Vehicle rental companies, especially independents and smaller franchisees, often ask our law firm whether they can require customers to purchase collision damage waivers (CDW) or supplemental liability insurance (SLI). Operators usually want to make these products mandatory when the customer has no personal auto policy or no major credit card.

Twenty-three states regulate the sale of damage waivers and require CDW disclosures on the face of the rental agreement or on separate forms. The disclosures in 19 states say explicitly or imply that the purchase of a damage waiver is optional.

The conclusion is that in these 19 states, damage waivers are optional. The mandatory disclosure required on rental agreements issued in California does not contain language regarding the optional character of damage waivers. However, a separate California statute makes waivers optional [Cal. Civil Code § 1936 (e-i) (Deering)].

Can You Refuse to Rent?

Clearly, in 20 states you cannot require customers to purchase a damage waiver as a condition of rental. But can you refuse to rent if the customer declines the waiver? In California, the same statute cited earlier states that you may not turn away a customer with a reservation who refuses to purchase a damage waiver. In the other 19 states, the answer is also no — even though there are no statutes like the California statute — if the refusal to purchase a damage waiver is the sole reason for the turndown.

The reason again is that it’s the customer who has the option to purchase. However, if it is your policy to never rent to customers without a major credit card, or never rent to customers who lack liability insurance, you may refuse to rent on those grounds.

What about the other states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands? Can you require a customer to purchase a damage waiver? The answer lies in three places: history, the National Association of Attorneys General (NAAG) guidelines and, if you are a franchisee, the policies of your franchise system.