The kids finally turned 18, out of the house off to school or their first real job and you have done what you have waited to do for years—re-decorate their room! But, this economy has changed that dream in a lot of different ways. The kids are back, or if not physically moving back into “your” home they are back on the household payroll. The good news is you talk to them more…th
e bad news is that they are calling for a transfer into their account.
I hear these stories all the time, and I, too, have become much closer to my kids! This economically driven dependence has created some very interesting insurance questions. The fact is that as the helpful parent we are creating some serious personal liability and taking insurance risk. Here are a couple of true examples (fictitious names are used to save my friendships):
“Can you lease a car for me—I cannot qualify with my credit rating”
Sandy is a 40 year old who not a member of his mother’s household and needs to lease a new car. He cannot qualify for the lease, so he asks his mother to lease the car in her name.
They have considered two ways to handle the insurance on the leased vehicle:
I. Mom insures the car on her personal auto policy; give the car to him to drive; and, he will reimburse her for the payments and monthly insurance bill.
When mom called her insurance agent, the agent told her that she could insure “Sandy’s Car” since she is the registered owner and the only person on the lease. The problem here is that it is just not right to do this. It is misrepresentation to the insurance company. While a small claim may not highlight this fraud to the company—when Sandy gets into a significant accident the truth will come out. The insurance company has the right to rescind coverage under such circumstances and their agent will face the consequences of bad advice. Even if they do get away with it, many insurance carriers have restrictive language in their policies regarding permissive use.
In particular, California law generally requires that automobile insurance policies cover permissive drivers under the owner’s liability policy [Insurance Code§11580.1(b)(4)] but the insurer can limit permissive user coverage by use of clear and conspicuous language to $15,000/$30,000/$5,000 [Vehicle Code §16056; Haynes v. Farmers Insurance Exchange (2004) 32 Cal.4th 1198, 1205 (finding that to be enforceable, a limitation of limits for permissive use must be conspicuous, plain and clear)].
However, if a motor vehicle owner gives express or implied permission to a person to use a motor vehicle, and that driver wrongfully (negligently or intentionally) causes injury or death to a person or damage to property, the vehicle owner is also vicariously liable [Vehicle Code §17150 ]. In fact, Owner liability under Vehicle Code §17150 generally has a maximum dollar limit of $15,000 per injured person but $30,000 per occurrence even if more than two people are injured, and $5,000 for property damage [Vehicle Code §17151; see also Vehicle Code§17155].
The permissive use statute does not limit the liability amount owed by the owner based on another viable legal theory (other than permissive use) such as, for examples, negligent entrustment to an “incompetent, reckless, or inexperienced driver” (Syah v. Johnson (1966) 247 Cal.App.2d 534, 538), and failure to properly maintain brakes (Fremont Compensation Ins. Co. v. Hartnett (1993) 19 Cal.App.4th 669). As such, an injured or damaged party will file suit against both the owner and driver for the permissive use statutes to apply [Vehicle Code§17152].
If we strictly interpret the PAP, we know that anyone can drive our vehicle with our permission and there is no time frame for the permissive use. The PAP does not say it MUST be garaged at the owner’s home although that was the address the insurance company used for rating purposes as well as the mom’s driving record.
So the first question to answer is if Sandy gets into an accident, will Mom’s policy provide her coverage for the occurrence?
Mom’s AAA policy (insuring agreement) provides that the insurer “will pay damages for which any person insured is legally liable because of bodily injury or property damage caused by an occurrence arising out of the ownership, maintenance or use of an automobile…”
Further, Mom’s policy includes as an insured, “any person using an insured automobile with your permission…” So far, so good. Based upon the insuring agreement alone, it appears that Mom and Sandy will be covered. However, the policy also requires Mom to notify the carrier if there is a change in driver. The policy provides:
“You agree to pay the premium…resulting from changes made during the policy period. Changes include, but are not limited to…(c) a change in drivers…”
The policy also contains a “Misrepresentation or Fraud” section, which provides:
“This entire policy shall be void from its inception if any person insured has misrepresented or omitted any fact or circumstance which was material to our issuance or renewal of this policy. Any statements in the application or in any documents provided to us by any insured in connection with the issuance of renewal of the policy shall be deemed material to the acceptance of the risk assumed by us under this policy, and this policy is issued in reliance upon the truth of such representations. If any person insured intentionally makes a false statement or conceals or misrepresents a material fact or circumstance that relates to an accident, occurrence or loss, or to our investigation thereof, we may elect not to provide coverage for that accident, occurrence or loss. We also may elect to cancel or nonrenewal the entire policy as permitted by law.”
Based upon the initial and continued misrepresentation as to “who” is driving the car, the insurer has a clear basis to void Mom’s ENTIRE policy from its inception. Thereby jeopardizing not only coverage for “Sandy’s Car”, but for any other vehicles insured on the policy in question.
Assuming the insurer does not find out about the misrepresentation or agrees not to void the policy upon making that determination, the next question becomes:
Does Mom’s policy cover Sandy, if Sandy gets into an accident?
To qualify as an insured under the policy, with respect to an insured vehicle, a relative must be a resident of the same household in which the named insured resides. So, should Sandy get into an accident, he will not qualify as an insured on Mom’s policy.
If Sandy has his own auto policy of insurance (say for a different auto) will Mom’s car be considered an “Additional Insured Automobile”? To be an additional insured automobile, Sandy cannot own the car (check) and it cannot be “available for regular use” by Sandy. Under the strict definition, Sandy’s own policy won’t cover him.
II. Sandy is going to insure the car on his personal auto policy.
This approach is even worse than the first scheme. Mom may think this gets her off the hook but she, and she alone, is the registered owner and subject to liability as the owner. Mom has no insurance on the car because she did not add it to her policy.
Further, Sandy has no insurable interest in the car; he is neither the lessee nor co-lessee. There would be no coverage under his auto policy or her policy for the leased vehicle.
Advice to Mom
1. Have your 40 year old kid move back home because he will then be a member of the household and the PAP would have a better chance of extending coverage.
2. Do not lease a car for your children in your name whether they live at home or not but especially if they are not in residence.
3. Have them get a jalopy or take the bus.
Footnote  “Every owner of a motor vehicle is liable and responsible for death or injury to person or property resulting from a negligent or wrongful act or omission in the operation of the motor vehicle, in the business of the owner or otherwise, by any person using or operating the same with the permission, express or implied, of the owner.” California Vehicle Code § 17150.
I am moving home (with the kids) so that I can start my own business
Your perfect home, since you kicked out your husband has been infiltrated by your son, wife and two children under the age of 8. We have some significant issues to resolve and I am not talking about the play dough in the carpeting here, which is a given. The bigger concern is the fact that your son is going to start his own internet company. He was the victim of layoffs in the industry and is striking out on his own.
The Homeowners is clear in its definition that an “insured” means You and residents of your household who are your relatives… Good so far, the family is all covered on the mom’s Homeowners Liability Policy.
The business takes a while to get going and as soon as the big break is becoming a reality, the son decides to file a DBA and form an LLC. He has to buy a substantial amount of computer equipment through his new company all of which is kept in the home or more often in the detached garage.
The insurance problems are now mounting. We have a business operating out of the home; the business is operating in a name other than the resident relative on the policy; and a lot of expensive equipment owned by the company maintained in residence. Hopefully you are saying to yourself NO coverage or at best very limited coverage. Mom’s Homeowners Liability policy had problems before the son formed a company—specifically all of the business exclusions. When he formed the company, even the limited coverage that was part of the policy was removed. In terms of all the computer equipment, it too is not owned by the relative in residence—it is owned now by his company. Even if you could put a claim in for loss under the Homeowners policy it would be limited for both coverage on and off the premises. The fact that it is stored primarily in the garage brings up the very strong language that a detached garage cannot be used in whole or in part of business purposes.
Advice to Mom:
1. While you are now the proud mother of a budding entrepreneur, have him buy a business policy to cover his liability and property.
2. Remove the play dough with hot water and salt
Laurie Infantino AFIS, CISC, CIC, CRIS, ACSR, CISR
President, Insurance Community Center, Insight Insurance Consulting