An insurance company may inadvertently find that its insureds may not be as risk-averse as they might otherwise be (since, by definition, the insured has transferred the risk to the insurer), a concept known as moral hazard. This 'insulates' many from the true costs of living with risk, negating measures that can mitigate or adapt to risk and leading some to describe insurance schemes as potentially maladaptive. To reduce their own financial exposure, insurance companies have contractual clauses that mitigate their obligation to provide coverage if the insured engages in behavior that grossly magnifies their risk of loss or liability.
When an insured borrows a vehicle from a friend, the insured’s liability coverage usually steps in only when the insured’s policy limits are exceeded. Collision and comprehensive coverage do not apply to a borrowed vehicle. Medical Payments (Med Pay) and Personal Injury Protection (PIP) coverage, as we will see below, also follow the insured into a borrowed vehicle.
Many insurance executives are opposed to patenting insurance products because it creates a new risk for them. The Hartford insurance company, for example, recently had to pay $80 million to an independent inventor, Bancorp Services, in order to settle a patent infringement and theft of trade secret lawsuit for a type of corporate owned life insurance product invented and patented by Bancorp.
When an insured allows other drivers to drive his vehicle, then, and only then, does the question of whether insurance follows the car or the vehicle become even awkwardly relevant. The right question to be asking is not whether insurance follows the car or the driver, but whether or not other drivers will be covered by the insured’s auto insurance.