Car Sharing: Social Media, Insurance and a New Model of Ownership

September 10, 2010

With car-sharing pools growing in popularity for economic and environmental reasons, California is poised to take the concept to a new level. In June, the California General Assembly unanimously passed a bill that would enable owners to share their cars within car-sharing pools and be reimbursed for gas, maintenance and depreciation without losing their personal car insurance coverage. If and when the legislation passes in the State Senate, the effect is likely to stimulate many more car-sharing programs across the country, including Florida.

The economic and environmental factors driving the increase in car sharing are pretty straightforward. Cars are expensive to own and operate, their emissions pollute the air, and congestion is a major problem in metro areas.

In response, car-sharing services have begun to take shape. In California, services such as City CarShare, Divvy Car and Relay Rides link individual car owners with riders, often through Facebook and other social networking tools. In Florida, a service called Zimride connects commuters heading to the University of Central Florida. The limitation of these programs, however, has been that insurers are allowed to void personal car insurance policies if owners put their vehicles up for hire.

California's Emerging Law

Recognizing the importance of resolving the key insurance issues involved in car sharing, Assemblyman Dave Jones, D- Sacramento, the sponsor of the California car-sharing bill (A.B. 1871), worked closely with the insurance industry to address their concerns. The bill would not change the existing requirement that commercial car-sharing services carry commercial insurance policies to cover collisions. Nor would it affect the duty of the motor vehicles department to screen personal car-share participants; a valid driver's license will still be required, whether the car you drive is your own or a car share. But A.B. 1871 would enable vehicle owners to share their cars through authorized programs without fear that insurance companies would void the owners' insurance policies.

What would the California law do to make sure that an owner who makes his or her car available to a car-sharing service is not held personally liable if the car is involved in an accident? To answer this, it is necessary to examine the legislation in more detail.

Under the new law, a motor vehicle covered by private insurance would not be classified as a commercial vehicle just because it is being used in a vehicle sharing program - as long as two conditions are met. First, the money the individual receives from sharing cannot be more than the cost of operating the vehicle. In other words, an individual car owner cannot make a profit on sharing, or the law will consider your vehicle to be a commercial vehicle, and therefore subject to heightened regulation.

The second requirement for avoiding personal liability in car sharing is that the personal vehicle sharing organization must provide insurance to cover the period of time when the vehicle is being used by someone else. If an accident does occur, the insurance coverage comes not from the person sharing the car, but from the organization that facilitated the sharing arrangement.

How much insurance are the facilitating organizations required to carry? A.B. 1871 specifies that the policy limits must be at least equal to or greater than those of the vehicle owner, and at least three times the minimum liability insurance requirement for private passenger vehicles under state law.

In addition to these requirements, A.B. 1871 requires the vehicle sharing program to maintain adequate electronic records documenting the times, dates and locations when a vehicle was under the control of someone other than the owner. The record-keeping requirement is needed in order to establish the period when the insurance provided by the vehicle sharing program is in effect, so that the vehicle owner's insurance company is not liable during those times.

Impact of Law

As clear as the participation requirements for California's car-sharing law seem, it is possible that significant questions of liability will still arise. After all, new laws often have unintended consequences; it would be impossible to craft legislation if all unknowns were accounted for.

For example, what if a vehicle owner knew or had reason to know of defects in his or her car before sharing it -- and those defects caused an accident? Whose insurance would cover this? The car owner's or the car sharing organization? Issues like this are bound to arise, and will need to be resolved.

Nonetheless, the car-share bill passed the California State Assembly unanimously in June, and has already passed a key committee in the State Senate. It could become law as early as January 2011.

Other states, including Florida, may follow California's lead. The reasons are many, but start with simple economics. As the recession lingers, the costs of car ownership are increasingly burdensome for more people. Car sharing could allow an owner to recoup part of the costs of owning, insuring and maintaining a vehicle.

Environmental impact is also important. Increased car sharing could cut down on congestion, fossil fuel use and air pollution.

The technology to facilitate car sharing is already in place. Online social media platforms like Facebook will likely play a key role as people hesitant to share their cars may experiment with their online friends. One big shift (online social networking) could help bring another big shift of car sharing -- as long as the proper legal protections are in place.

Article provided by Carman & Bevington, P.A.
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