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Automotive Rental Idea Could Fail because of Car Insurance Exclusions


On average, a person's private vehicle sits idle almost 23 hours of every day. Wouldn't it be nice if those idle hours could be used to make money for the car's owners? People have been loaning out their cars for small fees or bartering for drive time for decades informally. A new service has taken that personal renting idea to a new level, offering organized rentals with a formal fee structure and high tech car access for members who are interested in renting out their cars or using a rental for a few hours. The idea is to save money by only paying for the car when you actually use it instead of paying for it on a daily basis through a rental company. The idea is interesting, but it might cause some problems when it comes to insurance coverage.

OnStar Service Teams up with Personal Rental Service

The service, called RelayRides, is offered through General Motors and their OnStar program. Cars that are equipped with OnStar can be signed up for RelayRides in Boston or San Francisco. Once the car is part of the system, RelayRides members who need to borrow a ride will be notified of the available cars in the vicinity. The potential renter signals OnStar, and OnStar unlocks the car remotely. The keys are hidden in an agreed upon location so the renter can start the car and travel. Since OnStar can track the vehicle, there is little danger of the car being stolen or lost.

Customers Pay by the Hour for Renting Personal Cars

The rental fee is established by each car owner individually. RelayRides keeps track of the car's mileage and the length of time the car is driven by the rental customer. They charge the customer for their time based on the hourly fee. The customer is allowed to drive the car up to 160 miles per rental without incurring any additional fees. When the rental is over, the customer simply places the key back where they found it and locks the door so that the owner can retrieve the car when he or she needs it again.

Renters Responsible for Gasoline and Keeping Cars Clean

The car owner can report problems to RelayRides if the renter leaves the car in poor condition. RelayRides provides a gas card to the renters so that they can top off the tank once they have finished using the car. If the customer returns the car late or doesn't clean the car out after they use it, RelayRides will charge the customer a fee to cover the cost of cleanup. The fee will be paid directly to the car owner once RelayRides receives it. Car owners can make stipulations in the rental contract about whether or not customers can smoke, eat, or drink in the rented vehicles.

Driving Histories Screened Prior to Rentals

To protect the interests of the car owners, RelayRides runs a thorough background check on all potential members before it allows them to being renting cars. The background check includes information about previous accidents the member may have been involved in, traffic tickets, or DUI offenses. If the member has a high risk level, they will not be allowed to rent cars through this service. The background check is similar to the type of investigation a car insurance company runs on every customer when establishing a premium rate. RelayRides wants to reduce the risk that a renter will be involved in an accident, the same way an insurance company wants to protect itself against that same risk.

Personal Insurance Policies Don't Cover Commercial Use

One of the potential problems with the RelayRides service is that the car may not be adequately covered for the rental customer or the car owner through a traditional car insurance policy. Car owners are essentially hiring out their vehicles, which falls under a different category than simply allowing a friend to borrow the car. Since the person driving the car has literally paid for the privilege, they could be seen as commercial use of the vehicles. Most insurance companies require that owners carry a different kind of insurance coverage for commercial use.

Rentals Could Be Considered Public Conveyance

There are state laws that establish separate rules for vehicles that are being used for livery or public conveyance purposes. When you rent a car from an established rental agency, that car is covered by special commercial car insurance that protects you and the rental agency if there is a problem with the car while you are driving it. In addition, you are allowed to purchase extra insurance for specific coverage that exceeds the limits of the coverage that is already in place. Renting a car through RelayRides may not protect you in the same fashion.

Carpooling and Ride Sharing Not the Same as Rentals

Sharing rides and carpooling are not an insurance problem because there is usually no profit being made during the transaction. Most car insurance policies have a written exception for such activities written into the livery exclusion.

Carpool members might give the car owner money to cover gasoline, but they are not paying additional rates for the use of the car. This means the car is not being used as a commercial vehicle, so personal insurance policies will cover the driver and passengers in the normal way. In the RelayRides system, the car owner is being paid a profit by the person who is driving the vehicle, which makes the insurance situation more dicey.

OnStar Service Coverage May not Be Honored in all States

Right now RelayRides is only available in Boston and San Francisco. Most of the OnStar equipped vehicles produced by General Motors today are able to utilize the RelayRides system. There may be problems with insurance coverage in some of these states since each state has its own car insurance regulations. While the RelayRides membership does provide insurance for car owners and members in these first two states, the same coverage may not be possible throughout the nation. In fact, it only became possible in California after the state passed a law to clarify when the car holders policy took effect and when RelayRides' policy took over.