Hanging By A Vote: What the Hertz Insurance Ruling Means for Rental Operators

Here is something worth sitting with for a moment. The Colorado Supreme Court ruled in the rental industry’s favor this past April by a single vote. 4-3. One justice in the other direction, and this would be a different and more troubling article.

The case, Hertz Corp. v. Babayev, 2026 CO 26, started with a straightforward rental. A customer purchased supplemental liability coverage at the counter. The underlying policy was issued by ACE American Insurance Company, a Chubb subsidiary, and when an accident happened, ESIS Inc., Chubb’s third-party claims administrator, handled it.

As a standard structure, it’s the kind of arrangement rental operators use every day.

What was not standard was what happened next. The accident victims sued Hertz directly, arguing that by offering supplemental coverage and engaging in early claims activity, Hertz had effectively acted as their insurer and should be held to all related duties and liabilities.

What Was Actually On The Line

The plaintiffs pursued two distinct legal theories, and understood both matters because each carries different implications for how rental fleet operators structure and run their businesses:

1. The first was a statutory insurer claim under Colorado’s bad faith statutes, Sections 10-3-1115 and 10-3-1116 of the Colorado Revised Statutes. These provisions allow courts to award two times the covered benefit plus attorney fees against any insurer that unreasonably delays or denies a claim. If the court had classified Hertz as a statutory insurer, that penalty structure would have applied to every disputed supplemental product claim in the state. For a large operator handling significant claim volume, the exposure would have been immediate and substantial.
2. The second theory was broader and potentially more dangerous in the long run. Under Colorado common law, any entity that performs the primary functions of an insurer, regardless of what it calls itself or how its contracts are written, can be held to insurer-level duties of good faith and fair dealing. This is sometimes called the de facto insurer doctrine, and a ruling on those grounds would not have been limited to Colorado statute. It would have created a legal template that plaintiffs’ attorneys in other states could adapt and test. The theories pursued in Colorado have analogs in other jurisdictions, which means the outcome of this case carried stakes well beyond Denver.

The majority held that neither theory applied to Hertz, a result many operators viewed as favorable for the industry. But three justices saw it differently, and what they focused on is where operators should pay attention.

The Dissent Is a Roadmap

The three dissenting justices zeroed in on two things:

1. How Hertz’s financial arrangement was structured.
2. What Hertz personnel did during the claims process.

On the financial side, Hertz and Chubb had a fronting arrangement. Under that arrangement, Chubb issued the policy and initially paid claims, but Hertz reimbursed Chubb up to the policy limit.

The dissent viewed that structure as placing the economic risk associated with those claims back on Hertz, which made the arrangement look much more like an insurance function, regardless of what the documents called it.

On the operational side, a Hertz legal team member had personally requested the plaintiffs’ medical records, and an ESIS claims administrator testified that Hertz held ultimate authority over claim values because, as the testimony went, it was their money.

The majority found that it was not enough. The dissent found it was.

One vote separated those two conclusions. It is worth noting that neither the majority nor the dissent suggested that every fronting arrangement creates de facto insurer exposure. The ruling turned on the specific facts before the Court. The litigation is not entirely resolved: Babayev and Chikov have a separate federal case pending against Chubb and ESIS, which means the underlying facts of this arrangement will continue to be examined in court.

Where You Stand Depends on How You’re Structured

At this point, it is worth being direct about something the ruling makes clear. The level of exposure operators face is not uniform. It depends heavily on how their supplemental products are structured.

Operators whose products are underwritten and administered by a genuinely independent carrier, where the carrier holds primary claims responsibility and the operator is not reimbursing claims behind the scenes, are in a meaningfully stronger position.

The dissent’s concerns were driven specifically by Hertz’s fronting structure. For operators who are not carrying that kind of financial exposure, the legal risk profile from this ruling looks quite different.

That said, even operators with clean product structures are not entirely off the hook. The operational behaviors the dissent highlighted, including staff involvement in claims, personnel requesting claimant documentation, and management weighing in on claim valuation, illustrate areas where operators should proceed carefully, regardless of how the financial arrangement itself is structured.

Before drawing any conclusions about your own exposure, you should talk with qualified legal counsel and risk management advisors who know your specific state’s laws. Best practices at the counter and in operations matter for everyone.

3 Big Operational Disciplines That Matter

Whether your product structure carries fronting-style risk or not, three operational areas should be non-negotiable:

1] Keep Claims at Arm’s Length

The moment a renter has an accident, your staff’s job is to direct them to the carrier or claims administrator and stop there. Counter personnel, operations managers, and company legal teams should not request documentation from claimants, discuss coverage positions, or weigh in on settlement values.

That is the carrier’s role. The dissent pointed to examples of how operator involvement in claims can blur the distinction between the operator and the insurer. The dissent focused on evidence, including Hertz personnel's requests for medical records and testimony from an ESIS representative indicating that Hertz retained ultimate authority over claim values because, as the testimony stated, “it was their money.”

This needs to be more than a policy on paper. Staff at every level should be trained on where their role ends, and that guidance should be documented, reinforced regularly, and audited. If you cannot point to evidence that your team consistently follows this boundary, you cannot rely on it as a defense.

2] Have a Post-Accident Protocol and Follow It Every Time

What happens in the first hours after an accident matters as much as any policy or training program. Operators should have a written post-accident protocol that all locations follow without exception. When a renter reports an accident, staff should collect the basic incident information, date, time, location, and parties involved, and immediately route everything to the carrier or claims administrator. Contact information for the carrier should be posted at every counter and included in every rental agreement packet.

What staff should never do: offer opinions on fault, discuss coverage applicability with the renter or third parties, contact claimants directly, or forward documentation to anyone other than the designated carrier contact. A consistent, documented protocol is not just good operations. It reinforces the separation between rental operations and claims handling, a distinction that featured prominently in the Court’s analysis.

3] Treat the Counter as Your First Line of Defense

The counter, whether staffed by an agent, a kiosk, or a digital platform, is where the rental relationship begins and where the most preventable risks are either managed or introduced.

Counter staff should understand the products they offer, not just their prices. Clear, accurate explanations of coverage, cost, and carrier information build customer trust and help protect the operator.

By contrast, employees who guess or unintentionally misstate a product’s scope can create exposure that no policy structure can fully offset.

That level of counter-discipline does not happen with a single training session. It is built through repetition, regular refreshers, consistent processes, and a culture in which doing the right thing is the expectation, whether a manager is watching or not.

Organizations that invest in that culture are not just managing legal risk. They are building one of the most durable operational advantages in the business: a team that handles every rental in the same way, every time.

Documentation is the other half of counter discipline. Rental agreements, product disclosures, and acceptance or rejection records should be completed consistently, stored properly, and reviewed regularly. Treat every signed rental agreement as a legal record from the moment the keys are handed over.

What Getting It Right Actually Looks Like

Consider a mid-size independent operator with locations across multiple states. An independent carrier underwrites its supplemental products with no reimbursement obligation back to the operator.

Every counter agent completes a structured product training module before working independently and participates in quarterly refreshers. A post-accident instruction card sits at every counter detailing exactly what to collect and exactly where to send it. Managers conduct monthly documentation audits and report results to ownership.

When an accident occurs, the counter agent or their designated claims administrator collects basic incident information, provides the renter with the carrier’s contact information, and routes the incident report to the carrier’s claims department within the hour.

No one at the rental company contacts the claimant. No one discusses coverage. No manager weighs in on the claim. The carrier handles it from there.

That operation is not unusual; it simply follows the basics consistently and documents them. If the ruling offers one lesson for operators, it is that consistency and documentation can make the difference between a defensible position and a vulnerable one.

The Takeaway

Rental operators received a favorable ruling. But a 4-3 decision is not a ringing endorsement of how things are always done. It is a narrow finding on a specific set of facts.

The dissent was specific about what poses the greatest risk: fronting arrangements and operator involvement in the claims process. Equally important, the Court emphasized that it based its decision on the particular facts presented and should not be read as a blanket endorsement of any structure or operational practice.

Operators who recognize either of these conditions in their own structure should not wait to consult legal counsel. Operators who do not see those conditions in their structure still need to protect the counter and keep claims where they belong.

The majority concluded that the facts supported a clear separation between what Hertz did and what an insurer does. That separation is not automatic; it must be built into how an organization operates every day.

The rental fleet operators who do that work are in the best position, whatever the next court case looks like.