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 informal opinion on April 7, 2003, representing the position of the New York State Insurance Department.

RE: Section 3440 of the Insurance Law and Amendment to New York General Business Law (GBL) § 396-z (Rental Vehicle Protections)

QUESTIONS PRESENTED:

1. When there is a rental vehicle claim, what coverage is triggered under a motor vehicle insurance policy?

2. Is there a coverage limit that applies to rental vehicle claims? May an insurer be required to pay a rental vehicle loss in excess of its liability policy limits?

3. For statistical reporting purposes, how should insurers identify rental vehicle losses?

CONCLUSIONS:

1. Pursuant to N.Y. Ins. Law § 3440(a) (McKinney 2000) and N.Y. Comp. Codes R. & Regs. tit. 11, § 60-1.5 (1996) (Regulation 35-A), every motor vehicle liability insurance policy insuring less than five private passenger motor vehicles that are registered in New York shall provide a separate rental vehicle coverage for the insured’s obligation for actual damage to, or loss of, a rental vehicle. Assuming the renter of the vehicle has a motor vehicle liability insurance policy, the rental vehicle coverage, which is a separate endorsement in such insurance policy, would be triggered in the event of a rental claim.

2. Pursuant to N.Y. Ins. Law §3440(a) (McKinney 2000) and N.Y. Comp. Codes R. & Regs. tit. 11, § 60-1.5 (1996) (Regulation 35-A), a rental vehicle coverage endorsement shall provide coverage for the insured’s obligation in the event of actual damage to, or loss of, any rental vehicle, including loss of use. Neither the statute nor the regulation permits any limit to the coverage amount for rental vehicles. Thus, an insurer is required to cover the insured for any actual damage or loss to a rental vehicle, notwithstanding the underlying liability policy limits.

3. For information on statistical reporting of rental vehicle losses, insurers should consult with their statistical agents.

FACTS:

The inquirer is concerned about the recent changes (effective 2/14/03) to rental vehicle coverage in New York General Business Law ("GBL") § 396-z and the impact those changes will have on rental vehicle companies, their customers and insurers.

ANALYSIS:

N.Y. Ins. Law § 3440 (McKinney 2000), entitled Insurance Covering Private Passenger Motor Vehicles; Rental Vehicle Coverage and the regulation relating to rental vehicle coverage, N.Y. Comp. Codes. & Regs. tit. 11, § 60-1.5 (1996) (Regulation 35-A), mandate that a motor vehicle liability policy insuring less than five private passenger motor vehicles provide coverage for the obligation of the insured for actual damage or loss of vehicles, rented by the insured under a rental agreement with a term of thirty continuous days or less. Specifically, N.Y. Ins. Law § 3440(b) states:

(b) Subject to subsection (d) of this section, every motor vehicle liability insurance policy which insures less than five private passenger motor vehicles registered in this state shall by endorsement, provide coverage for the obligation of the insured for actual damage to, or loss of, vehicles (including loss of use) rented by an insured in the United States, its territories or possessions and Canada under a rental agreement with a term of thirty continuous days or less, regardless of where within those areas such rental vehicle is registered, rented, or operated, subject to such maximum coverage limitations as the superintendent may by regulation prescribe or any other applicable limits in the policy, whichever is higher. The term "rental vehicle" shall be used as defined in section one hundred thirty-seven-a of the vehicle and traffic law, if a private passenger motor vehicle and not used for the transportation of persons or property for hire.

N.Y. Gen. Bus. Law § 396-z, entitled: Rental Vehicle Protections, was recently amended by Chapter 656 of the Laws of 2002, which became effective on February 24, 2003. Specifically, Section 396-z(3)provides:

(3) Subject to the provisions of subdivisions six, seven, and nine of this section, a rental vehicle company may hold an authorized driver liable for actual damage to, or loss of, a rental vehicle, provided that (a) any claim for such damage shall be based on a physical survey by automation or after hours which precludes such survey, in which event any claim must be made within ten days after return; and (b) any charge for repair of such damage shall be limited to actual and reasonable costs and shall be assessed and billed separately and apart from the rental agreement. For purposes of this subdivision, "returned by automation" means a return acknowledged by machine receipt and where there is no interaction with rental vehicle company personnel and "after-hours" return means a return after normal business hours and in which the keys and rental agreement are deposited in the rental vehicle company office.

Prior to the amendment, GBL § 396-z (3) provided that "a rental vehicle company may hold an authorized driver liable for actual damage to, or loss of, a rental vehicle caused by such authorized driver, up to a maximum of one hundred dollars". Thus, except for a few exemptions, in New York a rental vehicle company was barred from holding an authorized driver or renter liable for an amount above $100.00 regardless of the actual damage or loss to the vehicle. 1

Among other things, the recent amendment to GBL § 396-z removes the $100.00 limit for actual damage to, or loss of, a rental vehicle caused by a renter or authorized driver. This amendment only affects vehicles rented in New York and makes the law in New York similar to the law in other states. As a result, unless the renter or authorized driver is covered under a personal motor vehicle policy or other insurance policy such as a credit card account group policy under N.Y. Ins. Law § 3442 (McKinney Supp. 2003), or purchased the "optional vehicle protection" that the rental vehicle company is now permitted to sell, such renter or authorized driver may be held fully responsible for the actual damage he or she causes to a rental vehicle.

The inquirer asked what coverage is triggered under a motor vehicle insurance policy where there is a rental vehicle claim. Pursuant to Section 3440(a) and Regulation 35-A, every motor vehicle liability insurance policy insuring less than five private passenger motor vehicles that are registered in New York shall provide a separate rental vehicle coverage for the insured’s obligation for actual damage to, or loss of, a rental vehicle, including loss of use, rented by the insured anywhere in the United States under a rental agreement with a term no longer than thirty continuous days, regardless of where such rental vehicle may be registered, rented or operated. Assuming the renter of the vehicle has a motor vehicle liability insurance policy, the rental vehicle coverage which is a separate endorsement in such policy, would be triggered. This rule also applies to policies issued by the New York Automobile Insurance Plan.

The inquirer also asked if there is a coverage limit that applies to rental vehicle claims and whether an insurer may be required to pay for rental vehicle loss in excess of its policy limits. As stated above, Section 3440 and Regulation 35-A mandate that a rental vehicle coverage endorsement provide coverage for the insured’s obligation in the event of actual damage to, or loss of, any rental vehicle. There is no limit to the amount of coverage that must be provided under the rental vehicle coverage endorsement. Moreover, rental vehicle coverage is not limited by the property damage liability limits of an insured’s policy. Please note that N.Y. Comp. Codes R. & Regs. tit. 11, § 60-1.5(f) (1996) dictates that the protection provided under the rental vehicle coverage "shall not be provided elsewhere in the policy." Therefore, if a policy limit is $50,000.00 and the actual damage to a rental vehicle is $60,000.00, the insurer would be required to pay the $60,000.00 to the rental vehicle company, despite the $50,000.00 liability limit in the underlying policy.

Further, the inquirer asked how rental vehicle losses are identified for purposes of statistical reporting. N.Y. Ins. Law § 2315(a) (McKinney 2000) provides, in pertinent part, that:

(a) Every authorized insurer shall annually file with the rate service organization of which it is a member or subscriber, or with such other agency as the superintendent may approve, a statistical report showing a classification schedule of its premiums and losses on all kinds or types of insurance business subject to this article, and such other information as the superintendent may deem necessary or expedient for the administration of the provisions of this article….

The Department requires that insurers file, annually, with a rate service organization of which it is a member or subscriber, a statistical report showing a classification schedule of its premiums and losses on all kinds or types of insurance business. For information concerning statistical reporting of rental vehicle losses, an insurer should contact its statistical agent.

For further information you may contact Associate Attorney D. Monica Marsh at the New York City Office.


1 Note that the $100.00 limit did not apply to other states. Therefore, in circumstances where a New York insured rented a vehicle in any other state than New York, his or her insurer was and continues to be liable for the actual damage to or loss of such vehicle.