The Colorado Supreme Court has ruled in favor of PurCo Fleet Services in Koenig v. PurCo, an important loss-of-use damages case for the auto rental industry. In a 20-page decision handed down Sept. 10, the court ruled that “PurCo is entitled to recover loss-of-use damages irrespective of its actual lost profits.”

The ruling is historic for the car rental industry. While the case is binding specific to Colorado courts, it is expected to have an impact on the recovery of loss-of-use damages nationwide.

“This is a vindication for the rental car industry and property owners everywhere,” says David Purinton, owner and president of PurCo. “The court said there is an intrinsic loss to the owner when a car is damaged, no matter what else is happening in the fleet with other cars. That is the truth, as any owner can tell you.”

The ruling caps a seven-year battle for PurCo Fleet Services Inc., a risk management company specializing in car rental loss prevention. The decisions issued from the highest Colorado court and the intermediate court before that are believed to be the only reported cases in the United States dealing specifically with loss of use and administrative fees for a rental car.

The Case

The case started on Sept. 16, 2005, when Judith Koenig rented a car from the National Car Rental licensee at the Durango Airport in Colorado. While driving the car, she 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.

Koenig filed a request to dismiss the case without trial, which the trial court granted. The trial court ruled that PurCo could prevail on its loss-of-use damages claim only if it suffered actual lost profits. PurCo appealed.

The intermediate court of appeals agreed with the trial court’s conclusion that, in general, the appropriate measure of loss-of-use damages in a commercial setting is actual lost profits. But the court concluded the rental agreement in this case altered the measure of loss-of-use damages and held that PurCo was required to show certain loss prerequisites before it could recover.

Both PurCo and Koenig filed petitions to have the Colorado Supreme Court review the case, and the petitions were granted.

On review, the Colorado Supreme Court affirmed the court of appeals judgment but on different grounds that proved favorable to the rental car industry. The court held that loss-of-use damages in a commercial setting may be measured either by “reasonable rental value” or by actual lost profits. The court based its decision on the common law of damages reflected in the Restatements of the Law published by the American Law Institute and on its own prior case law decisions.

The state Supreme Court then vacated the court of appeals opinion on loss-of-use damages and loss prerequisites. In doing so, the court put its stamp of approval on PurCo’s longstanding position that loss-of-use damages are recoverable regardless of what else is going on in the fleet.

Reasonable Rental Value

“The ‘reasonable rental value’ standard has been the law for a long time, no matter what our detractors have said,” Purinton says. “This ruling confirms what we have always known to be true.”

The court has yet to determine “reasonable rental value” in this case. Even so, Purinton noted it is a simple determination, with the best evidence taken from the daily rate at the time the vehicle was damaged.

“The court made it easy to calculate,” Purinton says, adding that the ruling “will undoubtedly help owners, big and small, to recover real losses they are entitled to when renters return their cars damaged.”

In an appeals court ruling that went unchanged in the case, PurCo is entitled to the administrative fee as well, though the amount has not yet been determined.

This article was updated at 1:56 p.m. on Nov. 6, 2012, to reflect the article that was printed in Auto Rental News' November/December magazine issue. Click here to read those articles.