BILL ANALYSIS
AB 2059
Page 1
Date of Hearing: April 13, 2010
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
AB 2059 (Calderon) - As Amended: March 25, 2010
As Proposed To Be Amended
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-CALIFORNIA 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 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 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. Two car rental companies oppose the
measure, arguing primarily against that the provision regarding
authorized drivers other than the renter. These companies
contend that state law automatically authorizes a customer's
spouse or co-worker to drive the rental car, regardless of
whether the spouse or co-worker has been identified to the
rental car company. The rental company therefore does not
always have the name and address of authorized drivers. The
opposition also contends that the bill is overbroad in that it
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could be construed to apply whenever there is insurance
associated with the rental, even if not provided by the rental
car company. They also believe that the bill is unnecessary
because the problem is not significant and is sufficiently
addressed by existing means for service of process.
SUMMARY : Provides a mechanism for service of legal process on
non-residents who cause injuries involving rental cars in
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 state, and
third-party liability insurance is provided, the car rental
company shall accept service of process on behalf of the
renter or authorized driver 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, 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 or
authorized driver by first-class mail, return receipt
requested.
4)Provides that the rental company contract shall disclose to a
renter who is not a resident of this state a notice, which
shall appear in at least 12-point boldface type, that the
renter agrees to and authorizes the rental company to accept
service of process on his or her behalf for any harm, loss, or
damage related to the use or operation of the vehicle that
occurs during the rental period.
5)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.
EXISTING LAW :
1)Generally governs contracts between vehicle rental companies
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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
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 renter's own collision
and comprehensive insurance. Some LDWs include CDW and
some waivers require payment of a deductible.
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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. Daily rates vary by
type of car and rental location, but a 2007 survey shows
that ? supplemental liability insurance sells from
$8.95-$12.95 a day.
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 AB 2059
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
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,
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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.
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
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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.
ARGUMENTS IN OPPOSITION: Two car rental companies, Hertz Corp
and Avis Budget Group, oppose the bill. They argue:
AB 2059 would require all rental car companies to accept
service of process for the authorized driver of a car
rented to any out-of-state customer who is being sued as a
result of harm related to the use of the customer's rental
car. Further, the bill obligates the rental company to
provide a copy of the summons and complaint to the renter
or authorized driver. This obligation creates significant
liability exposure for the rental car company if it does
not succeed in providing a copy of the summons and
complaint to the driver.
State law automatically authorizes a customer's spouse or
co-worker to drive the rental car, regardless of whether
the spouse or co-worker has been identified to the rental
car company. Accordingly, while the rental company has the
renter's identity, it does not always have the name and
address of authorized drivers who are defendants. In fact,
the police report - which is readily available to the
plaintiff - is much more likely to have accurate
identifying information when a driver other than the renter
is involved in the accident.
This service requirement, as AB 2059 is proposed to be
amended in committee, appears to apply whenever there is
insurance associated with the rental -- whether that
insurance was purchased at the time of the rental or
whether the renter's own automobile policy covers (as most
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do) the use of rental vehicles.
We frankly do not understand the rationale for this bill.
Consider these facts:
1. There are far more out-of-state drivers on
California roads who have driven their own cars across
the state line than there are out-of-state drivers in
rental cars; and
2. Existing law (Vehicle Code 17451) already
authorizes the DMV Director to accept service of
process for nonresident drivers.
Author's Proposed Amendments . In order to clarify and limit the
bill in response to industry concerns, the author proposes the
following amendments:
Clarify coverage to only third party insurance products.
(page 18, lines 1-2)
rental agreement any coverage, protection, benefit, or insurance
is provided for loss or damage caused to a third party, the
rental company shall do all of the following?
Delete provision requiring rental company to obtain
information. (page 18, lines 4-6)
(A) Obtain from the renter or any authorized driver his or her
current driver's license number, home address, and telephone
number.
Delete language related to defending and indemnifying
(page 18, lines 16-18)
( D) Defend and indemnify the renter or authorized driver to the
extent of the protection provided by the coverage, benefit, or
insurance.
REGISTERED SUPPORT / OPPOSITION :
Support
Consumer Attorneys of California (sponsor)
Consumer Federation of California
AB 2059
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Opposition
Avis Budget Group
Hertz Corp
Analysis Prepared by : Kevin G. Baker / JUD. / (916) 319-2334