I'm going to suggest a middle-ground that I'm comfortable with. So far, it's the ONLY way I'm comfortable with an instructor driving a student's car.
The instructor must sign an assumption of risk document that provides if ANYTHING happens to the student's car or its occupants while the instructor is driving, it is the instructor's fault. If the instructor drives the car into a wall, it's his fault. If another car hits you on the track, it's the instructor's fault. If a stray missile from the nearby AF base blows up your car, it's the instructor's fault. The fact is, he's behind the wheel, so he has more control over what happens to the car than the student does.
For that matter, I would consider requiring the instructor to show proof of insurance or post a bond that verifies he is personally insured up to $250,000 for causing damage to the car and/or the student. Again, if something bad happens, I want a pool of money already earmarked to pay for the damages. It does us no good to hold an instructor personally responsible for driving a student's car if the instructor is broke and can't pay for repairs.
I also would require the instructor to indemnify the event organizer and all of the event staff from any and all liability, attorney fees, etc. just in case the student decides to sue everyone for damages to his car or to him personally. The fact is I don't know all of our instructors personally. For all I know we could have a "Frank" in our midst, and I intend to cover my ass.
It does us no good to try and model our "instructor drive" policy after BMWCCA, PCA or another sanctioned group. First of all, these organizations are formally incorporated, which adds a shield of liability to its organizers. We don't have this kind of liability protection in place. I've offered in the past to set it up, but nobody seemed interested. Second, these groups have formal instructor training, which also adds a level of liability protection to the organizers. We have no such formal instructor training.
Instructors don't just owe a certain standard of care to their students, we owe a certain level of care to each other. If one or more of us is going to drive a student's car, he owes it to the rest of us to take the fall if something bad happens and indemnify the group to the greatest extent possible.
There, that's my professional opinion and my personal opinion, all wrapped up in about $.98.
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Driving FLAT OUT in an actual supercar - like I do - is an art form. I can’t expect you to understand.