The season for summer vacations is here, which means many people will be renting automobiles for their trips. While the price of gasoline may weigh heavily on the traveler's mind, the question of auto insurance coverage while driving a rented car is usually not enough to keep people at home because the standard personal auto policy provides liability and physical damage coverage. However, FC&S subscribers still have questions pertaining to rental car accidents. Should the claim be handled by the renter's personal auto insurer or by the rental company's policy? Also, should the loss damage waiver offered by the car rental company be purchased?

The answer to the first question seems simple enough. The standard personal auto policy provides liability and physical damage coverage for rented cars, but these are noted to be in excess over any other collectible insurance since the rented cars are not owned by the named insured. This means that, as the owner of the rented cars, the rental company should provide primary coverage, either through an insurance policy or through self-insurance. But in fact, car rental agreements sometimes can interfere with this simple prescription. Consider the following legal cases.

In Integon National Insurance Company and Bankers and Shippers Insurance Company v. The Welcome Corporation, 53 F. Supp.2d 599 (USDC, S.D. NY 1999), the federal court addressed the question of whether the car rental company had to provide insurance coverage for an accident when the car was being driven by someone other than the renter. The court said that the rental car customer, by allowing an unauthorized third party to drive the car, breached the rental agreement and this negated liability coverage on the part of the rental company. A decision from a court in Virginia regarding Nationwide Mutual Insurance Company v. Welcome Corporation, 2001 WL 1349210 (Va. Cir. Ct.)., relying on the Integon reasoning, found that the rental agreement in question expressly prohibited the use of the car by anyone other than an authorized renter. The agreement dictated that “prohibited use of the car violates the agreement and voids or deprives the renter of all benefits, protection, and optional coverage to which the renter would have otherwise been entitled.” To the court, this meant that the self-insurance of a rental car company did not cover unauthorized use of the vehicle by a third party not privy to the rental agreement.