Permissive Use – Are You Covered?

Permissive use related to auto insurance policies is a common issue that policy holders need to understand.  Our agency has noticed that many auto insurance policy holders have been misinformed by their previous agents, or have been operating outside the scope of their insurance policy’s guidelines regarding permissive use, and may have unintentional gaps in coverage of which they are unaware.

Permissive use, as it relates to automobile insurance, exists when a policy holder give express or implied permission to another person not specified on the policy, to operate the insured party’s vehicle.

People who need to be named or excluded drivers on your policy should include, your spouse, your children living in your household, or anyone who lives in your household, or has access to your vehicle on a regular basis.  In addition, if you have a roommate that may drive your car, you should consult your agent or insurance company to determine if your policy provides coverage should they need to use your vehicle.  If there is any chance that a driver will use your car, think strongly before excluding that person from your policy, as that exclusion could come back as a gap in your coverage if you allow that person to drive your vehicle and forget that you excluded them from coverage.

This is an important part of your policy that you need to clearly understand, as it is a common misconception that car insurance follows the driver.   In most states, including California, auto insurance follows the vehicle.  This means that when you loan your car to another driver who is not specifically excluded on your policy, your car insurance is the primary insurance coverage that applies when there is an accident.

Problems arise when an auto insurance policy holder believes someone is a permissive user under their policy, when in fact, the driver is not considered a permissive user. The fact that a driver has the permission of the owner to drive a vehicle does not necessarily mean that the permissive user or vehicle will have the same coverage as the named insured.

State laws and insurance companies handling of permissive use drivers vary.  Some carriers have clauses in their auto insurance policies that lower the limits of liability to the state minimums when a vehicle is operated by a permissive driver.  This concept is commonly referred to as a step-down provision.

Under California Insurance Code section 11580.1 (d) Statutory Exceptions to Coverage of Permissive Users insurance companies may include a limitation on permissive use coverage to the state’s minimum required liability limits (15/30/5) even though the named insured’s coverage is greater.   California Insurance Code does not require insurance companies to limit the coverage, so some companies limit the coverage for a permissive user and others may not.

The Department of Insurance in California does not have a list of which insurers do and do not enforce the limitation of liability for permissive use when it comes to personal auto insurance policies.  It’s a good practice to ask your insurance agent how your insurance company handles permissive use when purchasing an auto insurance policy, especially if you want to allow others to use your vehicle and want them to have the same limits you have chosen for your policy, rather than the minimum state liability limits of $15,000/$30,000 for bodily injury liability and $5,000 for property damage liability.

These “drop-down limits” are of great concern when an umbrella policy comes into play.  Imagine that your umbrella policy requires underlying limits in your auto insurance coverage of 250/500/100, but due to a permissive use application, your policy limits are adjusted to 15/30/5.  In this case, your underlying auto insurance coverage does not meet the limits required by your umbrella policy. You may have invalidated your umbrella coverage, or created a gap in coverage that you may need to cover before your umbrella picks up coverage.

There are a few common exceptions to permissive use coverage that are important to discuss.  The first common exception is related to the permissive user who uses the vehicle for business use.  While you may not use your vehicle for business and don’t see the importance of that, what if your friend borrows your vehicle and uses the vehicle to make a business delivery and is in an accident in the process?  This simple, but overlooked exclusion could leave you not only without liability coverage but also without collision coverage to repair your damaged vehicle.  The other common exclusion is related to unlicensed drivers.  If you lend your car to someone who does not have a driver’s license it is quite possible your insurance carrier will look to disclaim coverage for a loss related to that unlicensed driver operating your vehicle.

Every insurance company has different contractual language and interpretations of permissive use when it comes to their auto insurance policies.  Some carriers are extremely strict in their enforcement of the contract and permissive use language, so depending on your insurance carrier, the way your policy protects you and others can change dramatically.  By reducing or restricting the permissive use coverage afforded under an auto insurance policy, insurance carriers can reduce their risk (and claims expenses), thereby, reducing the cost of their polices to make them more affordable to their policy holders.  These limitations of coverage are not typically found on the Declarations Page so you need to be careful when truly trying to compare policies between insurance carriers.
 
This article is a very broad-strokes discussion of permissive use and should not be construed as necessarily being applicable to your individual policy. Auto insurance policies are not all standardized. They are different from carrier to carrier and state to state and there are a multitude of coverage benefits, restrictions and exclusions that are unique to each. Make sure to consult with your agent to see how your specific policy works.