Many small businesses utilize rental vehicles. For example, a contractor rents a large truck to transport a bulky piece of equipment to a job site. Alternatively, a consulting firm rents a car that a consultant uses to travel to a convention in another state. For business entities, a rental vehicle can present risks that may not be apparent until a lawsuit is filed. The answers to the following questions can help you and your insurance agent identify these hidden risks.
Are rental agencies in my state (or the state where I plan to rent) obligated by law to furnish liability insurance to customers?
Many states require rental agencies to provide liability insurance to their customers at a minimum of the statutory limit. This limit may be as little as $30,000 per accident for bodily injury.
If the agency is obligated to provide insurance, and a rental vehicle driver is involved in an accident, will the insurance cover the employee on a primary basis?
That is, will the agency’s policy apply before any other available insurance, such as the driver’s personal auto policy? State law may dictate which policy pays first. Some states may require rental agencies to furnish insurance to their customers but permit such coverage to apply on an excess basis. When coverage is excess, it applies after other sources of insurance have been used up. The rental agreement should state what limit of insurance the agency provides to customers (if any), and whether the insurance is primary or excess.
Does my firm have a commercial auto policy that includes Hired Auto Liability Coverage?
The latter covers any vehicle the policyholder hires during the policy period. The term hired auto means a vehicle that your firm rents short-term (for less than six months). Hired Auto Liability Coverage protects both your company and your employees against suits arising from the use of a rented vehicle. Note that hired autos are insured on an excess basis. This means that the insurer will pay only after any other available insurance, such as the driver’s personal auto policy, has been used up.
Does the individual who will drive the rented vehicle have a personal auto policy?
The driver’s policy will afford valuable backup coverage in the event neither the employer’s nor the rental agency’s policy is available to cover a claim. Many personal policies cover non-owned autos, a term that includes vehicles rented by the policyholder or a resident family member. (Personal policies do not use the term “hired auto”.) Many also extend liability coverage to the driver’s employer, but only to the extent that the employer is held responsible for negligence of its employee. A business should not rely on an employee’s policy as its main source of coverage for rental vehicles. For one thing, the liability limits are likely to be too low to adequately protect a business. Secondly, personal policies often contain exclusions directed at business activities; for instance, many exclude trucks larger than a half-ton pickup.
Whose name will appear on the rental agreement?
This is important for two reasons. First, hired auto coverage applies only to vehicles rented by the named insured, meaning the person or company listed in the declarations. It does not cover cars rented by an employee—unless employee-hired autos are specifically covered by an endorsement attached to your policy. Secondly, personal auto policies may contain restrictions that may limit the coverage available for rental vehicles used in the driver’s employment. Your agent can help you determine what limitations exist in a particular policy.
Finally, what happens if my company is sued because of an accident involving a rental vehicle and all sources of insurance (rental agency, commercial policy and a personal policy) cover the claim on an excess basis?
This question can be difficult to answer. In some cases, the insurers may agree to share the loss equally. Some states have enacted laws addressing this situation. If not, then a previous court ruling may determine the order in which policies apply. If all attempts to negotiate a settlement fail, then a court will determine how the loss will be apportioned. Ask your insurance agent or attorney how such conflicts are typically resolved in your state.