A California appeal’s court has upheld a lower court’s ruling that optional insurance fees for rental cars do not need to be included in rate filings. 

The case stemmed from a class action lawsuit brought against Los Angeles-based Midway Car Rental. The plaintiffs claimed that they were “economically harmed by unlawful and fraudulent business practices” because Midway charged more for optional insurance than it paid the insurance agency, and that the rates charged exceeded the rates approved by the California Department of Insurance (DOI). 

The policies included a $25,000 per claim self-insured retention (basically a deductible) that was the responsibility of Midway in the event of a customer loss. National Specialty and KnightBrook were only obliged to step in when such a loss exceeded the self-insured retention. 

In terms of cost, Midway charged customers more than the premium it paid to the carriers, and the rates for the optional coverage were specified in customers’ rental agreements. 

In addition to suing the Midway, the case also cited its insurance providers, National Specialty Insurance Co. and KnightBrook Insurance Company. 

However, a trial court disagreed with the plaintiffs, citing that their claims were based on insurance code standards that didn’t apply to their interaction with the car rental company. Additionally, the court ruled that the class “failed to establish any illegal or fraudulent business practice, or any economic injury.”

The insurance rates Midway charged customers were written in the rental agreement, and known before they were purchased, the court filing states. It further says that the rates were comparable to other rental agencies and approved by the Department of Insurance.  

On appeal, the appellate court upheld the lower court’s ruling, affirming that the plaintiffs’ claims against National Specialty and KnightBrook were based on DOI provisions inapplicable to their interactions with Midway.

”Midway is pleased that the courts have affirmed that we may continue to offer optional rental car insurance to our customers and are not bound by the rates approved by the DOI which apply only to the master policies issued to us,” Gary Macdonald, president and chief operating officer of Midway Auto Group told Auto Rental News.

Optional rental car products, such as optional insurance add ons, can be a significant source of income for rental agencies. 

“Companies like Midway can continue to offer optional insurance to their customers, now knowing that they’re not bound by the rates approved for underlying master policies,” Mona Hanna, a partner at Michelman & Robinson, LLP, counsel for National Specialty and KnightBrook, said, in a statement. “And for carrier clients like mine, they can continue to offer rate- approved master policies without exposure to liability for transactions with third parties over which they have no control.”