Imagine that you lend your vehicle to a friend or family member and they get into an accident. No problem because their insurance will cover it, right?
Most people don’t realize that their insurance goes with their vehicle, which means you and your insurance policy are on the hook for any claim for damages or liabilities caused by the person who borrowed your vehicle.
There’s a perfect example of this from December 2018, when IBI Group consultant Amy Emm went out with a client, had several margaritas, and called a designated driving company to drive her and her vehicle home. The driver ended up crashing Emm’s car just as they were pulling into her laneway, and a local body shop estimated the repairs would cost $6,386.45, minus a $1,000 deductible. Emm’s insurance company — not the designated driver’s — ended up having to pay.
As the good-deed doer who decided to lend your vehicle, you might think you can take solace in knowing that if a friend or family member does get into an accident while driving your vehicle, at least your driving record won’t be affected.
“Unfortunately this is another common misconception,” says Aaron Calder, an insurance broker with ICD Insurance Brokers in Newmarket, Ont. “Any time an accident claim is processed through your insurance, the accident will appear on your driving record, which can lead to an increase in your premiums.”
When lending your vehicle costs you
No matter who’s behind the wheel when an accident occurs, you’re still the vehicle owner. That means if your claim is denied, you will be responsible for paying for any damages or liabilities out of your own pocket.
According to recent data from Mitchell International, the average cost of collision repairs in Canada in the second quarter of 2018 was $3,917. And Collision Sciences reports that in Canada, injury settlements can range from $250,000 to $600,000; for “fatal or catastrophic youth cases” those numbers can jump to anywhere from $1 million to $3 million.
Clearly, having an accident claim denied by your insurance company can result in personal financial disaster. With this in mind, here are some reasons why your insurance company may decline your claim if your friend or family member was driving your vehicle:
They don’t have a driver’s licence
If you lend your vehicle to a friend or family member and you knew that they didn’t have a valid driver’s licence or that their licence was under suspension, then you have violated the terms of your insurance policy. As a result, it’s very likely that your insurance company will deny your claim altogether and you, as the vehicle owner, will be responsible for the cost of any damages or liabilities incurred.
If, however, you didn’t know about the state of your friend’s or family member’s driver’s licence, then it’s possible your insurance company would pay your claim.
They use your vehicle frequently
There’s a difference between lending your vehicle to a friend or family member as a one-off and them using it on a regular basis a few times a week. In the eyes of your insurance company, that friend or family member should be added to your policy as an “occasional driver” and you should be paying more per month for your coverage, something known as secondary driver insurance.
If that friend or family member were to get into an accident, there’s a strong possibility that your insurance company would deny your claim because you failed to accurately disclose how frequently that person drives your vehicle.
They use your vehicle for deliveries
Your insurance policy outlines in strict detail the uses your vehicle is insured for. If a friend or family member borrows your vehicle to deliver pizzas, packages or people, there’s a good chance your accident claim won’t go through. Why? Because this type of usage is considered “commercial” and personal vehicle insurance doesn’t cover commercial use.
Some private insurance companies, like Aviva Insurance, Intact Insurance, and belairdirect, offer coverage for people who want to use their personal vehicle for commercial purposes. However, keep in mind that most companies will not insure your vehicle for food delivery.
Again, if it were a one-time situation and your friend or family member didn’t tell you they were going to use your vehicle to make deliveries, your insurance company may allow your claim to go through but there are no guarantees.
The best way to avoid having a claim denied
The simplest way to steer clear of any trouble around someone else using your vehicle is to not lend your vehicle to friends or family in the first place. That way, you won’t have to deal with whether or not your insurance company will take care of a claim that results from an accident caused by them.
“Personally, I always advise people not to lend their vehicle to anybody,” says Calder. “If you don’t lend it to anyone, there’s no chance of having any issues. If you do lend your vehicle to someone, it is your responsibility to make sure they are legally licensed. Remember, you are responsible for everything they do in your car.”