SUNDAY, JANUARY 30, 2011
by Ed Sneineh
Can people establish an auto insurance contract on a car that you do not have title to? The answer is always 'yes'. There is absolutely nothing illegal or unlawful (ie in the structure of the law, or in the state laws) that forbids insuring any automobile that you do not have possession to. The proper question, however, is if the policy contract that is insuring a vehicle which is not owned by the named insured is a valid contract- policy. The exact answer in this scenario is 'it depends.'
One of the key principles in the insurance world is the <i>principle of indemnity</i>, which pronounces exactly that the objective of any insurance contract is to bring back the insured persons to their financial settings prior to the loss, and that these people can never advance monetarily from the insurance contract or claims. From this point comes the notion of <i>insurable interest</i>. There has to be some insurable interest among the owner of the contract and the insured subject. Insurable interest dictates that a person has to incur some financial loss as a result of destruction of a property for him or her to have insurable interest in that property. In the insurance business, insurable interest must exit at the time of the loss for property and casualty (including car insurance.) For life insurance contracts, however, the insurable interest must be existing only at the time of the ratification of the application to get the insurance policy.
The reason why insurable interest must exist at the time of the loss is to prevent insurance fraud. Imagine if someone insures his friend's vehicle while the fiend also has his own insurance, and then later for both him and his friend collecting money for a theft loss of the vehicle. Also, in life insurance there has to be some sort of blood, business, or marriage relationship between the owner of the life insurance policy and the insured at the time of signing the life insurance application (i.e. not necessarily at the time of loss or death). This is needed to prevent wagering upon human life.
If the car in question is a car that you do not own (possess no title for it), then there seems to be no financial loss for you in the event of a loss to the vehicle, therefore you may insure it, but your insurance contract may not be valid because at the time of the loss the car was not yours. Remember that while car insurance is about insuring a car, it is classified as personal insurance, meaning it has to do with a particular person, and not the car itself.
So how do you deal with situations where a car is given to you, but the title is still in the name of a friend or relative and you are now required to have insurance? The answer is very simply: The insurance must be in the name of the titleholder and you need to be listed as an additional driver. This is the proper way of handling the situation. An exception to that is if the title is in the name of the spouse. In that case the named insured and titleholder can be used interchangeably between husbands and wives. Also, placing insurance under your name for a vehicle that is titled under your child's name is also acceptable as long as you demonstrate some proof that you will suffer financially as a result of loss to that vehicle and you list the child on the policy as an operator. Perhaps your child lives with you and the child still relies on you financially? That is a good case of proving insurable interest.
When you call your insurance representative to get some car insurance quotes be sure to report this information to your agent. Improper disclosure of the titleholder or Named Insured on the policy is one of the main reasons why insurance companies refuse paying claims later. Certain elder and mature people (over 25) insure cars that are titled in the names of other youthful drivers (under age 25) who are normally charged extra by almost all insurers. It is hard to convince the insurance company that a youthful driver who owns a vehicle is not driving it, and since the company issued the policy for the other mature driver without charging the proper premium there is good ground for proving misrepresentation, where in circumstance like that a company may not pay claims. For example, if the automobile was insured full coverage and there was a total loss the insurance company will ask named insured to give up the title of the auto for them to pay you for the auto. In the event that you do not own the vehicle, you cannot legally sign to transfer the title, hence the company may find itself unable to pay you!