Calif. Court Rules on Excess Insurance Liability in Rental Car Case

The California Supreme Court said Dec. 7 that insurance companies that offer so-called excess liability insurance on rental cars don't have to pay if an apparently valid driver's license later turns out to be fraudulent, according to the Bay City News Wire.

The court ruled in a case in which four people who were injured in a 2001 auto accident in Los Angeles sought compensation from a $1 million excess liability policy issued by the Philadelphia Indemnity Insurance Co. to a rental car driver.

The driver, Alric Burke of Arizona, bought the policy when he rented a car from Budget Rent-A-Car at Los Angeles International Airport in June 2001. He was involved in the accident four days later, the Bay City News Wire reports.

The optional policy was intended to cover any damages that might exceed the state-law-required minimum insurance of $30,000 per accident.

A Budget agent checked Burke's license, which appeared to be valid, and also verified his signature when he rented the car. But it later turned out that Burke's license had been suspended in Arizona two months earlier.

Philadelphia Indemnity refused to pay the claims, saying that it was entitled to rescind the insurance contract because of Burke's misrepresentation.

The state high court said unanimously that Philadelphia Indemnity was sheltered by a state law that defines rental car companies' responsibility to check driver's licenses. The law, enacted by the Legislature in 1994, requires rental companies to inspect a car renter's license and compare the signature on the license with the renter's signature in the presence of an agent.

Because the Budget agent met those requirements, the insurance company was not required to make an additional investigation, the court said.

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