to have had a happy ending, the story is just beginning for you. And this one, unfortunately, does not end so well.

The friend gets in an auto accident. There are damages to the vehicle, as well as to the other driver’s vehicle. Injuries are sustained. Medical attention is necessary. There will be bills to pay.

The questions become: “Who is liable, and whose insurance will cover the physical damages to the vehicles and the medical expenses of the drivers?”

Understanding “Permissive Use”

The concept of “permissive use” refers to the coverage in your auto policy when you give a driver who is not listed on your insurance permission to drive your vehicle. This will vary from policy to policy and insurer to insurer, but typically, the borrower of the vehicle is covered for physical damages to the vehicle they borrowed, but that’s only part of the story here.

To understand who would be liable in the scenario we described, the rule of thumb is this: Your collision coverage follows the car; liability follows the driver. 

In other words, the damages to the driver’s vehicle would be covered by the vehicle owner’s insurance—in this case, you. Michigan being a no-fault state, each vehicle owner’s insurance would cover the physical damages to his or her own vehicle, regardless of who is determined to be at fault in the accident.

However, the medical bills—and who is liable for them—become a matter dictated by the determination of fault in the accident. If your friend is determined to be at fault for the accident, her own auto insurance liability coverage would likely be responsible for the injured party’s medical claims.

No matter what the outcome of this determination, there are two bad consequences for the person who let another driver borrow her vehicle:

  1. We all know what happens when a collision claim is filed: premium increases are sure to follow. So if a friend drives your car and gets in an accident requiring repairs, your insurance will cover the damages as dictated by your policy, but there may be a deductible to pay, and the premium increases will be applied to your policy.

  2. Though your friend’s auto policy will kick in wherein liability is concerned, potentially paying the other driver’s medical expenses, what if your friend doesn’t have an auto policy at all? This isn’t out of the question, if your friend has been without a vehicle long-term. If the injured party decides litigation is warranted, they are more likely to sue you and your insurance as the liable parties.

Know Your Options

Caveats apply, of course. As with all things related to auto insurance, the laws and regulation vary by state, so what is true in Michigan may not be true in Ohio, for example. Furthermore, just about every insurance provider handles the nuances of permissive use a little differently, so there are no blanket recommendations that apply in all situations of this nature—other than this: proceed with caution.

If you plan to lend a vehicle to someone who is not listed on your auto insurance policy, beware of the consequences you might be inviting upon yourself. As laborious as this seems, it is a good idea to understand your friend’s auto insurance policy and coverage situation before turning over the keys. 

Or perhaps you might consider not being the Good Samaritan at all, given the risk to both you and your friend. While perhaps not as easy, affordable or convenient, a better course of action might be for the friend to rent a vehicle or find some other means of transportation while they are without a vehicle.

Keep in mind, insurance is there to protect you from the worst-case scenario. But sometimes, the worst-case scenario is unforeseen, and we aren’t protected or covered the way we might assume. 

To be forewarned is to be forearmed. We hope this cautionary scenario—based on an entirely true story—serves as that fair warning before you or a loved one endure such a trying experience.