Simplifying Rental Vehicle Insurance

Business 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.

Find the Right Insurance Coverage