The Office of General Counsel issued the following opinion on June 2, 2005, representing the position of the New York State Insurance Department.
Re: Payment of Rental Car Damage Claim
When an insured causes property damage to a rental vehicle, may an insurer make payment out of the collision portion of an insureds policy and take a deductible?
No. Pursuant to N.Y. Ins. Law § 3440(b) (McKinney 2003) and N.Y. Comp. Codes R. & Regs. tit. 11, § 60-1.5 (2005) (Regulation 35-A), every motor vehicle liability insurance policy will provide a separate rental vehicle coverage, and such coverage will be triggered in the event of a rental claim. The insureds claim would not be covered by the collision portion of the policy and would not be subject to any deductible.
Insured rented a motor vehicle under a rental agreement not exceeding thirty days. Insured was in an accident and the rental vehicle was damaged. The insurer has asked whether there are any department rulings pertaining to the issue stated above.
N.Y. Ins. Law § 3440(b) (McKinney 2003) in pertinent part 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.
In addition, N.Y. Comp. Codes. & Regs. Tit. 11, § 60-15(d) (2005) (Regulation 35-A) in pertinent part states that rental vehicle coverage shall provide protection:
(1) only with respect to rental vehicles operated within the United States, its territories or possessions, and Canada;
(2) regardless of whether the rental vehicle is rented or operated for business or pleasure, unless used for transporting persons or property for hire; and
(3) regardless of fault.
Section 3440 of the N.Y. Ins. Law and the regulation relating to rental vehicles (Regulation 35-A) state that the liability insurance policies for vehicles which insure less than five private passenger vehicles, shall provide rental vehicle coverage for the obligation of the insured for actual damage to, or loss of vehicle rented by the insured under a rental agreement with a term of thirty continuous days or less.
Deductibles on collision coverage do not apply under N.Y. Ins. Law § 3440 (McKinney 2003) and Regulation 35-A. In addition, neither § 3440 or Regulation 35-A permit any limitation to the coverage amount for rental vehicles. Insurance Department, Opinion of General Counsel, Number 03-04-13. Therefore, when an insured drives a rental vehicle and causes damage to it, the insurer cannot make the payment out of the collision portion of the insured's policy and take a deductible. The payment must be made out of the rental vehicle coverage. This coverage is a separate coverage that is required to be included in the liability portion of an individuals auto policy. Insurance Department, Opinion of General Counsel, Number 03-07-15. I have attached the cited opinions for convenience.
For further information please contact Supervising Attorney Sam Wachtel at the New York City Office.