HOUSE 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

Majority Report:  The substitute bill be substituted therefor and the substitute bill do pass.  (10)

      Signed by Representatives Lux, Chair; Zellinsky, Vice Chair; Anderson, Betrozoff, Chandler, Dellwo, Dorn, Ferguson, Nutley and Winsley.

Minority Report:  Do not pass.

      Signed by Representative Silver.  (1)

House Staff:John Conniff (786-7119)

AS PASSED HOUSE FEBRUARY 15, 1988

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. 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, the renter may rely on his or her 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. However, this extended coverage usually does not cover the rental company's loss of income while the rental vehicle is being repaired.

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 the 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 is not 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 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 shall 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 fine of $500 or less 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.

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.

House Committee ‑ Testified For:    Scott Jarvis, Insurance Commissioner's Office and Dale Newell, INPPAC Assn.

House Committee - Testified Against:      Basis Badley, American Insurance Association; Dan Wolfe, Safeco; John Pierre, Budget Rent-a-Car; and Terry Treischer, Pacific Car Rental Association.

House Committee - Testimony For:    There is substantial evidence of the excessive charges and problems associated with collision damage waiver agreements.  Insurance companies should be required to provide coverage for rental cars.  Periodically, the Insurance Commissioner's Office receives complaints concerning abuses in car rental coverage but the Commissioner lacks authority to regulate the coverage.  The Commissioner should be authorized to regulate the coverage for the protection of consumers.

House Committee - Testimony Against:      Insurers should not be required to cover a rental company's loss of use of a vehicle damaged by an insured.  The Attorney General's Office has indicated that there are few complaints made to his office concerning abuses related to collision damage waiver agreements.  If any legislation is needed, it should be implemented on a national level.  Competition within the car rental business should govern prices and agreements.