Supplemental liability insurance (SLI) is one of the best products introduced by the vehicle rental industry in the past two decades. Customers obtain liability insurance up to $1 million, rental companies earn income, and insurance carriers (most of which also write basic liability insurance) earn premium.
Like many other aspects of the rental business, the sale of SLI is regulated in most states. The regulations come from state insurance departments. Some states, in fact, require a special limited license to sell SLI (see accompanying chart).
The chart also shows seven states where you need no license (exempt states), as well as three jurisdictions — Washington D.C., New Jersey and Vermont — where it may not be lawful to sell SLI because there are no laws that expressly allow the sale of SLI without a general agent's license. That could include roadside assistance and other inventive products.
The products you can sell under each state's limited license law vary. Florida, for example, permits you to sell only SLI, personal accident insurance and personal effects coverage. Some state laws, including one in Georgia, permit the sale of any insurance product reasonably related to the rental. The length of the rental may affect your right to sell. The limited license may apply only to rentals of a specific number of days or less.
Many states require that your employees receive training on the types of insurance you sell. Your broker may provide training. Some states require a state-approved training program.
Some states, including North Carolina, require that employees selling optional insurance products must be salaried employees and they cannot receive commissions. Other states, including Illinois, prohibit commissions but permit rental companies to include SLI sales performance in the determination of overall employee compensation.
It's essential that you give a copy of the SLI policy, or a brochure that summarizes the terms of the policy, to each renter who purchases SLI. In the past 12 months, Wisconsin and Florida cases have denied the SLI insurance carrier the right to invoke policy exclusions when the renter didn't receive a copy or summary.
[PAGEBREAK] If you sell SLI, the phrase "full coverage" takes on new meaning. Siatis v. Shaw and Enterprise [2003 Ohio App. LEXIS 590, 2003 Ohio 616 (Court of Appeals of Ohio, Second Appellate District, Montgomery County, Feb. 7, 2003)] illustrates the importance of correct technique in selling and understanding optional insurance products. In this case, the renter initialed the "accept CDW" box but did not accept SLI. The renter later caused an accident with the plaintiff, who claimed that Enterprise owed a duty to defend the renter and to insure him to the limits of the SLI policy that might have been purchased. Testimony by the plaintiff and the Enterprise employee indicated that the renter left the store informed that he "was covered for anything" when he purchased CDW.
The appeals court in Siatis held that Enterprise was liable to indemnify the renter up to the limits of the SLI policy that the renter thought was provided. The court noted that the Enterprise rental agreement form didn't explain on its face what SLI was. The form merely asked the renter to accept or decline and referred the renter to the reverse side of the form for an explanation. However, Enterprise failed to introduce into evidence a legible copy of the reverse side of the form.
The Siatis case illustrates the importance of using a rental agreement that discloses the coverage of optional insurance products. The case also underscores the importance of training counter personnel in the selling of optional products and making sure employees fully understand the products.
The insurance broker who arranges for you to sell SLI will often provide the forms necessary to obtain a limited license from your state. Your broker should also provide training in the sale of the product.
SLI adds liability coverage for injury to third persons (not the renter) up to the stated limits of the SLI policy. The limit is usually $1 million, although I have seen products with limits of $500,000. Coverage usually begins after your basic liability carrier or the renter’s liability carrier pays its state minimums. SLI then takes over, up to its limits. SLI coverage can be primary or secondary. If primary, it will pay before any other policy is asked to pay.
I know of some policies that pay from the first dollar of loss, sparing your basic liability carrier of any risk. If your SLI policy is secondary, it will pay its limits only after all other insurance applicable to the claim has paid. Be sure you know what type of policy you're offering renters. Also, make sure you have insurance. Some rental companies assume their owner's excess policy covering their company against liability claims will cover them if they sell SLI without a special SLI policy. Don't make that mistake. If you do, your company could wind up paying the SLI limits.
Second, obtain a limited license if your state’s law requires one. Third, use your broker to provide training for you and your employees. Train your employees to never promise "full coverage" unless the renter has purchased every optional insurance product (and probably a damage waiver) that you sell.
Attorney Michael LaPlaca is a senior member of LaPlaca McKenzie, PA, a Washington, D.C.-area law firm that specializes in auto rental issues. He can be reached at [email protected]