Renting vehicles creates numerous risks for businesses. Some are obvious, such as the chance of an injury accident or physical damage to the vehicle. Other risks, like a harsh indemnification clause in a rental contract, may be more obscure. To reduce their risks, business owners should consider the following issues before they rent any autos.
Business Liability Insurance
Most states require rental companies to provide customers with at least the minimum statutory limit of liability insurance. Businesses should not rely on this coverage as their main source of protection against liability claims. For one thing, the limit is generally low ($25,000/$50,000 is typical). In some states, moreover, the insurance afforded by the rental company is excess over any other coverage available to the renter.
While businesses can buy additional liability insurance from the rental agency, many already have insurance under a commercial auto policy. A key source of liability insurance for rental vehicles is hired auto liability coverage. This coverage is available under the standard business auto policy. It protects your company against claims for bodily injury or property damage caused by accidents resulting from the use of hired autos. Note that hired auto liability coverage applies on an excess basis. Your policy will pay claims arising out of a hired auto after other collectible insurance has been used up.
Name on the Rental Agreement
When a rental vehicle is used on behalf of the business, whose name should appear on the rental agreement? Ideally, the contract should list the business. There are two reasons for this. First, hired auto liability coverage applies to you, meaning the named insured business. The policy does not specifically cover employees while driving autos rented by them personally. Consequently, an insurer may refuse to pay a claim stemming from an accident involving a vehicle rented by an employee unless employee-hired autos are covered by an endorsement.
Secondly, an employee's personal auto policy (or personal assets) may be used to pay claims if the employee has rented a vehicle in his own name and is subsequently involved in an accident. The employee's policy and assets are at risk even if the worker rented the auto to use in his employer's business.
Personal Auto Coverage
While it's preferable for vehicles used for business to be rented in the name of the business, this isn't always possible. An employee may lack the authority or the means (like a company credit card) to rent an auto in his employer's name. Thus, employees who rent autos should have personal auto coverage in place. A personal policy can provide backup coverage if no other insurance is available to cover a claim. Most personal policies cover rental cars for liability.
Many personal auto policies don't provide liability coverage for trucks or other commercial vehicles (other than vans or pickups) used in a business.
Liability Under the Rental Agreement
Most rental contracts contain an indemnity agreement that transfers liability from the rental agency to the customer. The agreement typically requires the customer to assume liability for any claims by third parties for injuries or damage caused by accidents resulting from the customer's use of the rental vehicle. Agreements vary. Thus, customers need to read contracts carefully so they understand how much liability they are assuming.
Physical Damage Coverage
Rental car contracts typically make customers liable for any physical damage they cause to the rental vehicle. The contract may also hold customers responsible for various costs such as loss of use, diminution in value, and administrative expenses.
Many rental agencies offer to waive liability for physical damage and the other charges if the customer purchases a loss damage waiver (also called a collision damage waiver). Because an LDW is often pricey, customers should consider other potential sources of coverage. These may include hired auto physical damage coverage under a commercial auto policy or physical damage coverage under a personal auto policy.
Besides insurance, many businesses also have collision and theft coverage afforded by a credit card company. This coverage is available only if the business uses the card to rent the vehicle.
Which Coverage Is Primary?
As mentioned previously, hired auto liability coverage applies on an excess basis under the standard business auto policy. Liability coverage afforded for rental vehicles under personal auto policies also applies on an excess basis. Liability coverage provided by the rental company may also be excess. If all coverage is excess, which will apply first? The answer may be determined by a state statute or a previous court ruling. Alternatively, the insurers may opt to share the loss. Ask your agent or attorney how such disputes are typically resolved in your state.