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 October 17, 2003, representing the position of the New York State Insurance Department.

Re: Section 3440 of the Insurance Law Rental Vehicle Coverage

Question Presented:

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

Conclusion:

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.

Facts:

Insured rented a motor vehicle under a rental agreement with a term of thirty continuous days or less. Insured is a New York resident with a New York issued motor vehicle liability policy. The hubcaps were discovered stolen from the rental vehicle on April 2, 2003, while it was in the possession of the insured.

Analysis:

N.Y. Gen. Bus. Law § 396-z (McKinney 2003), 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.

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.

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.

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. A related question is whether 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.

Applied to the facts presented by the inquiry, the renter's personal motor vehicle liability insurance policy must include a separate endorsement providing rental vehicle coverage and that coverage would be applicable to the loss of the hubcaps from the rental vehicle.

For further information one may contact Associate Attorney Sam Wachtel at the New York City Office.