Allowing an unauthorized person to drive your rental car is the biggest mistake you can make when renting a car. Not only does it void your rental agreement, it will probably result in your insurance policy declining to pay any claim for damage that results while the unauthorized person is driving.
Auto insurance policies only provide coverage when authorized drivers use or have possession of a vehicle. Language exists in personal auto policies that SPECIFICALLY EXCLUDES COVERAGE for two types of unauthorized drivers–you need to read your policy (or ask your agent to do so) to determine which exclusion applies to you:
- A person who does not have the permission of the vehicle’s owner to drive the vehicle
- A person who does not have a “reasonable belief of entitlement” to drive the vehicle
So, what’s the difference? Here’s a brief story that explains:
Doris detests her daughter’s boyfriend. When Irene borrows her mother’s car, Doris informs her daughter that her boyfriend is not allowed to drive the car. Irene agrees. However, when they leave the restaurant after dinner later that evening, Irene gives her boyfriend the car keys and asks him to drive. The boyfriend is tailgating and rear-ends the car in front of him when it stops at a red light.
- If Doris’ auto insurance policy excludes coverage for a driver operating a car without the owner’s permission, the policy WILL NOT PAY for this accident. (Doris did not give the boyfriend permission and, in fact, withheld permission in her instructions to Irene.)
- If Dori’s auto insurance policy excludes coverage for a driver operating a car without a reasonable belief of entitlement to drive the car, the policy WILL PAY for this accident. (When Irene handed the boyfriend the car keys and asked him to drive, it was reasonable for him to believe he had permission to drive.)
What does this story have to do with renting cars? Well, if you allow an unauthorized person to drive your rental car, your insurance company will recognize that the driver did not have (1) permission of the rental car company to drive AND DID NOT HAVE (2) a reasonable belief he or she was able to do so … everyone knows (or should know) you can’t drive a rental car unless your name is on the agreement. Therefore, you not only voided the rental agreement, you also triggered one of your auto policy’s exclusions.
People rent cars when they go on vacation or travel for business. But they also rent cars because they want to conduct activities they’d rather not engage in while driving their own cars … such as all the things that prompt rental car companies to devise their list of prohibited uses. Not all rental car agreements contain these prohibitions, but they all contain MOST of the following activities that result in a loss that occurs:
- During the commission of a crime
- While the driver is under the influence of alcohol or drugs
- While carrying people or cargo for a fee
- While pushing or towing anything
- During any type of race or speed contest
- While teaching someone to drive
- While using the rented vehicle outside the area stated on agreement
- While driving on unpaved roads
- While having more passengers than there are seatbelts
- While transporting children without approved seatbelts
- While the vehicle’s fluid levels are low
- Because inadequately secured cargo, or an animal, inside the vehicle caused damage
- While the vehicle is unlocked or the keys are lost, stolen, or left in the vehicle while not in operation
- Because the driver did not allow enough height or width clearance
- By theft and the renter does not return all the keys that were provided at the time of rental
- Because the renter allowed an unauthorized driver to use/drive the car
I can’t tell you how often I’ve heard this question. And the answer is yes … AND no!
Under your PERSONAL auto insurance policy, the broadest coverage applies to the cars you own and insure on the policy. While coverage does follow you when you drive certain types of cars you don’t own, that coverage is limited. Most BUSINESS auto insurance policies do NOT follow the business or its employees when driving non-owned cars–unless the business has specifically purchased this coverage.
When you rent a car, you sign a contract. That contract contains all kinds of terms and conditions. If you don’t read the contract, you don’t know what those terms and conditions are. If you don’t show the contract to your insurance agent, he or she doesn’t know what they are, either.
Regardless of whether you or anyone else reads the contract, you are still bound by its terms once you sign it!
Other Items of Note
I’ve read LOTS of auto rental agreements and ALL of them include terms that surprise most people who sign them, such as:
- You agree to be legally responsible for anything that happens to the car, or resulting from the car, during the term of your agreement. This agreement applies even if you would not otherwise be legally responsible under law.
- You agree to replace the car at a value determined by the rental car company if it is destroyed (this includes numerous fees and charges the rental car company also determines). Unfortunately, your auto policy usually only provides coverage at book value, which is generally much less than the amount demanded by the rental car company.
- You agree that your insurance policy will pay first, before all other insurance policies pay, in the event of a claim. Unfortunately, the auto policies in most states say they’ll pay AFTER the rental car company’s policy pays first.
So, what does all this mean? Here are some examples of the three points I just mentioned:
- When driving a rental car you are the middle car in a 3-car accident. Although the person who hit you from behind is legally responsible for your damage and damage to the car it pushed you into, when you signed the rental agreement, you agreed to be responsible for the damage to your rental car and the car you struck.
- Your rental car is torched while parked in the lot at Disney World. The rental car company says the car’s replacement value is $33,000. However, your insurance company says it will only pay the car’s actual cash value (i.e., book value) minus your deductible, or $21,000. You signed the contract, so you’re legally responsible for the $12,000 difference.
In most states, your auto insurance company will not make payment for damage to the rental car until AFTER the rental car company’s policy pays first. It will eventually pay, but it could take months…
Trust me, the rental car agreement contains other provisions that disagree with your auto policy–these are just three of the big ones. If you have any questions, ask away…
Identity theft and data breach are two evolving crimes that affect more and more people each year. The stories are horrendous. But plenty of information exists to help you prevent becoming a victim.
Here’s a little video from the FTC, followed by some resources that can help you understand the crime, how it’s committed, and how to avoid it.
Federal Trade Commission
Identity Theft Resource Center
True Stories of Identity Theft
Q: Do you know how hiring a ride with a Transportation Network Company (TNC) like Uber or Lyft works?
Q: Do you know if the TNC has auto insurance, requires its drivers to have insurance, and/or conducts background checks before hiring drivers?
Q: If you want to drive for a TNC, do you know if you must pass a background check, if your car must pass an inspection, if you must have certain types and limits of insurance?
Q: When does a ride really begin and end? How much does one cost and how high can the prices go?
Q: What’s all the hooplah about?
We’ll answer these and other questions during our live webinar, Ridesharing, which will be presented on May 16 at 11 a.m. Mountain/1 p.m. Eastern time. Insurance producers and adjusters in Montana will earn 1 hour of continuing education (CE) credit for completing the webinar and click here to register.
We are happy to report that the Montana Insurance Continuing Education Program just approved two new classroom insurance CE courses:
P&C Smorgasbord was approved for 8 hours of credit and contains eight, 1-hour topics:
- Renting Cars
- Identity Theft
- Terrorism Insurance
- Inland Marine Coverages
- Surplus Lines
- Cyber Security
Life and Health Smorgasbord was approved for 4 hours of credit and contains three topics:
- Anti-money laundering (1 hour)
- Medicare (2 hours)
- Affordable Care Act (1 hour)
Both courses will be presented in Missoula during the week of September 18, 2016. For more information about pricing and registration, click here.