Rental Car Riddles Solved
By: Bill Wilson
That said, there are many exposures covered by an auto policy that are not covered by the CDW or credit card programs. For example, do you rent a car and let a hotel or restaurant valet park it? If so, it is almost certain that you have violated your rental agreement by allowing an unauthorized person to operate the vehicle.
As such, there would be no coverage under the CDW and possibly none under a credit card. However, since most auto policies cover permissive use, the PAP or BAP would most likely respond.
There are many other examples that are covered in the “Ultimate Rental Car” online course. For more information about this and other online courses, go to www.independentagent.com/vu and click on “Online Courses.”
Rental Car Diminution of Value
When an insured asks if they need to purchase the collision damage waiver (CDW) when renting a car, what do you tell them? If your advice is to save money and rely on their auto insurance or credit card coverage, then you could be creating a coverage gap of thousands of dollars—and an E&O claim—if rental car losses are covered under the physical damage portion of the auto policies you sell.
Despite the typically outrageous cost that can easily exceed the rental fee itself, there are a number of reasons why it is a good idea for most consumers to buy the collision or loss damage waiver. The rental company can contractually charge the renter for many indirect expenses that are normally not covered by auto policies or covered only for small amounts. One of these charges is called diminution of value.
The problem with diminution of value claims, aside from there being little, if any, coverage under most auto policies used in most states, is that the amount of diminution is almost totally subjective and is never known for certain unless or until the vehicle is sold. If the rental vehicle is repaired and placed back into service, then there has been no tangible loss of value until it is retired and sold.
The Big “I” Virtual University has heard anecdotal stories of rental car companies charging consumers $4,000 to $5,000 for diminished value, with one tale of a $10,000 credit card assessment. While courts have generally upheld the ability of insurers to exclude diminished value claims under physical damage coverage (e.g., using the ISO PP 13 01endorsement), in general, diminished value can be claimed on a liability basis such as that under a car rental agreement.
So, while CDW fees may appear to be almost unconscionable, insureds in most states should consider the cost of the CDW when making a pricing decision among rental agencies. Failure to purchase the CDW could result in thousands of dollars in fees that are not covered by their auto policies in most states.
For the full version of this article, including links to the “Top 10 Reasons to Purchase the CDW” and a more detailed article on diminution of value claims, click here.
Employee v. Employer Rental Car Coverage
If an employee rents a car on a business trip is it a Symbol 8 (hired) or Symbol 9 (non-owned) exposure? Under an unendorsed business auto policy (BAP), it depends on who is technically hiring the auto—the employer or the employee.
If the employer is deemed to be hiring the auto because the employee is using a company credit card or otherwise being reimbursed, then it’s a Symbol 8 hired auto exposure. As long as Symbols 1 or 8 are provided under the BAP, both the employer and employee are insureds under the policy.
If the employee is deemed to be hiring the auto because he or she signed the rental agreement, then it’s a Symbol 9 exposure. As long as Symbols 1 or 9 are provided under the BAP, the employer is an insured, but the employee is not an insured without attaching the employees as insureds endorsement.
The solution for this dilemma is ISO’s CA 20 54 – employee hired auto endorsement which establishes that this is a hired auto exposure. An added bonus is that it clarifies that the BAP is primary with regard to the employee’s personal auto policy. A downside, however, is that if employees are traveling together, only the employee renting the auto is insured for liability coverage.
To review the complete analysis of this problem, click here.
Bill Wilson (bill.wilson@iiaba.net) is Big “I” director of the Virtual University, an online learning center for agents and brokers.
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