Hey Dealer, Can I Get a Loaner?


MADA Loaner Vehicle

I recently wrote an article for the Minnesota Automobile Dealers Association’s MN Dealer Outlook Magazine (Winter 2015).  If your Minnesota dealership provides dealer-owned loaner vehicles to customers while the customer’s vehicle is being repaired, you’ll want to read on.

Minnesota is one of just twelve states where vehicle owners can be held liable for damages and personal injuries involving their vehicle.  This type of liability is called “vicarious liability” and is created by a Minnesota statute which provides that a vehicle owner is liable for all injuries and damages caused by a permissive driver.

So, when you flip a customer the keys to a loaner vehicle and he collides with another car causing injuries and damages, you can be on the hook too – not because you’ve done anything wrong but because you happen to own the vehicle.

While the customer will hopefully have a personal auto policy (you’ll want to verify insurance before issuing a loaner) and that policy will be primary, it will often be insufficient to cover all injuries and damages, leaving the dealer liable to the injured parties for the balance.

There’s a Federal law called the “Graves Amendment” which some commentators have suggested will protect the dealer against vicarious liability in the loaner context.  That’s probably not true.  While the Graves Amendment protects those “engaged in the trade or business of renting or leasing vehicles,” it likely does not apply to dealers providing loaner vehicles.  The problem is “loan” versus “rent.”  At least two courts have refused to extend the protections of the Graves Amendment where no rental payments were made.

But all is not lost. A dealer can limit its vicarious liability for loaner vehicles.  Minnesota Statutes cap a dealer’s vicarious liability for loaner vehicles if the dealer maintains insurance covering itself against losses up to at least the amount of the caps.  For calendar year 2015 the caps are: $155,000 per person/$465,000 per accident for bodily injury and $75,000 for property damage.  Make sure your garage liability insurance affords coverage for loaner vehicles in at least these amounts and that the terms of your written loaner agreement are entirely consistent with your policy and the statute.

Verifying a customer’s insurance is important for another reason.  Your loaner may be damaged, totaled or stolen while in the customer’s possession.  In this regard, Minnesota law is quite favorable.  It provides that the property damage coverage of the customer’s policy is automatically rewritten to afford at least $35,000 of coverage for damage to, or loss of, a loaner (or rental) vehicle. Depending on the terms of your loaner agreement, this coverage can be imposed regardless of whether the customer was negligent or otherwise at fault.  To take advantage of this law, you’ll want to make sure your loaner agreement clearly outlines the customer’s obligations, contains the required consumer protection notices and otherwise fully complies with the statute.

Note that we’re talking about service loaner vehicles here.  In general, rental vehicles offer less exposure for the renting dealership.  However, loaner vehicles and demos offer more exposure for dealers.

This blog is for informational purposes only. By reading it, no attorney-client relationship is formed. The law is constantly changing and if you want legal advice, please consult an attorney. Gregory J. Johnson ©All rights reserved. 2014.

 

The Problem with Renting Fast Cars: A Special Report of the Auto Rental News


19dgb6cqxr9ywjpgI was recently interviewed in connection with a most interesting article by Chris Brown of the Auto Rental News:

“Enter the world of brokering, where fleet funding, commercial insurance and even car ownership are not necessities. As the name suggests, brokers connect owners of exotic cars with renters. Simple in its base form, there are many permutations to a brokered car rental transaction. 
In a common scenario, established companies that own the cars and carry fleet insurance regularly horse trade with similar rental companies to better service their customers. This transaction is backed by the contract and insurance of one of the companies. In the broker model, individuals will set up a company, often an LLC (limited liability company), and create a website with stock photos of cars they think they can procure. In a legitimate transaction, brokers connect a renter to an established rental company and take a cut for their service. They rely on the renter’s insurance as primary and the rental company’s commercial policy as secondary. Slipping into a gray area, brokers will rent vehicles from legitimate companies in their personal names and then re-rent the vehicles to personal clients without the rental companies’ knowledge.”

I was interviewed with respect to insurance issues and the non-applicability of the federal Graves Amendment and state caps on vicarious liability to the owner of brokered exotic car rentals. You can read the full article, and my comments, by clicking the link below:

Special Report: The Problem with Renting Fast Cars – Article – Auto Rental News.

This blog is for informational purposes only. By reading it, no attorney-client relationship is formed. The law is constantly changing and if you want legal advice, please consult an attorney. Gregory J. Johnson ©All rights reserved. 2014.

Minnesota Car Rental: Handling BI/PD, UM/UIM & Rental Vehicle Damage Claims


untitled (8)This article provides a brief overview of Minnesota rental car coverage law, from priority of payment for bodily injury and property damage liability claims to uninsured and underinsured motorist claims to no-fault claims to rental vehicle damage claims. A considerable portion of the article is devoted to Minnesota Statute § 65B.49, subd. 5a(1), a statute unique to only a handful of jurisdictions, which requires that all auto policies issued in the state of Minnesota provide coverage for damage to, and loss of, a rented vehicle under the policy’s property damage liability coverage.

Statutorily Mandatory Auto Coverages

Like other compulsory automobile insurance systems, the Minnesota No-Fault Automobile Insurance Act, Minn. Stat. § 65B.41 et seq., (Minnesota “No-Fault Act”), distinguishes between mandatory coverages and optional coverages. The title of the Act is a misnomer inasmuch as the Act addresses bodily injury (BI) liability coverage, property damage (PD) liability coverage, uninsured motorist (UM) coverage and underinsured motorist (UIM) coverage in addition to basic economic loss (a/k/a no-fault) coverages. The Minnesota No-Fault Act requires that every policy issued in the state provide certain levels of BI, PD, UM, UIM and basic economic loss coverages. A personal auto policy must afford a minimum of $30,000 per person/$60,000 per accident in   BI coverage, $10,000 in PD coverage, $25,000 per person/$50,000 per accident in UM and UIM coverages and $20,000/$20,000 in medical expense and income loss no-fault coverage. Minn. Stat. §65B.44; 65B.49, subd. 2, 3, 3a.

Generally, the mandatory coverages afforded under a Minnesota-issued personal auto policy will also apply when the insured is operating a “rented” vehicle. First, Minn. Stat. § 65B.49, subd. 3(2) requires that an auto insurance policy extend coverage to the insured for all sums the insured may be legally obligated to pay as damages arising out of the use of “any motor vehicle, including a motor vehicle permissively operated by an insured,” which would include a rented vehicle. Second, Minnesota Statute § 65B.49, subd. 5a(a), states that a personal auto policy must extend “basic economic loss benefits, residual liability insurance (i.e., BI/PD liability coverage), and uninsured and underinsured motorist coverages to the operation or use of the rented motor vehicle.”

Under the No-Fault Act, a vehicle is “rented” if: “(1) if the rate for the use of the vehicle is determined on a monthly, weekly, or daily basis; or (2) during the time that a vehicle is loaned as a replacement for a vehicle being serviced or repaired regardless of whether the customer is charged a fee for the use of the vehicle.” Minn. Stat. § 65B.49, subd. 5a(b). Conversely, a “vehicle is not rented if the rate for the vehicle’s use is determined on a period longer than one month or if the term of the rental agreement is longer than one month.” Id.

Since 2007, the BI/PD liability coverage of a personal auto policy must afford primary coverage to the insured while operating a rented vehicle. Minn. Stat. § 65B.49, subd. 5a(j) (“The plan of reparation security covering the owner of a rented motor vehicle is excess of any residual liability coverage insuring an operator of a rented motor vehicle”). The 2007 amendment reversed the priority of payment of BI/PD coverage which had previously existed for rental (as opposed to loaner) vehicles. See, Agency Rent-A-Car, Inc. v. Am. Family Mut. Auto. Ins. Co., 519 N.W.2d 483 (Minn. Ct. App. 1994) (like other vehicle owners, rental car company had obligation to afford primary BI/PD coverage to renter for injuries caused by renter while operating rented vehicle, but rental car company could limit primary omnibus coverage to statutory minimum while retaining greater protection for itself).  (I’ve previously posted several articles addressing the Agency Rent-A-Car case and the impact of the federal Graves Amendment on a rental car company’s vicarious liability.  A couple articles can be found here and here).

Under Minn. Stat. § 65B.49, subd. 3a(5), the No-Fault Act’s UM/UIM priority statute, the UM/UIM coverage available on the rented vehicle will afford primary coverage, but the renter’s personal UM/UIM coverage will be available on an excess basis if the UM/UIM limits of the renter’s policy exceed the UM/UIM limits of the policy insuring the occupied rented vehicle. The “excess insurance protection is limited to the extent of covered damages sustained, and further is available only to the extent by which the limit of liability for like coverage applicable to any one motor vehicle listed on the automobile insurance policy of which the injured person is an insured exceeds the limit of liability of the coverage available to the injured person from the occupied motor vehicle.” Id. See, Johnson G., The Minnesota Automobile Insurance Manual, UM/UIM Chapters (1991, 1994, 2001, 2004).

Under Minnesota law, no-fault coverage generally follows the insured person. Pursuant to the No-Fault Act’s priority statute for no-fault benefits, Minn. Stat. § 65B.47, the renter’s personal auto insurer is obligated to provide primary, and generally exclusive, no-fault coverage.

Optional Physical Damage Coverage

In contrast to these mandatory coverages, the Minnesota No-Fault Act does not mandate that the owner of a motor vehicle purchase physical damage (collision and comprehensive) coverage insuring the owner against damage to, or theft of, the insured vehicle. Collision coverage, as its name suggests, is primarily designed to pay the insured for the cost to repair a vehicle when damaged in a vehicle collision (or the cash value or replacement value of the vehicle if it is not repairable or totaled). Comprehensive coverage is intended to pay the insured for the cost to repair a vehicle when damaged by non-vehicle collisions such as vandalism, fire, weather, or impacts with animals (or the cash value or replacement value of the vehicle if it is stolen). While a lending institution may require the vehicle owner to maintain such coverage if the vehicle owner financed the purchase or lease of the vehicle, the No-Fault Act does not require that physical damage coverage be purchased or that a personal auto policy afford it.

If a renter has purchased physical damage insurance under his or her personal auto policy, the coverage (like the mandatory coverages described above) will usually also apply to a rented vehicle. When a rented vehicle is damaged while in the renter’s possession under the rental car agreement, the renter is obligated to pay the costs necessary to repair the vehicle (or, if totaled, the difference between the car’s fair market value before it was damaged and the sale or salvage proceeds). If the rented vehicle is totaled, the renter is generally liable for the difference between the vehicle’s fair market value before it was damaged and the sale (or salvage). And, if the rented vehicle is stolen and not recovered, the renter is usually obligated to pay the rental car company for the rental car’s fair market value. In addition, the renter may also be legally liable to the rental car company for a variety of other damages, such as damages for “diminution in value,” “loss of use” and incidental losses such as towing, storage and administrative fees.

Diminution in value damages arise when a rented vehicle cannot be restored to its pre-accident condition by repairs. Many states (including Minnesota) recognize that the owner of a commercial vehicle (which would include the owner of a rental vehicle) is entitled to recover the monetary difference between the value of the rented vehicle at the time of rental and its value after it was damaged and repaired. Loss of use damages represent the income the rental car company loses when it cannot rent a damaged, totaled or stolen car. Many states (including Minnesota) recognize that the owner of a commercial vehicle is entitled to recover damages based on the loss of use of the vehicle while it is undergoing repairs or until it can be replaced. (I will be discussing diminution in value and loss of use damages in detail in subsequent articles on this blog).

Most rental car companies will offer loss damage waiver (LDW) (a/k/a Physical Damage Waiver (PDW) or Collision Damage Waiver (CDW)) to renters. For a fee, the car rental company will enter into a contract with the renter to waive all or part of its damage claim against the renter if the rented vehicle is damaged or stolen (provided the car was not driven by an unauthorized driver or in violation of a geographic or use limitation specified in the rental contract). Purchase of LDW may not be necessary if the renter has purchased physical damage coverage in connection with his or her personal auto policy. Accordingly, many states have enacted statutes which require rental car companies provide notice to automobile renters advising that purchase of a LDW may not be necessary if they have purchased physical damage coverage under their personal auto policy. See, Colo. Rev. Stat. Ann. § 6–1–203(1)(e); Kan. Stat. Ann. § 50–657(e); La. Rev. Stat. Ann. § 2091.5 B(5); Mass. G.L. c. 90, § 32E 1/2; Or. Rev. Stat. § 646.859(2); Va. Code Ann. § 59.1–207.31 B.

The Massachusetts statute obligates rental car companies to provide the following notice to rental customers:

NOTICE: This contract offers, for an additional charge, a Collision Damage Waiver to cover your financial responsibility for damage to the rental vehicle. Your personal automobile insurance may already cover you for damage to a rental car. The purchase of a Collision Damage Waiver is optional and may be declined. For Massachusetts residents: If you have an automobile policy on your personal vehicle with coverage for collision, your policy will cover collision damage to the rental vehicle, less the deductible on your policy. If you have comprehensive coverage on your vehicle, your policy will cover loss on the rental vehicle caused by fire, theft or vandalism, less the deductible on your policy. Drivers who hold policies in other states should check with their insurance agents to determine whether their policies extend to rental vehicles.

Statutorily Imposed Physical Damage Coverage for Rented Vehicles

Minnesota is one of a few states which have gone one step further. In recognition of the fact that may people do not purchase physical damage coverage in connection with their personal auto policies, Minnesota enacted a statute in 1987 which imposes physical damage coverage on personal auto policies when the insured is operating a rented vehicle.

Under Minnesota law, personal auto policies insuring private passenger vehicles and pickup trucks and vans, wherever issued, must provide coverage for rented private passenger vehicles, pickup trucks, vans and trucks with a registered gross vehicle weight of 26,000 pounds or less. Minn. Stat. § 65B.49, subd. 5a(a)(1). The personal auto policy must insure the rented vehicle against “damage and loss of use” under the compulsory “property damage liability” coverage of the policy. Minn. Stat. § 65B.49, subd. 5a(a)(1).

Under the statute, a personal auto policy must extend this coverage to its insured regardless of fault or negligence on the part of the insured in causing the damages. Although Minnesota law only requires that personal auto policies afford $10,000 of property damage liability coverage (see, Minn. Stat. § 65B.49, subd. 3a), the statute mandates that $35,000 of coverage be provided for damage and loss of use of rented vehicles. Id.

Minnesota Statute § 65B.49, subd. 5a(f), provides that when a motor vehicle is rented in Minnesota, the rental car company must attach to the rental contract a separate notice stating:

Under Minnesota law, a personal automobile insurance policy must: (1) cover the rental of this motor vehicle against damage to the vehicle and against loss of use of the vehicle; and (2) extend the policy’s basic economic loss benefits, residual liability insurance, and uninsured and underinsured motorist coverages to the operation or use of a rented motor vehicle. Therefore, purchase of any collision damage waiver or similar insurance affected in this rental contract is not necessary. In addition, purchase of any additional liability insurance is not necessary if your policy was issued in Minnesota unless you wish to have coverage for liability that exceeds the amount specified in your personal automobile insurance policy.

Further, “[n]o collision damage waiver or other insurance offered as part of or in conjunction with a rental of a motor vehicle may be sold unless the person renting the vehicle provides a written acknowledgment that the above consumer protection notice has been read and understood.” Id.

The statute’s reference to “damage and loss of use,” could lead one to conclude that Minn. Stat. § 65B.49, subd. 5a only imposes coverage for purposes of losses typically covered by collision coverage and not losses typically covered under comprehensive coverage, such as theft. However, Minn. Stat. § 72A.125, subd. 3 defines “collision damage waiver” to mean “a discharge of the responsibility of the renter or lessee to return the motor vehicle in the same condition as when it was first rented. The waiver is a full and complete discharge of the responsibility to return the vehicle in the same condition as when it was first rented.” Presumably, the legislature intended Minn. Stat. § 65B.49, subd. 5a to embrace all losses which relate to damage to, or theft of, a rented vehicle. Otherwise, the statement that “purchase of any collision damage waiver or similar insurance affected in this rental contract is not necessary,” would not be entirely true.

The statute has always addressed loss of use damages. As originally enacted, Minn. Stat. § 65B.49, subd. 5a(h) provided that in order “[t]o be compensated for the loss of use of a damaged rented motor vehicle, the car rental company must prove: (1) that had the vehicle been available, it would have been rented; and (2) that no other vehicle was available for rental in place of the damaged vehicle.” Further, “[a] car rental company may be compensated for loss of use of a damaged rental motor vehicle only for the period when the damaged car actually would have been rented.” Id. However, Minn. Stat. § 65B.49, subd. 5a(h) was subsequently amended to eliminate the “proof” requirements in favor of a provision which simply states that “[c]ompensation for the loss of use of a damaged rented motor vehicle is limited to a period no longer than 14 days.”

Some additional takeaways from the Minnesota rental vehicle statute include the following:

  • Some Personal Auto Policies Excluded

The imposed coverage required by Minnesota Statute § 65B.49, subd. 5a does not apply to all types of personal auto policies. By its express terms, the statute does not apply to policies which only insure collector vehicles as described in Minnesota Statute 168.10, subds. 1a, 1b, 1c and 1d or recreational vehicles as defined by section 168.002.

  • Imposed Coverage not Limited to Named Insured

The imposed coverage required by Minnesota Statute § 65B.49, subd. 5a is not limited to the “named insured” under a personal auto policy. The statute uses the term “insured,” which is, in turn, defined in Minn. Stat. § 65B.43, subd. 5 to include the named insured and the spouse and relatives of the named insured who reside with the named insured and are not identified as a named insured under their own personal auto policy. “A person resides in the same household with the named insured if that person’s home is usually in the same family unit, even though temporarily living elsewhere.” Id.

  • Imposed Coverage not Limited to Policies Issued in Minnesota

The imposed coverage required by Minnesota Statute § 65B.49, subd. 5a is not limited to personal auto policies issued in Minnesota. By its express terms, the statute applies to “every plan of reparation security, wherever issued ….” In addition, Minnesota Statute § 65B.48, subd. 1 provides that the personal auto policy of a nonresident owner of a motor vehicle “shall include coverage for property damage to a motor vehicle rented or leased within this state by a nonresident.” Thus, if a vehicle is rented in Minnesota by an individual who is insured under a personal auto policy issued outside of Minnesota, that policy will likewise be reformed to provide the rented vehicle coverage required by Minn. Stat. § 65B.49, subd. 5a.

  • Imposed Coverage under Two or More Personal Auto Policies

If the renter is insured under two or more personal automobile insurance policies providing the rented motor vehicle coverage required under the statute, the renter can select the personal auto policy that will apply to the rental car company’s damages (the selected insurer is entitled to a pro rata contribution from the other insurer(s) based upon the property damage limits of liability of the policies). Minn. Stat. § 65B.49, subd. 5a(d).

  • Imposed Coverage under Commercial Auto Policies

Minnesota law requires commercial insurance policies contain coverage for rented vehicles. Minn. Stat. § 60A.08, subd. 12, provides that “[a]ll commercial automobile liability policies must provide coverage for rented vehicles as required in chapter 65B.” Because a commercial policy must cover rented vehicles to the same extent as a personal auto policy, the commercial policy will likewise be reformed to provide the rented vehicle coverage required by Minn. Stat. § 65B.49, subd. 5a.

  • Priority for Imposed Coverage: Commercial and Personal Auto Policies

Minnesota Statute § 65B.49, subd. 5a(d) provides that if the renter is covered by a commercial policy issued to his or her employer, the employer’s policy bears primary responsibility to pay claims arising from use of the rented vehicle. In such cases, the renter’s personal auto policy, if any, would provide excess coverage if necessary.

  • Purchased Physical Damage Insurance

The statute does not limit the contractual responsibility a personal auto insurer may have to its insured under the terms of any physical damage coverage the insured may have purchased. Presumably, any physical damage coverage the insured purchased would, subject to its terms and limitations, apply on an excess basis if necessary.

This blog is for informational purposes only. By reading it, no attorney-client relationship is formed. The law is constantly changing and if you want legal advice, please consult an attorney. Gregory J. Johnson ©All rights reserved. 2014.

Rental Car Coverage: Diminution in Value, Loss of Use & Loss Damage Waiver (LDW) — the Basics


imagesR898Q8S1This is the first in a series of articles addressing claims for damage to, and loss of, rented vehicles. It provides an overview of the types of damages a rental car company may sustain (and, thus, may be imposed on the renter) in the event the rented vehicle is damaged, totaled or stolen. In addition to the typical repair costs and loss for a totaled or stolen vehicle, these damages may include damages that may not be appreciated by renters such as diminution in value, loss of use and other incidental losses.

This article also identifies the types of coverage available to a renter to protect himself/herself against liability for such damages, such as Loss Damage Waiver (LDW) (a/k/a Physical Damage Waiver (PDW) or Collision Damage Waiver (CDW)), physical damage (collision/comprehensive) coverage under a personal auto policy, physical damage coverage imposed by statute on personal auto policies for rented vehicles and physical damage coverage provided by credit card companies for rented vehicles.

In future articles, I will address diminution in value and loss of use damages in detail and highlight court decisions addressing whether loss of use claims can or must be based on reasonable rental values or loss of income and require use of fleet utilization rates.

Rental Car Agreement Creates Bailment Relationship

While the laws of each state differ and need to be consulted, renting a vehicle from a rental car company generally creates a bailment contract for the mutual benefit of the parties. Generally, a bailee (renter) is liable to the bailor (rental company) for any damage to, or loss of, the bailed property (rented vehicle) caused by the bailee’s negligence or fault. In addition, the parties to a bailment contract are generally free to alter their obligations by contract, provided the agreement does not contravene a statute or public policy. While a state may limit a renter’s obligation to damages or losses caused by the renter, most rental car agreements require the renter to bear responsibility for all damages regardless of whether the renter was negligent or at-fault.

Damage to, or Loss of, Rented Vehicle

Typically, if the rented vehicle is damaged while in the renter’s possession under the rental car agreement, the renter is obligated to pay the costs necessary to repair the vehicle. If the rented vehicle is totaled, the renter is generally liable for the difference between the vehicle’s fair market value before it was damaged and the sale (or salvage) proceeds. And, if the rented vehicle is stolen and not recovered, the renter is usually obligated to pay the rental car company for the rental car’s fair market value.

In addition to these typical damages, the renter may also be legally liable to pay the rental car company for a variety of other damages that are less understood, such as damages for “diminution in value,” “loss of use” and incidental losses such as towing, storage and administrative fees. I will be discussing these types of damages, and court decisions addressing them, in subsequent posts. For purposes of this article, it is sufficient to note that diminution in value damages arise when a rented vehicle cannot be repaired to its pre-accident condition. Many states (including Minnesota) recognize that the owner of a commercial vehicle (which would include the owner of a rental vehicle) is entitled to recover the monetary difference between the value of the rented vehicle at the time of rental and its value after it was damaged and repaired.

Loss of use damages represent the income the rental car company loses when it cannot rent a damaged, totaled or stolen car. Many states (including Minnesota) recognize that the owner of a commercial vehicle is entitled to recover damages based on the loss of use of the vehicle while it is undergoing repairs or until it can be replaced.

Sources of Renter Protection against Damage/Loss of Rented Vehicle

A renter can protect himself against the risk of having to pay for damage to, or loss of, a rented vehicle in several ways.  Four methods include the following:

          a. Loss Damage Waiver

First, the renter can purchase loss damage waiver (LDW) (a/k/a Physical Damage Waiver (PDW) or Collision Damage Waiver (CDW)). For a fee, the car rental company will enter into a contract with the renter to waive all or part of its damage claim against the renter if the rented vehicle is damaged or stolen (provided the car was not driven by an unauthorized driver or in violation of a geographic or use limitation specified in the rental contract).

Most rental car agreements provide that if the renter declines to purchase LDW at the time of rental and the car is damaged or stolen during the rental period, the renter is liable for all damages, including damages which were not due to the fault or negligence of the renter. A car rental agreement may, for example, provide the following:

Damage/Loss to the Car. If you do not accept LDW, or if the car is lost or damaged as a direct or indirect result of a violation of paragraph 14 [“Prohibited Use of the Car”], you are responsible; and you will pay us for all loss of or damage to the car regardless of cause, or who, or what caused it. If the car is damaged, you will pay our estimated repair cost, or if, in our sole discretion, we determine to sell the car in its damaged condition, you will pay the difference between the car’s retail fair market value before it was damaged and the sale proceeds. If the car is stolen and not recovered you will pay us for the car’s fair market value before it was stolen. As part of our loss, you’ll also pay for loss of use of the car, without regard to fleet utilization, plus an administrative fee, plus towing and storage charges, if any (“Incidental Loss”).

Loss Damage Waiver. Loss Damage Waiver (LDW) is not insurance and not mandatory. If you accept LDW by your initials on the rental agreement at the daily rate, for each full or partial day that the car is rented to you, and the car is used and operated in accordance with this agreement, we assume responsibility for the loss of or damage to the car except for your amount of “responsibility”, if any, specified on the rental document. You acknowledge that you have been advised that your insurance may cover loss or damage to the car. You also acknowledge reading the notice on loss damage shown on the rental document, or at the end of these terms, or in separate notice form.

Although LDW meets the basic definition of insurance — it transfers some risk from the renter to the rental company — it is not regulated as insurance because it is simply a waiver of the rental company’s right to charge the renter for damages to, or loss of, the rented vehicle.

Nonetheless, some states regulate the content of LDW provisions by statute. Minnesota, for example, defines “collision damage waiver” to mean “a discharge of the responsibility of the renter or lessee to return the motor vehicle in the same condition as when it was first rented. The waiver is a full and complete discharge of the responsibility to return the vehicle in the same condition as when it was first rented.” Minnesota Statute. § 72A.125, subd. 3. The statute goes on to state that, “[t]he waiver may not contain any exclusions except those approved by the [department of commerce] commissioner.” This type of statute will override any contrary LDW terms in the rental car agreement. Thus, if a person purchases LDW in connection with a vehicle rental in Minnesota, the renter cannot thereafter be held responsible for any damages unless one of the statutorily authorized exclusions is applicable.

         b. Personal Auto Policy with Physical Damage Insurance

Second, the renter may have a personal auto policy and may have purchased physical damage (collision and comprehensive) coverage. Physical damage coverage will usually extend coverage to the rented vehicle. If the renter has this coverage, purchase of LDW may be unnecessary.

It is important to recognize that, in contrast to coverages which are typically mandated by state law (bodily injury and property damage coverage, uninsured and underinsured motorist protection and personal injury protection (a/k/a basic economic loss or no-fault) coverage), physical damage coverage is entirely optional. While a lending institution may require the vehicle owner to maintain physical damage coverage if the vehicle owner financed the purchase or lease of the vehicle, a vehicle owner need not purchase physical damage coverage in order to legally operate a vehicle. Collision coverage, as its name suggests, is primarily designed to pay the insured for the cost to repair a vehicle when damaged in a vehicle collision (or the cash value or replacement value of the vehicle if it is not repairable or totaled). Comprehensive coverage is intended to pay the insured for the cost to repair a vehicle when damaged by non-vehicle collisions such as vandalism, fire, weather, or impacts with animals (or the cash value or replacement value of the vehicle if it is stolen).

As noted above, physical damage insurance generally transfers to a rented vehicle. Numerous states have enacted statutes which require rental car companies provide notice to renters advising that purchase of a LDW may not be necessary if the renter has purchased physical damage coverage under their personal auto policy. See, Colo. Rev. Stat. Ann. § 6–1–203(1)(e); Kan. Stat. Ann. § 50–657(e); La. Rev. Stat. Ann. § 2091.5 B(5); Mass. G.L. c. 90, § 32E 1/2; Or. Rev. Stat. § 646.859(2); Va. Code Ann. § 59.1–207.31 B. These types of statutory provisions are designed to benefit consumers who rent private passenger automobiles by notifying them that purchase of LDW might duplicate coverage already provided by their auto insurance. The Massachusetts statute is an example and obligates rental car companies to provide the following notice to their customers:

NOTICE: This contract offers, for an additional charge, a Collision Damage Waiver to cover your financial responsibility for damage to the rental vehicle. Your personal automobile insurance may already cover you for damage to a rental car. The purchase of a Collision Damage Waiver is optional and may be declined. For Massachusetts residents: If you have an automobile policy on your personal vehicle with coverage for collision, your policy will cover collision damage to the rental vehicle, less the deductible on your policy. If you have comprehensive coverage on your vehicle, your policy will cover loss on the rental vehicle caused by fire, theft or vandalism, less the deductible on your policy. Drivers who hold policies in other states should check with their insurance agents to determine whether their policies extend to rental vehicles.

It is also important to note that even if the renter purchased physical damage coverage on his or her personal auto policy, the coverage is subject to a deductible and stated limits and that deductible and those limits will usually apply to the rented vehicle as well. In addition, most personal auto policies will not cover cars rented outside the United States and many will not apply to exotic or luxury cars, SUVs and certain types of vans. In addition, many personal auto policies will not cover all damages the rental car company may assess the renter such as diminution of value, loss of use or administrative fees, such that the renter can be liable for such charges even if the renter’s personal auto policy contained physical damage coverage at the time of rental.

The renter should thoroughly review his or her personal auto policy before renting a vehicle

        c. Statutorily Imposed Physical Damage Coverage for Rented Vehicles

Third, the renter may have purchased a personal auto policy in state which requires that the mandatory property damage liability coverage of the policy be automatically rewritten to afford physical damage coverage to rented vehicles. Minnesota is one such state. In 1987, Minnesota enacted legislation requiring that personal auto policies insuring private passenger vehicles and pickup trucks and vans, wherever issued, provide coverage for rented private passenger vehicles, including pickup trucks, vans and trucks with a registered gross vehicle weight of 26,000 pounds or less. Minn. Stat. § 65B.49, subd. 5a(a)(1). Under the statute, a personal auto policy must cover a “rented vehicle” against “damage and loss of use” under the compulsory “property damage liability” coverage of the policy. Id. Although Minnesota only requires $10,000 of property damage liability coverage, the policy is automatically rewritten to afford $35,000 of coverage for damage and loss of use of rented vehicles. Id.

Minnesota Statute § 65B.49, subd. 5a(f), also provides that when a motor vehicle is rented in Minnesota, the rental car company must attach to the rental contract a separate written notice stating in part:

Under Minnesota law, a personal automobile insurance policy must: (1) cover the rental of this motor vehicle against damage to the vehicle and against loss of use of the vehicle … Therefore, purchase of any collision damage waiver or similar insurance affected in this rental contract is not necessary. … No collision damage waiver or other insurance offered as part of or in conjunction with a rental of a motor vehicle may be sold unless the person renting the vehicle provides a written acknowledgment that the above consumer protection notice has been read and understood.

Thus, in Minnesota, it does not matter whether the renter purchased physical damage coverage when s/he purchased the personal auto policy. Physical damage insurance is imposed on the policy for purposes of responding to damages to a rented vehicle. If the renter’s policy was issued in a state imposing physical damage insurance on personal auto policies for rented vehicles, such as Minnesota, purchase of LDW may be unnecessary.

This statutorily-imposed coverage is written into personal auto insurance policies issued in Minnesota. A renter should review his or her policy before renting a vehicle.

I will be addressing the Minnesota statute in detail in a subsequent article on this blog.

        d. Credit Card Physical Damage Coverage for Rented Vehicles

Fourth, the renter may have a credit card which will extend physical damage coverage to the rented vehicle if the renter charged the rental vehicle on the card and declined to purchase LDW. If the renter has this coverage, purchase of LDW may be unnecessary.

It is important to note that while all four major credit card companies cover damage to the rented vehicle, some credit card policies may not cover vandalism or theft or weather-related damages and may only extend coverage to the credit cardholder (as opposed to a collision caused by other drivers of the rental vehicle), short term rentals (15 days or less) or accidents occurring on public roads. In addition, virtually all credit card policies exclude coverage for luxury and exotic vehicles and some do not cover SUVs, vans and trucks. Further, while some claim to cover “loss of use” damages, the credit card company may only be obligated to pay if the rental company proves loss of use by providing a fleet utilization log showing that it did not have other cars available to rent.

Usually, the physical damage insurance available through a credit card is written to apply on a “secondary” basis, meaning that if the renter/credit cardholder has a personal auto policy that applies to the rental car company’s damages, the personal auto policy will be “primary” and pay first. The credit card company will then be obligated to reimburse the renter for the deductible under the primary personal auto policy and address large claims above the limits of the primary personal auto policy. However, if the renter has no personal auto insurance that applies to the damages, the credit card company will generally drop-down and pay all damages, up to its limits of insurance.

The renter should thoroughly review his or her credit card policy before renting a vehicle.

This blog is for informational purposes only. By reading it, no attorney-client relationship is formed. The law is constantly changing and if you want legal advice, please consult an attorney. Gregory J. Johnson ©All rights reserved. 2014.

 

Oops!! Self-Insured Owner of Rental Vehicle that had no Obligation to Afford Omnibus Coverage to Permissive Users not entitled to recover $260,000 Settlement Payment.


thUZQ1Z517In an unusual twist, a rental car company insisted it was obligated to pay damages to a third party who was injured by the permissive operator of its rental vehicle and the renter maintained it was not.

In Enterprise Rent-A-Car Co. of Boston, LLC v. Maynard, 2012 WL 1681970 (D. Me. May 14, 2012), Enterprise rented a vehicle to Robert Maynard and Maynard executed a rental agreement. Maynard gave the rental to Scotty Beausejour to use for the rental period. Beausejour then caused an accident in which he struck Thomas Webster, causing injuries to Webster. Webster filed a personal injury action against Beausejour, but did not sue Enterprise.  Enterprise, which was self-insured, assumed Beausejour’s defense and later settled the claim for $260,000. In addition to the cash payment to Webster, Enterprise expended over $17,000 in attorney’s fees defending the action.

Enterprise then sued Maynard.  By its terms, the rental agreement required Maynard to reimburse Enterprise for the amounts it had paid in settlement of Webster’s claim. In response, Maynard argued that Enterprise acted as a volunteer in making the payment and was not entitled to recover. It was undisputed that Enterprise had no vicarious liability for Beausejour’s negligence under the Maine vehicle owner liability statute (29–A M.R.S. § 1652) in light of the Graves Amendment, 49 U.S.C. § 30106.  (As noted in previous posts on this blog, the Graves Amendment preempts state laws that impose vicarious liability on rental-vehicle owners. (See “Leasing, Rentals and Vicarious Liability:  An Overview of the Graves Amendment”).

However, Enterprise claimed that its settlement payment to Webster was not voluntary because it was required by the Maine Financial Responsibility Statute (29–A M.R.S. § 1611) to do so. The Graves Amendment does not preempt state laws imposing insuring obligations on owners of motor vehicles. The savings clause, 49 U.S.C. § 30106(b)(1) provides that “[n]othing in this section supersedes the law of any State … imposing financial responsibility or insurance standards on the owner of a motor vehicle….”

The court agreed with Enterprise that the Graves Amendment did not preempt 29–A M.R.S. § 1611, but disagreed with Enterprise that it made a difference to the outcome of the case. Although not referenced in the opinion, 29–A M.R.S. § 1611 did not require rental vehicle owners to obtain a policy insuring a permissive user of a rental vehicle (a/k/a “omnibus” coverage). Rather, it only stated that “[t]he required insurance policy or bond must adequately provide liability insurance for the collection of damages for which the owner of a motor vehicle or vehicles may be liable by reason of the operation of a motor vehicle or vehicles subject to this chapter.” (29–A M.R.S. § 1611(5) (emphasis supplied)). Inasmuch as Enterprise had no vicarious liability and the statute it cited did not impose any obligation to insure permissive users against liability resulting from their operation of its rental vehicles, Enterprise was not obligated to defend Beausejour or settle Webster’s claim on behalf of Beausejour.

Enterprise acted as a volunteer in making the payment and was not entitled to recover.

The rental contract in this case must not have contained any language obligating Enterprise to defend or indemnify permissive users. Most rental contracts (and those I have drafted) obligate the rental car company (whether insured or self-insured) to defend and indemnify permissive users to the extent required by the law of the state where the accident occurred and only to the minimum limits mandated by the law of that state. While this type of language would not have assisted Enterprise in Maine – which apparently does not require omnibus coverage for permissive users — many states do.

This blog is for informational purposes only.  By reading it, no attorney-client relationship is formed.  The law is constantly changing and if you want legal advice, please consult an attorney. Gregory J. Johnson © All rights reserved. 2010.

Auto Claims & Self Insured Retentions (“SIR”): Does the SIR Constitute “Insurance” ?


The determination of whether a self-insured retention (SIR) constitutes “insurance” within the meaning of an “other insurance” clause of another policy generally depends on the particular circumstances presented.  See, e.g., Champlain Cas. Co. v. Agency Rent-A-Car, Inc., 716 A.2d at 813 (1998) (noting that the “parties tend to paint with a broad brush, suggesting that self-insurance is a form of insurance . . . or alternatively, the antithesis of insurance” and observing that such labels are “generally unhelpful” to resolving the issue of whether self-insurance can constitute insurance).  The determination of whether an SIR constitutes “insurance” is significant because “[m]any business liability policies contain self-insured retentions, which are, in effect, large deductibles.”  U.S. Fidelity & Guarantee Ins. Co. v. Commercial Union Midwest Ins. Co., 430 F.3d 929 (8th Cir. 2005) (quoting Allan D. Windt, Insurance Claims and Disputes, §11.31 (4th ed. 2003)).  Although at first glance cases across the country appear to be inconsistent, the answer to the question is (or should be) fairly simple, at least in the context of auto accident claims involving a permissive user. In jurisdictions which require a vehicle owner’s insurer (or self-insurance plan) to extend omnibus liability protection to permissive users, the SIR will invariably constitute “insurance” within the meaning of the permissive user’s policy.  Minnesota, as well as several other jurisdictions, requires the policy insuring the vehicle owner to extend omnibus protection to permissive users.  Minnesota also recognizes that if a vehicle owner self-insures, the self-insurance plan must provide the same “coverage” and incidents of “coverage” as an insurance policy insuring the vehicle owner. See, e.g., McClain v. Begley, 465 N.W.2d 680 (Minn. 1991) (same) (self-insurance obtained pursuant to Minn. Stat.  §65B.48, subd. 3, of the Minnesota No-Fault Automobile Insurance Act, “is the functional equivalent of an insurance policy” and “such a policy, if purchased [by the self-insured owner], would contain an omnibus clause extending coverage to permissive drivers as additional unnamed insureds” and constitutes “other insurance” within meaning of renter’s personal policy); White v. Howard, 240 N.J. Super. 427, 573 A.2d 513 (N.J. Super. A.D. 1990), cert. denied, 122 N.J. 339, 585 A.2d 354 (N.J. July 17, 1990) (“qualified self-insurance” obtained by car rental agency was the equivalent of “other collectible insurance” within the meaning of renter’s personal automobile policy); Boatright v. Spiewak, 214 Wis.2d 507, 570 N.W.2d 897 (1997) (statute requires self-insured car rental agency to “pay the same amounts that an insurer would have been obligated to pay under a motor vehicle liability policy if it had been issued” and, thus, protection extended to renter constituted “other insurance” within meaning of renter’s personal auto policy); Southern Home Ins. Co. v. Burdette’s Leasing Service, Inc., 268 S.C. 472, 234 S.E.2d 870, 872 (1977) (self-insurer is required to provide same protection to one operating self-insurer’s vehicle with consent as a statutorily required automobile liability policy must provide and, thus, protection extended to lessee constitutes “insurance” within meaning of lessee’s policy).  Thus, in jurisdictions which mandate that a vehicle owner’s policy (or self-insurance plan) extend omnibus protection to permissive users, an SIR in the vehicle owner’s policy will constitute “insurance” within the “other insurance” clause of the policy insuring the permissive user.

However, in jurisdictions which do not require a vehicle owner’s insurance policy (or self-insurance plan) to extend omnibus protection to permissive users, an SIR should not be considered “insurance.”  See, e.g., Home Indem. Co. v. Humble Oil & Refining Co., 314 S.W.2d 861 (Tex. Ct. App.1958), writ of error and reh’g denied, 159 Tex. 224, 317 S.W.2d 515 (1958) (self-insurance does not operate for benefit of negligent driver); Farmers Ins. Co. of Oregon v. Snappy Car Rental, Inc., 128 Or. App. 516, 876 P.2d 833 (Ore. Ct. App. 1994) (same);  American Fam. Mut. Ins. Co., v. Missouri Power & Light Co., 517 S.W.2d 110 (Mo. 1974) (same).  An SIR should not be considered “insurance” in such jurisdictions because the vehicle owner, if it paid the injured party for damages caused by the negligent permissive user, would be entitled to recover its payment from the permissive user — a proposition directly contrary to the purpose of liability insurance.  See Champlain Cas. Co. v. Agency Rent-A-Car, Inc., 168, Vt. 91, 716 A.2d 810, 813 (1998) (explaining basis for distinction in case law decisions and noting that “there is far less disagreement in the cases that a superficial perusal would suggest”).

This blog is for informational purposes only. By reading it, no attorney-client relationship is formed. The law is constantly changing and if you want legal advice, please consult an attorney licensed in your jurisdiction. © All rights reserved. 2010.

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