"One of our insureds called yesterday about something called a 'zipcar.' His daughter Heather is going to Vanderbilt University in Nashville this fall, and freshmen are not allowed to have cars on campus. In some of the orientation information the university sent was a mention of 'zipcars' as one of the alternative forms of transportation for students. Our insured asked us if his Personal Auto Policy that we write would cover his daughter driving one of these 'zipcars.' Any thoughts?"

Zipcar is an innovative alternative to traditional car rental.  The company describes itself as a “car sharing” company instead of a car rental company.  The company was founded in Cambridge, Massachusetts in 2000, and grew out of the numerous car sharing plans that had been popular in Europe since the 1980’s.  According to their web site www.zipcar.com, the company currently operates in in the U.S., Canada and the UK.  They have a fleet of over 9,000 cars, and have over 700,000 members (whom they call “Zipsters”).  Cars are available only to Zipsters, who pay an annual fee (with a one-time application fee).  Vehicle usage rates currently begin at $8 per hour, and this includes gas, insurance and up to 180 miles.

Zipcar offers not only individual membership, but also has partnering plans for universities, businesses, and government entities.  

Among the many novel ideas about Zipcar is how the reservation is made, how a car is located, and how the Zipster gets the keys to the car.  Once the membership application is processed, a Zipcard (about the size of a credit card) is sent to the new member.  Cars are located at the Zipcar web site.  Reservations can be made from a computer or smart phone.  When the Zipster arrives at the location of the car, the Zipcard is placed against the scanning device (an RFID reader) on the windshield, and the car doors are unlocked.  The keys are always left in the car, but the car will not operate unless the Zipcard used to unlock the car matches the Zipcard of the member who made the online reservation.  When the Zipster is finished with the car, it is returned to its original reserved parking location.  Billing is automatic, to the Zipster’s credit card on file.

As an indication of the growing popularity of car sharing, the Wall Street Journal reported in a June 2, 2010 article that Zipcar has filed with the SEC to make an IPO (initial public offering) later this year.  In their SEC filing, Zipcar offers a look at the future market opportunities for car sharing.  The filing cites a study by Frost & Sullivan which projects that “revenue from car sharing in North America will increase to $3.3 billion in 2016, up from $253 million in 2009.”  Not surprisingly, this huge potential source of new business has attracted other players.  Both Hertz and Enterprise are diversifying their traditional rental car business to include car sharing plans.

So, that’s what Zipcar is.  Now let’s look at the insurance issues.  According to the Zipcar web site, the company provides auto liability limits of $300,000 CSL for BI/PD, and includes physical damage coverage with a $500 deductible (or “damage fee” as it’s called).  But if needed on an excess basis, how would your insured’s Personal Auto Policy respond?  I do not see a coverage problem in the ISO PAP.  For the discussion that follows, assume Jack and Jill are Heather’s parents.

Since Heather is just starting college, under Jack and Jill’s ISO PAP she would be considered a family member, in all likelihood.  Here is the excerpt for who is an insured under Part A – Liability:

B. "Insured" as used in this Part means:
   1. You or any "family member" for the
      ownership, maintenance or use of any
      auto or "trailer".
   2. Any person using "your covered auto".
   3. For "your covered auto", any person or
      organization but only with respect to
      legal responsibility for acts or omissions
      of a person for whom coverage is afforded
      under this Part.
   4. For any auto or "trailer", other than "your
      covered auto", any other person or
      organization but only with respect to legal
      responsibility for acts or omissions of you
      or any "family member" for whom coverage is
      afforded under this Part. This Provision
      (B.4.) applies only if the person or
      organization does not own or hire the auto
      or "trailer".

Therefore, Heather is an insured under B.1.  For the use of a non-owned auto, the PAP is excess, as provided in the Other Insurance provision.  In the event Jack or Jill was sued as the parent or under some other possible tort issue, they are covered in the PAP under B.1. Note the coverage applies for the “ownership, maintenance or use of any auto…”  The parent is covered as an insured even if he/she was not operating the Zipcar.  The coverage could be read as applying for the “ownership, maintenance or use of any auto…by anyone.”

In addition, the language under B.4. would cover any other party made liable (including a parent), so a parent would find coverage under either B.1. or B.4.

Jack and Jill’s Medical Payments and UM coverages would also follow Heather, since like liability, these coverages also apply to “family members.”  By the way, the Zipcar web site says that in addition to providing $300,000 CSL liability, their policy covers “Personal Injury Protection (PIP), or "no-fault" coverage, at statutory limits for our members if they are injured in an accident.”  There is no further explanation of this coverage, so one could assume it would only be applicable in accordance with specific state laws.  No mention is made of standard auto medical payments coverage, or uninsured motorist coverage, so Heather may have to rely solely on Jack and Jill’s PAP for those coverages.

Lastly, Jack and Jill’s PAP also provides physical damage for non-owned autos such as the Zipcar, assuming their PAP includes Part D on at least one auto.  Here again, the PAP is excess, and since Zipcar’s insurance covers physical damage, about the only situation where Jack and Jill’s PAP might need to provide coverage is if Heather is using the Zipcar in violation of the stated rules of Zipcar.  For example, Zipcar’s insurance will not apply if Heather lets an unauthorized person (a “non-Zipster”) drive, or is she is “texting, emailing, using a cell phone without a hands-free device or otherwise using a mobile communication device that may distract you from driving.”  Additional prohibited conditions include “timely delivery of goods,” “towing a trailer,” “driving under the influence,” or driving “in an imprudent or abusive manner or for any abnormal use of this vehicle.”

One additional coverage issue that needs a brief comment is the exclusion for “furnished or available” autos, which applies to liability, medical payments and physical damage coverages.  However, most industry experts believe that this exclusion should not apply to a car sharing arrangement such as Zipcar.

While not part of your question, suppose Heather was 28 and entering grad school at Vanderbilt.  If she had lived on her own for several years before going back to school, she would generally not be considered a “family member” under her parents’ PAP.  If she was not going to own a car for the time being, how would she find excess coverage, above what is provided by Zipcar?  Or, after graduation, she might get a job in a large metropolitan area such as Atlanta, Chicago or New York, in which case she might defer purchasing a car, and just use public transportation to commute to work, and Zipcar for the occasional personal errands.

In either of these situations, probably the best solution for Heather is a Named Non-Owner Policy, which can provide liability, medical payments and UM coverage.  Since the NNO does not include physical damage coverage, about the only way Heather could find such coverage for the Zipcar would be a personal umbrella policy which does not have a care, custody or control exclusion.  Keep in mind that she would not need to worry about procuring physical damage coverage unless she violated the rules of usage and lost the coverage under Zipcar’s policy.  By using good risk management practices (such as following Zipcar’s rules), she can avoid any situation where Zipcar’s insurance would not apply.

Last Updated:  July 2, 2010