Auto Insurance: Frequently asked questions

We have a question on the primacy of coverage between auto policies of rental car vendors and our insureds. If the rental car is damaged while the insured is driving it, or 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?

This answer has several facets.

First, the rental car is considered a nonowned auto under the terms of the personal auto policy (PAP). The "other sources of recovery" clause under the PAP declares that any insurance provided with respect to a nonowned auto "shall be excess over any other collectible source or recovery"; this collectible source includes any coverage provided by the owner of the nonowned auto. Therefore, if the rental car vendor has physical damage coverage for the car rented by your insured, your insured's PAP will provide excess coverage.

Consider also that the "other sources of recovery" clause describes as a collectible source "any other source or recovery applicable to the loss." This means that if your insured is not liable for the damage; for example, if he were hit by an at-fault driver, the auto policy of your insured will provide excess physical damage coverage if the at-fault driver has collectible sources of recovery. If the at-fault driver has liability insurance or can pay for the damage out of pocket, that is an "other source of recovery applicable to the loss."

Some uninsured motorists policies provide property damage coverage. If the uninsured motorists policy has an "other insurance" clause that makes the coverage for vehicles not owned by the named insured excess over any collectible insurance, here again, the PAP of the named insured will provide excess coverage to that other collectible insurance.

Another point to consider: the rental contract may state that the renter is primarily responsible for any damage to the car. If that is the case, look at what the renter's PAP declares in the other sources of recovery clause: the renter's PAP is excess over "any other collectible source of recovery". The rental company is not providing any other collectible source of recovery for the damage to the car and that makes the renter's PAP primary. The key word here is "collectible." If the rental company does not provide physical damage coverage, or if the renter was hit by an unknown or uninsured driver (and there is no uninsured motorists property damage coverage), there is no other collectible source of recovery and the renter's auto policy drops down into the primary role.

Finally, the current PAP has an exclusion that blocks coverage for loss to or loss of use of a nonowned car rented to the named insured if a rental vehicle company is precluded from recovering such loss from the named insured pursuant to the provisions of any rental agreement or state law. So, if the rental company cannot recover from the named insured for the damage to the rented car because of the rental agreement wording or because of a state law prohibiting a recovery, the renter's PAP will not respond to the loss anyway. If that is the case, the question of primary or excess coverage is not relevant.

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