Adjusting claims involving rented or leased vehicles.
In one area, vehicle rental or lease contracts are the same. Renters are contractually responsible for liability or damage arising out of their use of the vehicles. Businesses whose employees drive rented cars in the course of business face financial loss, either directly, through contractual liability if the vehicle is rented in the name of the business, or indirectly, through vicarious liability for the actions of their employees in the course of their employers' business.
Adjusters should know that even if accepted, a physical damage waiver under the contract is not the same as an insurance policy. Beyond acceptance or declination of bodily injury, property damage, or physical damage coverage under the contract, rental customers are typically given little choice on its terms and conditions. Most rental contracts have distinct requirements that must be followed in case of loss. If a loss occurs, for example, the vehicle contract requires that the renter obtain all information requested in the damage report form provided with the contract, notify police and obtain a copy of the report, and notify the rental agency immediately of the loss. Failure to follow the requirements could void the waiver, even if purchased.
In certain jurisdictions, car rental companies are required by law to provide auto liability coverage to their renters. However, this coverage usually covers only the minimum financial responsibility limits in the state in which the vehicle is operated, and could be insufficient in the case of a serious liability loss, leaving the renter underinsured.
Most vehicle rental or lease agreements require that the renter provide a minimum amount of insurance on the vehicle. This can be done through a personal or commercial policy, depending upon the use of the vehicle, or it can be purchased under the contract. As a rule, rental contracts offer supplemental or optional liability insurance that can be purchased for an additional charge. A truck renting for $42 per day, for example, could cost an additional $15 per day to include supplemental liability coverage.
This can be problematic, however. Depending on the rental agreement, the supplemental coverage may be primary or it may be excess, or the renter may have inadequate limits for a serious loss. This means that if renters buy supplemental insurance, thinking that they are covered for losses, they could find out that it will not pay until their other insurance limits are exhausted or the limits are inadequate.
The typical rental contract states that the lessee agrees to indemnify the lessor and the lessor's insurer from any and all loss, liability, claim, or damage and expense, including attorney's fees arising out of, or in any manner related to, the ownership, maintenance, use, or operation of the vehicle. Adjusters handling first party claims should read the rental contract and applicable insurance policy carefully to determine if these fees are covered by the policy.
Individuals who rent cars or trucks for business use typically are covered under their personal auto policies (assuming that they have such policies). The liability insurance sections of most personal auto policies present areas of concern, however. If the individual's personal auto policy and the employer's auto policy are both excess over any other insurance, it may be unclear how the two policies will interact to pay the loss. In this situation, adjusters from the various insurance companies need to work together to arrange payment, and then work out among themselves the burden of apportioning the loss.
Another area of concern for the renter is in the vehicle-use section of the lease agreement. For example, most contracts stipulate that while a vehicle is out of service for repairs due to an auto accident, or until the leasing company is paid for the value of the vehicle in the event of a total loss, the renter shall continue to pay rent. If, however, rental coverage is not included as part of the physical damage policy, or if the costs exceed the limits, an extra burden of cost is created for the renter. Adjusters need to be aware of this in order to avoid paying for costs that are not covered under the policy. Adjusters also should note that if the claim is handled slowly, or delayed for reasons that could have been avoided by the adjuster, an upset policyholder might ask the insurer to pay those extra costs or face a claim for bad faith.
Read the Rental Contract
Insurance policies are meant to indemnify insureds or injured parties. Adjusters should be familiar with the rental contract wording and compare it to any applicable auto policies. Adjusters should also discuss any areas of concern with their insureds. If a problem arises with coverage or limits, talk to the insureds' agents or brokers, and let them work with their clients to determine possible solutions.
Adjusters should also be aware of any other applicable insurance, such as credit card insurance, and adjust claims accordingly. Although auto physical damage insurance can be purchased through a credit card company to cover loss or damage to rented cars, credit card insurance policies often disqualify certain kinds of cars or impose strict limitations on when they will actually pay.
Another method of protection against loss of a rented vehicle is through hired auto physical damage insurance with a business auto policy. Hired auto physical damage insurance is intended to cover loss to rented vehicles caused by collisions or other causes specified under the policy. Coverages that might be available include towing charges, glass breakage, and comprehensive. Adjusters should be aware that hired auto physical damage insurance can cover temporary transportation expenses of the insured, but not of the rental company. However, hired auto physical damage insurance typically does not cover damage such as wear and tear.
Hired auto liability insurance under a business auto policy is written to protect both the business and its employees who rent cars in the course of business. Adjusters should be aware of the limits listed under the liability section of the policy. Among the types of coverage it might provide are liability insurance protection for a business and its employees who drive rented cars in the course of employment; legal defense for both the insured business and its employees if a lawsuit results from an insured accident; and supplementary payments and reasonable expenses if incurred by insureds at the request of the insurer. In addition, liability limits can be automatically increased and minimum amounts and types of other insurance coverage can be automatically provided to comply with the laws in the state where the car is driven, if out of the state in which it is licensed.
Helping Insureds Settle Claims
Even if insurance is purchased by the renter, certain items usually are not covered under the business auto policy for which rental agencies typically try to collect. If a waiver agreement is not in effect, the renter will be faced with negotiating directly with the rental agency to settle these extra claim costs. Adjusters are in a good position to provide input to their insured customers faced with this problem. Here is a list of categories on which rental companies often try to collect, and
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1 The waiver under the contract can be voided or withdrawn by the rental agency if certain terms and conditions are not met. For this reason, the renter who is involved in an accident should take an active role in making sure that the claim is handled according to the contract terms and conditions. For example, any renter involved in an accident with the rented car must follow the specific instructions on reporting the loss. If the waiver is voided, the renter could be charged extra fees from the cost of repairing the car and loss of use in its fleet to refueling costs and towing charges. Adjusters should advise renters that it is in their best interests to be in control and avoid unnecessary costs.
2 Rental agencies often demand payment for administrative and processing fees, fines, or other expenses. If the renter receives such charges, adjusters should advise the renter to request that the rental agency provide documentation of expenses that are directly related to the accident or loss.
3 When a rental car spends time in a repair shop after a loss, the renter will likely receive a bill for its time out of the fleet. If so, the rental agency should be asked to provide the number of days the car was in the shop; proof that no other cars were available for rent during the actual days that the car was in the shop for repairs; and proof that any amount claimed accurately reflects the costs of not being able to rent the vehicle.
4 Rental agencies typically claim for decrease in value of the car resulting from the loss. If, however, the rental agency received payment for the repairs, why should it be entitled to recover additional damages for loss of value? Like any claimant, it should be required to prove that the car's value actually was reduced as a result of the accident or damage. To do this, the renter should ask for proof of the purchase price and selling price of the vehicle.
Unquestionably, resolution by settlement means that the insurance adjuster must be in possession of the facts. Managing claims involving rented cars is an opportunity to provide exceptional claim service and control claim costs.
Elaine Peck, a claim consultant for Willis of Seattle, has been handling claims for more than 20 years. Since 1991, she has been employed to provide claim management services for regional and national insurance brokers.