BILL ANALYSIS Ó AB 621 Page 1 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 AB 621 Page 2 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 AB 621 Page 3 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 AB 621 Page 4 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 AB 621 Page 5 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. AB 621 Page 6 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. AB 621 Page 7 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 AB 621 Page 8 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 AB 621 Page 9