An LLC rents multiple vehicles for a project. Because employees use personal credit cards to rent the vehicles, the rental clerk records each rental agreement in each individual’s personal name.

When an uninsured party rear-ends one of the rented vehicles, the agency files a claim for damage to the rented vehicle under the Symbol 8 hired auto physical damage collision coverage. But the insurer denies the claim on the basis that the vehicle wasn’t rented to the named insured.

Q: "We believe the named insured rented the auto because the LLC reimbursed the employee on his expense account. In addition, we advised the insurer in advance that the client was renting several autos, and the underwriter did not raise this issue. I contend that regardless of what the rental agreement says, evidence abounds that the LLC rented this vehicle. The insurer says whoever signs the rental agreement is the one renting the vehicle. What do you say?"

A: “Philosophically, we agree with you—especially since you brought this to the attention of the insurer in advance. Unfortunately, the underwriter is not adjusting the claim. ISO addressed this situation more than a decade ago, as outlined in the Big ‘I’ Virtual University (VU) article ‘More Rental Car Issues.’

ISO introduced the CA 20 54 – Employee Hired Auto endorsement about 14 years ago. Most insurance practitioners suggest adding this endorsement to every commercial lines account with business auto coverage.

That being said, since the claim has occurred and no CA 20 54 is in place, one argument is that ‘renting’ involves more than signing a contract. It must also involve an exchange of valid consideration. The essence of renting is the exchange of money in return for the use of a vehicle. Since the employer, ‘you,’ is ultimately the one paying for the rental, one interpretation holds that the employer is renting the vehicle.

But ISO introduced the endorsement to clarify that the employee is covered and to determine primacy of coverage. If the insurer uses this endorsement or one equivalent to it and was aware of the situation, the underwriter should attach it as a matter of course and for no additional premium since no increased risk is associated with attaching the form—only a clarification of coverage.

Another issue is whether the client should have purchased a loss damage waiver. If so, the physical damage problem vanishes. Even when using the CA 20 54, coverage gaps still exist—the most notable lack of coverage for diminished value claims. Check out ‘Top 10 Reasons to Purchase the Rental Car damage Waiver’ for more information.

Again, we suggest your agency include the CA 20 54 with all business auto policies as a standard practice.”

Bill Wilson is director of the Big “I” Virtual University.

This question was originally submitted by an agent through the VU’s Ask an Expert Service. Answers to other coverage questions are available on the VU website. If you need help accessing the website, email logon@iiaba.net to request login information.