Does New York Rental Car Coverage Apply To a Borrowed Car?

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Question from an IIABNY member: A client of ours incurred damage on a loaner car that was provided to them while their car was in for service.   We filed a claim with their company. The company paid the claim less a deductible of $500 which is the physical damage deductible on their policy. They have a Personal Auto Policy.
 
1.  Does a loaner car qualify under the New York rental car endorsement? If so, does a deductible apply?

2.  If not, wouldn’t coverage apply under Property Damage Liability, which does not have a deductible?
 
We had a similar claim about  a year ago with another client that was insured with a different company and they paid the claim without a deductible. I spoke to someone at the first company and they said that is how they handle these claims. Could there be a loophole where loaner cars don’t fall under the New York rental endorsement? If the insured did not have physical damage coverage, wouldn’t the company be obligated to pay under Property Damage Liability?

Answer: The Rental Vehicle Coverage Endorsement – New York applies to “rental vehicles,” which the endorsement defines as:

…  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.

In your insured’s case, the vehicle was owned by someone who is in the auto repair business, not the auto rental or leasing business. Therefore, I don’t think this fits within the definition of rental vehicle, so the endorsement would not apply. If it had applied, there would have been no deductible.

The Liability Coverage under the Personal Auto Policy should apply to this loss, assuming that the insured has the equivalent of the ISO PAP as endorsed by PP 01 79 04 09, Amendment of Policy Provisions – New York. The relevant exclusion states:

We do not provide Liability Coverage for any "insured":  …

3.  For "property damage" to property: 

a.  Rented to;
b.  Used by; or
c.  In the care of: 

that "insured". 

This Exclusion  (A.3.) does not apply to "property damage":

a.  To a residence or private garage;  
b.  To any vehicle NOT:

(1)  Rented to;
(2)  Owned by; or  
(3)  Furnished or available for the regular use of:

you or any "family member", if the vehicle is one of the following types: 

(1)  Private passenger autos;  
(2)  "Trailers"; or  
(3)  Pickups or vans; or 

c.  Up to $2,000 to any "trailer" not owned by or furnished or available for the regular use of you or any "family member" if liability for such damage is assumed under a written rental contract. 

Assuming the loaner vehicle was a private passenger car, pickup or van, then it was a vehicle not rented to, owned by or available for the regular use of the named insured or family member; it was borrowed. Therefore, per paragraph b. in the exception, the exclusion does not apply.

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Comments

[Darald Novak AAI]

Tim, I was waiting to see "temporary substitute auto" (TSA) mentioned. Has that definition been dropped from the NY PAP? I had several of these claims as an agent over the years (80s and 90s)and the carriers considered the vehicle a TSA and applied the physical damage deductible of the vehicle that was being replaced by the TSA.
That's if the insured had physical damage on their vehicle.

[Tim Dodge]

Dar, I would say that the Rental Vehicle Coverage Endorsement will not cover a temporary substitute auto unless the insured is actually renting it. The endorsement applies to autos rented for 30 consecutive days or less, but not to borrowed autos.

The New York PAP does cover temporary substitute autos, but they would be covered for physical damage they way the insured's own autos would be -- i.e., covered only if the insured has bought Comp or Collision and subject to the deductible.