Posts Tagged ‘hired auto liability’

Simplifying Rental Vehicle Insurance

Posted | Filed under Auto Insurance

The devil is in the details

Many sports and recreation organizations require short term vehicle rentals organization purposes such as when flying into an airport and renting a vehicle to drive to a nearby meeting, transporting equipment to a tournament, and transporting athletic participants.

Due to the complexities of rental car contracts and varying insurance policy coverage forms, it not an easy task to decide the best way to handle the insurance on these rentals. As a matter of fact, neither insurance carriers nor rental car companies offer a complete solution, and many insurance experts are in disagreement over how to advise their clients.

The choices are as follows:

  • Buy Non-owned and Hired Auto Liability and Hired Car Physical Damage from your commercial insurance provider. (Typically $350 a year)
  • Purchase the the rental car company’s offering for both Liability and Collision Damage Waiver. (Typically $15 to $40 a day)
  • Pay for the rental with a credit card and rely on the credit card rental car insurance benefit.
  • Rely on your personal auto policy.

Each option has disadvantages

The disadvantages for liability insurance (bodily injury to passengers or occupants of other cars or property damage to other cars) are:

  • Non-owned and Hired Auto Liability under a commercial auto insurance policy may have an exclusion for the transportation of athletic participants or the use of 15-passenger vans. Of course, it is best to not get involved in either of these situations.
  • A personal auto policy may not provide coverage if the rental is for a business purpose.
  • The Liability coverage offered by the rental car company may be voided if an unauthorized driver is driving the vehicle. An unauthorized driver is one who was not added to the list of authorized drives at the time of the rental. The rental car company will make a charge for each driver who is added to the list. Furthermore, the limits of liability that are offered may not be sufficient.

Each of these choices has disadvantages for physical damage insurance (damage to rental vehicle itself) as follows:

  • Hired Car Physical Damage under a commercial auto insurance policy will only pay for the actual cash value (deduction for depreciation) of the car if totaled, will not pay for reduced resale value if not totaled, and will not pay for loss of profits while vehicle is out of fleet being repaired. Unfortunately, most rental car contracts through the national carriers require the following damages be paid: replacement cost value if the car is totaled, reduced resale value if not totaled, and loss of profits while the vehicle is out of the fleet being repaired. Therefore, if the sports/rec organization relies on the Hired Car Physical damage, they would be out of pocket for these amounts.
  • Comprehensive/Collision under a personal auto policy will have the same limitations as Hired Car Physical Damage.
  • The credit card company will likely have the same limitations.
  • The Collision Damage Waiver from the rental car company may void coverage if the damage to the vehicle occurs while an unauthorized driver is driving the vehicle, if a traffic violation is committed during the rental, if the driver is under the influence, or if the vehicle is being used off a paved road.

Suggested solutions:

An organization with rental exposures should always purchase Non-owned and Hired Auto Liability and Hired Car Physical Damage from its commercial auto insurance provider. These coverages will take care of the biggest exposure, auto liability, and will pay the lion’s share of any physical damage losses to the vehicle itself. However, understand that the organization could be forced to pay out of pocked for what is not covered.

  • If the out-of-pocket exposure is a concern, the Collision Damage Waiver should be purchased from the rental car company (but not the liability).
  • Never use 15-passenger vans and avoid transporting participants if at all possible.

Every rental situation is unique and the insurance policy forms and rental car contracts vary. As a result, organizations should review their options with their insurance agent prior to the rental.

Non-owned and Hired Auto Liability for Sports Organizations

What’s covered and what’s not

When vehicles in use for business pertaining to a sports organization are involved in an accident where the passengers or other third parties are injured, the sports organization may be vicariously liable. This means they can be included in any lawsuits arising out of the accident.  Injured parties often seek out the sports organization as a deep pocket when the owner of the vehicle is uninsured or underinsured.

This is why sports organizations need Non-owned and Hired Auto Liability to cover their liability arising out of the use of vehicles that are not titled to the sports organization.

A non-owned auto is an auto that is not owned by the sports organization but is instead owned by an employee or volunteer who runs errands or transports participants at the direction of an authorized league official.  Sports organizations benefit from the use of non-owned vehicles.

Non-owned Auto Liability covers the sports organization itself but does not normally cover the individual vehicle owner or driver. Individual vehicle owners or drivers must look towards their own Personal Auto Policy for coverage.

A hired auto is either borrowed (ex: church van or school bus) or leased from a rental car company.  Hired Auto Liability protects both the sports organization and driver from liability arising from an auto accident when a vehicle is borrowed or leased. It is important to note that Hired Auto Liability does not provide any coverage for damage to the rental vehicle itself.

Non-owned and Hired Auto Liability can be obtained on either a Business Auto policy or a General Liability policy. However, the insurance carriers are reluctant to write these coverages for sports organizations due to the potential for high severity and the fact that sports organizations typically don’t implement loss control protections.

Basic loss control protections include driver screening by obtaining acceptable Motor Vehicle Reports and requiring that employees provide evidence that they carry a Personal Auto Policy with limits of at least $300,000 combined single limits. In addition, many insurance carriers are reluctant to extend coverage on the rental of 15-passenger vans due to their documented propensity for tipping over.

The actual policy language must be carefully reviewed for these restrictions.