Certain states require insurers to cover the obligation of a rental car under liability policies...

Certain states require insurers to cover the obligation of a rental car under liability policies without a deductible. It’s important to understand the laws of the different states involved when dealing with such claims.

Photo via Istockphoto.com/bartco.

Jury duty, root canal, a visit from the in-laws — for car rental operators, any of these might be more palatable than trying to recover loss-of-use damages and resulting administrative fees from an insurance company.

And yet, many car rental companies consistently recover loss of use by understanding the right way to approach the conversation with the insurance company. And, as of 2012, car rental companies have the backing of the ruling in PurCo v. Koenig, a historic loss-of-use case in Colorado.

“There were lessons learned from the Koenig case that can help every car rental company recover damages they are owed,” says David Purinton, president of PurCo Fleet Services, a risk management company specializing in car rental loss prevention. Purinton championed the cause in PurCo v. Koenig. “There is no reason to walk away from those damages when they are real and recoverable.”

This article is designed to arm you with the tools needed to recover for the lost use of your rental vehicles.

Know Who You’re Dealing With

First, it’s important to understand how an insurance adjuster works. In addition to making an accurate assessment of damage to a car, part of an adjuster’s job entails asking the rental company to prove its losses.

“Understand that asking about loss of use is a reasonable, rational and expected question from adjusters,” says Purinton. “It is their right to ask. We need to have patience with that.”

Purinton says it’s important to understand the difference between liability adjusters and collision adjusters, as each will treat loss of use differently. When dealing with a third party that hit your rental car, you’d deal with a liability adjuster. There are no deductibles or terms and conditions.

On the other hand, a claim generated by the renter would be handled under the renter’s collision policy or a non-owned auto provision. These claims are subject to terms and conditions of the non-owned auto portion of the collision coverage, as well as a deductible. It’s in the non-owned auto provision of collision coverage that specifies whether loss of use is allowed or not.

“Ultimately, some renters do not have complete collision coverage,” Purinton says, “so if the rental isn’t covered at all, it certainly won’t cover loss of use.”

There are some nuances, though. Certain states require insurers to cover the obligation of a rental car under liability policies without a deductible. It’s important to understand the laws of the different states involved when dealing with such claims.

PurCo v. Koening

On Sept. 10, 2012, the Colorado Supreme Court ruled in favor of PurCo Fleet Services in PurCo v. Koenig, finding that “PurCo is entitled to recover loss-of-use damages irrespective of its actual lost profits.” The decision capped a seven-year battle for PurCo.

“The ruling is historic for the car rental industry,” says Steve Christiansen, lead litigation counsel for PurCo in the Koenig case. “Colorado’s decision is the only reported case in the United States dealing specifically with loss of use for a rental car in the modern era.”

Christiansen says that while the case is binding specific to Colorado courts, its value is enormous as it sets precedent for other courts who may be called on to decide similar issues.

The case started in 2005 when Judith Koenig rented a car from the National Car Rental licensee at the Durango-La Plata County Airport in Colorado. Koenig hit a deer and damaged the vehicle. PurCo — the damage recovery company working with the licensee — demanded payment from Koenig for the damage, as well as loss-of-use damages and a contractual administrative charge. Koenig’s insurer, State Farm, paid for the damage to the car but refused to pay PurCo for loss of use or the administrative fee charge. PurCo then filed suit to collect the unpaid amounts.

After the protracted battle of court cases and appeals, the Colorado Supreme Court’s decision put its stamp of approval on PurCo’s long-standing position that loss-of-use damages are recoverable regardless of what else is going on in the fleet. Koenig’s insurance carrier ultimately paid PurCo the $378 owed for loss-of-use and administrative fees — plus more than $260,000 in attorney’s fees and costs PurCo had spent in fighting the battle.

Understanding the Law

In the Koenig case, the court held that loss of use is an “intrinsic” loss when there is a rental car that has been damaged. In other words, a rental car company does not need to separately show lost profits or that this particular car was needed for a particular customer. Rather, the loss of that car in and of itself had value that is a natural part of any damage claim, quite apart from physical damage itself.

“The Koenig court says the loss of this car can’t be valueless,” Purinton says. “The fact that I may have other vehicles I could use does not negate the value of this one piece of property. That’s a very well-reasoned conclusion because it’s actually true.”

“If you take the position argued by some carriers that the loss of this car has no value,” Christiansen says, “then anyone can take anyone’s property. And as long as the property owner has any type of substitute, there is no value to that deprivation. That’s a slippery slope.”

But, Christiansen added, “Ultimately the law will not sustain that type of faulty reasoning. Property rights have been recognized in this country since its founding, and loss of use is an old and venerable doctrine that the courts will enforce.”

Develop Your Rhetoric

“Be able to articulate the reasoning behind the Koenig decision — and the reasonableness behind loss of use in general — in your own words and style,” Purinton says. “Have your ammunition ready and your powder dry when the adjuster comes calling.”

“Try to open the door to negotiation,” he suggests. “Most people believe they can manage this negotiation through written communication. We disagree. We call first; we discuss. If you can get adjusters to understand, you’ll get some kind of offer.”

Make sure you avoid the “utilization” trap, where an insurance carrier will want to discuss the utilization of other cars in your fleet. If it comes up, the adjuster might ask for turndown reports for the walk-ups you turned away. These issues are not relevant when loss of use is an “intrinsic” damage.

In many situations, the car rental company may have long-standing relationships with the same insurance companies and adjusters. But don’t think you can’t revisit the loss-of-use conversation — it is possible to turn a previous “no” into a “yes,” Purinton says.

Purinton suggests looking into your records to see if that insurance company has ever paid you loss of use. If you haven’t revisited this conversation in a few years, you can bring up the Koenig case. Going further, you can ask for help from a risk management or damage recovery outsourcer or get legal assistance if they stubbornly refuse.

The Importance of the Contract

Don’t underestimate the importance of your rental agreement, Christiansen advises. The wording of the contract is supremely important, as evidenced by what happened in the Koenig case.
“When parties define their commercial relationship by contract, the courts look to that contract as almost the be-all and end-all in disputes,” he says.

Make sure you avoid the “utilization” trap, where an insurance carrier will want to discuss the...

Make sure you avoid the “utilization” trap, where an insurance carrier will want to discuss the utilization of other cars in your fleet.

Photo via Istockphoto.com/bartco.

“Some rental contracts have been written to specifically say, ‘I will pay you loss of use regardless of fleet utilization,’” Christiansen says, adding that newer contracts go further to define loss of use. Christiansen notes that contracts can’t be written to violate public policy and that some states legislate what can and can’t be put in rental contracts.

“The contract limits and defines what and how much you can recover,” Christiansen says. “The language should anticipate damage and how the parties involved will resolve this. I can’t overstate the importance of the language of the terms and conditions in the rental agreement for when a dispute arises.”

Christiansen noted that loss of use was originally a “tort” principle, i.e., a legal principle governing relationships between parties outside of contracts. But such principles can be captured within contracts by allocating risks within the relationship in a way the parties agree.

Calculating Damages

How should loss-of-use damages be calculated?

The Koenig court held that damages could be shown by the reasonable rental value of the damaged vehicle, whether or not there was an available replacement. Purinton suggests the best evidence of reasonable rental value is the daily rate from the actual rental contract of the damaged vehicle.

“This is a true market rate at that time and season,” Purinton says. “It more accurately measures the rental value of the car at that particular time than any other standard.”

“This is a sensible view of what is considered ‘reasonable,’” Christiansen added. Both the RAC and the renter agreed to the rental rate on the signed contract. It’s hard for either one to say that’s not a reasonable rate for that car at that time.”

Keep the High Ground

Purinton has one more piece of advice in dealing with damages, including loss-of-use damages: “Always tell the truth,” he says. “It’s that simple. The minute you give up the moral high ground, you lose.”

Getting insurance companies to understand and pay loss of use is about the art of negotiation, he says. If they engage in negotiation, you’ve got your foot in the door to begin the conversation of how much they’ll pay you.

PurCo and others regularly do obtain loss-of-use damages from renters and their insurance companies. Some adjusters and insurance companies “get it,” Purinton says, while others will “get it” in the future.

This topic will be covered in the seminar “Critical Components to Loss-of-Use Recovery” at the 2014 Car Rental Show (CRS) and presented by David Purinton of PurCo and Stephen Christiansen of Van Cott, Bagley, Cornwall & McCarthy. CRS takes place April 7-8 at the Rio All-Suite Hotel & Casino in Las Vegas.

Having the Conversation

This fictitious yet typical conversation with an insurance adjuster will help you develop your rhetoric and increase your odds of recovering loss-of-use damages. Be sure to begin the conversation with the insurance company upon submitting the bill, which should include loss-of-use and administrative charges.

Operator: “Mr. Adjuster, we’re looking to you to compensate us for our loss of use. When can we anticipate payment?”

Adjuster: “Why should we pay loss of use?”

Operator: “If my rental car is in the shop, I can’t use it, and I’ve lost something of value.”

Adjuster: “But you have other cars you could have used.”

Operator: “I bought this car for its own value; I did not buy this car to have it sit in the shop. A rental car that is being repaired and unavailable can’t be sold. And if this piece of property can’t be sold, I’m being denied its use. The fact that I have the car in my possession is evidence I need it. There’s a cost involved. I don’t get to use the car.”

Adjuster: “Let me see your turndown reports.”

Operator: “The utilization of my fleet is not relevant, as the Koenig case found that loss of use is an ‘intrinsic’ damage.”

Adjuster: “The Koenig case only applies to Colorado.”

Operator: “Koenig is the only appellate decision in the country addressing this very issue in the context of car rental. The Koenig decision follows the ‘Restatements of the Law,’ which codify what the laws are and should be in the various states. Courts in all 50 states follow the Restatements of the Law. Koenig is persuasive authority for any jurisdiction and any judge who considers the question.”

Adjuster: “We are not required by law to pay you loss of use.”

Operator: “Loss of use is a damage item that’s owed by law. Can you show me legal authority for your suggestion that you are exempt from this requirement?”

About the author
Chris Brown

Chris Brown

Associate Publisher

As associate publisher of Automotive Fleet, Auto Rental News, and Fleet Forward, Chris Brown covers all aspects of fleets, transportation, and mobility.

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