HOUSE BILL REPORT

HB 1068

BYRepresentatives Dellwo, May, Nutley, R. Meyers, Ferguson, Chandler, Winsley, Inslee, Rector, Wang, Belcher, Kremen, Moyer, D. Sommers, Wolfe, Crane, Schoon and Betrozoff; by request of Insurance Commissioner

Regulating automobile rental liability.

House Committe on Financial Institutions & Insurance

Majority Report:  The substitute bill be substituted therefor and the substitute bill do pass.  (8)

      Signed by Representatives Dellwo, Chair; Anderson, Baugher, Crane, Inslee, Nutley, Schmidt and K. Wilson.

Minority Report:  Do not pass. (4)

      Signed by Representatives Chandler, Ranking Republican Member; Beck, Day and Dorn.

House Staff:John Conniff (786-7119)

AS REPORTED BY COMMITTEE ON FINANCIAL INSTITUTIONS & INSURANCE

FEBRUARY 28, 1989

BACKGROUND:

When a person rents a car from an automobile rental company, the person is responsible for damage to the automobile whether or not the person caused the damage.  If the renter wishes to escape this liability for vehicle damage, the renter can pay the company a fee and the company will waive its right to hold the renter responsible for vehicle damage.  This contractual provision contained in the car rental agreement is known as a collision damage waiver agreement.  The price for this agreement varies from company to company but generally ranges from $9 to $15 per day.  So long as the renter does not violate the terms of the agreement or does not violate certain other terms of the rental agreement, the company will not hold the renter responsible for damages to the vehicle.

If the renter does not want to pay for the collision damage waiver agreement, the renter may rely on his or her own automobile insurance.  Most automobile insurance companies provide coverage for damage to rental vehicles if the renter's auto policy contains coverage for collision and comprehensive losses.  However, this extended coverage does not fully cover all of the costs that the policyholder may be responsible for should the policyholder damage a rental vehicle.  For example, the policy may not provide coverage for the rental company's loss of income while the rental vehicle is being repaired.

In the past three years, the National Association of Insurance Commissioners and the National Association of Attorneys General investigated consumer complaints against the car rental industry.  Originally, these organizations adopted model laws and recommended that the states adopt the law regulating collision damage waiver agreements (CDWs).  Last year, both organizations changed their position and recommended adoption of a model act prohibiting car rental companies from holding the renter responsible for damage to the rental vehicle except in limited circumstances.  In effect, the new model act prohibits and removes the incentive for the sale of collision damage waiver agreements.

Several states including New York, California, and Hawaii have adopted laws regulating collision damage waiver agreements.  New York prohibits the sale of CDWs, while California and Hawaii extensively regulate the sale of CDWs.

SUMMARY:

SUBSTITUTE BILL:  The Legislature notes the importance of the car rental industry to business and tourism and notes the adverse impact of unfair collision damage waiver agreements.  The Act shall be liberally construed to protect Washington consumers from unfair and deceptive practices in car rental and collision damage waiver agreements (CDWs).

Rental agreements must contain disclosures in plain language including disclosures that the purchase of a CDW is optional, that the CDW costs extra, and that the renter may already have sufficient coverage under the renter's personal auto insurance policy.

CDWs may not exclude coverage for ordinary negligence of the renter.  In addition, CDWs may exclude only the circumstances listed such as intentional damage by the renter, operation of the rental vehicle while the renter is drunk or under the influence of drugs, and use of the vehicle by an unauthorized driver.

Whenever a rental company advertises the price of a rental vehicle on radio, television, or in print, the rental company must simultaneously disclose the price of the CDW.

Every rental company must prepare and make available to renters a pamphlet outlining the renter's rights and responsibilities and advising the renter to contact the Washington State Attorney General if any problems arise with the rental company.

Certain unfair and deceptive practices are declared to be per se, violations of the Consumer Protection Act.  Among these prohibited acts are the following:

            -coercive conduct by the rental company to induce the renter into the purchase of a CDW;

            -refusing to honor a renter's reservation or limiting the availability of rental cars;

            -requiring a damage deposit or blocking the renter's line of credit on a credit card;

            -requiring a payment for damages before damage has been estimated and the renter's liability established;

            -charging the renter more for repair of a vehicle than the company actually paid to repair the vehicle;

            -charging the renter more for fuel than was actually provided by the rental company and used by the renter; and

            -charging an extra fee for each driver authorized to drive the car.

The Act does not affect any other remedy the renter may have against a rental company.

Automobile insurance companies must offer optional coverage to policyholders that fully covers the policyholder's liability to a rental company for damage to a rental vehicle.

SUBSTITUTE BILL COMPARED TO ORIGINAL:  The original bill prohibited the sale of CDWs and severely limited the ability of rental companies to hold consumers responsible for damage to rental vehicles.  The substitute bill permits the continued sale of CDWs while restricting the exclusions that may be used by companies and prohibiting certain unfair practices.

Fiscal Note:      Not Requested.

Effective Date:This bill takes effect January 1, 1990.

House Committee ‑ Testified For:    David Rodgers, Insurance Commissioner's Office; and Vicki Chiechi, Avis, Budget, and Hertz.

House Committee - Testified Against:      Barry Curry, Catrala Thrifty Car Rental; Tom D. Huling, III, Catrala Thrifty Car Rental; and Harold Clayton.

House Committee - Testimony For:    Car rental companies charge an excessive amount for the sale of a collision damage waiver agreement.  In addition, these agreements contain many exclusions and conditions that can trap the unwary consumer.  Rental companies should be completely barred from continuing the sale of collision damage waivers and prohibited from engaging in unfair and deceptive practices.  Many states have either adopted laws regulating car rental companies or are in the process of adopting such laws.

House Committee - Testimony Against:      No one has demonstrated that Washington rental companies have engaged in practices to the detriment of the consumer.  Prohibiting the sale of collision damage waiver agreements will seriously hurt smaller rental companies who are less able to absorb the costs of insuring against damage to rental vehicles.  While some disclosure to consumers is desirable and some practices by a few rental companies should be prohibited, extensive regulation of rental companies unnecessarily interferes with business decisions.