Read the Spanish version: Cuando un amigo tiene un accidente con tu carro: Normas de responsabilidad civil con automóviles

If you drive your car and cause an accident, your car insurance will pay for the damages you cause, as defined in your policy. If your friend drives and crashes your car, you may assume that he -- and his car insurance -- will pay for damages. In fact, you are on the hook.

Lending your car to a friend can be an expensive favor if he or she gets into a car accident while cruising your ride. Despite the fact that you may think the accident and resulting costs will fall to your friend's insurance policy, it will actually be your insurance coverage that will be paying the bills for your buddy’s driving mishap, assuming you gave the person permission to drive your vehicle.

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Car insurance tends to follow the car in most circumstances so if someone else is driving your car and is involved in an accident, your insurance will be considered primary, meaning that all claims will go through it, up to your coverage limits.

What “Permissive Drivers” means

When it comes to car insurance, permissive use refers to your ability to let other motorists, ones not listed on your policy, drive your vehicle periodically. Most standard insurance policies are permissive use.

The key word is "periodically" which most insurers define as less than 12 times a year. If your roommate, neighbor or friend is driving your car on a regular basis, that person should be added to your policy, which will most likely increase your premium.

There are "named driver policies" out there although they are fairly rare. This type of policy only covers drivers who are explicitly named on the policy. That means accidents are covered if  you let someone drive your car who is not named on your policy.

It is also possible for an insurer to lower coverage levels when an occasional driver is behind the wheel. Insurance companies in eight states are legally allowed to reduce coverage limits for any driver that is not specifically listed on your policy. They are:

  • California,
  • Colorado
  • Michigan
  • Missouri
  • Ohio
  • Oklahoma
  • Pennsylvania
  • Washington

Those states all allow insurers to drop coverage levels for drivers not on your policy, which means that even if you have a large amount of liability insurance on your policy, coverage could be reduced to state auto insurance minimums if a permissive driver is in an accident.

Car Accident damage

A permissive driver is just someone that has permission to drive your car. It could be a family member who is already listed on your policy or simply a friend that you gave permission to drive. When a permissive driver is behind the wheel, your insurance is considered the primary insurance. This is the case regardless of whether you are in the car with that person or not, and whether or not the person has his or her own insurance policy.

Your collision insurance will pay for the damages to your own vehicle if your friend crashes your car, if you have that coverage on your policy, as collision is optional. The liability portion of your policy will pay for any damage that the driver of your vehicle did to another person's vehicle or for injuries to others in an accident he or she caused.

However, the protection only goes up to your coverage limits. So, if your friend is in a serious accident, the damages may go beyond your limits and that is where it gets interesting. Let's have a look at a few different scenarios and how your insurance (and your friend’s) will deal with the aftermath of an accident.

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 minimal damage to your car only.

In almost all situations, if you loan your car to a friend and he or she damages your car in an accident, your insurance will pay. Even if your friend has his or her own car insurance, the claim will need to be made under the collision portion of your policy.

"As a car owner, you are responsible (insurance wise) for anyone you allow to operate your vehicle," says Penny Gusner, senior consumer analyst at Insure.com. "You can't just say, 'Not my problem'."

This also means that you (or your friend) will be paying your deductible and there is a possibility that your insurance rates will be headed up.

It should be noted that collision insurance is never a required coverage and if you are not carrying this type of insurance, you (or hopefully the friend that crashed your car) will be on the hook for repair costs.

If your car is undriveable after the accident you may be looking at a rental for a few days (or even a month) which can get pricey. If you are carrying loss of use insurance on your policy it should cover the cost of a rental car while your vehicle is being repaired. However, if you do not have this coverage you will end up covering the rental car costs.

Scenario No. 2: Your insured 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. Liability insurance follows a car first and driver second. That means the car owner's policy covers the driver and all passengers in the other vehicle for bodily injury. The car owner's liability also 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.

Liability coverage is required in almost all states, but minimums vary dramatically. As an example, Arizona only requires drivers to carry $15,000 bodily injury liability per person and $30,000 bodily injury liability per accident. This will quickly be eaten up by medical bills and possible legal fees.

Most industry experts recommend carrying much higher limits. "I always recommend 100/300/100 which breaks down to $100,000 per person, $300,000 per accident and $100,000 in property damage", advises Gusner.

Here's why. 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.

If your liability limits are not enough to cover all the damages inflected on the other party, your friend's auto policy may be looked at secondary coverage. Cases in which you and your friend's insurance policies share the cost of the accident are known as "pro rata." For example, say your friend causes $22,000 in property damage while driving your car. You have $10,000 in property damage coverage and your friend has $25,000; total coverage available is $35,000. Typically, in pro-rata cases, your insurance would pay the up to your limits, $10,000 and then have the other party look to your friend's insurer for the remaining $12,000. However, some insurers will pay the entire amount of damages and then seek compensation from your friend's insurer to recover the amount not covered by your policy.

If your friend was injured and has on his auto policy personal injury protection (PIP), he would claim against his policy for this. PIP is different and follows a driver first and car second, meaning if he didn't have PIP and you did, then he could claim against your PIP coverage.

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.

"The best advice is to never let an uninsured person drive your car unless you enjoy paying for other people's mistakes," says Gusner. "In this particular scenario, all damage will fall to your insurance policy and if your policy limits are exceeded, all of your personal assets are now at risk. Once your policy limits are reached, the injured party can sue you and come after your personal assets to cover medical bills as well as property damage expenses. This means, your house, savings, retirement assets can be in jeopardy."

Scenario No. 4: Your unlicensed friend drives and crashes your car.

Letting a friend that doesn't have a valid license, either without one altogether or under suspension, is a bad idea. Many car insurance policies include an exclusion of coverage if the driver of your vehicle doesn't have a valid license. And if he doesn't have a license, it's doubtful he'd have auto insurance. This would leave you and your friend responsible for any damages he caused in an accident. You can say it wasn't you driving, but car owners have vicarious liability for anyone they allow to use their vehicle. Basically, this means you can be held liable along with the driver for their actions behind the wheel.

"You might not ask to see a friend's license but as the car owner you are expected to take reasonable care before handing over the keys," says Gusner.

Scenario No. 5: Your friend drives your car without your permission and crashes it.

You're not likely to be held accountable for the damages 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 is uninsured, you'll probably need to use your collision insurance to cover the damages to your own vehicle and your liability insurance may 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 drives away in your car without your knowledge or authorization. Someone you know using your car without your permission is termed "unauthorized use" instead of theft and usually means your insurer will not pay for damages if that person is in an accident in your vehicle. You may have to make a report with the police on the unauthorized use if the person does crash and you don't want your auto insurance policy used for claims (since these claims can affect your future rates).

Other scenarios when your car is crashed by another driver

Now that we've gone over common scenarios involving friends, let's look at a few that involve other drivers, in general.

Your car is stolen and then crashed

If the thief crashes into someone or something, you won't be held responsible for the damages done to other people and their property, but you probably will have to use your comprehensive 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 is caught and has insurance, his company won't pay for damages resulting from his criminal act.

Excluded driver crashes your car

An excluded driver is a person that is specifically excluded on your insurance policy from driving your vehicles. Excluded drivers typically include teenagers or an older child that still lives at home, and in most cases, they are excluded to keep your premium down.

Once a driver is excluded from your policy, they have zero coverage so even if you give them permission to drive your vehicle they will not be covered and you will be on the hook for any damages to other people, their vehicles and your own vehicle. It is never advisable to let an excluded driver behind the wheel of your car.

Are my rates headed up?

In most cases, the answer is yes. Your insurance company doesn't care if you are behind the wheel or a friend is driving if it has to pay out a claim due to an accident. The increase can vary dramatically from a tiny bump to 40% or more for a serious accident. Unfortunately, you (or your friend) will be paying the higher rate for at least three years in most situations.

If you have accident forgiveness on your policy, you may get away without an increase if you meet the parameters of the program. While the rules can vary by insurers, in most cases you have to have clean driving record for three to five years. Accident forgiveness can be a given as a perk to long time customers with a clean driving record or as an add-on that you pay for once you are eligible.

The bottom line: Think before you hand over the keys

Before allowing anyone to drive your vehicle, think about the consequences. If the driver is unlicensed, it can keep your insurer from paying for accidents -- and in some states you may be cited by the police. You may also be out a friend if they refuse to deal with the aftermath.

In addition to any legal problems, there can be serious costs to dealing with an accident (rental car, your deductible, legal costs) and if your friend refuses to step up you may have to consider your options.

"You will need to make a decision as to how to proceed, if at all, against your friend for any out of pocket expenses. You can eat the costs, call on your friend to reimburse you, or if a hardball approach is needed, you can actually institute litigation against your friend, advises Joe Kopfler, founder of Kopfler & Hermann Attorneys at Law in Louisiana.

Your auto policy follows your vehicle, so claims that arise from a friend wrecking your car will go on your policy and affect your future car insurance rates. Keep that in mind before handing over the keys to your car.

If you've been paying higher rates after an accident your friend caused, it my be wise to compare top-rated auto insurance companies to see which ones might give you a lower rate.