Do New York drivers' auto insurance policies have to cover damage they cause to rental cars from Hertz, Avis, and similar companies, and can those rental companies charge them for damage beyond the $100 deductible?

Plain-English summary

In 1988, New York enacted Chapter 784, the Collision Damage Waiver (CDW) statute, to address aggressive rental-car-company sales tactics. Companies were hawking CDW coverage to renters at unconscionable rates, often misrepresenting it as mandatory, even when renters already had coverage through their personal auto insurance. The statute did three things: required auto insurance policies on New York-registered private passenger vehicles to include rental-vehicle coverage; capped a renter's liability for damage to a rental at a $100 deductible; and, as the AG described the statute, prohibited rental companies from charging for a CDW and from engaging in other unfair practices.

The 1997 question came from the Insurance Superintendent. Some insurance companies and rental companies argued the statute's text created a loophole. The phrase "private passenger motor vehicle" in Insurance Law § 3440(a) includes both a vehicle-type component (private passenger, station wagon, etc.) and an ownership component (owned or hired by an individual or a husband and wife, not used as a livery, not rented to others without a driver). If that ownership component applied to the rental vehicle, then a Hertz or Avis car (which is owned by a rental company, not an individual) would not be a "private passenger motor vehicle," and the statute would not apply.

The AG rejected that reading.

The ownership component identifies the insurance policyholders entitled to rental-vehicle coverage: individuals (or husband-and-wife couples) who hold liability insurance on their private passenger vehicles. The vehicle-type component identifies the types of vehicles both covered by the policy and eligible as rental vehicles under the statute. Applying the ownership component to rental cars themselves would defeat the entire CDW statute, since rental cars are by definition owned by rental companies.

That reading would also produce an absurd result inconsistent with the statute's clear legislative purpose. The bill jacket and the December 29, 1988 Governor's Memorandum of Approval describe the purposes plainly: protect consumers from rental-company abuses and ensure they have coverage when renting. The AG applies standard New York principles of statutory construction (People v Mobil Oil Corp., Sanders v Winship, Honeoye School Dist. v Berle): read the statute as a whole, harmonize all parts, give effect to all provisions, and construe to suppress the mischief the legislation aimed to address.

On the General Business Law side, § 396-z(2) prohibits rental companies from holding "authorized drivers" liable for damage beyond the $100 deductible (with limited exceptions). The phrase "private passenger motor vehicle" in § 396-z(2) refers to the types of vehicles covered (passenger cars, station wagons, vans, pickups, delivery sedans, panel trucks), not to who owns them. § 396-z(1)(d) defines "rental vehicle company" to mean any person or organization in the business of providing rental vehicles, which captures Hertz, Avis, and similar companies.

The AG agrees with the Insurance Department: insurers must provide rental coverage, and rental companies cannot charge beyond the deductible.

Currency note

This opinion was issued in 1997. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

What is a collision damage waiver?

A CDW is a product rental companies offer at the rental counter under which, in exchange for a daily fee, the company waives the renter's liability for damage to the rental car. The AG describes CDW as a historical rental-company product and lists among the statute’s prohibitions that rental companies may not charge for a CDW. See the original opinion.

Who is covered by rental-vehicle insurance under Insurance Law § 3440?

Holders of liability insurance policies on private passenger motor vehicles (passenger cars, station wagons, pickups, delivery sedans, panel trucks, vans) registered in New York, where the policy covers fewer than five such vehicles. Coverage extends to rental vehicles rented for 30 continuous days or less, anywhere in the United States, its territories, possessions, or Canada.

What is the $100 deductible?

The AG describes the statute as protecting authorized drivers from rental-vehicle damage liability beyond a $100 deductible, subject to statutory exceptions. The opinion does not list those exceptions or analyze a CDW purchase.

What is the definition of "rental vehicle company"?

Under General Business Law § 396-z(1)(d): "any person or organization . . . in the business of providing rental vehicles to the public from locations in this state." This captures the major commercial rental companies (Hertz, Avis, National, etc.) and smaller local operators.

Why does the statutory construction matter so much?

Because the statute uses defined terms ("private passenger motor vehicle," "rental vehicle," "rental vehicle company") drawn from different statutes (Insurance Law, General Business Law, Vehicle and Traffic Law). The interplay creates textual surface area for arguments. The AG's reading uses standard New York construction principles to keep the statute working as the Legislature intended.

Background and statutory framework

L 1988 ch 784 is the foundational statute. The bill jacket (Governor's Memorandum of Approval, AG's Memorandum in Support) describes the consumer-protection purpose.

Insurance Law § 3440(a) contains the definition of "private passenger motor vehicle." § 3440(b) imposes the rental-coverage obligation on insurers issuing liability policies for fewer than five such vehicles registered in New York.

Vehicle and Traffic Law § 131 defines "person" (any natural person, firm, copartnership, association, or corporation). § 137-a defines "rental vehicle" (a vehicle owned by a person in the business of renting or leasing vehicles, rented or leased without a driver to a person other than the owner, and registered in the owner's name).

General Business Law § 396-z provides the consumer-protection scheme. § 396-z(1)(d) defines "rental vehicle company." § 396-z(2) prohibits liability beyond the deductible.

Statutory construction principles cited: People v Mobil Oil Corp., 48 NY2d 192 (1979) (read statute as whole); Matter of New York Life Insurance Co. v State Tax Commission, 80 AD2d 675 (3d Dept), affd, 55 NY2d 758 (1981) (construe to suppress the mischief, advance the remedy); Sanders v Winship, 57 NY2d 391 (1982) (harmonize all parts, give effect to all provisions); Honeoye School Dist. v Berle, 72 AD2d 25 (4th Dept 1979) (same).

Citations

• General Business Law § 396-z (CDW statute consumer protections).
• General Business Law § 396-z(1)(d) (definition of rental vehicle company).
• General Business Law § 396-z(2) (prohibition on liability beyond $100 deductible).
• Insurance Law § 3440 (rental vehicle coverage requirement).
• Insurance Law § 3440(a) (definition of private passenger motor vehicle).
• Insurance Law § 3440(b) (insurer's obligation to provide rental coverage).
• Vehicle and Traffic Law § 131 (definition of "person").
• Vehicle and Traffic Law § 137-a (definition of "rental vehicle").
• L 1988 ch 784 (collision damage waiver statute).
• People v Mobil Oil Corp., 48 NY2d 192, 199 (1979) (statute read as whole).
• Matter of New York Life Insurance Co. v State Tax Commission, 80 AD2d 675 (3d Dept), affd, 55 NY2d 758 (1981) (construe to suppress mischief).
• Sanders v Winship, 57 NY2d 391, 396 (1982) (harmonize parts and give effect to all provisions).
• Honeoye School Dist. v Berle, 72 AD2d 25, 35 (4th Dept 1979) (same).

Source

• Landing page: https://ag.ny.gov/libraries-documents/opinions/opinions-year
• Original PDF: https://ag.ny.gov/sites/default/files/opinions/97-F2_pw.pdf

Original opinion text

GENERAL BUSINESS LAW 3966-z; INSURANCE LAW § 3440; VEHICLE AND TRAFFIC LAW §§ 131, 137-a; L 1988 CH 784. The Insurance Department has construed correctly the relevant provisions of law, consistent with principles of statutory construction, to achieve the legislative intent underlying Chapter 784 of the Laws of 1988. The primary legislative purposes are to provide insurance policyholders who rent vehicles with insurance coverage for damage to their rental vehicles and to prohibit rental vehicle companies from holding renters liable, beyond $100, for damage to rental vehicles.

January 22, 1997
Hon. Edward J. Muhl
Superintendent of Insurance
Insurance Department
160 West Broadway
New York, NY 10013

Formal Opinion
No. 97-F2

Dear Superintendent Muhl:
Your counsel has requested our opinion as to whether the Insurance Department has construed correctly the terms "private passenger motor vehicle" and "rental vehicle" as used in the State's collision damage waiver (CDW) statute (L 1988 Ch 784). Some background and the definition of several terms are necessary prior to specifying the issues presented. The statute's legislative history indicates clearly that the CDW statute was designed to curb abuses by certain rental vehicle companies. Bill Jacket, L 1988 Ch 784, December 29, 1988 Governor's Memorandum of Approval and December 20, 1988 Attorney General Memorandum in Support. The statute mandates that automobile insurance policies issued on vehicles registered in New York State provide separate rental vehicle coverage. Id. It also prohibits rental vehicle companies from (1) holding authorized drivers liable for damage to a rental vehicle, subject to certain exceptions and a deductible; (2) charging their customers more than the actual cost of repairs to a damaged rental vehicle; (3) imposing mandatory charges beyond the rental price quoted and charging any optional fees unless such fees are disclosed in writing; and (4) charging for a collision damage waiver and engaging in numerous other unfair trade practices. Id.

2

As noted in the Bill Jacket, collision damage waivers were conceived as a means to relieve renters from liability for damage to their rental cars. In exchange for a payment by the renter, the company agreed to hold the renter harmless for damage to the vehicle. Id. In the 1980s, certain rental vehicle companies began to misrepresent the nature of CDW coverage, and some began to charge unconscionable rates for CDW coverage. These companies would advertise deceptively low daily or weekly rates for their passenger rental vehicles. Once the consumer arrived at the airport rental counter or other location to consummate the rental agreement, however, he or she was subjected to high-pressure sales tactics designed to extract unexpected and often unnecessary CDW charges. Although consumers assumed that the purchase of a CDW would afford complete financial protection from liability in the event of damage to a rental vehicle, they often discovered numerous fine print loopholes that made CDW coverage worthless. Id. To redress these practices, Chapter 784 added several provisions to the Insurance Law and the General Business Law. The Insurance Law was amended to include the following definitional provisions: For the purposes of this section, a "private passenger motor vehicle" is a motor vehicle: (1) of the private passenger or station wagon type that is owned or hired by an individual or by husband and wife under a long-term contract and is neither used as a public or livery conveyance for passengers nor rented to others without a driver; or (2) with a pick-up body, a delivery sedan, panel truck or van, owned by an individual or by husband and wife who are residents of the same household or by a family farm co-partnership or a family farm corporation, and not customarily used in the occupation, profession or business of the insured other than farming or ranching, whether or not used in the course of driving to or from work. Insurance Law § 3440(a). You have made two inquiries. The first concerns the statutory obligation of insurers offering liability insurance to provide rental vehicle coverage to their policyholders. Under section 3440(b) of the Insurance Law, insurers offering liability insurance policies for a "private passenger motor vehicle" registered in this State must offer coverage for actual damage to or loss of "rental vehicles" rented by an insured. That provision identifies the types of insurance policies that must include separate rental vehicle coverage.
[E]very motor vehicle liability insurance policy which insures less than five private passenger motor vehicles registered in this state shall by endorsement, provide coverage for the obligation of the insured for actual damage to, or loss of, vehicles (including loss of use) rented by an insured in the United States, its territories or possessions and Canada under a rental agreement with a term of thirty continuous days or less, regardless of where within those areas such rental vehicle is registered, rented, or operated, . . .. The term "rental vehicle" shall be used as defined in section one hundred thirty-seven-a of the vehicle and traffic law, if a private passenger motor vehicle and not used for the transportation of persons or property for hire. Emphasis added. Section 137-a defines a "rental vehicle" as "[a] vehicle owned by a person engaged in the business of renting or leasing vehicles which is rented or leased without a driver to a person other than the owner and is registered in the name of such owner". Section 131 of the Vehicle and Traffic Law defines "person" to include "[e]very natural person, firm, copartnership, association, or corporation". The underlined language of section 3440(b) (above) has caused some insurance companies to question their responsibility to provide rental vehicle coverage for policyholders. Your counsel has explained the problem as follows: because of the § 3440(a) definition of 'private passenger automobile' relating to the nature of ownership and use of the vehicle, such a definition would seem to eliminate coverage for any vehicle rented from a rental vehicle company such as Hertz, Avis, National, etc., the very kinds of rentals the legislation was obviously designed to cover. Counsel is referring to the fact that the definition of "private passenger motor vehicle" in section 3440(a) not only covers certain types of vehicles but also includes an ownership component. In our view, the ownership component of this term defines the insurance policyholders, subject to specific exceptions on use of the covered vehicles, who have the statutory right to receive from their insurance companies rental vehicle coverage. The types of vehicles included in the definition of "private passenger motor vehicle" are the vehicles of these insurance policyholders. If such a vehicle is registered in New York, and is not used for purposes specified in the statutory exceptions, the Insurance Law requires that the liability insurance policy on that vehicle must include separate coverage of a rental vehicle rented by the policyholder. The vehicles listed in the definition of "private passenger motor vehicle" also identify the types of rental vehicles which must be covered by the policyholder's insurance coverage. In other words, these vehicle types define the policyholder's car and a car he or she may rent. The ownership component of the term "private passenger motor vehicle", however, does not apply to the rental vehicle. If this component did apply to the rental vehicle, it would defeat a primary purpose of the CDW statute as indicated by the legislative history and would bring about an absurd result. Such a construction of the statute would prevent the realization of the clear legislative intent to provide individuals and others with insurance coverage on vehicles they rent from persons and companies in the business of providing rental vehicles. It also is contrary to well-accepted principles of statutory construction. A statute is to be construed as a whole and all parts of an act are to be read and construed together to determine the legislative intent. People v Mobil Oil Corp., 48 NY2d 192, 199 (1979). It is appropriate to consider the mischief sought to be remedied by the legislation, and to construe the statute in a manner that suppresses the evil and advances the remedy. Matter of New York Life Insurance Co. v State Tax Commission, 80 AD2d 675, 677 (3d Dept), affd, 55 NY2d 758 (1981). If possible, all parts of an enactment should be harmonized with each other as well as with the general intent of the whole enactment, and meaning and effect should be given to all provisions of the statute. Sanders v Winship, 57 NY2d 391, 396 (1982); Honeoye School Dist. v Berle, 72 AD2d 25, 35 (4th Dept 1979). Applying these principles, liability insurance coverage which insures less than five "private passenger motor vehicles" registered in New York must provide coverage for obligations of the insured for actual damages to private passenger vehicles, station wagons, vans, pick-ups, delivery sedans and panel trucks which are rented by the insured from entities in the business of renting vehicles as defined by sections 137-a and 131 of the Vehicle and Traffic Law. This interpretation gives meaning and effect to all provisions, harmonizes the various provisions and achieves the legislative intent. Your second inquiry relates to the obligation of rental vehicle companies to hold renters harmless for damage to or loss of the rental vehicle. Chapter 784 amended General Business Law
§ 396-z(2) as follows:
No rental vehicle company renting private passenger motor vehicles shall, in rental agreements of not exceeding thirty continuous days, hold an authorized driver liable for actual damage to, or loss of, such rental vehicle (including loss of use) [subject to certain exceptions and a deductible]. Emphasis added. Chapter 784 added both the protections for renters in section 396-z(2), and the definition of "private passenger motor vehicle" in section 3440(a) of the Insurance Law. The General Business Law has no separate definition of that term. Apparently, the use in the General Business Law of the term, as defined in section 3440(a) of the Insurance Law, has caused some rental companies to question their obligations to limit the liability of renters. We conclude that the Legislature clearly intended that the protection for renters apply to vehicles offered for rental by any person or organization in the business of renting out vehicles to the public. We believe that the reference to "private passenger motor vehicles" in section 396-z(2) was only intended to define the types of rental vehicles that are covered. The plain language of section 396-z(2), stating that "[n]o rental vehicle 'company' . . . shall . . .", clearly indicates an intent to cover companies renting out vehicles. The term "rental vehicle company" is defined as "any person or organization . . . in the business of providing rental vehicles to the public from locations in this state". General Business Law § 396-z(1)(d). Emphasis added. See also, Vehicle and Traffic Law § 137-a (defining rental vehicle). Meaning and effect can only be given to all parts of this provision and they can be harmonized by construing "private passenger motor vehicle" as a reference to types of vehicles and "rental vehicle company" as the definition of entities that must provide protection to renters. See, Sanders v Winship, supra, 57 NY2d at 396; Honeoye School Dist. v Berle, supra, 72 AD2d at 35. This interpretation achieves the clear statutory intent to protect renters against being held liable by companies for damages to rental vehicles (subject to a deductible and certain exceptions). See, Matter of New York Life Insurance Co. v State Tax Commission, supra, 80 AD2d at 677. We agree, therefore, with the Insurance Department's interpretation of section 3440 of the Insurance Law and section 396-z(2) of the General Business Law. The term "private passenger motor vehicles", used in section 396-z(2) and in the description of rental vehicles in section 3440(b) of the Insurance Law, refers to the types of vehicles listed in section 3440(a) of the Insurance Law. The ownership component of the term "private passenger motor vehicle" defines the beneficiaries of the obligation of insurance companies under Insurance Law
§ 3440(b) to provide coverage of rental vehicles. We conclude that the Insurance Department has construed correctly the relevant provisions of law, consistent with established principles of statutory construction, to achieve the clear legislative intent underlying Chapter 784 of the Laws of 1988. The primary legislative purposes are to provide insurance policyholders who rent vehicles with insurance coverage for damage to their rental vehicles and to prohibit rental vehicle companies from holding renters liable, beyond $100, for damage to rental vehicles. Very truly yours,

DENNIS C. VACCO
ATTORNEY GENERAL