N.Y. Regulator Issues ‘Cease and Desist’ Order to Car-Sharing Firm RelayRides

New York’s top financial and insurance regulator on Wednesday ordered the peer-to-peer car-sharing service firm RelayRides to cease and desist what the regulators called the company’s “repeated false advertising and violations of insurance law, which are putting the public at risk.”

Until further notice, the company has agreed to no longer conduct business in New York State.

The New York State Department of Financial Services also issued a consumer alert warning New York residents that the insurance offered by RelayRides through Hudson Insurance Company is “illegal and inadequate,” which could leave consumers personally financially liable for an accident.

Additionally, as part of its widening, ongoing investigation, the department said it demanded additional information from RelayRides and Hudson Insurance Company to help determine the full extent of the violations and any penalties that the department may impose.

“RelayRides sold New Yorkers a false bill of goods,” said New York Financial Services Superintendent Benjamin Lawsky. “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.”

RelayRides is a peer-to-peer car-sharing service that allows people to rent out their vehicles to third parties in exchange for a fee. New York regulators said the company represents to New Yorkers that they will not be liable for out-of-pocket expenses in the event that the car is stolen or involved in an accident.

However, the Department of Financial Services said its ongoing investigation uncovered that those claims were not true and that New Yorkers could be held personally liable for property damage, theft, bodily injury, or death that occurs during the rental.

The Department of Financial Services said that in a typical RelayRide rental transaction, the company maintains a $1 million liability insurance policy for injury or damage to third parties. The policy is issued by Hudson Insurance Company – a New York insurer. RelayRides also says it will directly reimburse vehicle owners for physical damage to the vehicle at RelayRides’ discretion.

RelayRides tells vehicle owners that the Hudson liability policy will cover the owner, and that the owner’s own policy will not be involved if there is an accident while a person is renting the vehicle. However, an owner’s personal liability insurance policy provides coverage to 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. As a result, an owner may be personally liable for any accident that occurs while the vehicle is being rented, New York regulators said.

Additionally, the Department of Financial Services said RelayRides advises renters to display Hudson ID cards in the event of an accident. In the event of an accident, however, New York law requires a vehicle operator to show a police officer and the other party involved in the accident the owner’s insurance ID card. Moreover, if the owner’s primary car insurer does not receive timely notice of the claim, then their insurer may not cover the damage, leaving the owner at greater risk of being personally financially responsible.

The Department of Financial Services said RelayRides also represents to vehicle owners that their participation in the program will not result in their personal liability insurers cancelling or not renewing their personal liability insurance. However, renting a personal vehicle may violate the terms an owner’s personal liability policy, entitling their insurer to cancel or not renew the policy. The department said its investigation into RelayRides is ongoing.

In a blog post on the company’s website, RelayRides CEO Andre Haddad said “innovation, by its nature, does not always fit within existing structures.”

“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 N.Y. Department of Financial Services that it believes there is noncompliance with certain unique aspects of N.Y. insurance law,” according to the blog post. “We are actively working with the Department to address these concerns. While we’re cooperating with the Department on these changes, we will be suspending activities that it considers non-compliant.”