What you need to know about Rental Car Insurance
So, there you are. Standing at the car rental counter after a long flight and delayed baggage claim, you are faced with a barrage of insurance choices, which seemingly never end. You simply want to get on with your vacation or business trip. Besides, your Super Deluxe Air Miles Reward Quadruple Platinum Credit Card probably covers all of that stuff anyway, right? Additionally, your Automobile Insurance placed with Monolithic Insurance Company must take care of whatever the credit card doesn’t, right?
WRONG!
The assumptions many of us make about the protection we have while driving a rented car are simply no longer applicable. The rental companies have become very sophisticated. The liability imposed on the renter nowadays cannot be entirely transferred. As such, it is critical that Bell-Anderson clients be aware of the following important points:
DIMINUTION OF VALUE – Several years ago, rental companies began holding the renter liable for a “diminution of value” charge when a rental car is damaged. This charge represents the reduction in a vehicle’s market value due to its having been in an accident. When the repaired car is eventually sold, it brings a lower price.
When a renter returns a vehicle in damaged condition, he or she receives one bill for repairs and another for diminution in value. Most auto policies cover most of the repairs, but few cover diminution in value. There has also been extensive litigation addressing how coverage applies in the absence of an exclusion. Most courts have found policies do not cover the exposure, so the renter can expect to self-insure for diminution in value. Unfortunately, that is not the end of the story.
BEFORE AND AFTER – Diminution in value is a concern when the rental company repairs a damaged vehicle-but today many cars are never repaired. With some types of damage, liability concerns make rental companies reluctant to return a repaired car to the fleet. Instead, they simply sell the damaged car for salvage. They then charge the renter the difference between the market value on the day of rental (“before”) and the amount the car brought at the salvage auction (“after”).
The following language is found in the contract of a major rental car company: “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.”
A recent Michigan example illustrates this practice. The insured rented a Ford Freestar with an estimated market value of $26,500 and brought it back damaged. The cost of repairs, loss of use and appraisal fee totaled $7,800. The rental company chose not to repair the vehicle but to sell it at a salvage auction, where it brought only $11,700. The renter received a bill for about $14,800, or the difference between the before and after values. The renter’s auto policy paid only the estimated repair costs, leaving a balance of almost $7,000. That became the responsibility of the renter-quite a significant amount of money.
“Both provisions are being added to all rental contracts,” stated Jim Maher of Midwest Car Corp. The company holds a 17-city franchise for two major rental car lines. He added that since the renter has signed a legally binding contract, rental companies have no difficulty collecting.
LOSS OF USE OF THE RENTAL VEHICLE – Should the damaged vehicle be repairable, the rental car companies charge you the per day rental fee while the vehicle is in the shop. In some cases, this can be weeks worth of daily rental fees. As these new provisions are activated, the gap between what the renter owes and what his or her insurance will pay has become too wide to ignore. How can it be covered? Do not look to the insurance industry. Those few companies still covering damage to a rental car under the liability section of the auto policy may be obligated to pay the entire bill. However, when coverage is found only under the physical damage section, most insurers will not accept responsibility for the additional charges. Do not expect them to create a new coverage to address the added exposures, because these risks are not easily addressed by insurance.
Isn’t some coverage for damage to a rental car included with a credit card? Only some credit cards provide any coverage for a rental car. It is generally excess over the renter’s auto policy, and payment is limited to the cost of repairs. A renter should not expect a credit card company to pay diminution in value or before-and-after charges.
Regardless of what the brother-in-law thinks, there’s really only one place renters can obtain full coverage, and that’s through the purchase of the loss damage waiver offered by the rental car companies.
THE LOSS DAMAGE WAIVER – Rental-car companies hold the renter responsible for all damage to the rental car, including an act of God. If a tree totals the rental car during a severe windstorm, the renter is liable. The rental company will waive its right to hold the renter responsible if he or she pays an additional fee and abides by the terms of the waiver. This waiver, which is not insurance, can add between $15 and $30 per day to the cost of the rental.
With the waiver, the renter will not be liable for any damage to the vehicle. He or she will not be charged for repairs to the vehicle, for diminution in value, for before-and-after assessments or for loss of use. The renter can walk away from all responsibility for damage to the vehicle as long as he or she has not engaged in any prohibited use.
All rental car waivers have a clause voiding the waiver if the renter improperly operates the vehicle at the time of the accident. Although wording varies, most waivers prohibit reckless or intoxicated use or use off paved roads. There is no coverage if an unauthorized driver uses the vehicle, so handing the keys to a valet parking attendant voids the waiver. Theft of the vehicle is not covered if the keys are left in the car or if the vehicle is unlocked.
Buying the loss damage waiver is the only way to close the significant rental car gap that now exists. A renter must weigh the benefits against the cost. The renter who purchases the waiver should review the prohibited use provisions and avoid engaging in any activity that would void the waiver.
Article provided by Bell-Anderson Insurance