Don't loan a car -- not even to Tiger

By Insure.com

You already knew your life wasn't much like Tiger Woods'. Here's another way your lives differ: That $60,000 SUV beaten with a golf club and rammed into a fire hydrant was a loaner.

And if Woods doesn't pay a penny for the damage, it won't be because he's a multimillionaire celebrity athlete. It's because he doesn't have to.

It turns out that it's the owner's insurance – in this case, General Motors' -- that pays. The same rules apply to mere mortals. If a friend crashes your car, it's you who is on the hook. Here are a number of accident scenarios and what you can expect to happen.

Scenario No. 1: Your friend drives your car and causes an accident with just a little damage.

If you lend your car to a friend, he causes an accident and both of you have car insurance, your insurance will pay, and you'll have to pay your deductible (unless your friend ponies up the money for the deductible).

The reason? Your auto insurance policy insures your vehicle plus "you, any relative and anyone else using your car if the use is (or reasonably believed to be) with your permission."

Scenario No. 2: Your friend drives your car and causes an accident with a lot of damage.

Let's say the accident your friend causes results in serious bodily injury to others and property damage. Liability coverage consists of two parts: bodily injury liability and physical damage liability. The driver's policy covers the driver and all passengers in the vehicle for bodily injury. The car owner's liability covers property damage caused by his or her car. Liability insurance also covers the cost of your legal fees in the event that you are sued.

But if the damage exceeds your insurance liability limits, the courts can attach your personal assets, such as your home, to recover damages. Liability coverage won't pay for damages beyond the limit for which you are insured.

Cases in which you and your friend share the cost of the accident are known as pro rata. If your friend was at fault, your insurance companies can share the cost. For example, say your friend causes $11,000 in property damage while driving your car. You have $25,000 in property damage coverage and your friend has $15,000; total coverage is $40,000. You and your friend may share the cost proportionally.

Initially, your insurance company would likely pay the full cost of the accident. It would then seek compensation from your friend's insurer to recover his or her share.

Scenario No. 3: Your uninsured friend drives your car and causes a lot of damage.

Lending your car to an uninsured friend can land you in a world of hurt. In this case, your uninsured friend has put you in a really bad spot. If the damage your friend causes exceeds your policy limits, the injured party can come after you for medical and property-damage expenses.

Scenario No. 4: Your friend drives your car without your permission and crashes it.

You're not likely to be held accountable for the damage because your friend borrowed your vehicle without your knowledge. In this case, your friend's insurance (assuming he or she has it) will kick in first. If your friend isn't covered, you'll probably need to use your collision insurance to cover the damage to your own vehicle, and your liability insurance would cover damage to others' property.

Bear in mind that insurance companies will assume a friend has permission to use your car unless there are clear indications that you denied permission, such as a drunken friend who takes your car without your knowledge.

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Scenario No. 5: Your car is stolen and then crashed.

If the thief crashes into someone or something, you won't be held responsible for the damage done to other people and their property, but you probably will have to use your collision insurance to pay for the damage to your car. Don't count on the thief having auto insurance, let alone enough money to spring for repairs and medical expenses. Even if the thief has insurance, his company won't pay for his criminal act.

Liability across state lines

If you hold the minimum auto liability coverage required in your state and are involved in an accident in another state that requires higher minimum coverage or other coverage (such as personal injury protection), your policy will automatically increase to meet that state's minimum coverage requirements.

For example, if you're a Connecticut driver (where minimum liability coverage is $20,000 of bodily injury protection per person, $40,000 of bodily injury protection per accident and $10,000 of property damage per accident, or 20/40/10, as it's often called) and are involved in an accident in New York (which requires 25/50/10 of liability coverage), your insurance will automatically extend to meet New York's requirements. This boost can be helpful, especially when you cause a large amount of property damage.

Some states restrict the ability of their residents to sue one another for pain and suffering after a car accident. The U.S. territory of Puerto Rico and 12 states have "no-fault" laws. The states are Florida, Hawaii, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Pennsylvania and Utah.

These laws mean that your car insurance must pay for bodily injury damages no matter who's at fault in an accident. However, these same states allow their citizens to litigate against folks from other states after car accidents.

For example, you are limited in your ability to sue for damages if you live in Pennsylvania. When buying your auto coverage you have two choices of liability: full tort or limited tort. If you choose limited tort, you will pay less in premiums, but you won't be able to sue another Pennsylvanian for pain and suffering unless you're seriously injured and your medical bills exceed a specified minimum amount. What constitutes a serious injury is outlined in your car insurance policy.

If you choose full tort, your premiums will be more but you will be able to sue no matter the amount of your damages.

Throw out the rule book if someone from another state crashes into you. Even if you have Pennsylvania limited tort, you'll be able to seek compensation for pain and suffering in the court system if someone from outside Pennsylvania crashes into you.

Published Dec. 4, 2009