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
AB 621
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