Top 10 Reasons to Purchase the Rental Car Damage = Waiver

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Top 10 Reasons to Purchase the = Rental Car=20 Damage Waiver

Bill=20 Wilson

Abstract
Although = most damage=20 waiver fees are considered outrageous, = the=20 insured is best advised to purchase=20 the waiver for short-term rentals. = This is=20 not only in the best interest of the insured, but also = the=20 agent since an inadequately covered loss may result in = the=20 loss of an account or worse, an E&O claim. = Click = here for=20 Disclaimer.

Although=20 most collision damage waiver (CDW) or loss damage = waiver=20 (LDW) fees are considered outrageous, the insured is = best=20 advised to purchase the CDW/LDW for = short-term=20 rentals. This is not only in the best interest of the = insured, but=20 also the agent since an inadequately covered loss may result = in the=20 loss of an account or worse, an E&O claim. This is = becoming=20 increasingly the case as rental car companies charge=20 ever-higher fees and penalties for occurrences not covered = by most=20 auto policies. Click here = for=20 Disclaimer.

1. Loss=20 Valuation

The value of a rental car, according to = virtually all=20 rental agreements, is determined solely at the discretion of = the=20 rental company and may be significantly different from the = "ACV"=20 basis used by most auto policies. The ISO Personal Auto = Policy (PAP) covers the lesser of the "actual = cash value"=20 of the vehicle or the amount "necessary" to repair or = replace the=20 damaged property.

The rental agreement may very well = contractually=20 obligate the insured to reimburse the lessor for the "full = value"=20 (whatever that is) of the vehicle. Under the current PAP, the "betterment" clause may result = in the=20 insured being significantly underinsured relative to his/her = obligations under the rental agreement. For more information = on this=20 issue, read the VU article, "Betterment=20 in the ISO Personal Auto Policy."

2. Loss=20 Settlement

As implied above, there may very well be = disagreement=20 over the value of the vehicle or the amount charged for = labor and=20 materials to repair the property=97depending on the PAP edition, the Appraisal clause may be = invoked=20 by the insurer with its accompanying costs covered partially = by the=20 insured.

More importantly, the PAP insurer has the right to = "...inspect and=20 appraise the damaged property before its repair or=20 disposal"=97the rental company may choose to effect the = repairs=20 immediately, potentially resulting in a lack of PAP coverage because of failure to = comply with the=20 condition cited above. In a recent claim involving farm = equipment=20 under a similar policy provision, the insurer denied = coverage when=20 the farmer had the property repaired immediately in order to = minimize lost production and the insurer never had the = opportunity=20 to appraise the damage.

3. Loss=20 Payment

The rental agreement may require immediate=20 reimbursement for damages and it is not uncommon for = the rental=20 company to charge the insured's credit card. This can = create a=20 significant debt, "max" out the card's credit limit (perhaps = shortening a vacation or business trip), result in = litigation,=20 etc.

4. Loss=20 Damage Waivers (LDW)

The rental agreement usually requires=20 reimbursement for more than collision, making the = insured=20 responsible for ANY "loss" in value beyond normal wear = and tear=20 regardless of fault. Obviously, the PAP must include collision coverage on = at least=20 one insured owned vehicle for collision coverage to transfer = to the=20 nonowned auto.

If the rental agreement includes a = Loss (not=20 just Collision) Damage Waiver (LDW), the policy must also = include=20 comprehensive coverage to protect the insured. Even so, keep = in mind=20 that the insured's contractual liability under the rental = agreement=20 may be almost absolute, so it's possible the PAP may not = respond to=20 all losses. (Note: Likewise, the PAP might respond to = losses not=20 covered by the LDW such as use off paved roads, use while=20 intoxicated, use by unlisted drivers such as valet parking = (see=20 below), etc. Therefore it is important to have BOTH PAP and=20 LDW coverage.)

5. Indirect = Losses

The insured most likely will be responsible = for=20 the rental company's loss of rental income on the = damaged=20 unit. The PAP has, at best, daily and maximum caps = for this=20 indirect loss and, depending on the edition date, an = unendorsed=20 policy or proprietary company form may pay only for loss of = income=20 resulting from theft. In addition, many rental companies = will not=20 divulge their fleet utilization logs for competitive=20 reasons or their rental agreements may make the renter=20 responsible for loss of use without regard to fleet = utilization=20 rates. If so, the renter may be charged even though unused = rental=20 vehicles are sitting on the lot. In one case, a renter was = hit with=20 a $2,000 loss of use charge, far more than what her PAP covered.

In addition, rental car companies are = increasingly=20 inclined to charge for "diminution of value," an indirect = loss that=20 is not covered by the PAP's physical damage section (nor most = credit=20 card coverages). We have seen documented examples of these=20 charges for amounts of $5,000 and almost $8,000 and = heard of=20 one that was allegedly $15,000 on an upscale SUV rental. For = more=20 information on this issue, check out the VU article "Rental=20 Cars and Diminution of Value" and = the=20 American Agent and Broker magazine article "Rental Car Contracts Raise Coverage=20 Stakes."

6. Administrative = Expenses

The rental contract may make the insured = liable for=20 various "administrative" or loss-related expenses such as = towing=20 (e.g., one insured was charged for a 230-mile tow), storage, = appraisal, claims adjustment, etc. None of these expenses=20 are typically covered by the PAP.

7. Other = Insurance

The PAP says it is excess over: (1) any = coverage=20 provided by the owner of the auto (does "coverage" include = rental=20 car company self-insured plans?), (2) any other applicable = physical=20 damage insurance, and (3) any other source of recovery = applicable to=20 the loss=97CDW/LDW, travel policies, credit card coverages, = etc. (what=20 if the credit card coverage says it's excess over the auto = policy?).=20 The potential controversy over who pays what is obvious and = can=20 result in litigation.

In addition, keep in mind that many states = (e.g., MD,=20 MN, NY, TN, etc.) have statutes, proprietary forms, and/or = case law=20 precedents that may govern this and other rental car = exposures. For=20 example, the PAP is = primary rather=20 than excess for nonowned autos loaned or rented by a dealer, = but not=20 rental agencies. Another state makes the PAP primary = only if the=20 auto is rented without purchasing a damage waiver. Another = states=20 only modifies the PAP with = regard to=20 liability for rental cars, not physical damage. Another = state makes=20 no exceptions for any nonowned autos including rentals. = Needless to=20 say, since the PAP Out of = State=20 condition says the policy will comply with state laws, it = can become=20 virtually impossible to know whether the PAP will = respond on a=20 primary or excess basis in a given state while on a = trip...yet=20 another reason to rely on the rental company's damage = waiver.

In one final example, a consumer was given = a loaner=20 vehicle from a Cadillac dealer while his car was being = serviced. He=20 proceeded to total the vehicle in an accident to the tune of = $37,000. His PAP insurer = refused to=20 pay on the basis that the PAP provided=20 excess coverage over the dealer's garage policy, offering = only to=20 pay a portion of the dealer's deductible. The garage insurer = paid=20 the entire claim, then subrogated against the PAP insured by=20 filing a lawsuit. When the insured turned the suit in to his = PAP insurer, the=20 claim was denied under the liability section of the PAP, citing = the care,=20 custody or control exclusion. While this involved a dealer = loaner=20 auto, the same result could have been reached in this state = if the=20 auto was a rental. For more information on this claim, check = out the VU article, "Driving=20 a Dealer Loaner Auto...No PAP Coverage?!"

8. Excluded Vehicles &=20 Territories

The PAP normally does not provide physical = damage=20 coverage for motorcycles or other non-auto/pickup/van = vehicles=20 (e.g., motorhomes) and use of covered vehicles is limited to = the=20 U.S., its territories and possessions, Puerto Rico, and = Canada (the=20 rental agreement may also exclude operation outside a = specific=20 geographical area, in which case the PAP could provide=20 coverage not provided for under an LDW). In addition, if the = insured=20 is renting a trailer (U-Haul, camper trailer, etc.), PAP coverage is=20 typically limited to only $500 - $1,500. The insured = usually=20 has no choice but to rely on the rental company's = damage=20 waiver for coverage under these circumstances.

9. Excluded Uses &=20 Drivers

The PAP may have limitations on use of = vehicles that=20 are not otherwise excluded by the rental agreement damage = waiver=97for=20 example, some older editions of the PAP (and perhaps=20 some proprietary company forms) provide no physical damage = coverage=20 for the business use of nonowned pickup trucks or vans.

Also, the PAP may include an exclusionary = endorsement for=20 certain individuals or may apply only to designated = individuals that=20 can be covered by listing them on the rental agreement. In = contrast,=20 the damage waiver usually only applies to = designated=20 individuals (with certain omnibus "insureds" such as = spouses), so=20 having both a PAP and the damage=20 waiver can again be advantageous. For an example of this = exposure,=20 read the VU article, "Rental=20 Cars and Unauthorized Drivers," and for an example of a = coverage=20 dilemma for business auto exposures involving auto symbols 8 = and 9,=20 check out the VU article, "More=20 Rental Car Issues."

One often overlooked issue where a large = coverage gap=20 can exist is using valet parking at a hotel or restaurant = during a=20 trip. For more information, check out the VU article, "PAP=20 Coverage for Valet Parking."

10. Additional and/or Future=20 Costs

The PAP will most certainly include a = deductible in=20 the range of $100-$500 or more. In addition, payment for = damage to a=20 rental car may result in a significant premium increase (if = not=20 nonrenewal) via surcharges or loss of credits.

Recommended Consumer = Reading:
There are two excellent related = articles=20 on this subject from the Denver Post that consumers = will=20 find very enlightening, along with another cautionary = tale:

Read Before You Rent (Denver = Post)
Comparison of Rental Car = Policies (Denver=20 Post)
Unexpected Rental Car = Bill

Bonus Consumer=20 Article:
To download a PDF consumer = version of=20 this article that IIABA member agencies can share=20 with their clients, click here (select = "Save=20 as..." from the pop-up menu...if this does not work, try=20 RIGHT-clicking the link and select "Save as..."). Other = consumer=20 articles that IIABA members can use in client newsletters = and other=20 communications are here.

Disclaimer
The = above=20 information is based on the ISO standard Personal Auto = Policy in=20 force in most states at the time of publication and typical = rental=20 car agreements. Be aware that these contracts may vary from = state to=20 state and there may be statutory exceptions (e.g., the State = of=20 NY...see the article "Collision=20 Damage Waivers in New York") that may govern. In = addition, these=20 provisions can change at any time, so it is important to = review the=20 laws and contracts in effect in your jurisdiction at any = point in=20 time. Due to the brevity of this article, we cannot analyze = every=20 possible loss exposure and exception to the general = guidelines=20 above. For a more detailed analysis of personal and = commercial auto=20 coverages, though one also subject to change, please review = our=20 online course "The Ultimate Rental Car=20 Course."

T= op

Copyright 1998 by = Insurors of=20 Tennessee. Used with permission.
Copyright 1999-2008 by=20 Independent Insurance Agents & Brokers of America. All = rights=20 reserved.

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