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Rental-car catch: No permission, no coverage

From the e-mailbag comes an interesting coverage question. The following letter has been edited to remove any identifying information about the writer (so I won’t embarrass him by having his friends know things are so slow in his agency he has time to write to insurance columnists) or the rental car company (so I won’t hear from its attorneys). There also were several paragraphs of effusive praise for my intelligence and witty style of writing. However, I have deleted said paragraphs for the sake of modesty (and because I know the writer was buttering me up to get his answer, which worked admirably).

Chris,

I know you are always up for a challenge, so here is my “What if...” for the day:

Travel plans will take me to Orlando in a few weeks, and I am set to rent a car from XYZ Rent-A-Car. As always, I will reject the collision damage waiver that will be offered, because I have a personal auto policy with two vehicles and both have physical damage coverage. According to XYZ, driving privileges for me and my wife are included in my deal with them, but there would be a $4-per-day charge if we were to add any other drivers.

Being a wonderful son-in-law, I am taking my mother-in-law with me on vacation, and there likely will be an occasion when she will need to drive the car. I asked XYZ what the $4 got me (maybe some minimal primary liability coverage, I hoped). They told me it offset the increased risk they would take by adding another driver, but there would be no liability coverage for that driver -- unless I purchased it separately!

As my insurance brain began to crank, I thought about how my personal auto policy would respond if Grams were involved in an accident and not listed as a driver. Easy, I thought. Insurance follows the vehicle. This is an insured vehicle by definition, and she is a permissive user. Bingo! We have coverage. I called my carrier to verify that this was correct, but I learned that it was not. Grams is a permissive user, but not permitted by contract, so the carrier would exclude coverage for her. Now, Grams has her own personal auto policy, with the same carrier as mine (I am her agent of course -- have to hit up the family on those slow months), so I am sure that whatever my policy does not cover, hers will. And we always have my E&O as excess!

Bottom line, the rental-car company is extorting $4 per day so that my carrier picks up an increased amount of liability for Grams. Please tell me that you have a better explanation!

Gentle Reader,

Miss Manners would like to point out ...oops, wrong article.

Good question, alert reader. Let me be sure I have this right.

Not only is the rental-car company charging you for nothing, but its contract also takes away coverage you otherwise would have under your own policy! Almost seems as if the insurance carrier and the rental-car company are working together on this. Maybe what we really need to start buying is a “collusion damage waiver.” Let’s get to the key issue first. You’re taking your mother-in-law on vacation with you? Can we talk? Maybe the rental-car people and your insurance carrier are trying to help you by discouraging you from taking an action that only can end in misery and heartbreak. Unless, of course, Grams is going to baby-sit the kids while you and your wife enjoy a well-earned break. Otherwise, your behavior clearly is dysfunctional.

Assuming you’re aware of the risks, and allowing for the possibility that you may be experiencing some form of coercion from certain family members to move forward with this dangerous plan, is the insurance carrier correct in denying coverage under your ISO personal auto policy?

Yes, it is, as is often the case. But the carrier sure didn’t help explain why with that “permissive but not permitted” gibberish. (I hate it when carriers do this. To a consumer who doesn’t understand the policy language anyway, this kind of explanation is unfathomable. It seems as if the carrier just wants to deny the coverage and has simply made up a reason to do so. Many coverage disputes and misunderstandings could be avoided if companies only would read the applicable forms and then decide whether coverage exists, using the specific language in the form to justify their decisions. You’d think they were afraid that, if they read the form first, they may actually have to cover something. Usually, if the form doesn’t intend to provide coverage in a given situation, it will contain language limiting or excluding the coverage. If not, then the carrier will have to cover the risk anyway if the insured -- or the insured’s attorney -- forces the issue.)

The real answer actually is much simpler and cleaner than the concept of “permissive but not permitted.” The carrier evidently is referring to exclusion A.8. in Part A -- Liability Coverage. It excludes coverage for an insured using a vehicle without a reasonable belief that that “insured” is entitled to do so. It goes on to say, “This exclusion (A.8.) does not apply to a “family member” using “your covered auto” which is owned by you.”

Since the rental-car company states that your mother-in-law contractually is not allowed to drive the rental car unless you pay the extra charge, she  clearly has no reason to believe that she is entitled to do so, and thus the exclusion applies. Also, you do not own the rental car, so the exception doesn’t bail you out. Please note that your mother-in-law’s policy will contain the same exclusion, so she will have no coverage there, either. (You really should reconsider your prospecting practices during those slow months.)

Thus, paying the $4 gives you no liability coverage from the rental-car company (according to them, and without a copy of their rental contract, I’ll give them the benefit of the doubt), although it does, in fact, create coverage under your mother-in-law’s PAP (and the possibility of coverage under your PAP) by eliminating the applicability of exclusion A.8.

Now, having answered your coverage question, let’s return to a couple of the issues you raised in your letter, just to clarify them for future reference. Notice that paying the $4 charge only creates the possibility, not the certainty, of coverage under your PAP. Although you stated that your mother-in-law will be “a permissive user” under your PAP, this is not necessarily so, regardless of the rental contract. Two portions of the Part A insuring agreement are applicable here.

The first, provision B.1., defines an “insured” as “you or any “family member” for the ownership, maintenance or use of any auto or “trailer”.” “Family member,” as defined in the PAP, is a relative “who is a resident of your household.” I’m going to assume that your mother-in-law does not live with you. Please don’t tell me if I am wrong. Taking her with you on vacation is one thing, but please let me believe that you don’t also live in her home. (Hey, I don’t care if you claim she lives with you and you own the home. There’s a law somewhere, known to all mothers, asserting that wherever a mother lives is her home. No contradictory piece of paper with the word “title” on it can overturn this law.)

So if your mother-in-law is not a “family member,” the only other part of the insuring agreement that will cover her use of an auto under your PAP is provision B.2., in which an “insured” is defined as “any person using “your covered auto”.” The problem we encounter here is that the rental car is not “your covered auto,” unless it qualifies under the “temporary substitute” provision. According to your letter, this is clearly not the case, since you are renting the car while on vacation. If the rental is a “temporary substitute” as defined in the policy (used while your regular auto is out of commission due to breakdown, repair, servicing, loss or destruction), then your mother-in-law would have coverage under the insuring agreement’s provision B.2. above.

Another interesting point your letter raises is that nearly everyone assumes the rental-car issue is all about physical damage. I’m repeatedly asked this question: If my PAP has comprehensive and collision, or if I charge my car rental to a credit card that claims to provide such coverage, should I purchase the damage waiver from the rental-car company? Your scenario shows that there are other issues just as critical that travelers often overlook when standing at the airport rental-car counter.

In summary, thanks for a great letter! And take from this experience one final, inescapable conclusion. You could have spared yourself the consideration of these coverage issues had you only remembered the key ingredient to a great family vacation:

Visit with your mother-in-law. Vacation with your wife.

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