Although most collision damage waiver (CDW) or loss damage waiver (LDW) fees are considered outrageous, the insured is best advised to purchase the CDW/LDW for short-term rentals. The following are some of the reasons why.
1. Loss Valuation The value of a rental car, according to virtually all rental agreements, is determined solely at the discretion of the rental company and may be significantly different from the “ACV” basis used by most auto insurance companies covers the lesser of the “actual cash value” of the vehicle or the amount “necessary” to repair or replace the damaged property. The rental agreement may very well contractually obligate the insured to reimburse the lessor for the “full value” (whatever that is) of the vehicle. Under the current, the “betterment” clause may result in the insured being significantly underinsured relative to his/her obligations under the rental agreement.
2. Loss Settlement As implied above, there may very well be disagreement over the value of the vehicle or the amount charged for labor and materials to repair the property—depending on the edition, the Appraisal clause may be invoked by the insurer with its accompanying costs covered partially by the insured. More importantly, the insurer has the right to “…inspect and appraise the damaged property before its repair or disposal”— the rental company may choose to effect the repairs immediately, potentially resulting in a lack of coverage because of failure to comply with the condition cited above. In a recent claim involving farm equipment under a similar policy provision, the insurer denied coverage when the farmer had the property repaired immediately in order to minimize lost production and the insurer never had the opportunity to appraise the damage.
3. Loss Payment The rental agreement may require immediate reimbursement for damages and it is not uncommon for the rental company to charge the insured’s credit card. This can create a significant debt, “max” out the card’s credit limit (perhaps shortening a vacation or business trip), result in litigation, etc.
4. Loss Damage Waivers (LDW) The rental agreement usually requires reimbursement for more than collision, making the insured responsible for ANY “loss” in value beyond normal wear and tear regardless of fault. Obviously, must include collision coverage on at least one insured owned vehicle for collision coverage to transfer to the nonowned auto. If the rental agreement includes a Loss (not just Collision) Damage Waiver (LDW), the policy must also include comprehensive coverage to protect the insured.
5. Indirect Losses The insured most likely will be responsible for the rental company’s loss of rental income on the damaged unit. The company has, at best, daily and maximum caps for this indirect loss and, depending on the edition date, an unendorsed policy or proprietary company form may pay only for loss of income resulting from theft. In addition, many rental companies will not divulge their fleet utilization logs for competitive reasons or their rental agreements may make the renter responsible for loss of use without regard to fleet utilization rates. If so, the renter may be charged even though unused rental vehicles are sitting on the lot. In one case, a renter was hit with a $2,000 loss of use charge, far more than what her policy covered.
6. Administrative Expenses The rental contract may make the insured liable for various “administrative” or loss-related expenses such as towing (e.g., one insured was charged for a 230 mile tow), storage, appraisal, claims adjustment, etc. None of these expenses are typically covered by the auto policy.
8. Excluded Vehicles & Territories The auto policy normally does not provide physical damage coverage for motorcycles or other non-auto/pickup/van vehicles (e.g., motorhomes) and use of covered vehicles is limited to the U.S., its territories and possessions, Puerto Rico, and Canada.