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Question: My friend’s son is unable to get a loan on a car (due to very bad credit and judgments against him), so he is leasing his stepfather’s car from him. The stepson has his own insurance on the car, but it’s pretty limited coverage. If the stepson gets into a bad accident, like killing someone in that car, could the stepfather and his wife (co-owner) be sued and possibly lose their home?
Answer: It’s more risky than most realise to loan out your car, whether it’s to a friend for one day or a long-term period like your friend is doing with his stepson.
As the owners of the car, the mother and stepfather could potentially be held responsible for damages and injuries that are in excess of the stepson’s liability coverage limits. When you are the owner (or co-owner) of a car, most state laws are written so that you have vicarious liability for those that use it. This means the owner has the same liability as the driver.
So, if the stepson is in a fatal accident and the damages and/or injury expenses surpass the car’s limited coverage, it’s very possible that your friend will be sued (along with the stepson) for any medical and funeral expenses and property damage costs that exceed the car’s low liability limits.
Being sued does put your assets at risk, though it doesn’t necessarily mean the mother and stepfather would lose their home. For particulars of how their assets and future earnings could be affected, if a lien could be put against them, etc., your friend should contact a liability lawyer to discuss the situation and specific state laws.
One thing that the stepfather can do to help protect him and his wife is to require the stepson to carry industry recommended liability limits of $100,000 per person for bodily injury liability, $300,000 per accident for bodily injury and $50,000 for property damage liability coverage (written as 100/300/50).
If they do require the stepson to carry these higher limits, they should ask to be listed on his policy as additional insureds, so they will receive notifications if the policy limits are changed or is canceled.
Your friend may also want to talk to his current insurance company about obtaining an umbrella policy, to protect the family’s assets even further.
An umbrella policy would supply liability coverage beyond the limits of their auto and homeowners policies and should cover defence costs if they are sued. They’d have to see if this car could be placed under an umbrella policy with their other assets (house, cars, boats, etc.), since they own it, but it’s not currently in their possession.
Costs vary, but umbrella coverage is usually inexpensive for the protection it gives (typically a million-dollar policy can be purchased for around $200 to $300 a year); because umbrella coverages only kick in once your auto and/or homeowner policy limits have been exhausted.
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