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An Informal 4-Month Auto Rental: Does the Renter Have Coverage?

Question from IIABNY member: We have an insured that approached us with a question---he has a NY auto policy, he is going to California for 4 months as he does on a regular basis, the person that they are renting a house from has offered him the use of his vehicle in place of the insured getting a rental car. There will be a charge to the insured and I am not sure if they will have a formal agreement in place. The vehicle is registered in Georgia and will be used in California. The insured is looking to see if his NY Auto policy will provide coverage for him. Would it matter if he has liability only on his policy? Would the vehicle owner's policy be primary for liability and damage to the vehicle, would the vehicle owner have coverage issues by "renting" out his vehicle to another person?

Answer: The relevant forms here are PP 00 01 01 05, the ISO Personal Auto Policy, and PP 01 79 01 05, Amendment of Policy Provisions — New York. As amended, the Other Insurance provision in the Liability section of the PAP states:

If there is other valid and collectible insurance we will pay only our share of the loss. Our share is the proportion that our limit of liability bears to the total of all applicable limits. However, any insurance we provide for a vehicle you do not own, including any vehicle while used as a temporary substitute for "your covered auto", shall be excess over any other valid and collectible insurance, including physical damage insurance provided under this or any other policy.

Therefore, your insured’s liability insurance will apply on an excess basis over the vehicle owner’s coverage. Not being familiar with California and Georgia laws, I don’t know whether the owner is required to have California or Georgia coverage, but the only difference I can see between them and New York is that both states make liability coverage primary when an insured is test-driving a vehicle owned by an auto dealer.

With regard to physical damage coverage, the New York endorsement excludes from the definition of “non-owned auto” any vehicle rented or leased, without a driver, to the named insured or any family member. If your client’s insurer interprets his arrangement to be a vehicle rental, they may use this language as the basis for denying any physical damage coverage for the car, even on an excess basis. To make matters a little worse, the Rental Vehicle Coverage Endorsement — New York, PP 03 46 06 03, does not apply to your client’s situation. It states: 

This endorsement provides coverage for the "insured’s" obligations in the event of actual damage to, or loss of, any "rental vehicle", including loss of use, rented by the "insured" anywhere in the United States, its territories or possessions, and Canada under a rental agreement with a term no longer than thirty continuous days, regardless of where, within those areas, such "rental vehicle" may be registered, rented or operated… "Rental vehicle" means a motor vehicle of the private passenger or station wagon type or a motor vehicle with a pick-up body, a delivery sedan, panel truck or van if the vehicle is: 1. Not used for transporting persons or property for hire; and 2. Owned by a person engaged in the business of renting or leasing vehicles, rented or leased without a driver to persons other than the owner, and is registered in the name of such owner. (emphasis added)

Since your client is using the car for more than 30 days, and because the vehicle’s owner is not in the car rental business, this endorsement’s coverage does not apply.  

To summarize, your client will have excess liability coverage for the auto but might not have physical damage coverage. If the insurer does not consider the arrangement to be a rental, his policy may provide comp and collision (if he has those coverages on his own cars) on an excess basis.

NY Insurance Dept.: Interest & Attorney Fees Are Outside No-Fault Limits

The Coverage Counsel blog has been reporting on attorney Larry Rogak's opinion and subsequent over-ruling by the New York Insurance Department on a No-Fault question. Mr. Rogak based his opinion on a 2003 advisory legal opinion from the department's Office of General Counsel, which stated that attorneys' fees are compensable from a No-Fault insurer. Attorney Roy Mura, who writes the Coverage Counsel blog, disagreed with Mr. Rogak's conclusion that payment of interest and attorneys' fees reduce the limits available to pay No-Fault benefits. Mr. Rogak took the question to the department.

While nothing is yet in writing, a "highly placed member" of the department verbally agreed with Mr. Mura. According to Mr. Rogak's report, the member's opinion is that, "Neither interest, nor statutory attorney's fees, reduce available PIP limits under any circumstances."

It will be interesting to read the formal opinion when it is published on the department's Web site. In the mean time, this may be vital information for agents whose clients await No-Fault benefits.

Insurance Dept. Opinions: Same-Sex Couples; New Disciplinary Actions Report

The New York Insurance Department’s Office of General Counsel issued another short list of advisory legal opinions in November:

• New York Insurance Law does not prevent a community-rated HMO from charging a lower premium to its retired members who are Medicare-eligible than it charges to its other members, provided that it files an appropriate rate reduction for contracts that offer substantially reduced benefits where Medicare provides primary coverage.
• An employer, employee, or insurance producer that knowingly misrepresents the number of eligible employees on an application for group health insurance in order to obtain a non-community rated policy is in violation of the New York criminal law. An insurer that fails to investigate the group’s eligibility may be subject to disciplinary action.
• The life insurance guaranty fund covers individuals who were New York residents either that the time the insurer issued the policy or when the insurer became insolvent.
• An insurer may not nonrenew a commercial insurance policy five days after the policy’s expiration date when the insured has not responded to requests for renewal information.
• Insurers must give members of same-sex couples, legally married in a jurisdiction outside New York, the same rights to spousal health insurance coverage in New York as they do to members of opposite-sex couples.
• A contract that requires an auto auctioneer to purchase, at Black Book value, a vehicle from a customer of an auto dealer within three years from the date the customer purchased the vehicle for sale does not constitute insurance.
• New York Insurance Law does not prohibit an entity that owns a life insurance policy covering an individual insured, who is not chronically or terminally ill, from selling the insurance policy to a third party.

The Department posted these and other opinions in November. Visit the Department’s Web site to find any opinion issued since 2000.

In a separate release, the department issued a new report of recent disciplinary actions on Dec. 5. Most of the actions were for offenses such as bounced premium checks and commingling of premium account funds with other funds. However, one notable action involved a $4,900 fine against an excess line broker in Boston for failing “to obtain and/or properly complete declinations and certain other required affidavits prior to placing numerous insurance policies in the excess line market.”

Insurance a Humbug?

If you're like me, you've read Charles Dickens' novel A Christmas Carol more times than you can remember (in fact, I'll probably read it again this week.) Dickens' literary masterpiece has been the subject of hundreds of parodies, satires, and re-tellings, so it was inevitable that someone in the insurance industry would take a crack at it. I whole-heartedly recommend Chris Amrhein's piece in the new issue of American Agent & Broker Magazine. Chris is a long-time IIABNY continuing education instructor, and his piece will bring a little holiday smile to your face and also probably cause you to nod in agreement. Underneath the humor are some valid points. I'm a dedicated technology advocate, always ready to try out new software that looks cool. However, I do think that the efficiencies we've gained from technology have come at a price. That price is careful and personal attention and underwriting of individual risks. I understand why insurers have automated underwriting functions, but this is still a people business. The personal touch is becoming an endangered facet of the business, and that's unfortunate.

At any rate, enjoy Chris's story!

I Rented My House Out for the Inauguration, and All I Got Was This Lousy T-Shirt

Interesting article in the Insurance Journal's daily e-mail today. Christopher J. Boggs, CPCU, ARM, ALCM writes about the insurance and liability implications for residents of the Washington, D.C. area who are considering renting out rooms to visitors during next month's presidential inauguration. If you're comfortable with the idea of complete strangers staying in your home or condo for a few days, it's not a bad way to make some extra bucks. Probably many IIABNY members have at least one client that does this or at least contemplates doing it. Consider clients who live in big tourist draws such as:

• Long Island during the summer
• Cooperstown during Hall of Fame induction weekend
• Central New York during the New York State Fair
• New York City just about any time
• Residents of the Adirondack Park during the winter and summer

According to Boggs, the property insurance implications are straight forward. A homeowner has no coverage for his property that a renter steals from the rented space. Items in the rest of the house are covered. The more interesting aspect is the liability exposure. A property owner owes the highest degree of care to someone he invites onto his premises (i.e., someone renting a room for three days of Obamamania.) The Homeowners policy will cover this liability, but the exposure to possible loss is greater than it will be normally. The homeowner must make extra efforts to ensure the safety of the premises. This also might not be a bad time to think about an Umbrella policy.

Especially when you consider the continuing tight market for Homeowners insurance in some parts of New York, insureds who rent out rooms for special events need to do whatever they can to prevent losses. Failure to do so may be expensive for the insurer and may cause future coverage problems for the insured.

Episode #10 -- The Self-Insured Trusts Reform Law

As I write this, I have just gotten off the phone with an attorney representing an employer who belonged to an under-funded group self-insured trust. Fortunately, he was just looking for information, not threatening to bill or sue me. His client, however, is staring at an assessment bill for a rather large amount of money. That's one story out of far too many that arose this year with the surprising decline in the group self-insured trust industry. The state legislature enacted reform legislation last June to prevent repeats of stories like this one, and that law is the focus of episode 10 of Ask Tim.

SHOW SUMMARY:

• The law is Chapter 139 of the Laws of 2008, formerly known as Senate Bill S.8708
• It clarifies that the New York Workers' Compensation Board has authority to assess group self-insured trusts
• It requires the board to assess employers in an insolvent trust within 120 days of the trust's insolvency
• It contains several anti-fraud protections
• It requires trusts toreport on their financial conditions to the board at least annually
• It requires trusts to be fully funded
• It authorizes the board to borrow up to $52 million to meet short-term claim obligations
• It places new limits on the ability of employers to join a trust or move from one to another
• It creates an advisory committee and a task force to make recommendations for system improvements

Our sponsor this episode is AgentQuote.com.

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