Who Can Drive My Rental Vehicle?

Many renters believe that when you get a rental vehicle, their spouse/17 year old/next door neighbor/cousin can drive it too.  Most people don’t think twice about tossing them the keys.  But what happens if they are in an accident?  Are they covered?

The fast answer is “not always”.

Your state may have laws that permit a spouse to be an authorized driver regardless of whether or not they are present at the time of the rental.  Others believe it is defined by the wording in the rental agreement. Your rental contract should have clear definitions about who is considered an authorized driver, regardless of state regulations.  Your rental operation should not allow drivers under a certain age to use the vehicles (as permitted by law).  Rental agreements should state that all “authorized drivers” must be present at the time of the rental for them to be covered.  There can also be provisions for an “emergency driver”.  An emergency driver is someone not on the rental agreement who steps in and drives the vehicle in a true emergency situation, such as the renter becoming medically incapable.

What happens if someone in your renter’s family, not listed on the rental agreement, takes the keys without permission and gets into an accident or worse, steals the car?  Who is responsible for injury or damage to others?  It is important for your renter to read and understand the rental agreement.   Perhaps explain this at the time of the rental.  The renter may end up being fully responsible for damages to others and even damages to the rental vehicle outside of their personal insurance or your rental insurance. Sometimes their personal insurance will cover these expenses, but depending on the circumstances, they may not. Your insurance as the rental dealer works differently than personal insurance does and may exclude these types of coverage claims.

What if the renter purchases any additional insurance offered by your rental agency?  Most of these contracts also exclude coverage when an unauthorized driver causes the claim.

Another aspect of this issue is when an authorized driver participates in an activity that is either illegal or against any prohibited activity defined in your rental contract. Common prohibited activities can include racing, driving under the influence, off roading, etc.  These activities could, in essence, exclude them from any coverage under your rental policy, any additionally purchased insurance or their own personal insurance.

The bottom line is to make sure you and your renter understand these issues so you can have a successful operation.

Electronic Insurance ID Cards & Verification

With the electronic age in full swing, the era of having paper Auto ID cards is becoming extinct.  While not all states or insurance carriers have adopted the electronic ID card, many are moving towards it.  Additionally, many state DMVs are welcoming technology that allows law enforcement direct access to a system that will instantly verify insurance on a vehicle through its registration.

“According to the folks at Property Casualty Insurers Association of America, 11 states now have laws or regulations on the books that allow for electronic insurance cards to be used for both vehicle registration and when being pulled over by the police – Alabama, Arizona, Arkansas, California, Idaho, Kentucky, Louisiana, Minnesota, Mississippi, Virginia, and Wyoming.

In Colorado, drivers can use the e-cards for registration, but not for police pull-overs.

PCIAA says that the governors of Kansas and Indiana are expected to sign legislation in their states, while several other states – Florida, Georgia, Hawaii, Indiana, Iowa, Maine, Michigan, Missouri, Ohio, Oregon, Rhode Island, South Carolina, Texas, Utah, Washington, and Wisconsin – have pending legislation on the matter.”[1]

What does this mean when you rent a vehicle?  It means that the rental agency is still going to request your insurance information and you may still need a valid ID card as proof of insurance.

Some states require insurance carriers to “report” policy activity directly to the DMV or other state sponsored agency.  This reporting may be tied to the registration of the vehicle. Additionally, some states only require this reporting for personal insurance, but not for commercial policies.

How Does This Impact The Rental Community?

First of all, your renter may not have the traditional “Proof of Insurance” that you’re accustomed to. When you are gathering information from a renter with an electronic copy of their ID card, it may be beneficial to have them electronically forward a copy of that ID card to you for your files. In the event of an accident, you would still file a claim with your rental insurance policy, but still need to provide the renter’s insurance information so that the claims department can reach out to that carrier for any responsibility that they may have in the claim. In a towable RV situation, the liability follows the tow vehicle and as a rental operator, you absolutely need to have this information prior to releasing your travel trailer to the renter.

Secondly, it is important that you maintain ID cards in your vehicles to avoid your rental vehicle from getting impounded upon a traffic stop or accident.  Even though your rental policy is secondary to your renter’s personal insurance, the vehicle is registered in your business name and will require YOUR proof of insurance in the event of a traffic stop or accident. Just because your state does not require a paper ID does not mean that another will find an electronic copy acceptable and in a rental situation, how would you, the rental operator, continuously provide this information without a paper copy of your ID card? Additionally, in the states where law enforcement can verify insurance, many can only access personal insurance information, not commercial policy information.

All insurance carriers have the ability to produce a paper ID card, but the rental community also needs to adapt to changing environments.  Protect your rental operation by having proper proof of insurance from your renter and for your renter.  Nobody wants a negative review because a vehicle was impounded for lack of insurance proof, which could be costly.


A Massachusetts insurance website had this to say:  “Many other states require that drivers carry proof of insurance and require that insurance companies issue Auto Insurance ID Cards with policies.  However, most drivers in Massachusetts have not heard of such laws because they don’t exist in our state.  This can create stressful situations, which everyone would rather avoid, and it points out the challenges that inconsistencies between state laws can cause.

Recently, one of our customers had an accident while driving out of state, and the police officer asked for a proof of insurance card.  In Massachusetts, however, proof of insurance cards are not issued and vehicles aren’t required to carry them because this information is electronically available to law enforcement via the RMV.  Gladly, after some back and forth with the officer and providing other information, the person was allowed to leave the scene.  Unfortunately, some police officers may not be informed about our laws or be easily flexible about these differences between state insurance requirements.

When you think about it, the Massachusetts method is actually more accurate because police can verify updated RMV information rather than rely on paper documentation that may be out of date if a policy is cancelled. However, since laws vary among states, you as a driver need to be aware of the possible differences and be prepared in case you have a traffic violation or accident when driving your vehicle in another state.”

A renter can use a copy of their insurance policy with their registration, which lists the insurance company and notates that “No Insurance Card Required: Massachusetts’ law does not require an insurance card.” as proof of insurance.


What Is a Damage Waiver and How Does it Work?

A damage waiver can go by several names: collision damage waiver (CDW), damage waiver or loss damage waiver (LDW). These are not insurance products and, in the rental industry, do not constitute the sale of insurance. However, most states have defined regulations regarding how you sell these products, your rental agreement wording and how these products are defined. Some states even dictate how much you can charge for a CDW.

If they are not insurance products, what are they? A CDW is a contractual waiver between you and your RV renter. It prohibits your insurance carrier from holding the renter responsible for any damage — and paying for any damage — to the RV rental while it’s in the renter’s possession. This means that any claim paid out on an RV rental covered by a CDW will be paid completely by your insurance company, which will not be able to recover the costs. This will affect your loss experience on your insurance policy. Rental insurance is a very limited product with few carriers. A large collision loss could jeopardize your rates or even your ability to secure insurance. While the sale of CDW may seem like a great way to make “easy” money, it’s a gamble.

Many RV rental companies prefer a “partial” or “deposit” waiver, meaning that they will only retain the renter’s deposit in the event of a loss to reimburse their insurance deductible. While in theory this works well for rental companies, it still exposes them to the same gamble, as it only accounts for the deductible amount, not the payouts for the remainder of the claim. Furthermore, it is illegal in many states, so before instituting this, make sure they you are compliant with state statutes.

To put this into perspective, let’s say you sell a CDW for $10 per day for a one-week rental. The vehicle has a $1,000 comprehensive and collision deductible and comes back with damage that totals $2,350. Because you sold the CDW, your insurance will pay for the entire claim minus the deductible. If you operate in a state that does not allow a partial CDW, then you’ve earned $70 for the CDW and now have to pay out of pocket for the $1,000 deductible. Even if only one in 10 rentals results in damage, you’re still expending extra money. If the claim doesn’t even make the deductible, then you are stuck paying the entire repair.

When an RV is damaged in an accident, each individual model has many variables that usually make a repair much more expensive: fiberglass vs. aluminum work, custom parts, etc.

When does the sale of a CDW work for RV rentals? Most underwriters would respond “rarely.” S CDW can work if you have the “perfect storm” of good conditions. These conditions are as follows:

  1. If it’s only occasionally used, and you have a large fleet (over 50 units) that can absorb a larger loss
  2. If you have lower-value vehicles
  3. If you’re renter does not evoke “red flags,” i.e., cash rental, no insurance, walk in, etc.
  4. Your rental unit is an auto body type of unit only.

Some rental companies use the sale of a CDW as a “small claims fund,” where they set aside any monies earned with the CDW to pay for small claims that would otherwise be submitted to their insurance carrier. This can work in your favor by keeping nuisance claims off your record. But, remember, one very large claim can undo any good that comes from this practice.

CDW is not the same as supplementary liability insurance (SLI). Briefly, SLI is a separate insurance policy that you, as the rental agent, would obtain and sell to your renter. Some states require an insurance license to sell this product. This is not part of your rental vehicle insurance. However, RV rental does not have any true SLI products available at this time.