Can a state limit the amount a rental company can collect for damage to its rented vehicle? If the debtor is the renter or other authorized driver, the answer is yes. At least nine states have enacted laws that limit your ability to collect from the renter or his insurance company.
This article examines the laws of those nine states, and the common law of the unregulated states, that affect collision damages, loss of use, administrative fees, theft, vandalism and other loss items. If your state does not regulate any of these areas, the common law presumably applies. The regulated states are California, Illinois, Indiana, Iowa, Missouri, New York, Nevada, Utah and Wisconsin.
Statutory limits on recovery, set out in the state statutes cited here, apply only to recoveries from renters and other authorized drivers. If a third party is responsible for damage, theft, vandalism, loss of use, towing and storage, or administrative fees involving a rental vehicle, the amount you may recover is governed by the general laws of the state in which the loss occurred.
If you are interested in this topic, read the Unregulated States section and the section for the states in which you operate. The article presumes that the renter did not purchase a damage waiver, and that a third party is not responsible for the damage to your vehicle.
The promise that the renter must return the vehicle in the same condition as when rented is eminently enforceable. The cost of repairs, loss of use, administrative fees to cover claims processing, damages for theft and vandalism and items like towing and storage are all recoverable. Nonetheless, these responsibilities of the renter should be stated clearly in the rental agreement.
The common-law limit on collision damages for repaired vehicles is the actual cost of repairs, passing along to the customer all discounts received from the repair shop. It is a fraudulent act to charge the customer the estimated value of repairs, if the actual cost (after discounts) is lower.
The limit on recoveries for totaled vehicles is the actual cash value (ACV) of the vehicle on the date of repair. This amount is usually easily provable. Companies that rent older vehicles whose cost of repair exceeds ACV will be disappointed to discover that the renter’s insurance company will only pay ACV, not the full cost of repair. [PAGEBREAK]
Recovery of loss-of-use is a common-law right to recover the value of being unable to use the vehicle during the period it is out of service for repair. Loss of use is not loss of revenue. Loss of use equates to the loss of the right to see, touch, sit in, display, sell, rent or use the vehicle in any other legitimate way. The denial of a loss-of-use claim by a renter’s insurance company is a negotiating ploy. The insurers know that rental companies are entitled to loss of use, and will pay if sued. Loss of use may be recoverable even on totals.
Administrative fees can be recovered under common law because they are an element of damages. Keep records (time sheets) detailing the time spent on claims and be certain that the charge for administrative fees bears a reasonable relationship to the total damage recovery.
Recovery for theft from the renter is limited to ACV, but be careful here. Be certain that your rental agreement holds the renter liable for theft. At least one Texas court has absolved a renter for theft because the rental agreement was not clear on that point. Actual costs of repair of vandalism damage, whether related or unrelated to theft, are also recoverable.
Towing, storage and impoundment fees are recoverable as part of the damages suffered by the rental company. To recover attorney fees, be certain that the renter agrees to pay attorney fees in the rental agreement. In the United States, attorney fees are generally not recoverable unless the defendant has agreed by contract to pay them.
If the vehicle is repairable, the vehicle rental company is allowed to recover the actual costs of parts and labor for the estimated time for repair, deducting all discounts it receives. Estimated costs for repair must be based upon crash book estimates [Cal. Civil Code § 1936(b)(1)]. The limit on totaled vehicles is ACV.
Since Jan. 1, 2002, loss of use is not recoverable from a renter or authorized driver.
Administrative costs are recoverable but limited (see table).
|California’s Limits on Recoverable Administrative Costs|
|Amount of Damage||Permitted Fee|
|$100 to $500||$50|
|$501 to $1,500||$100|
The upper limit of recovery for theft is the fair market value of the vehicle. However, the renter or authorized driver is presumed to have no liability for the theft if the renter: (1) can produce the ignition key or can establish that the key was not in the vehicle at the time of the theft; and, (2) files a police report within 24 hours of discovering the theft and reasonably cooperates in providing information about the theft.
If a rental company can show that the authorized driver did not comply with these requirements, it may hold the renter liable for theft of the vehicle [Cal. Civil Code § 1936(b)(2)]. To sue a California resident to recover damages related to theft of a vehicle, suit must be filed in the county where the customer resides [Cal. Civil Code § 1936 (o)].
The amount of damages recoverable from an authorized driver for vandalism depends upon whether the damage occurred in connection with a theft or was unrelated to a theft. If the vandalism occurred in connection with a theft, the upper limit of damage recovery is the fair market value of the vehicle. Recoveries for vandalism unrelated to a theft are limited to $500 [Cal. Civil Code § 1936 (b) (3)].
Actual towing, storage and impound fees are recoverable [Cal. Civil Code § 1936(b)(6)]. [PAGEBREAK]
From a renter, a vehicle rental company may recover for vehicle damage — subject to the limits below — the lesser of actual and reasonable costs of repair. This includes any discounts, rebates or deductions available to the rental company or the fair market value of the vehicle. A rental company may also recover actual reasonable costs up to $2,000 in the case of vehicle theft. Or if the renter or authorized driver was at fault for the theft, the rental company may recover actual costs up to the fair market value of the vehicle [625 I.L.C.S. 5/6 - 305.2]. The renter is at fault if he failed to exercise ordinary care or committed or aided the theft.
For the period beginning June 1, 2000 and ending May 31, 2001, the maximum recovery may not exceed $9,500. The current maximum is $11,000 until May 31, 2004. Each June 1 thereafter, the maximum recovery allowed will increase by $500 above the maximum recovery allowed immediately prior to June 1 of that year [625 I.L.C.S. 5/6 - 305.2]. These limits on recovery apply only to the ability to recover from renters. The statute does not apply to third parties. Therefore, a vehicle rental company may recover from third parties and their insurers the full amount of the damage to the vehicle, including loss of use, administrative fees, and diminished value.
No recovery is permitted until a rental company has obtained an estimate from an independent third party in the business of providing estimates, made a copy available to the renter, and submitted a copy with any claim to an insurance company [625 I.L.C.S. 5/6 - 305.2 (d)].
A vehicle rental company may recover from renters the amount of the diminished value of a vehicle, provided the total amount of recovery does not exceed the statutory limit on customer liability. As stated earlier, there is no statutory limit on recovery from third parties for vehicle damage.
The statute makes no mention of loss of use or administrative fees. § 6.305.2(B)(1) allows recovery of the “actual and reasonable costs incurred to repair the motor vehicle.” It appears that administrative fees should be a “cost of repair.” The question of recovery of loss of use is not as certain.
Deposits or advances for collision damage, against a credit card or in any other form, are prohibited. A vehicle rental company may not demand payment for damages from a customer until the company and customer agree to the amount, or until the amount is determined under law [625 I.L.C.S. 5/6 - 305 (f); and, McCabe v. Crawford & Company, Inc. and Budget Rent-A-Car Inc., 2003 U.S. Dist. LEXIS 11719 (U. S. District Court for the Northern District of Illinois, Eastern Division, July 9, 2003)].
When a renter has insurance, the renter may require that the vehicle rental company submit its claims to his insurance company, and deal with his insurance company as his agent. The rental company may not make any representations that it will not negotiate with the renter’s insurance carrier [625 I.L.C.S. 27/15]. [PAGEBREAK]
The upper limit of damage recovery is the fair market value of the vehicle, as determined in the manner customary for the market. If the vehicle is repairable, a rental company is entitled to the costs, of parts and estimated time for repair and replacement, minus all rebates, discounts or other adjustments it receives from its suppliers. Estimated labor costs must be based on crash book estimates.
Since July 1, 2003, the renter and the rental company may agree in the rental agreement that the renter is responsible for physical damage to the rented vehicle, up to its fair market value, resulting from use of the vehicle by an unauthorized driver [Indiana Code Ann. § 24-4-9-13].
The upper limit of recovery for theft is the fair market value of the vehicle. The law presumes that the renter or authorized driver has no liability for the theft of the vehicle if the renter: (1) can produce the ignition key and (2) reports the theft to the police within 24 hours of discovering it and reasonably cooperates in any investigation.
If a vehicle rental company can produce evidence proving that the renter is liable for the loss of the vehicle because of the renter’s reckless misconduct, such as parking the vehicle in a dangerous neighborhood, it may still be able to recover.
For vandalism connected with a theft, the statute grants the renter the presumption of no liability, if the renter can produce the ignition key and has reported the incident to the police. The renter does not get the benefit of the presumption for vandalism not related to a theft.
Loss of use is recoverable in an amount equal to the daily rental rate of the vehicle (excluding all optional charges) multiplied by the total estimated days for repair. However, loss-of-use claims may not exceed a sum equal to 80% of the daily rental rate multiplied by the number of days from the date of the accident to the date the vehicle is ready to return to service. Best efforts must be used to get the vehicle repaired and back on the road. The daily rate in all weekly and monthly rentals should be stated in the rental agreement.
A vehicle rental company may recover an administrative fee to cover costs of processing an accident claim, subject to certain limits.
|Indiana’s Limits on Recoverable Administrative Costs|
|Amount of Damage||Permitted Fee|
|Up to $1,500||10% of the estimated cost of parts and labor.|
|Over $1,500||10% of the estimated cost of parts and labor for the first $1,500, plus 7.5% of the estimated cost of parts and labor in excess of $1,500.|
[PAGEBREAK] A rental company may recover actual costs of towing, storage and impoundment fees and all other costs and expenses incident to the damage, loss, repair or replacement of the rented vehicle [Ind. Code Ann. § 24-4-9-13].
Since July 1, 2003, Indiana Code § 24-4-9-13 has been amended to provide that a renter may be held liable for attorney fees if the renter so agrees in the rental agreement. For claims arising out of accidents prior to that date, attorney fees may not be recoverable.
A vehicle rental company may not demand payment for damage to a vehicle until the costs and the liability are agreed to by the renter or are determined by a court. If a rental company brings a lawsuit against an Indiana resident, it must sue that person in the county in which he or she resides [Ind. Code Ann. § 24-4-9-13,14,15].
Diminished value is not an item of recovery listed in the Indiana statute. Rental companies can, however, recover up to the fair market value of a damaged rental vehicle. If the vehicle is repaired and put back into service, diminished value is probably not recoverable. The statute limits recovery to the actual cost of parts and labor minus all discounts.
If the vehicle is sold without repairing it, a rental company presumably can recover the difference between “fair market value” and the proceeds of the sale. Establishment of fair market value is a matter for expert testimony in case a trial addresses the issue. If not for Indiana Code § 24-4-9-13, the measure of damages to personal property that is repaired but not destroyed is the reduction in fair market value caused by the negligent act [Wiese-GMC v. Wells, 626 N.E.2d 595 (Ind. 1993)].
A rental company may recover from an authorized driver for damages and loss of use reasonably related to the actual loss incurred. A rental company must mitigate its losses and may not collect more than the actual cost of repair from an authorized driver, including all discounts and other price reductions.
A vehicle rental company is entitled to an administrative fee, but the fee may not exceed actual administrative costs associated with processing the damage claim. Loss-of-use claims are limited to the daily rate found in the rental agreement, excluding optional charges, multiplied by the estimated time for replacement or repair. For the purpose of computing loss of use, eight hours of estimated time for repair or replacement equals one day’s down time. The estimated time for repair or replacement must be computed based on crash book time values.
If the rental vehicle is not repairable, the damage claim may not exceed the fair market value of the vehicle, minus salvage value or actual salvage proceeds, plus additional license and tax fees incurred because of the sale, plus administrative fees. Loss of use is not recoverable on vehicles that are not repairable [Iowa Code Ann. § 516 D.5]. [PAGEBREAK]
The upper limit of recovery for a rental company is the actual cash value of the vehicle immediately before the collision, subtracting any profits gained from the sale or disposal of that car. If the collision damage is minor, a rental company may recover the actual repair costs of that damaged vehicle, as estimated by an independent appraiser.
Overall, any claim for damages must be reasonably and rationally related to the loss sustained. However, a rental company is subject to the lesser of the actual cash value or the cost of repairs [Mo. Stat. Ann. §407.735(3)].
A vehicle rental company may recover for loss of use. However, any charge for loss of use must not exceed the reasonable estimate of the actual income lost [Mo. Stat. Ann. §407.735(3)].
In the event of rental vehicle theft, the renter will not be held liable if: (1) the authorized driver possesses the ignition key provided by the rental company and the key was not in the vehicle when the theft occurred; and (2) an authorized driver files an official police report of the theft within 24 hours of learning of the theft and cooperates with any investigation. However, a renter can be held liable if the rental company can establish that the renter committed the theft or aided and abetted in its commission.
The highest level of damages available to a vehicle rental company, when damages have resulted from a collision, impact or deliberate or negligent operation by the renter, is fair market value for the vehicle [Nev. Rev. Stat. Ann. §482.31535(a),(b)].
When a vehicle is repairable, a rental company is entitled to the estimated cost of parts and labor, reduced by any discounts received by the rental company. The estimated cost of labor to replace damaged parts should not exceed the rate of labor usually paid by the renter to replace the type of parts that were damaged, combined with the estimated time for replacement.
Estimated labor costs to repair damaged parts must not exceed the lesser of the product labor rate usually paid by renters for these types of repair, or the sum of the costs for estimated labor and parts [Nev. Rev. Stat. Ann. §482.3154(c),(d)].
A rental company is entitled to recover for loss of use from a renter. Loss-of-use damages accrue on a daily basis, with the renter’s daily rental fee, exclusive of optional charges, constituting the applicable daily rate. This daily rate is then applied during the estimated period of time necessary to repair or replace the vehicle, with eight hours constituting a day [Nev. Rev. Stat. Ann. §482.3154(d)]. [PAGEBREAK]
“Moreover, in order to establish loss-of-use damages, expert testimony is not required. None of the cases involving loss-of-use damages requires expert testimony to establish value, and courts have permitted the party to testify about rental car rates as long as that person had some basis for the valuation.” [Dugan v. Gotsopoulos, 22 P.2d 205, 117 Nev. 285 (Nev. 2001).]
A rental company may recover administrative fees associated with a collision or other damage from a renter. These administrative fees are subject to certain limits [Nev. Rev. Stat. Ann. §482.3154(3)].
|Nevada’s Limits on Recoverable Costs|
|Amount of Damage||Permitted Fee|
|$100 to $500||$50|
|$500 to $1,500||$100|
|More than $1,500||$150|
In the event of rental vehicle theft, the rental company is entitled to recover the fair market value of that vehicle. However, a renter may be exonerated from liability if: (1) the renter possesses of the ignition key provided by the rental company, and the key was not in the car at the time of theft; and (2) the renter files a police report within 24 hours of learning of the theft and cooperates with the rental company and provides information concerning the theft to the police [Nev. Rev. Stat. Ann. §482.31535(c)].
Additionally, a vehicle rental company may recover damages for vandalism of its vehicle, even if the vandalism occurs when the car has been stolen. These damages may include all costs up to the fair market value of this vehicle [Nev. Rev. Stat. Ann. §482.31535(d)].
However, if the vandalism results in physical damage or loss of use, but is unrelated to the theft of the vehicle or damage caused by the renter, the rental company’s recovery is limited to $500 [Nev. Rev. Stat. Ann. §482.31535(e)]. [PAGEBREAK]
If a rental car has suffered significant collision damage, a rental car company may recover the fair market value of the vehicle immediately prior to the accident. A rental company is subject to the lesser of the replacement cost or the repair cost [N.Y. Gen. Bus. Law §396-z(6)(b)].
If the collision damage suffered by the vehicle was minor, the rental company is entitled to the actual and reasonable cost of repairs [N.Y. Gen. Bus. Law §396-z(6)(b)]. In New York, costs of rental car repair include towing, storage and impound expenses. Reductions for any discounts received by the rental company, however, are also taken into account [N.Y. Gen. Bus. Law §396-z(a),(b)].
A rental company must obtain a repair cost appraisal, provide a copy of those figures to the renter, and submit a copy of the estimate with any claim for damages in order to be eligible to recover damages [N.Y. Gen. Bus. Law §396-z(f)]. In any event, a rental company needs to mitigate damages and cannot hold an authorized driver liable for any amounts obtained from a third party [N.Y. Gen. Bus. Law §396-z(e),(g)].
When a renter is liable for collision damages, he will be responsible for any physical or mechanical damage to the vehicle, exclusive of normal wear and tear, except when abuse or neglect of the renter can be shown [N.Y. Gen. Bus. Law §396-z(6)(a)].
Rental companies are entitled to recover reasonable expenses for towing, storage and impound of a rental vehicle from the renter [N.Y. Gen. Bus. Law §396-z(a),(b)]. However, in New York, a rental company may not recover damages for loss of use [N.Y. Gen. Bus. Law §396-z(6)(d)]. Additionally, rental companies may not recover administrative fees associated with damage to their vehicle from a renter [N.Y. Gen. Bus. Law §396-z(1)(d)].
In the case of theft, a rental company cannot seek damages from the renter unless it is established that the renter failed to use reasonable care, or committed, aided or abetted in the theft of the motor vehicle. If the rental company is entitled to theft damages from the renter, the company may recover reasonable costs incurred, up to the fair market value of the vehicle as determined by the applicable market for retail sale of the vehicle [N.Y. Gen. Bus. Law §396-z(6)(c)]. [PAGEBREAK]
A rental company may recover collision damages from a renter if: (1) the company discloses all charges and costs incidental to the basic daily rental rate and (2) the renter is provided with clear written notice on the rental agreement and in the rental company’s place of business [Utah Code Ann. §31A-22-312(1)].
However, when a rental company fails to comply with the provisions mentioned above, that company may hold the renter liable when he has operated the vehicle in a reckless or willful manner, under the influence of drugs or alcohol, for towing, on an unpaved road, for hire, in furtherance of a crime, with an unauthorized driver [See, Arredondo v. Avis Rent A Car System Inc., 24 P.2d 928, 41 Utah Adv. Rep. 3 (Utah 2001), when rental is procured through fraud, or when the vehicle is operated outside the United States if prohibited by the rental agreement [Utah Code Ann. §31A-22-312(1)(a)-(g)]. A rental company may not waive these exceptions in a rental agreement [Utah Code Ann. §31A-22-312(3)].
If a rental company can hold a renter liable for collision damages, it is also entitled to damages for loss of use and any costs and expense incident to the damages or loss [Utah Code Ann. §31A-22-311(2)].
If the collision damages are significant, a vehicle rental company may recover the fair market value of the vehicle immediately before the damage occurred, as determined in the customary market for the sale of that vehicle [Wis. Stat. Ann. §344.574(2)].
When collision damages are less serious, a vehicle rental company is entitled to the actual and reasonable costs that the company incurred to repair the vehicle, or that the rental company would have incurred if the vehicle had been repaired, accounting for any discounts received [Wis. Stat. Ann. §344.574(2)].
As a condition precedent, the rental company must permit the renter and his insurance provider to inspect the unrepaired car within two days of accident notification and obtain at least two estimates from competing repair shops [Wis. Stat. Ann §344.574(4)]. A rental company is limited to the lesser of the fair market value of the vehicle or the actual and reasonable costs of repair [Wis. Stat. Ann. §344.574(2)]. Finally, a rental company may not hold a renter accountable for damages recovered from another driver [Wis. Stat. Ann. §344.574(2)(c)].
A rental company may recover reasonable expenses for towing and storage for up to two days [Wis. Stat. Ann. §344.574(2)(a)(2)]. However, in Wisconsin, a rental company is not entitled to pursue damages for loss of use [Wis. Stat. Ann. §344.573(2)(b)].
Michael LaPlaca is the senior member of LaPlaca · McKenzie, PA, a Washington, D.C. area law firm that specializes in vehicle rental issues. He can be reached at [email protected] Corey Tavel is an executive member of Smith Mazure Director Wilkins Young & Yagerman, P.C., a New York City law firm that defends rental companies in accident cases. He can be reached at [email protected]