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Removing an insurance barrier could lead to expanded carsharing in CA

By Ryan Hurlbert on September 8th, 2010

Most people are at least vaguely familiar with car sharing services, such as Zipcar, which allow users to rent cars for short periods of time (frequently by the hour). Most car sharing services are commercial businesses, but there are entrepreneurs out there who would like to start their own car sharing services--particularly in the state of California.

Unfortunately, for those aspiring to begin car sharing groups, current California state law says that receiving even a small fee for the use of your vehicle puts it into the commercial-use category and can invalidate your personal auto insurance coverage. If your car is used for commercial purposes, it should be covered by a commercial risk policy rather than a personal car insurance policy.

Exceptions to the commercial-use rule

There are, however, exceptions to this rule. For example, your personal auto policy would still cover you if you volunteered to drive an elderly person from your local senior center to the doctor or delivered food for your local meals on wheels organization. But, if you hand your car over to a car share group, and receive any payment for the use of your car, your personal policy would no longer have auto insurance protection.

California Assembly tries to remove barriers with new car sharing bill

The California Assembly is attempting to addressing this issue with Assembly Bill 1871 (A.B. 1871). The bill would exclude vehicles used in a car sharing service from being considered as commercial-use if the revenue generated by the carsharing service does not exceed the monthly expenses of operating the vehicle, including depreciation, interest, lease or loan payments, insurance, maintenance, and gas. However, auto insurance coverage must be provided by the carsharing organization when the vehicle is being used by a carsharing member who is not the owner of the car.

A.B. 1871 could remove one of the most formidable barriers to expanding carsharing in California. There are some sticking points, like when exactly does the liability transfer from the carsharing group's insurance back to the car owner? Does the transfer take place when the non-owning driver returns the car and parks, or when the owner takes physical possession of the car? A.B. 1871 states that the owner can receive reimbursement for the cost of fuel and maintenance, but how do you separate the car owner's use and depreciation from that of the carshare participants?

There are some very strict definitions that still have to be worked out, but the Association of California Insurance Companies has withdrawn its opposition to the bill and the bill is moving forward.

Before you rush out to join or form a carshare venture, so you can drive your car for free, remember that this is only in California (although other states may follow), and the law hasn't been finalized.

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