Presuming no purchase of damage waiver, is your rental car customer responsible for all damages while in possession of the vehicle? Like many aspects of the rental car business, it depends. It depends on what state you are in, the rental agreement terms and the type of damage.
For example, is the customer responsible for damages such as those caused by a falling tree, scratches to the paint from vandalism or from driving too close to a bush? How about a seat belt chewed by the family dog or mice that crawl into the engine and chew wires?
This article provides a general overview of the types of damages to the vehicle that can be allocated to the renter. While the amount of damage is a separate topic, generally, the renter’s responsibility is limited to the actual cost of repair, loss of use (in most but not all states), and administrative, towing and storage fees.
It is critical that you review the statutes of each state in which you operate, as many states limit the amount or type of damages that can be recovered.
The legal framework that governs the type of recoverable damages is based on bailment law, negligence, any applicable state statutes and the rental agreement terms.
An Overview of Bailment Law
The rental of a car creates a “bailment for hire.”1 In exchange for a fee, the rental car company (the “bailor”) deposits its property (the car) with the renter (the “bailee”). Absent an agreement, the bailee/renter is not responsible for damage unless the damage was caused by the bailee’s negligence. The bailee must exercise “reasonable care and diligence.”2
However, under general bailment principles, the parties can agree by contract to allocate responsibility for damages to the bailee — even those not caused by negligence. The ability to pass the responsibility by contract is what has led to the language in most rental agreements shifting the risk of damage to renters (and to some extent, the development of damage waivers).
A few states, such as California and Nevada, have enacted statutes governing the types of damages for which a renter can be responsible. In other words, the statutes limit the damage responsibilities that can be passed on to the renter in the rental agreement. Other states, such as New York and Wisconsin, require notice and an opportunity to inspect before the renter can be held liable for damages. These statutes must be reviewed and monitored carefully.
A few examples of statutes to keep in mind:
- In California, by contract terms the renter can be held responsible only for physical or mechanical damage resulting from a “collision,” certain losses due to theft, limited damages due to vandalism, and certain towing and specified charges. Recovery for damages caused by vandalism is limited to $500.3
- In Nevada, by contract the renter can be responsible for physical damage, but only mechanical damage that is the result of a deliberate or negligent act.4 Nevada also limits responsibility for vandalism.
- Indiana limits mechanical damage recovery to losses resulting from collision, an impact or the renter’s deliberate act.5
- In New York and Wisconsin, before a renter can be charged for damages, there must be an opportunity to inspect the vehicle before the rental company can recover damages.6