New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

George E. Pataki
Governor

Gregory V. Serio
Superintendent

The Office of General Counsel issued the following opinion on January 3, 2003, representing the position of the New York State Insurance Department.

Re: "Optional Vehicle Protection" or "Collision Damage Waiver"

Provisions in Automobile Rental Agreements

Question Presented:

Does New York regulate collision damage waiver provisions in automobile rental agreements?

Conclusion:

Yes. N.Y. Gen. Bus. Law § 396-z regulates collision damage waivers or optional vehicle protection provisions, as it is called in New York, in automobile rental agreements.

Facts:

No additional facts were given.

Analysis:

N.Y. Gen. Bus. Law § 396-z governs collision damage waivers or optional vehicle damage provisions, as they are called in New York. The section has recently been amended by Chapter 656 of the Laws of 2002, which becomes effective on February 24, 2003. This amendment makes significant changes that impact rental vehicle companies, their customers, and insurers. It states in relevant part:

1(d) "Optional vehicle protection" means a rental vehicle company's agreement not to hold an authorized driver liable for all or part of any damage or loss to the rented vehicle, any loss of use of the rented vehicle, or any storage, impound, towing or administrative charges for which the authorized driver may be liable. The term "optional vehicle protection" shall encompass within its meaning other similar terms that may be used by rental vehicle companies, such as but not limited to "Collision Damage Waiver", "CDW", "Damage Waiver", "Loss Damage Waiver", "LDW", and "Physical Damage Waiver".

* * *

2(a) A rental vehicle company shall not charge more than nine dollars per full or partial twenty-four hour rental day for optional vehicle protection if the manufacturer's suggested retail price of the rental vehicle is not greater than thirty thousand dollars. A rental vehicle company shall not charge more than twelve dollars per full or partialtwenty-four hour rental day for optional vehicle protection if the manufacturer's suggested retail price of the rental vehicle is greater than thirty thousand dollars.

(b) A rental vehicle company shall not sell optional vehicle protection unless the authorized driver agrees to the purchase of such protection in writing at or prior to the time the rental agreement is executed.

(c) A rental vehicle company shall not void optional vehicle protection except for one or more of the following reasons:

(i) The damage or loss is caused intentionally or as a result of willful, wanton, or reckless conduct of the driver.

(ii) The damage or loss arises out of the driver's operation of the vehicle while intoxicated or impaired by the use of alcohol or drugs.

(iii) The rental vehicle company entered into the rental transaction based on fraudulent or materially false information supplied by the renter or authorized driver.

(iv) The damage or loss arises out of the use of the vehicle while engaged in the commission of a crime other than a traffic infraction.

(v) The damage or loss arises out of the use of the vehicle to carry persons or property for hire, to push or tow anything, while engaged in a speed contest, operating off road, or for driver's training.

(vi) The damage or loss arises out of the use of the vehicle by a person other than: an authorized driver; a duly licensed parent or child over the age of eighteen hereof who permanently resides in the same household; or a parking valet or parking garage attendant for compensation and in the normal course of employment.

(vii) The damage or loss arises out of the use of the vehicle outside of the continental United States when that use is not specifically authorized by the rental agreement.

(viii) The authorized driver has failed to comply with the requirements for reporting damage or loss as set forth in subdivision five of this section.

(d) A customer may void optional vehicle protection at no charge within twenty-four hours of purchase provided that the customer: (i) has rented the vehicle for two or more days, (ii) appears in person at any branch of the vehicle rental company together with the vehicle that shall be subject to inspection, and (iii) signs a cancellation form provided by the rental vehicle company.

As stated above, the statute provides that rental vehicle companies may offer to sell optional vehicle protection to its renters at maximum daily rates of up to $9 or $12 as specified in the statute. The statute also removes the $100 maximum charge by rental vehicle companies in New York State for damage to or loss of rental vehicles. Accordingly, the renter may be held fully responsible for damage to a rental vehicle unless the renter purchases optional vehicle protection or has coverage under an insurance policy or credit card.1 The new Section 396-z(6) provides the standards for determining the maximum amount for which an authorized driver, who does not purchase the optional vehicle protection, may be held responsible, in regards to physical or mechanical damage to the rental vehicle.

In addition, the statute also sets forth rules concerning advertising for rental vehicle companies regarding the rates for the optional vehicle protection.

For further information, you may contact Senior Attorney Meredith S. Kaufer at the New York City Office.


1 Please note that under N.Y. Ins. Law § 3440 (McKinney 2000), motor vehicle liability insurers must make coverage for damage to the rental vehicles available to their insureds, and currently all insurers do include such coverage in their liability policies.