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  • Inside Track
    July 20, 2016

    Rental Car Law: Considerations Before You Hit the Open Road

    Joe Forward

    From expired plates to complex insurance issues, the rental car experience could lead down a road of problems. Be informed before you put the pedal to the metal.
    woman in rental car

    July 20, 2016 – Busy lawyers who travel may be accustomed to renting cars. But be honest, do you really read the fine print of that rental car contract? What about clients? How would you advise a client with questions related to rental cars? Probably, those questions come after-the-fact, when an accident involving a rental car has occurred.

    Not surprisingly, rental car contracts contain provisions that lawyers may find confusing. So the general public may be even more confused by “damage waiver” and “supplemental liability insurance” provisions. In addition, the practices of rental car companies may surprise the unwary car renter.

    Case in point: I recently rented a car to drive from Madison to St. Louis. The car had Minnesota plates. Halfway to St. Louis, it became apparent that the stickers on the license plates of this rented car were expired by two months.

    Long story short: The rental car company’s branch manager said the vehicle registrations are up-to-date, but stickers aren’t always updated because cars move across state lines. He is aware that customers may be driving with expired stickers.

    Expired stickers may give police officers probable cause to make a traffic stop, I say. The car rental company manager wasn’t concerned. A police officer can see in the “database” that the car is up-to-date and should not pull you over, he says.

    Profiling and Investigations

    Marcus J. Berghahn

    Marcus Berghahn, a criminal lawyer at Hurley, Burish & Stanton S.C., confirmed that driving with expired stickers gives police probable cause to make a traffic stop.

    Marcus Berghahn, a criminal lawyer at Hurley, Burish & Stanton S.C. in Madison confirmed that driving with expired stickers gives police probable cause to make a traffic stop. “Police could run the plate to see whether the registration is expired, but they don’t have to,” he said. And that’s problematic for a number of reasons.

    “If during that contact they discover grounds to search, or investigate another crime, they may do that,” Berghahn said. “And I suspect that the profile of the driver, including race or age, could make a difference in whether police exercise discretion.”

    In other words, police could profile a driver and use the expired license place stickers as a pretext to investigate other potential crimes. In essence, these types of rental car policies invite problems and unnecessary police scrutiny, Berghahn said.

    During the trip, the rental car company had offered to replace the car if it was returned to the same Madison location, but by then the vehicle was in St. Louis.

    The company’s St. Louis branch was no help: they had no comparable vehicles available. An email to the rental car company’s general counsel in Florida was not returned. Lesson: check the license plates for expired stickers before you drive away.

    Damage Waivers

    Most car rental companies offer a “damage waiver” to rental car customers, but customers are not required to purchase a damage waiver. They may decline.

    Under a damage waiver, the car rental company will “waive” your liability for damage to the car. In Wisconsin, car rental companies that offer and sell damage waivers must include certain notifications about liability for damage in car rental agreements.1

    Without purchasing a damage waiver, about $30 per day for a mid-sized SUV, renters and other authorized drivers are liable for “any damage to the rental car caused by an accident, or by intentional, reckless or wanton misconduct, or by theft that you may have intentionally caused. Total liability for any damage is limited to:

    1. reasonable repair costs, less discounts available to us, or the fair market value of the car, whichever is less; and

    2. actual and reasonable towing costs, and for storage costs during the period before you notify the rental company of the damage to the vehicle or for 14 days after the damage occurs, whichever period is shorter.”2

    If an unauthorized driver causes damages to the car, or it is stolen, you may still be liable unless you do the following:

    1. Refrain from leaving the ignition key in the car when you are not in the car;

    2. Always keep the ignition key in your possession;

    3. Immediately report to the local police if you learn the car has been stolen, or that an unauthorized person is driving the car; and

    4. Cooperate fully with the local police by providing any information you know that may be helpful.3

    The regulations specifically enumerate the circumstances in which you will still be liable for damages, despite purchasing a damage waiver.

    For instance, damage waivers can be invalidated if the driver was under the influence of drugs or alcohol, was driving recklessly when damage occurred, did not report an accident to police, or an unauthorized driver was driving, among other circumstances.4

    Will Auto Insurance Cover Damage to a Rental Car?

    Personal auto insurance policies may cover damage to rental cars an insured person is driving. But it may not cover all the costs that accrue in such circumstances.

    Jeff Blau, an insurance agent with AAA in Menomonee Falls, says the limits and deductibles on personal auto insurance policies typically apply to rental cars that are driven for personal use, when drivers have comprehensive and collision coverage.

    J. Michael Riley 

    Mike Riley, an attorney at Axley Brynelson LLP in Madison, says he has purchased the damage waiver when renting cars overseas, but usually doesn’t in the U.S.

    “Typically what is not covered is loss-of-use or value to the rental car company. If the rental car is damaged or stolen, you may be responsible for loss-of-use charges while the rental car is in the shop and any related charges and fees,” he said.

    Indeed, under a typical auto insurance policy, “insured car” may include a “temporary substitute” vehicle, or “other cars” that you don’t own but use temporarily. But the policy typically won’t cover rental cars driven in other countries. Canada may be an exception.

    Mike Riley, an attorney at Axley Brynelson LLP in Madison, says he has purchased the damage waiver when renting cars overseas, but usually doesn’t in the U.S.

    “You are driving in an unfamiliar country and the risks can be a lot greater in a place like England, where you are driving on a different side of the road half the size of ours,” Riley said. “The problem is, damage waivers are generally overpriced.”

    “Check with your auto insurance agent and your credit card, because rental car damage could be covered by those sources, and you don’t necessarily need the damage waiver, which gets expensive when you are renting for multiple days,” he said.

    Credit Cards

    Some credit cards offer coverage for rental car damage as a card benefit, if you use that particular card to purchase the rental car. If damage is also covered by an auto policy, the credit card may fill gaps in coverage, such as loss-of-use charges. In addition, the credit card coverage for damages may apply if renting cars in other countries.

    In reviewing the terms of a credit card that offers an auto rental collision damage waiver if the card is used to rent the vehicle, the benefit provides reimbursement “for damage due to collision or theft up to the actual cash value of most rental vehicles.”

    Joe ForwardJoe Forward, Saint Louis Univ. School of Law 2010, is a legal writer for the State Bar of Wisconsin, Madison. He can be reached by email or by phone at (608) 250-6161.

    Covered losses include physical damage and/or theft of the vehicle, valid loss-of-use charges imposed and substantiated by the auto rental company, and reasonable and customary towing charges, due to covered theft or damage. Thus, loss-of-use and other charges not covered by an auto policy could be covered under a credit card agreement.

    However, the benefit may be limited in duration. Under one credit card agreement, the benefit only lasts for 15 consecutive days if driving in “your country of residence,” and 31 consecutive days if driving outside your home country.

    If you have personal auto insurance that covers the theft or damage, the credit card reimburses the deductible and any unreimbursed portion of valid administrative and loss-of-use charges imposed by the auto rental company. If personal auto insurance does not cover the loss, the renter would be covered under the credit card’s policy.

    Under the credit card reviewed, expensive and exotic automobiles are not covered. Thus, think twice before renting a Lamborghini, Maserati, Porsche, or Ferrari. But selected models of BMW, Mercedes-Benz, Cadillac, and Lincoln may be covered.

    In addition, the credit card benefit does not cover a number of losses and damages, including personal liability and injury of anyone or damage to anything inside or outside the vehicle. It only covers damages arising from theft or damage to the vehicle itself.

    Optional Supplemental Liability Protection

    The car rental companies may offer “optional supplemental liability protection” (SLP) or some equivalent. For a mid-sized SUV, the SLP cost is about $15 per day.

    SLP gives renters and other authorized drivers liability protection, including coverage for accident claims that result in bodily injury, death, and property damage. Blau said liability coverage and limits on auto policies would typically apply to car rentals for personal use, but drivers should check personal policies or ask their agents.

    Under one car rental agreement, SLP coverage is capped at the difference between a state’s minimum financial responsibility limits and $1 million. In Wisconsin, insured’s must carry liability limits of $25,000 per person and $50,000 per accident.

    A 2013 decision from the Wisconsin Supreme Court illustrates how SLP coverage could come into play when a rental car driver causes a car accident with another driver. In the case Bethke v. Auto-Owners Ins. Co.,5 the rental car driver was liable for the accident. The driver was killed and so was the mother driving the other car. Her son was injured.

    The at-fault driver had personal auto insurance, but he lived in England, and his auto policy did not cover rental cars driven in other countries. He did not purchase SLP.

    The rental car company was required to pay the victim family $50,000 under Wis. Stat. section 344.51(1m), which requires car rental companies to carry liability insurance for negligent driving by persons who rent cars. But that was not nearly enough.

    The family sought additional coverage under an underinsured motorist policy, which protects policy holders if the other driver does not have enough liability coverage to pay damages. Again, in Wisconsin, individuals must carry liability limits of $25,000 per person and $50,000 per accident. But as Riley noted in an InsideTrack article on underinsured motorist coverage, “it is not unusual to see medical bills substantially exceed those minimum limits for a person with a significant injury.”

    The insurance company argued that the family’s underinsured policy did not apply because underinsured vehicles don’t include vehicles owned by “self-insurers,” and rental car companies are self-insurers under Wis. Stat. section 344.16.

    Under that statute, “any person in whose name more than 25 motor vehicles are registered may qualify as a self-insurer by obtaining a certificate of self-insurance. …”

    In a 4-3 decision, the majority ruled that the family was entitled to underinsured motorist coverage up to $500,000 because the policy was ambiguous. That is, a “reasonable insured” may not understand that a car rental company is considered a “self-insured,” and an exclusion for accidents with “self-insurers” would lead to an absurd result.

    “Its application to these unique facts simply makes no sense,” the majority opinion stated. But the statement suggests the court could rule differently in another case involving an underinsured driver who rented a car, depending on the facts and the policy.

    Optional Personal Accident Insurance & Personal Effects Coverage

    Many car rental companies offer extra insurance to cover the insured driver and a passenger, as well as personal effects that are stolen from the car. For a mid-sized SUV, this coverage was $4.99 per day through one rental company.

    But coverage amounts are minimal, and exclusions apply. One reviewed policy covered $175,000 if the driver died, and $75,000 if a passenger died. It covered $2,500 each for medical expenses for renter and passenger, and $250 each for ambulance expenses. Aggregate coverage could not exceed $225,000. Personal effects coverage was limited to $600 per person, or $1,800 maximum for all covered individuals.

    Coverage for personal bodily injury is included with medical payments coverage policies and supplemented through uninsured and underinsured motorist coverage.

    As with damage and liability coverages, drivers should check whether personal auto insurance policies will cover personal injuries sustained when driving a rental car.

    What about Minor Damages?

    We’ve all heard stories of rental car companies who make claims of minor damage, such as scrapes and dents, against drivers who deny they caused the damage.

    “It’s your typical he said, she said case,” Riley said. “Barring major damage, I can’t imagine a company taking the time to pursue a claim of a door ding or minor scrape on the bumper, but I’m sure it happens. Just make sure you pre-inspect the vehicle.”

    Riley said customers should ensure that any pre-existing damage is documented before the car leaves the lot. “If you see anything, make darn sure it’s documented in writing.”

    If you do cause damage to the car, Wisconsin law still provides consumers with an opportunity to inspect the vehicle and obtain a second estimate.

    Under the Wisconsin regulations covering car rentals and customer notices, a car rental company cannot collect any amount for the damage unless you and your insurer “have been promptly notified of your and your insurers’ right to inspect the unrepaired car within two working days after the car rental company was notified of the damage.”6

    If you request it, the car rental company must also give you a copy of any estimate “obtained from a repair shop regarding any damage claim” and “within 2 working days after receiving that estimate, you may request a second estimate from a competing repair shop and [the car rental company] must give you a copy of the second estimate.”7

    Conclusion

    Next time you rent a car, be armed with the information to make the right decisions regarding damage waivers and liability and consider what other protections you may have through your own insurance and credit cards. And check for expired stickers.

    Endnotes

    1 Wis. Admin Code ATCP 118.02.

    2 Id.

    3 Id.

    4 Id.

    5 2013 WI 16, 345 Wis. 2d 533, 825 N.W.2d 482 (2013).

    6 Id.

    7 Id.




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