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November 17, 2016  

 
 Q&A of the Week
Primacy of Coverage for Rented Cars

An Ohio Subscriber asked the following question:

If a rental car is damaged while the insured is driving it, or if it is found damaged by the insured after he left it in a store's parking lot, is the insured's personal auto policy going to provide coverage on a primary basis or on an excess basis to that of the rental car vendor's policy?


ANSWER:The answer has several aspects.
The rental car rented on a short term basis is considered a nonowned auto under the terms of the physical damage section of the PAP. The other sources of recovery clause under the PAP's physical damage section declares that any insurance provided with respect to a nonowned auto shall be excess over any other collectible source of recovery. This other collectible source includes any coverage provided by the owner of the nonowned auto. So, if the rental car vendor has physical damage coverage for the car rented by the insured, the insured's PAP will provide excess coverage.
Consider also that, as regards insurance for a nonowned auto, the other sources of recovery clause describes as a collectible source "any other source of recovery applicable to the loss". This takes into account if an insured is not liable for the damage. For example, if the insured were hit by an at-fault driver, the insured's auto policy will provide excess physical damage coverage if the at-fault driver provides a collectible source of recovery. If the at-fault driver has liability insurance or can pay for the damage out of pocket, that is a source of recovery applicable to the loss.
The rental contract may state that the renter is solely responsible for any damage to the rented car. The renter's PAP declares that it is excess over any other collectible source of recovery. If the rental company does not provide any other collectible source of recovery for the damage to the rented car, that makes the renter's PAP primary. So, if the rental company does not provide physical damage coverage or if the insured is hit by an unknown or uninsured driver, there is no other collectible source of recovery and the renter's auto policy drops down into the primary role.
Finally, note that the current PAP contains an exclusion that blocks coverage for loss to or loss of use of a nonowned car rented to the named insured if a rental company is precluded from recovering such loss from the named insured pursuant to the provisions of any rental agreement or state law. If that is the case, this means the renter's PAP will not respond to the loss and the question of primary or excess coverage is irrelevant.
 Read More
 
 What's New This Week in FC&S
Financial Institutions Information Security Protection Policy

Many types of financial institutions store various types of personal information of customers. Read More
 
 Litigation Watch
Potentially Covered Claims and the Duty to Defend

The insurer filed a motion for summary judgment seeking a declaration that it had no duty to defend the insured in an underlying action. This case is Hartford Fire Insurance Company v. Tempur-Sealy International, 2016 WL 232431.

Hartford Fire Insurance Company issued nine general liability policies to Tempur-Sealy covering the time period from 2004 to 2013. In 2014, a number of individual consumers filed a class action complaint against Tempur-Sealy alleging that Tempur-Sealy failed to inform consumers that pillows and mattresses manufactured and sold by Tempur-Sealy emit a chemical odor containing formaldehyde which can and did trigger serious allergic reactions and asthma attacks in consumers. The complaint contained numerous allegations regarding the injuries to person and property. 
Read More
 
 Fraud of the Week
False Claim – New Jersey
AMOUNT: $35,000


A local rabbi is being sued by New Jersey officials who claim the rabbi violated New Jersey's anti-fraud act by collecting insurance money from twenty-three false reports that his luggage was stolen form an airport terminal. Read More
 
   
 FC&S Ask the Experts
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Submit your coverage interpretation question right to the editors of FC&S for quick and reliable information. Ask our expert staff a question by clicking here.
 
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Publisher
  Diane W. Richardson, CPCU
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