Insuring "Zipcars"

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.

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.