Loan Your Car and You May Pay The Price! Insurance Follows The Car, Not The Driver.

"If you broke it, you bought it."  This is not exactly true in insurance law.  There is a common misconception that when you loan a car to friends or family the driver's insurance will cover any accidents.  FALSE.

By Indiana statute, the vehicle owner's insurance is primary.  What does that mean?  It means that if you loan your car to someone who gets into an accident, your insurance company is on the hook for all damages and injuries up to your policy limits.  Only once those limits are exhausted does the driver's insurance comes into play.

Why should you care who's insurance pays?  Because it will most likely increase your insurance rates!  Insurance companies typically don't care who was driving the insured vehicle.  Rather, they care about the claims made under you policy and the amount they are required to pay out under those claims.  Thus, the more accurate saying in this context is: "If your friend broke it, your insurance company bought it (up to policy limits)."  Increasing your rates is the most common response.

NOTE: Ownership of a vehicle alone does not make you personally liable for all accidents involving that vehicle.  Rather, liability typically follows the driver.  Driver liability derives from the fact that all drivers have duties to others on the road.  These include duties to keep a proper look-out, to stop at stop signs, and to generally follow the traffic laws.  Breach of those duties can cause the driver to be found negligent or at fault.  A mere owner does not have the same duties as a driver on the road.

However, there can be ownership liability for a driver's accident under certain circumstances.  Owners have a duty not entrust their car to someone that will pose a danger to others on the road.  It's called "negligent entrustment."  You can be personally liable for an accident if you give you keys to someone that is 1) grossly inexperienced, 2) not old enough to drive, 3) impaired (by alcohol or other drugs), or 4) has been involved in multiple prior accidents, traffic citations, and/or does not have a valid license.  There is no bright line rule here.  Rather, this is more a common sense rule that you should not hand over your keys to a bad driver. 

In summary: 1) Be careful who you loan your car to, 2) know that any accident might effect your insurance rates, and 3) never loan your car to a bad driver.

Christopher A. Pearcy

Senior Associate Attorney

Hume Smith Geddes Green & Simmons LLP
54 Monument Circle, 4th Fl.
Indianapolis, IN 46204
Phone: (317) 632-4402
Fax: (317) 632-5595

www.humesmith.com