BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 621
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          Date of Hearing:  April 5, 2011

                           ASSEMBLY COMMITTEE ON JUDICIARY
                                  Mike Feuer, Chair
                 AB 621 (Calderon) - As Introduced: February 16, 2011

           SUBJECT  :  RENTAL VEHICLE INSURANCE: LIABILITY FOR INJURIES 
          CAUSED BY NON-RESIDENTS

           KEY ISSUE  :  SHOULD CAR RENTAL COMPANIES THAT PROVIDE THIRD-PARTY 
          INSURANCE COVERAGE TO NON-U.S. RESIDENTS ACCEPT SERVICE OF 
          PROCESS FOR THOSE RENTERS WHEN THE RENTER CAUSES INJURY TO 
          OTHERS IN THE OPERATION OF THE VEHICLE, PROVIDED THAT THE 
          INJURED PERSON AGREES TO LIMIT THE COMPANY'S LIABILITY TO THE 
          AMOUNT OF THE INSURANCE COVERAGE? 

           FISCAL EFFECT  :  As currently in print this bill is keyed 
          non-fiscal.

                                      SYNOPSIS
          
          This bill is identical to a measure by the author last year, 
          which passed the Committee but was vetoed by Governor 
          Schwarzenegger.  It would provide a mechanism by which 
          California residents who are injured by non-residents driving 
          rental cars could initiate legal action to recover for their 
          injuries without using the existing mechanisms for service of 
          process, which are believed to be unduly cumbersome, 
          time-consuming and expensive.  It would do so by requiring that, 
          when the car rental company provides third-party supplemental 
          insurance coverage to the non-resident renter, the rental 
          company accept legal process on behalf of the renter or other 
          authorized driver who caused the harm.  The rental company would 
          then forward the summons and complaint to its customer by mail.  
          A plaintiff who elected to proceed in this fashion would be 
          restricted in his or her recovery to the limits of the 
          protection provided by the insurance coverage.  Rental companies 
          oppose the measure, arguing that the bill is "discriminatory and 
          unnecessary" because no other business that provides insurance 
          is obligated to accept service of process for its customers, and 
          because there are already means by which foreign rental car 
          drivers can be served. 

           SUMMARY  :  Provides a mechanism for service of legal process on 
          non-residents who cause injuries involving rental cars in 








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          California, up to a maximum contractual limit.  Specifically, 
           this bill  :  

          1)Provides that, where a car rental company enters into a rental 
            contract with a renter who resides out of the United States, 
            and the rental car company provides third-party supplemental 
            liability insurance to the renter, as defined, the car rental 
            company shall accept service of process on behalf of the 
            renter related to any harm, loss, or damage related to the use 
            or operation of the rental vehicle. 

          2)Provides that process may be served by first-class mail, 
            return receipt requested, registered mail, or by personal 
            service by a registered agent of service of process on file 
            with the Secretary of State and Consumer Services.  

          3)Requires that the rental car company shall provide a copy of 
            any summons and complaint so served to the renter by 
            first-class mail, return receipt requested.  

          4)Requires any plaintiff who elects to deliver process to the 
            rental company pursuant to these provisions agree to limit his 
            or her recovery against the renter, authorized driver, or 
            rental company to the limits of the protection provided by the 
            insurance coverage.

          5)Specifies that acceptance of service of process by the rental 
            company does not create any duty or agency relationship other 
            than as provided above.

          6)Provides a three-year sunset by which the bill will cease to 
            be operative on December 31, 2015.

           EXISTING LAW  :  

           1)Generally governs contracts between vehicle rental companies 
            and their customers and regulates an automobile renter's 
            liability for loss due to theft, a rental company's loss of 
            use, or damage or loss to a rental vehicle, a renter's credit 
            card liability, the submission of insurance claims, damage 
            waivers and damage waiver fees, and the notice to a renter 
            regarding financial responsibility and optional damage 
            waivers.  (Civil Code section 1936.)

          2)Provides that a nonresident motorist who drives or permits 








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            another to drive in California impliedly consents to the 
            appointment of the Director of Motor Vehicles as his or her 
            agent for service of process in any action for injuries caused 
            by operation of his or her car, such that the nonresident 
            defendant can be served through the Director of Motor Vehicles 
            by personal delivery, or by certified or registered mail with 
            return-receipt-requested, if the plaintiff also sends notice 
            of such service to the nonresident, along with other copies of 
            the summons and complaint by registered mail with 
            return-receipt-requested or hand-delivery.  (Vehicle Code 
            sections 17451-56.)

           COMMENTS  :  The author states that this bill will assist drivers 
          and the State of California by making sure that the insurance 
          that car renters buy can actually be relied upon as intended by 
          requiring the car rental company to be the agent for service of 
          process for claims against insured drivers who reside outside of 
          California.

          The author explains the reason for the bill as follows:

               Civil Code Section 1936 establishes the basic contractual 
               obligations between vehicle rental companies and their 
               customers and regulates a renter's liability for damage and 
               loss and financial responsibility requirements. California 
               law also requires all motorists to carry minimum liability 
               insurance of at least $15,000 per person and $30,000 per 
               occurrence for bodily injury. Further, renters have the 
               ability to purchase coverage through the car rental 
               company. Rental car companies sell various types of 
               insurance and waivers. Loss damage waivers (LDW) and 
               collision damage waivers (CDW) from the rental company 
               essentially take the place of the renters own collision and 
               comprehensive insurance. Some LDWs include CDW and some 
               waivers require payment of a deductible. These types of 
               insurance sales are very profitable for a car rental 
               company. Avis, for example, sells five kinds of coverage 
               and about 30% of renters at Enterprise Rent-A-Car buy some 
               type of insurance coverage. According to a 2007 National 
               Association of Insurance Commissioners (NAIC) study, 34% of 
               consumers surveyed bought a rental car company's insurance. 
               Further, according to a national auto rental consultant, 
               sales of insurance are an "important profit center" for car 
               rental companies. Daily rates vary by type of car and 
               rental location, but a 2007 survey shows that loss damage 








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               waivers sell from $8.95 to $35.99 a day, and supplemental 
               liability insurance sells from $8.95-$12.95 a day.

               However, when a non-California resident who rents a car 
               causes a car accident and injures a California resident it 
               can be a nightmare for the California resident to try to 
               locate the car renter and seek remedial action. For 
               example, in San Francisco, a Tibetan rented a car and 
               purchased the insurance sold by that company. The Tibetan 
               caused a major accident, leaving a California resident 
               severely injured, and left the US. In this case, the 
               plaintiffs actually had to hire a yak to get to the 
               location of service. In another actual case from Northern 
               California, a CAOC member is representing a police officer 
               who was on duty riding his department issued motorcycle 
               when he was injured by a German Tourist who made an illegal 
               turn causing the officer to hit and flip over the tourist's 
               rental car. The expense and difficulty of complying with 
               the Hague convention would cause a serious burden to the 
               police officer's recovery. Under current law, service of 
               process on out of country defendants is complicated, 
               expensive and difficult as (1) the onerous provisions of 
               the Hague Convention of 1965 On the Service Abroad of 
               Judicial and Extrajudicial Documents in Civil or Commercial 
               Matters must be met; (2) not all countries have agreed to 
               the Hague Convention; (3) the paperwork must be translated 
               into the language of the defendant; and (4) a service 
               processor must be located. The losers in the current 
               situation are Californians who are injured or killed by an 
               out-of-state renter because the case cannot proceed unless 
               the defendant is properly served. The State of CA suffers 
               as well because if the defendant cannot be served and the 
               case not processed, the medical bills may often end up 
               being paid by California taxpayers.

           Current Methods For Effecting Service Of Process On Non-U.S. 
          Residents Are Believed To Be Inadequate.   The sponsor of the 
          measure, Consumer Attorneys of California, argues that the bill 
          will make sure drivers receive the benefits of car rental 
          insurance when injured by an out-of-state or out-of-country 
          driver.

          According to CAOC, a problem arises where out-of-state renters 
          drive recklessly and injure or kill a California resident and 
          then leave the state.  If a lawsuit ensues, the injured 








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          California citizen then needs to locate, and serve, the out of 
          state resident.  CAOC notes that because the rental car company 
          receives the benefit of issuing the insurance, and has the 
          capacity to obtain adequate information from renters in order to 
          locate them after an accident, it makes sense to require the 
          company to accept service in this very limited circumstance.

          In one case in San Francisco, CAOC states, a Tibetan resident 
          rented a car and purchased the insurance sold by that company.  
          The Tibetan caused a major accident, leaving a California 
          resident severely injured, and left the country.  In this case, 
          the plaintiffs actually had to hire a yak to serve the reckless 
          driver.  In another case from Northern California, a CAOC member 
          is representing a police officer who was injured on duty while 
          driving his department issued motorcycle.  He was injured by a 
          tourist from Germany who made an illegal turn causing the 
          officer to hit and flip over the tourist's rental car.  In order 
          for the injured officer to seek compensation for his injuries, 
          he must comply with the Hague Convention, an expensive and 
          burdensome process.  

          CAOC states that the Hague Convention process is inadequate 
          because not all countries have agreed to the Hague Convention.  
          Even where it applies, CAOC argues, the process is unacceptable 
          because the paperwork must be translated into the language of 
          the defendant and a service processor must be located.  Such 
          onerous obstacles can be avoided, CAOC contends, if the rental 
          company simply accepts service of process on behalf of its 
          renter.  They argue that the losers in the current situation are 
          Californians who are injured or killed by an out-of-state renter 
          because the case cannot proceed unless the defendant is properly 
          served.  

          CAOC also argues that the bill will help save the State of 
          California money, noting that when service of process cannot be 
          accomplished, California often suffers financially as well.  If 
          the defendant cannot be served and the case not processed, the 
          medical bills may often end up being paid by California 
          taxpayers.  Under the normal course of a lawsuit, the medical 
          bills would be repaid out of the lawsuit recovery to the state 
          in instances where it provides medical care.  However, under the 
          current situation, if a defendant cannot be served, he or she 
          (and the insurer) avoid responsibility and the victim and the 
          state end up paying.









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           Current Methods For Serving Non-California U.S. Residents Are 
          Likewise Believed To Be Unsatisfactory.   Existing law provides 
          that the acceptance by a nonresident of the rights and 
          privileges conferred upon him by the Vehicle Code or any 
          operation by himself or agent of a motor vehicle anywhere within 
          this state? is equivalent to an appointment by the nonresident 
          of the director or his successor in office to be his true and 
          lawful attorney.  (Vehicle Code sec. 17451.)

          Therefore, in lieu of serving the nonresident defendant in such 
          action, the plaintiff can serve the Director of Motor Vehicles 
          by personal delivery, or by certified or registered mail with 
          return-receipt-requested.  (Vehicle Code sec. 17454.)  However, 
          the plaintiff must also send notice of the service to the 
          nonresident, along with other copies of the summons and 
          complaint by registered mail with return-receipt-requested (or 
          hand-delivery to the nonresident wherever he or she is located). 
           (Vehicle Code secs. 17455, 17456.)  Supporters believe this 
          method is not sufficient because the non-resident defendant does 
          not have to answer for his conduct in court unless the plaintiff 
          is able to obtain his address, which may only be accessible via 
          the rental car company's records.  Moreover, this method of 
          service is effective only if the defendant signs and returns the 
          registered mail receipt, which supporters say defendants 
          frequently do not do.

          Acknowledging the opposition's argument that existing law 
          delineates how to procedurally serve out-of-state drivers 
          involved in an accident by serving the Department of Motor 
          Vehicles, supporters respond that this law is ineffective 
          because it requires acknowledgment of the summons by the 
          out-of-state driver, which they are reluctant - and not required 
          - to give.  "Without acknowledgement, there is no service. 
          Without service, the injured party cannot make a claim against 
          the insurance provided by the car rental agency down the block 
          from where they live," CAOC contends.

          As to the opposition's contention that car rental companies will 
          incur new liability, if they do not notify and receive 
          acknowledgement from their renter when sending a copy of the 
          summons, CAOC argues that the bill absolves the rental company 
          from any liability once they send notification by mail to their 
          customer.










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           ARGUMENTS IN OPPOSITION  :  Representatives of the car rental 
          industry write in opposition:
                
               AB 621 requires rental car companies to accept service of 
               process for customers from other countries if the rental 
               car causes any harm, loss, or damage to a third party and 
               if the customer had purchased supplemental liability 
               insurance as part of the rental transaction.  Further, the 
               bill obligates the rental company to provide a copy of the 
               summons and complaint to the renter or authorized driver. 

               The bill is discriminatory and unnecessary.  No other 
               business which provides insurance is obligated to accept 
               service of process for its customers; 

               There are already two means by which foreign rental car 
               drivers can be served.  Existing law (Vehicle Code §17451) 
               currently authorizes the DMV Director to accept service of 
               process for nonresident drivers.  Furthermore, the United 
               States is a signatory to the Convention on the Service 
               Abroad of Judicial and Extrajudicial Documents in Civil or 
               Commercial Matters, a multinational treaty more commonly 
               called the Hague Service  Convention, which allows service 
               of judicial documents from one signatory state  to another 
               without recourse to consular and diplomatic channels. 

          The industry is joined by the California Chamber of Commerce, 
          which states:

               AB 621 would shift the responsibility and cost of notifying 
               a renter from plaintiffs to car rental companies, 
               regardless of how small a burden that notice poses, and 
               regardless of whether a plaintiff is in a better position 
               to know the current whereabouts of the renter.  In 
               addition, because the majority of auto accidents lead to 
               relatively small financial damage, this burden would likely 
               be imposed on car rental companies in most cases involving 
               foreign drivers. 

               The bill sponsor cites a few extreme examples of cases 
               where an international driver was difficult to reach to 
               serve with process; but these two extreme cases do not 
               justify transferring the responsibility for service of 
               process onto rental car companies.  AB 621 will impose new 
               costs on to car rental companies, which will result in 








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               higher rates for supplemental liability insurance and/or 
               reduced access to such insurance for international renters. 
                In addition, some renters may opt not to purchase 
               supplemental coverage in the face of higher rates and the 
               requirement that they waive their full due process rights 
               under international law.  Ultimately then, AB 621 may 
               result in smaller recoveries for plaintiffs who are injured 
               by under- insured foreign drivers.

          The Civil Justice Association of California (CJAC) adds: 

               Service of process is the legal notice that tells a person 
               they have been sued. Creating a new relationship (and 
               subsequent liability) for the car rental/insurance agency 
               that, under this bill, would now be acting as the renter's 
               agent for service of process is troubling because it 
               creates additional liabilities that might arise from the 
               duty to act as an agent (to receive service) of the renter. 


               With this additional obligation comes an additional 
               liability that may arise out of an allegation that the 
               rental car company had not fully performed its duties as an 
               agent for service of process.
           
          REGISTERED SUPPORT / OPPOSITION  :   

           Support 
           
          Consumer Attorneys of California (sponsor)

           Opposition 
           
          Avis-Budget Group 
          California Chamber of Commerce
          Civil Justice Association of California
          Enterprise Holdings 
          Hertz Corporation
           

          Analysis Prepared by :  Kevin G. Baker / JUD. / (916) 319-2334 












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