For years, I have written extensively about how to insure the auto liability exposures of teenagers (and other resident family members). Here is one such article:
This article is currently public and links to several other related articles, though they are password protected and can only be accessed by members of the Big “I”. I recommend that you read the article above before continuing with this article.
Most of the cited articles originated from real-life coverage and claims situations where someone, most often an attorney or financial planner, recommended that a resident family member, usually a child, be insured on their own personal auto policy (PAP) rather than the PAP of their parents or head of household. This is almost always VERY bad advice.
The premise of such recommendations is frequently that a family member such as a child has little or nothing in the way of assets and income to attach if they are liable, so the suggestion is that they insure the vehicle they own and/or use on their own minimum limits PAP. One problem with this is that, while the child has little on no assets or income today, they likely will over the coming decades and those future financial resources can likely be accessed in a lawsuit.
Another reason for the suggestion to remove a family member from the parents’ PAP is sometimes that the family is located in a state without a parental liability statute, so the parents allegedly have little or no potential liability. This point is particularly stressed when the child is 18 years of age or older, the premise being that the parents, without a parental liability statute, are insulated from lawsuits against the child. This is a ludicrous and dangerous presumption.
The reality is that there are MANY ways to allege liability beyond someone’s status as a parent. That became apparent most recently when Ashley Gold, an attorney at Wood Stabell Law Group, PLLC, brought the case of Carman v. Kellon to my attention where a parent was held liable for negligent entrustment in an accident involving an adult child.
I wrote about another case over seven years ago where a 33-year-old defendant was under the influence of near-lethal amounts of drugs and alcohol when she got behind the wheel of a truck owned by her parents. She crossed the center line and struck the plaintiff, a 17-year-old high school senior, head-on. The jury found the parents responsible for negligently entrusting this vehicle to the defendant who had a long history of drug abuse, rehab, and several car accidents. The decision totaled $1.2 MILLION.
My recommendation is that, wherever possible, all resident family members should be insured under a single PAP (and umbrella). The reason is that most PAPs exclude liability coverage for the use of vehicles furnished or available for the regular use of family members unless that vehicle is declared on the subject policy. In other words, if the parents are successfully sued for an accident involving a resident family member whose auto is insured under a separate PAP, the parents’ own PAP likely does not cover them.
If it is impossible for all family members to be insured under one PAP, then all PAPs in the household should be as identical as possible and carry the same high liability limits. Needless to say, an umbrella is also recommended.
Bill Wilson
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Hi Bill,
I love your commentary on these real world issues that we deal with every day. What are your thoughts on if an adult child moves out of the home but still operates a vehicle owned by his or her parents? Also, does it change anything if they move out of state?
I’m assuming it’s still insured on the parent’s policy? If the carrier is aware of the situation and, along with the parents, is Ok with it, I don’t see a problem under an ISO PAP since he’s a permissive user. But, since he’s no longer a resident family member, he gives up that level of insured status and, for example, has no automatic coverage for acquired autos. He also has no homeowners coverage and likely no umbrella coverage. If he’s emancipated and living on his own, he probably should have his own personal lines package.
Hello Bill-
My husband and I have an 18 yr old daughter that just obtained her DL. As agent I knew I had to call my insurance agent and get my daughter added to our insurance policy as a driver. When I called our agent of 10yrs he proceeded to tell me I did not need to add her to our policy as a driver because of two reasons, one- the pricing their company charges a large surcharge and two- he stated she is a HH resident and does not need to be added. I was floored by his response. As an agent myself I have always added children to my clients policy when they obtain their DL and esp now with the new PIP changes I would think it would be even more important. What am I missing here???
Michele, I don’t think you’re missing anything, but your agent appears to be missing some ethics. Yes, most PAPs automatically extend insured status to resident household members regardless of age or licensing status.
Failing to report such a person or concealing their existence may be a violation of the insurance contract or state laws or regulations.
I suspect the carrier the agent represents would be very interested in this practice.