When insureds 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 rental insurance cost (up to $35 a day or more) that can easily exceed the rental cost 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 contractually can 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. 

There are 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 generally uphold insurers’ ability to exclude diminished value claims under physical damage coverage (e.g., using the ISO PP 13 01 endorsement), 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, it’s best to advise insureds in most states to 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 of fees and charges that are not covered by their auto policies in most states.

 For a more detailed look at diminution of value claims, and to access the Virtual University’s “Top 10 Reasons to Purchase the CDW,” click here. 

 What Does This Symbol Mean?

If an employee rents a car on a business trip, is this a Symbol 8 (hired) or Symbol 9 (nonowned) exposure? Under an unendorsed 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 is a Symbol 8 hired auto exposure. As long as Symbols 1 or 8 are provided under the business auto policy, 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 is 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.

 For further analysis of this problem, click here. 

 Who is in the Driver’s Seat? 

The VU’s “Top 10 Reasons to Purchase the CDW” makes the case that, for most insureds in most states, it is advantageous to purchase the CDW because of charges not covered under their auto policies, along with the expense of deductibles and possible surcharges or premium increases for claims under their policies.

 Keep in mind, though, that there are many exposures an auto policy covers that the CDW and possibly even credit card programs do not cover. For example, what if you rent a car and let a hotel or restaurant valet park it? If so, it is almost certain that you 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, your PAP or BAP would most likely respond.

 For more examples, access the VU’s “Ultimate Rental Car” online course.

 Bill Wilson (bill.wilson@iiaba.net) is Big “I” director of the Virtual University, an online learning center for agents and brokers.