SENATE BILL REPORT

ESHB 1487

BYHouse Committee on Financial Institutions & Insurance (originally sponsored by Representatives Lux, Chandler, Anderson, Betrozoff, Crane, May, Braddock, Jacobsen, Walker, Walk, Nutley, Nelson, Todd, Meyers, Scott, Wang, Sayan and Ballard)

Regulating collision damage waivers for rental cars.

House Committe on Financial Institutions & Insurance

Senate Committee on Financial Institutions & Insurance

Senate Hearing Date(s):February 23, 1898; February 25, 1988

Majority Report:  Do pass as amended.

      Signed by Senators von Reichbauer, Chairman; West, Vice Chairman; Johnson, Kreidler, McCaslin, Moore, Rasmussen, Sellar, Smitherman.

Senate Staff:Walt Corneille (786-7416)

                  February 26, 1988

AS REPORTED BY COMMITTEE ON FINANCIAL INSTITUTIONS & INSURANCE, FEBRUARY 25, 1988

BACKGROUND:

When a person rents a car from an automobile rental company, they are responsible for damage to the automobile whether or not they caused the damage.  Most companies hold the renter responsible for all damages to the vehicle up to the retail value of the vehicle.  A few companies hold the renter responsible for only a certain amount of damages, e.g. for $3000.

If the renter wishes to escape this liability for vehicle damage, the rental company will waive its right to hold the renter responsible if the renter pays a fee for the waiver.  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 $8 to $12 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, they may rely on their own automobile insurance.  Most automobile insurance companies provide coverage for damage to a rental vehicle if the renter has collision and comprehensive coverage under the automobile insurance policy.  This coverage usually does not cover the rental company's loss of income while the rental vehicle is being repaired for which the renter may be held responsible.

In addition to collision damage waiver agreements, rental companies are now selling extended liability, life and disability, and personal property insurance.  The Insurance Commissioner may have regulatory authority over insurance that is sold by the rental companies but does not have authority to regulate collision damage waiver agreements.  The commissioner lacks this authority because a collision damage waiver agreement has not been ruled an insurance product despite the fact that the agreement has attributes of insurance.

Recently, the National Association of Insurance Commissioners (NAIC) adopted a model act to regulate the cost of collision damage waiver agreements, to require certain disclosures by rental companies, and to prohibit certain practices in the sale of agreements.  The NAIC has recommended that the model act be adopted by the states to permit the insurance commissioner of each state to regulate agreements in the same manner that automobile insurance is regulated.

SUMMARY:

Car rental companies (lessors) must obtain a license from the insurance commissioner in order to enter into collision damage waiver agreements.  Such licenses may be renewed according to a schedule adopted by the commissioner and must be accompanied by a fee set by the commissioner to cover the costs of regulation.  Lessors with more than one location need only obtain one license.

Collision damage waiver agreements must meet statutory and regulatory standards governing agreement content.  Agreements may only contain those exclusions that are set forth; however, the commissioner may approve other exclusions which in the opinion of the commissioner are fair and reasonable to protect the lessor from excessive risk of loss or damage to the rental vehicle.  In addition, the commissioner may disapprove any condition or provision that unfairly limits the protection provided under the agreement.

Agreements must be in plain and simple language and must contain a bold notice to the renter that the agreement may be rejected and that the renter may have other automobile insurance available to protect the renter.

All rates charged for collision damage waiver agreements must be reviewed and approved by the commissioner in the same manner that the commissioner reviews rates for automobile insurance policies.

Certain acts or practices are declared unfair and deceptive.  Among these prohibited acts are false advertising, requiring the purchase of collision damage waiver agreements, the failure of the lessor to release a renter's deposit or credit when the renter proves that an insurance company will pay for any damage to the rental vehicle and charging a renter more than the actual cost of repair of a damaged vehicle.

Property and casualty insurance companies that offer private passenger motor vehicle collision and comprehensive coverage must offer coverage protecting the insured from costs imposed for damage to a rental vehicle.  This coverage may be limited to cars rented for a period of less than thirty days.

The commissioner may impose a maximum fine of $500 for each violation of the act and may revoke the license of lessors who violate the act.  Violations of the act are violations of the Consumer Protection Act.

SUMMARY OF PROPOSED SENATE AMENDMENT:

Everything after the enacting clause is stricken.

Collision damage waiver is defined as an optional provision in a motor vehicle rental agreement where the rental company agrees for a fee to waive the renter's responsibility for loss or damage to the vehicle.

A car rental company may not require a collision damage waiver as a condition of the rental.  The rental company must make certain specified disclosures.  Any exclusions from the collision damage waiver must be fair, reasonable and clearly described.

A car rental company that engages in coercive, dishonest or deceptive practices or violates the act shall be prosecuted under the Consumer Protection Act.

Appropriation:    none

Revenue:    none

Fiscal Note:      requested January 11, 1988

Effective Date:The act takes effect July 1, 1988 and applies to agreements made on or after January 1, 1989.

Senate Committee - Testified: Scott Jarvis, Ins. Dept. (for); John Pierre, Budget Rent A Car (against); Robert Bauer, Hertz Rent A Car (against)