An Informal 4-Month Auto Rental: Does the Renter Have Coverage?
Question from IIABNY member: “We have an insured that approached us with a question– he has a NY auto policy and he’s going to California for four months, as he does regularly. The person they’re renting a house from has offered him the use of his vehicle in place of the insured getting a rental car. There will be a charge to the insured, and I am not sure if they will have a formal agreement in place. The vehicle is registered in Georgia and will be used in California. The insured is looking to see if his NY Auto policy will provide coverage for him. Would it matter if he has liability only on his policy? Would the vehicle owner’s policy be primary for liability and damage to the vehicle, or would the vehicle owner have coverage issues by “renting” out his vehicle to another person?“
Answer: The relevant forms here are PP 00 01 01 05, the ISO Personal Auto Policy, and PP 01 79 01 05, Amendment of Policy Provisions — New York. As amended, the Other Insurance provision in the Liability section of the PAP states:
“If there is other valid and collectible insurance we will pay only our share of the loss. Our share is the proportion that our limit of liability bears to the total of all applicable limits. However, any insurance we provide for a vehicle you do not own, including any vehicle while used as a temporary substitute for “your covered auto”, shall be excess over any other valid and collectible insurance, including physical damage insurance provided under this or any other policy.”
Therefore, your insured’s liability insurance will apply on an excess basis over the vehicle owner’s coverage. Not being familiar with California and Georgia laws, I don’t know whether the owner is required to have California or Georgia coverage, but the only difference I can see between them and New York is that both states make liability coverage primary when an insured is test-driving a vehicle owned by an auto dealer.
With regard to physical damage coverage, the New York endorsement excludes from the definition of “non-owned auto” any vehicle rented or leased, without a driver, to the named insured or any family member. If your client’s insurer interprets his arrangement to be a vehicle rental, they may use this language as the basis for denying any physical damage coverage for the car, even on an excess basis. To make matters a little worse, the Rental Vehicle Coverage Endorsement — New York, PP 03 46 06 03, does not apply to your client’s situation. It states:
“This endorsement provides coverage for the “insured’s” 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, within those areas, such “rental vehicle” may be registered, rented or operated… “Rental vehicle” means a motor vehicle of the private passenger or station wagon type or a motor vehicle with a pick-up body, a delivery sedan, panel truck or van if the vehicle is: 1. Not used for transporting persons or property for hire; and 2. Owned by a person engaged in the business of renting or leasing vehicles, rented or leased without a driver to persons other than the owner, and is registered in the name of such owner.” [emphasis added]
Since your client is using the car for more than 30 days, and because the vehicle’s owner is not in the car rental business, this endorsement’s coverage does not apply.
To summarize, your client will have excess liability coverage for the auto but might not have physical damage coverage. If the insurer does not consider the arrangement to be a rental, his policy may provide comp and collision (if he has those coverages on his own cars) on an excess basis.
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