Hired Auto Coverage Long Term Rentals

[ARWCM3]

I work in the commercial auto industry and have seen significant increase in rental spending with the shortage of vehicles. I see companies place large vehicle orders to keep up with demand and use rentals for several months.

I recently was told by a client that a rental branch told them rewriting the rental contract every 30 days, ensures the commercial auto policy provides coverage. That client had an annual rental spend of $1.2M.

Is anyone seeing carriers deny claims for long term rentals if the insured didn’t request them to be scheduled on the policy?

 

[ARWCM3]

Also, I am not a broker. Just wanted to throw that out there.

 

[adjusterjack]

I quote from the General Conditions of the Commercial Auto form CA0001:

Concealment, Misrepresentation Or Fraud This Coverage Form is void in any case of fraud by you at any time as it relates to this Coverage Form. It is also void if you or any other "insured", at any time, intentionally conceal or misrepresent a material fact concerning
a. This Coverage Form;
b. The covered "auto";
c. Your interest in the covered "auto"; or
d. A claim under this Coverage Form.

Preventing the insurance company from collecting the appropriate premium for the actual risk is concealing or misrepresenting a material fact which could result in denial of a claim and rescission of the policy.

One of the elements of materiality is would the insurance underwriter have charged a higher rate had he known of the actual risk? The answer is yes, he certainly would.

Remind your client that his policy has that condition or words to that effect. Ask him what it would do to him and his business if there was a large claim and he found himself with no coverage, especially since the next insurance would double or triple his rates.

 

[Al3x Lee]

I see companies place large vehicle orders to keep up with demand and use rentals for several months.

I recently was told by a client that a rental branch told them rewriting the rental contract every 30 days, ensures the commercial auto policy provides coverage. That client had an annual rental spend of $1.2M.

This is a very BAD idea.

a. I assume the employees at this rental branch are not licensed insurance agents. They should not be dispensing this kind of advice to their clients. I somehow do not think they would have a strong defense in court if their motive for dispensing this advice was to make a profit by extending their rentals.

b. The ISO business auto coverage form specifically spells out "hired, rented or borrowed without a driver for a period of 30 days or less". Rewriting the rental agreement every 30 days does nothing to create a defense against this language. If you've rented a vehicle for 6 months but rewrote the rental agreement every 30 days, you've still had the vehicle for 6 months.

adjusterjack makes excellent points in his post. Rewriting the rental agreement as a loophole sure sounds like concealment & misrepresentation to me.

 

[ARWCM3]

b. The ISO business auto coverage form specifically spells out "hired, rented or borrowed without a driver for a period of 30 days or less". Rewriting the rental agreement every 30 days does nothing to create a defense against this language. If you've rented a vehicle for 6 months but rewrote the rental agreement every 30 days, you've still had the vehicle for 6 months.

adjusterjack makes excellent points in his post. Rewriting the rental agreement as a loophole sure sounds like concealment & misrepresentation to me.[/QUOTE]

I completely agree with you both and have referenced all things listed above. What amazes me is this is quite common for businesses waiting for vehicle deliveries. My thought is, wouldn’t they consult with their broker or wouldn’t their broker consult with the carrier if they didn’t know if coverage applied or not?

 

[Al3x Lee]

My thought is, wouldn’t they consult with their broker or wouldn’t their broker consult with the carrier if they didn’t know if coverage applied or not?

In a perfect world, yes. Unfortunately there are a lot of misinformed agents, brokers, and insureds. Sometimes all that matters is the bottom line until a claim gets denied. That's when the people who try to skirt the system learn their lesson, yet they will be the ones who cry the loudest.

There also does tend to be a 'gray area' in different aspects of insurance. Policy forms are long and specific for a reason, to try and eliminate ambiguity, but it seems that lawyers are crafty and still find ways to make it "open to interpretation".

 

[adjusterjack]

My thought is, wouldn’t they consult with their broker or wouldn’t their broker consult with the carrier if they didn’t know if coverage applied or not?

Unfortunately, human nature (of the insurance buying public) is to cut corners to keep the rates down, with the hope that the insurance company never finds out. They don't want to ask their agent because they figure the news of what they are doing will get back to the insurance underwriter, and the rates will go up commensurate with the risk involved.

And, yes, they do scream the loudest when the SHTF.