The Office of General Counsel issued the following opinion on July 9, 2003, representing the position of the New York State Insurance Department.
Re: Request for Reconsideration: Office of General Counsel Opinion dated April 7, 2003 which Concluded that Rental Vehicle Coverage is not Subject to the Liability Limits in an Automobile Policy
Is rental vehicle coverage, mandated by N.Y. Ins. Law § 3440(b) (McKinney 2000), subject to the liability limits in an automobile insurance policy?
No. Rental vehicle coverage, mandated by N.Y. Ins. Law § 3440(b) (McKinney 2000), is not subject to the liability limits in an automobile insurance policy.
The inquirer represents a number of personal automobile insurers in New York State and regularly offers legal advice to them regarding their rights and responsibilities in losses involving rental vehicles. On April 7, 2003, the Office of General Counsel issued an opinion that concluded, among other things, that notwithstanding a policys liability limits, under the rental vehicle coverage an insurer is required to cover the insured for the actual damage to or loss of a rental vehicle.
The inquirer asks that we reconsider that April 7, 2003 opinion.
N.Y. Ins. Law § 3440(b) (McKinney 2000) 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.
Section 3440(b) authorizes rental vehicle coverage as a separate coverage that must be offered with a liability policy. N.Y. Comp. Codes R. & Regs. tit. 11, § 60-1.5 (1996) (Regulation 35-A), provides that "every motor vehicle liability insurance policy insuring at time of issuance or renewal less than five private passenger motor vehicles registered in this State shall provide, in the form prescribed by subdivision (h) of this section, separate rental vehicle coverage for the insureds obligation for actual damage to, or loss of, a rental vehicle, including loss of use, rented by the insured in the United States, its territories or possessions, and Canada under a rental agreement with a term of 30 continuous days or less, regardless of where such rental vehicle may be registered, rented or operated." (emphasis added). Subdivision (h) of Regulation 35-A specifically provides, in pertinent part, that:
For each such policy, this endorsement provides coverage for the insureds obligations in the event of actual damage to, or loss of, any rental vehicle, including loss of use, rented by the insured anywhere in the United States, its territories or possessions, and Canada 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.
Thus, the rental vehicle coverage is separate and is not subject to the liability limits under the policy. Coverage thereunder must be for the "actual" damage to or loss of the vehicle. Neither Section 3440(b), nor Regulation 35-A, permits an insurer to set a limit to the rental vehicle coverage.
The inquirer argues that the Departments current position on this issue is inconsistent with prior Department opinions. In support of that argument, the inquirer cites to the Departments August 1990 Bulletin, entitled: Renting a Car: Your Rights & Responsibilities, which stated, among other things, that loss to a private passenger rental car will be covered up to the limits of the property damage liability insurance coverage. However, in the very next Bulletin, dated September/October 1990, the Department issued a correction to that August 1990 Bulletin, which stated, in relevant part:
"The article "Renting a Car: Your Rights and Responsibilities" in the August 1990 issue of The Bulletin listed eight tips for New York drivers renting vehicles out of state. The first two tips were incorrect. The tips should have read:
(2) Rental car coverage is under the liability portion of your auto policy, but such coverage extends beyond your property damage limits. Thus, you are fully covered for damages to or loss of a rental vehicle even if your policy only provides the minimum property damage liability limits required under NYS Law (currently $5,000)." (emphasis added).
The inquirer also cites a March 5, 1992 Office of General Counsel opinion to support his argument that the liability limits in the policy is the applicable limit. That opinion, however, referred readers to an April 1991 Bulletin, issued by the Department, for guidance. The April 1991 Bulletin in question responded to questions presented to the Department. One of the questions presented was as follows:
"Q: I have only $10,000 in property damage liability coverage. What if I damage a rental car in excess of that amount?
The answer was as follows:
A: Your rental car coverage is not under the liability portion of your insurance policy, although it is included with every private passenger auto liability policy sold in New York. If your damages exceed $10,000, you would be covered for the full amount."
As seen in the answer above, the April 1991 Bulletin that the 1992 opinion recommended that readers consult for guidance, concluded, among other things, that where ones damages to a rental car exceeds a property damage liability limit of $10,000, that the insured would be covered for the "full amount" of the damage. In other words, the rental car coverage is not subject to the liability limits in an automobile policy.
Further, the inquirer argues that the Departments reliance on subdivision (f) of Regulation 35-A is incorrect. Subdivision (f) provides that "the protection provided under rental vehicle coverage shall not be provided elsewhere in the policy." The inquirer states that I have equated the word "protection" in the above statement with "coverage limits". The word "protection" in subdivision (f) encompasses all rights, privileges, benefits, entitlements, including the specific coverage, that arise under Regulation 35-A. See also, Blacks Law Dictionary 372, 1238 (7th ed. 1999)(equating the word protection with coverage). Therefore, the separate coverage provided thereunder shall not be provided elsewhere in an automobile liability policy and is not subject to other limits within such automobile policy.
In conclusion, the Departments opinion that the rental vehicle coverage is a separate coverage that is not subject to the liability limits in an automobile policy remains unchanged.
For further information you may contact Associate Attorney D. Monica Marsh at the New York City Office.