Bill Wilson Abstract
Although most CDW/LDW fees are considered outrageous, the insured is best advised
to purchase the CDW/LDW for short-term rentals.
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Loss Valuation
The ISO Personal Auto Policy (PAP) covers the lesser of the "actual cash
value" of the vehicle or the amount "necessary" to repair or
replace the damaged property. The rental agreement may very well contractually
obligate the insured to reimburse the lessor for the "full value" of
the vehicle. Under the current PAP, the "betterment" clause may
result in the insured being significantly underinsured relative to his/her
obligations
under the rental agreement.
Loss Settlement
As implied above, there may very well be disagreement over the value of
the vehicle or the amount charged for labor and materials to repair the
property—depending
on the PAP edition, the Appraisal clause may be invoked with its accompanying
costs. More importantly, the PAP insurer has the right to "...inspect
and appraise the damaged property before its repair or disposal"—the
rental company may choose to effect the repairs immediately, potentially
resulting in a lack of PAP coverage because of failure to comply with the
condition cited
above.
Loss Payment
The rental agreement may require immediate reimbursement for damages and
it is not uncommon for the lessor to charge the insured's credit card. This
can
create a significant debt, "max" out the card's credit limit (perhaps
shortening a vacation or business trip), result in litigation, etc.
Loss Damage Waivers (LDW)
The rental agreement may require reimbursement for more than collision—some
include theft under certain circumstances and others may make the insured responsible
for any "loss" in value beyond normal wear and tear. Obviously, the
PAP must include collision coverage on at least one insured owned vehicle for
coverage to transfer to the nonowned auto—if the rental agreement includes
a Loss (not just collision) Damage Waiver (LDW), the policy must also include
comprehensive coverage to adequately protect the insured.
Indirect Losses
The insured most likely will be responsible for the lessor's loss of rental
income on the damaged unit. The PAP has, at best, daily and maximum caps
for this indirect loss and, depending on the edition date, an unendorsed
policy
may pay only for loss of income resulting from theft.
Administrative Expenses
The rental contract may make the insured liable for various "administrative" or
loss-related expenses such as towing (e.g., one insured was charged for a
230-mile tow), appraisal, claims adjustment, etc. None of these expenses
are normally
covered by the PAP.
Other Insurance
The PAP says it is excess over: (1) any coverage provided by the owner
of the auto (does "coverage" include self-insured funds?), (2) any
other applicable physical damage insurance, and (3) any other source of recovery
applicable to the loss—travel policies, credit card coverages, etc.
The potential controversy over who pays what is obvious and can result in
litigation.
In addition, keep in mind that many states (e.g., MD, MN, NY, TN, etc.) have
statutes, proprietary forms, and/or case law precedents that may govern this
and other rental car exposures.
Excluded Vehicles & Territories
The PAP normally does not provide physical damage coverage for motorcycles
or other non-auto/pickup/van vehicles (e.g., motorhomes) and use of covered
vehicles is limited to the U.S., its territories and possessions, Puerto
Rico, and Canada (the rental agreement may also exclude operation outside
a specific
geographical area). In addition, if the insured is renting a trailer (U-Haul,
camper trailer, etc., coverage is typically limited to $500 - $1,500. The
insured usually has no choice but to rely on the CDW or LDW for coverage.
Excluded Uses & Drivers
The PAP may have limitations on use of vehicles that are not otherwise
excluded by the rental agreement CDW or LDW—for example, the ISO form provides
no physical damage coverage for the business use of nonowned pickup trucks
or vans. Also, the PAP may include an exclusionary endorsement for certain
individuals or may apply only to designated individuals—the CDW will
probably also only apply to designated individuals, but operators for which
no PAP coverage is available may be afforded protection under the rental
agreement by designating them as such.
Additional and/or Future Costs
The PAP will most certainly include a deductible in the range of $100-$500
or more. In addition, payment for damage to a rental car may result in
a significant premium increase (if not nonrenewal) via surcharges or
loss of
credits.
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Disclaimer
The above information is based on the ISO standard Personal Auto Policy and
typical rental car agreements. Be aware that these contracts may vary from
state to state and there may be statutory exceptions (e.g., the State of
NY) that may govern. In addition, these provisions can change at any time,
so it is important to review the laws and contracts in effect in your jurisdiction
at any point in time. Due to the brevity of this article, we cannot analyze
every possible loss exposure and exception to the general guidelines above.
For a more detailed analysis, though one also subject to change, please review
our online course "The Ultimate Rental Car Course."
Copyright 1998 by Insurors of Tennessee. Used with permission.
Revised: October 2005