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Business
or personal travel often includes rental vehicles. This part was written to
provide information about the liability assumed in a vehicle rental agreement
and the very convoluted means to address the risk. The consumer has two choices
when renting a vehicle. One is to take appropriate steps to address the risk. The other is to owe the rental company for damages- up to and including the full
value of the car, loss of rental value during a period of repair or replacement,
and administrative expenses. |
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Approximately forty percent (40%) of all rental vehicles are damaged each
year and vehicle rental companies use a very effective system to collect for
damages. Few people are aware of the
responsibilities and risks assumed when renting an automobile and many make poor
decisions regarding insurance. To
make matters worse, this risk is often not covered by either of personal or
commercial insurance programs. |
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Automobile rental companies have no reluctance about
collecting their losses. This may
creates very unpleasant problems for unsuspecting employees and their employers. |
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Listed below are some assumptions of risk for a rented vehicle. |
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| 1. |
Physical damage to the vehicle regardless of fault.
This risk is frequently not covered by the person personal or business
automobile policy. Physical damage coverage
sold by the automobile rental firms is often very restrictive. (see item 8)
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| 2. |
Loss of use by the rental firm during the period of repair.
This exposure is not insured under personal or commercial automobile
policies. |
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| 3. |
Administrative expenses incurred by the vehicle rental company during
the period of repair. This exposure
is not insured by personal or commercial automobile policies. |
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4. |
Third party liability related to use of the vehicle. |
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| 5. |
Employees traveling on business may be held personally responsible for
damage to the rental vehicle. Their
personal insurance may, or may not, respond to protect them. |
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| 6. |
An employee may be held personally responsible for liability claims
arising out of business travel.
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| 7. |
You may assume liability of the rental firm when you sign the rental
agreement. |
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| 8. |
Such contractually
assumed liability can shift responsibility for accidents that are not your
fault, such as those resulting from poor maintenance or faulty brakes. |
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Coverage purchased from the rental firm may be voided because a rental
condition is voided. Conditions
include, but are not limited to:
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| A. |
age of
the driver violating the rental agreement |
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| B. |
speeding |
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| C. |
not being
a specified driver in the contract |
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| D. |
driving
beyond the territory covered in the rental insurance program
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| E. |
reckless
driving |
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| F. |
use of alcohol or drugs
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| G. |
driving
off a paved road
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| H. |
allowing
parking attendant to park vehicle
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| I. |
pushing or towing another vehicle
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| J. |
hitting obstruction in highway |
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| K. |
varies
by agreement |
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Insurance protection for the vehicle renter is
limited. Below are some examples of limitations
that complicate the matter. |
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| 1. |
Approximately half of the states allow personal automobile policies to pay for damage to temporary rentals.
Many states do not allow this protection and not all employees will have
personal coverage for liability, medical payments and physical damage.
In addition, some personal insurance policies do not extend coverage for
business travel.
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| 2. |
Some insurance companies provide coverage for rented vehicles as an
extension to the customer’s policy. Others
provide the coverage for an additional premium.
But either may restrict coverage for business use of a rental vehicle.
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| 3. |
Coverage extensions under personal automobile policies may be limited to
the value of the vehicles insured by the employee.
In the event the employee totals a newer rental vehicle, the limit of
coverage under their personal policy is limited to the value of the vehicles
they have at home. Further, if they did not have collision coverage on their
personal policy, there will be no coverage for the rental.
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| 4. |
Even though the employees personal automobile insurance covers the
rental vehicle, rental company will hold the renter’s credit card until
the loss is paid. Some vehicle
rental companies use the renter’s credit card for immediate repairs.
This violates the renter’s personal insurance policy.
Most require them to notify the insurer and permit appraisal on damage
property before repairs are permitted.
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| 5. |
Personal and commercial insurance
does not include the loss of revenue and administrative costs charged by the
vehicle rental company
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6. |
Credit card providers have reduced or ended programs to provide
physical
damage coverage for rented automobiles.
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| 7. |
Rental firms may put a hold on your credit card should you refuse to buy
Physical
Damage Waiver, even if your credit
card provides coverage |
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| 8. |
In the event of an accident the vehicle rental company
may charge the vehicle repairs, loss of revenue and administrative
expenses to your credit card immediately. This
may impair your credit. |
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REMEDIES |
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| First, employees with travel responsibilities need to be informed of the
risk related to automobile rental. They
need to understand very clearly that they may become PERSONALLY responsible for
damages arising from an accident involving a rented vehicle used for business
travel. Secondly, institute procedures for employees to rent
vehicles in the name of their employer instead of their name individually.
Third, institute procedures addressing employee use
of rental vehicles for personal trips around business travel. Fourth, address insurance coverage for both your
company and your employees. This will include several separate elements. |
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| A. |
Each
employee traveling on company business needs personal
automobile liability coverage. The
limits should be at least $500,000.
The employee may be named as a defendant in any lawsuit if they rent a
vehicle in the company name. Rental
companies may do this as part of their litigation strategy, or the plaintiff’s
attorney may sense the availability of additional assets. Covering employees is not easy.
A commercial automobile policy does not protect employees who use their
own cars on company business. Conflict between a business trip vehicle rental
and a personal side trip in the rented vehicle complicates the matter further.
This is an important issue for the employees.
The employee’s insurance agent can help them address these questions. |
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| B. |
Amend your commercial
automobile liability policy to include an endorsement titled “Employees
as Insureds.” This
will protect the employee for liability claims that may exceed their personal
insurance limits.
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| C. |
Make
sure the commercial automobile policy includes contractual liability coverage.
This
part covers the indemnification provisions in the rental agreements
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| D. |
Inform
employees to rent vehicles in the firm name.
If a vehicle is not rented in the company name the commercial automobile
policy may not protect the renter. Have
the employee sign the agreements in the name of the employer, adding their name
“…. By John Doe.”
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| E. |
Specify
an automobile rental firm, or firms, to be used by your employees. Providing employees with a firm with whom you negotiate an agreement as
to responsibility can save money and reduce the risk of uninsured claims.
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| F. |
Inform
employees all persons who drive a rental vehicle must be listed on the rental
contract. Failure to
identify all drivers may void the contract.
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| G. |
Inform employees of procedures
for repairs to rented
vehicles.
This
item should be part of your agreement with the
vehicle rental firm.
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| H. |
Inform employees of
geographical limits on rental cars.
Rental
contracts differ in regard to travel.
Some permit the vehicle to be used only within the state where the vehicle was rented. Other rental agreements have a
mileage restriction. It is important for the
employee to understand any travel limitations when the vehicle is acquired.
Nearly all
contracts prohibit crossing the border
into Mexico or Canada. Whether owned
or rented, Mexico requires special Mexican automobile insurance. Otherwise the
employee may be put into jail for a minor accident.
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| I. |
Inform
employees that car rental firms have access to driver’s records in all 50
states. As part of a
federal crime bill passed in 1994 rental firms can now access drivers’
records. They increasingly refuse to
rent to drivers with three or more moving violations or two or more accidents
within 36 months. This is not good
news to learn at the airport.
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| J. |
Carefully
communicate to your employees the method of providing insurance coverage for
rented vehicles. The employees need to be informed of the arrangements.
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K. |
Make
arrangements for a certificate of insurance for employees. Many
states have mandatory insurance laws requiring proof of automobile coverage in
case the police stop you. A copy of
personal or commercial insurance certificates is desirable while traveling in
those states.
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| Provide
traveling employees with forms to report any accident.
They will
be required to report the mishap on the rental car forms as part of the rental
agreement. In addition, the incident
needs to be reported to the employers insurance company.
Otherwise, the employee may be charged the full amount of damages to the
rental unit while they are in the airport.
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