Insuring "Zipcars"
April 2010
With increasing fuel costs, concern over the
environment, and the difficulty and expense of parking in a major metropolitan
area, a new type of business, referred to as "car sharing," is growing in popularity
in major cities. It's a hybrid between car renting and car ownership.
by
Jack Hungelmann
Corporate
4 Insurance Agency, Inc.
I am focusing on one of those car-sharing franchises, "Zipcars,"
because I recently researched the exposures and coverages for a Chicago client.
That, and I just like the name.
How It Works
The concept is fairly simple. Clients buy a membership for about $50 a year.
This fee helps enable the car sharing company to purchase vehicles—generally
the small, fuel-efficient variety. These cars are then "stashed" around the
metropolitan area at locations known to members by looking on the
Zipcar website.
When members need a car, they simply go online to check availability and pickup
locations, and reserve the car for the period needed. Rates are by the hour
or day. When picking up the car, members just hold up their Zipcar membership
card over the card reader on the dash to unlock the car. Keys are already in
the car. When finished using the car, members return it to its original parking
place, lock it, and confirm that it's back with Zipcar via the website. (Check
out www.zipcar.com
if you want to know more about the process.)
Who Can Benefit?
There are several different types of people who use this service:
- Those who need a car just for a couple of hours.
- Young couples who can afford just one car but occasionally need a second.
- Someone who generally uses public transportation but finds an occasional
need for a car.
One of the main advantages of Zipcar and other franchises like it are that
it typically includes insurance for the driver's liability for injuries and
property damage as well as collision and comprehensive coverage. In the case
of Zipcar, the liability limit is $300,000 per accident for those 21 and older,
and the collision and comprehensive coverage is subject to a $500 deductible.
Identifying the Risks
Zipcar customers face four risks arising out of their membership and use
of the cars:
- Liability for injuries and property damage to the public caused by their
negligence.
- Medical expenses and loss of income if they're injured in an accident
involving the car.
- Compensation for injuries in an automobile accident, caused by uninsured
or underinsured motorists.
- Contractual liability for all damage to the Zipcar that occurs while
the car is in a member's possession, regardless of cause (i.e., hail damage
or theft).
Essentially, these are the same risks facing any person who rents a car.
Finding Insurance Coverage
One of the significant differences between car rentals and car sharing is
that, with car rentals, the renter is responsible for all four of the above
risks, subject to the rental agency carrying minimum amounts of coverage to
meet state law. One of the big advantages of car sharing, especially for those
who don't own a car, is that the cars are insured by the group. But what if
the liability limit is not enough (i.e., $300,000)? Or what if coverage is voided
by actions such as letting someone else drive the car who is not a member (not
permitted by Zipcar)? Or what if the member lets someone else drive, for whatever
reason (i.e., such as being under the influence of alcohol or drugs or having
a medical problem)? Where can the member turn?
With No Personal Auto
If the Zipcar member has no auto, and, therefore, no personal auto policy,
there are two options. A named nonowner policy will cover drivers on an excess
basis for liability, medical, and uninsured and underinsured motorist coverage
claims. This can be supplemented by the right personal umbrella policy to cover
car accidents using nonowned vehicles.
The second option for liability coverage only is to choose an umbrella policy1
that covers nonowned vehicle use without requiring underlying insurance. Coverage
is subject only to the umbrella policy's self-insured retention/deductible.
In this instance, be sure to get a confirmation from the umbrella underwriting
manager or claims manager—in writing—that the umbrella policy will provide primary
coverage for use of the Zipcar. Note: Even
if the umbrella policy will provide the liability coverage needed, it won't
provide coverage for medical bills or lost wages. Drivers will need to turn
to their personal health and disability insurance for that. Unless it is required
by state statute, many umbrellas also won't offer uninsured or underinsured
motorist coverage—coverages definitely available with a named nonowner policy.
With a Personal Auto
For those who own or lease at least one automobile and have a personal auto
policy, coverage for Zipcars should be covered under those policies because
there is generally automatic drive-other-cars coverage on an excess basis included
in the policy. The "furnished or available for regular use" exclusion for nonowned
vehicles won't apply because the Zipcar being rented changes regularly. It also
doesn't normally apply to short term rentals.
If the Car Is Damaged While in the Renter's Possession
Although Zipcar does insure their cars for full coverage, subject to a $500
deductible, Zipcar can still deny coverage for unauthorized use, unauthorized
drivers, etc. I recommend backup coverage just in case. If the member has a
personal auto policy with collision and comprehensive on at least one personal
vehicle, that coverage should transfer and cover damage to the Zipcar. On the
other hand, if the Zipcar member lacks a personal auto policy with at least
one car having collision and comprehensive coverage, then it's a good idea to
find an umbrella policy that also covers damage to rental cars for which the
insured is legally or contractually liable, etc. If the umbrella has no care,
custody, or control exclusion for damage to nonowned vehicles, by default then,
there should be coverage subject only to a self-insured retention of typically
$250 to $500. Note: Some states, like Minnesota,
require that personal auto policies cover damage to a rental car under PD liability
coverage, with no deductible applying. If a member lives in such a state, then
backup umbrella coverage would not be necessary.
Conclusion
The concept of car sharing in metropolitan areas is still relatively new,
but because it's such an environmentally friendly concept, I expect it to be
around for a while.
1For more information on choosing the right umbrella,
see "Plugging Liability Insurance Gaps with
the Personal Umbrella Policy."
Jack Hungelmann's book Insurance for Dummies,
contains much of this information and is available at your favorite bookstore
or
online. For more information on his risk management and insurance business,
go to www.JackHungelmann.com
where you can check out sample newsletters, brochures, other articles written
on various issues. For background information, see Mr. Hungelmann's
biography.
Opinions expressed in Expert Commentary articles are those of the author and are
not necessarily held by the author's employer or IRMI. Expert Commentary articles
and other IRMI Online content do not purport to provide legal, accounting, or other
professional advice or opinion. If such advice is needed, consult with your attorney,
accountant, or other qualified adviser.