RelayRides Stops NY Operations Over Car Insurance Concerns

RelayRides agreed to stop its New York operations after officials there issued a cease-and-desist order along with a strongly worded press release claiming the car-sharing service had broken insurance laws and promoted itself with “false advertising.”

The order was issued Wednesday by Benjamin M. Lawsky, superintendent of financial services for the New York Department of Financial Services (NYDFS), along with a consumer alert that warned motorists throughout the state that the car-sharing service, which facilitates peer-to-peer car rentals for a fee, provided “illegal and inadequate” car coverage from Hudson Insurance Company.

“RelayRides sold New Yorkers a false bill of goods,” Lawsky said in the release. “Despite RelayRides’ assurances to the contrary, their New York customers could get left holding the bag financially for an accident because the company’s insurance is illegal and inadequate.”

Lawsky described the NYDFS investigation for “typical” rentals. According to the NYDFS, RelayRides said the liability policy offered by New York insurer Hudson would cover the car owner renting out the vehicle in lieu of that owner’s own policy, which would “not be involved if there is an accident while a person is renting a vehicle.” RelayRides also offered to “directly reimburse vehicle owners for physical damage to the vehicle at RelayRides’ discretion.” The rentals entailed a Hudson-issued, $1 million liability policy for injury or third-party damage.

However, according to the NYDFS, state insurance law mandates that a car owner’s personal liability policy cover “any person who drives the vehicle with the owner’s permission.”

“New York law does not permit an insurer to exclude coverage for a renter,” Lawsky said. “As a result, an owner may be personally liable for any accident that occurs while the vehicle is being rented.”

RelayRides CEO Andre Haddad said in a statement that the company is “actively working” to rectify issues with the NYDFS but would be “suspending activities that it considers non-compliant” in the meantime.

“Innovation, by its nature, does not always fit within existing structures,” Haddad said. “Although we’ve been careful to ensure the protections offered to our member community comply with legal frameworks around the country, we learned in conversations with the NY Department of Financial Services that it believes there is noncompliance with certain unique aspects of NY insurance law.”

The San Francisco-based company said that, effective Thursday, vehicles in New York would no longer be available to renters, though “trips already in progress” would not be impacted.

Haddad said that the company is shooting, by 2015, to make a RelayRides car rental available within a 10-minute walk of 100 million Americans.

RelayRides offers car rentals in 17 cities across the U.S., which includes six in California, and is “committed to the democratization” of the car-sharing services it provides, according to Haddad.

The NYDFS said that the ongoing investigation should include more information from Hudson, which is the target of investigators seeking to uncover “the full extent of violations related to RelayRides New York business and any penalties DFS may impose.”

About Charles Nguyen
Charles Nguyen is an enterprising journalist who reported for and the Desert Dispatch and was the editor in chief of the Guardian (the twice-weekly newspaper at the University of California, San Diego) before coming to Online Auto Insurance News.

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