A limited liability company rented multiple vehicles for a project. The company’s employees used their own personal credit cards, so the rental clerk recorded the rental agreement in that person's individual name.

An uninsured motorist rear-ended one of the rentals, and the company’s agent made a claim for damage to the rented vehicle under the Symbol 8 hired auto physical damage collision coverage. But the insurer denied the claim, saying the vehicle wasn't rented to the named insured.

“We believe the named insured rented the auto because the employee was reimbursed on his expense account,” the agent says. “In addition, we advised the insurer in advance that several autos were being rented and this issue was not raised by the underwriter. I contend that regardless of what the rental agreement says, there is overwhelming evidence the LLC rented this vehicle. The insurer says whoever signs the rental agreement is the one renting the vehicle."

Philosophically, Big “I” Virtual University experts agree with the agent, particularly because he brought this to the attention of the insurer in advance. Unfortunately, the underwriter is not adjusting the claim. This situation is an issue that ISO addressed over a decade ago, as noted in this VU article, “More Rental Car Issues.”

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

That being said, because the claim has occurred and no CA 20 54 is in place, one argument is that “renting” involves more than signing a contract. There must be 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 is ultimately paying for the rental, one interpretation holds that the employer is the one renting the vehicle.

But to clarify that the employee is covered and to determine primacy of coverage, ISO introduced the endorsement. 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. That’s because there is no increased risk associated with attaching the form, only a clarification of coverage.

Another issue is whether the loss damage waiver should have been purchased. If so, then the physical damage problem vanishes. Even if the CA 20 54 is used, there are still coverage gaps, perhaps the most notable being a lack of coverage for diminished value claims.

VU faculty suggest that it be an agency standard practice to include the CA 20 54 with all business auto policies.

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