The car rental industry has at its disposal a little known and underutilized tool to maximize damage recovery: the “Collateral Source Rule.” While most often discussed in the context of bodily injury, the Collateral Source Rule has other applications. In fact, courts regularly follow the Collateral Source Rule in property damage claims.
The Collateral Source Rule was first adopted in an 1854 decision by the U.S. Supreme Court. The name of the rule derives from an 1870 case holding that a plaintiff’s insurance policy was “collateral to the remedy against the defendant, and was procured solely by the plaintiff and at his expense, and to the procurement of which the defendant was in no way contributory.”
The rule states: “Payments made to or benefits conferred on the injured party from other sources are not credited against the tortfeasor’s liability, although they cover all or part of the harm for which the tortfeasor is liable.” (Restatement [2d] of Torts § 920A and Restatement [3d] of Torts § 920A)
Here is the lay translation: A person who damages one of your cars cannot benefit from discounts, write-offs or the size of your fleet to reduce his or her responsibility for the damages.
With regard to your physical damage recovery, unless your state’s laws require otherwise (or you provide for the benefit to your renters in your rental agreement), you do not have to pass on repair discounts. You can require those responsible for damaging your vehicle to pay the full retail estimate, even if you repair the vehicle yourself or do not repair it at all.
Likewise, if you have your own insurance coverage that pays for your loss, the renter — or third-party tortfeasor — is not allowed to benefit from your insurance.
For loss of use, the Collateral Source Rule again operates in your favor. When an insurance company says it doesn’t owe for loss of use because you have other vehicles available for rent, the insurance company is wrong. You acquire vehicles for a variety of purposes, and those purposes are your own. If there are any vehicles sitting idle, the renter (or tortfeasor) did not purchase them, so he or she does not get the benefit of those vehicles — you do.
"A person who damages one of your cars cannot benefit from discounts, write-offs or the size of your fleet to reduce his or her responsibility for the damages."
These basic common law doctrines have not changed over hundreds of years. And they are powerful when dealing with parties who do not want to properly pay when they damage one of your cars — and when dealing with those who sympathize with them.
The Collateral Source Rule should apply to claims made under your rental agreement as well as to tort claims against third parties. For example, the California Supreme Court applied the rule in a contract breach case where the “breach had a tortious or willful flavor.” (City of Salinas v. Souza & McCue Construction Co., 66 Cal. 2d 217, 424 P.2d 921, 57 Cal. Rptr. 337 ) And the Colorado Supreme Court applied the tort concept of loss of use in a contract case against a renter when the contract called for payment of such damages “regardless of fleet utilization.” (Koenig v. PurCo Fleet Services, Inc., 2012 CO 56, ¶ 7, 285 P.3d 979)
When an insurance company or credit card benefits adjuster asks you to provide a “fleet utilization log,” or asks you to accept an “audited” estimate amount, they are disregarding the Collateral Source Rule. There are some state-specific nuances to the rule, but generally you do not have to provide the information they are demanding; they have no right to offset the amounts they may owe you because of other assets you may own.
Using this tool, your employees will be able to better respond when insurance adjusters try to lowball your damage claims. By knowing the law and being prepared to explain it to your benefit, you will be able to let insurance adjusters know that if they push this to litigation, you know exactly how it will turn out.
Be clear, be concise and, most importantly, be correct. Arm yourself with the Collateral Source Rule, and you can be that great negotiator who gets the claim paid.