As if parallel-parking rockets in space wasn’t enough, Tesla [NASDAQ: TSLA] and SpaceX [NASDAQ: SPCX] founder Elon Musk also once took a shine to hightailing around Silicon Valley in a classic $1 million McLaren, and subsequently totaled the vehicle with none other than billionaire financier Peter Thiel along for the ride. What’s more, the world’s wealthiest individual was driving without auto insurance when the crash occurred.
The year was 2000, and Musk had cash to burn after his Zip2 windfall, after he sold the online city-guide software company to Compaq for $307 million in 1999.
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With his $22 million cut from the deal, Musk set his sights on a 627 horsepower, 240-mph McLaren F1, which he snapped up for $1 million. Soon, Musk was tooling around California’s Bay Area, and often cruising between San Francisco and Los Angeles in the vehicle.
One day, in 2000, the PayPal cofounders took the McLaren to Palo Alto, where the duo planned to brief venture capital company Sequoia Capital on a finance deal.
Moments later, Musk lost control of the vehicle, which went airborne and then careened into an embankment, essentially destroying the vehicle. Both passengers were uninjured.
“It was a miracle neither of us were hurt,” he said. “I wasn’t wearing a seatbelt, which is not advisable. Elon’s first comment was, ‘Wow, Peter, that was really intense.’ And then it was: ‘You know, I had read all these stories about people who made money and bought sports cars and crashed them. But I knew it would never happen to me, so I didn’t get any insurance.’ And then we hitchhiked the rest of the way to the meeting.”
No coverage leads to big headaches, auto insurance experts say
Not having vehicle insurance is asking for trouble, for trillionaires and for Toyota drivers, especially those with lead-foot driving habits.
“The car is the smallest risk,” W. Travis Patterson, managing partner at Patterson Law Group in Fort Worth, Texas, told Moneywise. “If you total your own uninsured car, you lose the car. If you hit someone else, you owe whatever a jury says their injuries are worth, and no amount of wealth caps that number.”
Patterson said driving without liability coverage is also illegal in every state but New Hampshire, “which means a suspended license, fines, and a very unsympathetic jury when they hear you skipped insurance you could easily afford,” he said.
Wealth also makes liability coverage, especially at the astronomical levels Musk owns, more important, not less. “Most injured people never see full compensation because the at-fault driver carries a minimum-limits policy and owns nothing worth chasing,” Patterson said.
A wealthy driver is the opposite, as the injured person’s lawyer will find the assets, and the case will be worked to the full value of the injury instead of the policy limit. “Self-insuring means volunteering to be that defendant,” Patterson noted.
Here’s how bad it goes if an uninsured driving billionaire hits someone
Behind the wheel, billionaires who injure or kill an individual in a car crash pay a high price, even in their well-heeled, well-protected lives.
“Catastrophic injury claims routinely settle in the millions,” Edward Hsyeh, owner and CEO at New York City-based Anvo Insurance, told Moneywise. “Lifetime care for a paralysis or brain injury can run $10 million or more. Without insurance, that’s a judgment against the driver.”
What’s exposed financially depends on the state, but generally: bank accounts, brokerage accounts, real estate beyond any homestead exemption, business interests, and future income through wage garnishment. “In 2000, Musk’s wealth was largely tied up in company stock,” Hsyeh noted. “A judgment creditor can go after that too. A crash like that could have forced him to liquidate equity at exactly the wrong moment.”
Why an ordinary insurance policy fails on exotic or collectible cars
There’s a world of difference between ‘haves’ and “have-nots” in the financial realm, and auto insurance is no different — but not in a way you may expect, Hsyeh said.
“Standard auto policies pay actual cash value (ACV); what the car is worth at the moment of loss after depreciation,” he noted. “That works for a Camry. It doesn’t work for a car that’s appreciating, has no comparable sales, or costs more to repair than a standard adjuster has ever seen.”
Owners of luxury vehicles like Musk’s McLaren need specific features when landing insurance policies for their gilded wheels. “That includes agreed-value coverage, where you set the number up front and that’s what gets paid, and specialty insurers built for collector cars, not a standard insurance company with an endorsement,” Hsyeh said.
“The wealthy set also needs coverage that allows for specialist repair shops rather than a network body shop, and usage terms that match how the car is actually driven, since most specialty policies assume limited mileage.”
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