BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Senator Ellen M. Corbett, Chair
2009-2010 Regular Session
AB 2059 (Calderon)
As Amended June 14, 2010
Hearing Date: June 22, 2010
Fiscal: No
Urgency: No
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SUBJECT
Vehicle Rental Agreements
DESCRIPTION
This bill would require a rental car company that enters into a
vehicle rental agreement with a renter who is not a resident of
this country to do the following when that renter purchases
supplemental liability insurance as part of the agreement: (1)
accept service of process of any complaint against the renter
regarding harm, loss, or damage related to the use or operation
of the rental car; and (2) mail a copy of the summons and
complaint to the renter. This bill, which would provide this
mechanism for service of process only where the plaintiff agrees
to limit his or her recovery to the limits of protection
provided by the insurance, would sunset on December 31, 2013.
BACKGROUND
Existing law provides that in certain instances an individual is
deemed to have consented to the appointment of another entity to
serve as his or her agent for service of process. For example,
under the Vehicle Code, out-of-state drivers impliedly consent
to the appointment of the Department of Motor Vehicles' director
as their agent for service of process in any action against that
nonresident driver for injuries caused by an accident or
collision. Similarly, this bill, sponsored by the Consumer
Attorneys of California, would require a rental car company to
accept service of process for out-of-country renters when those
renters purchase supplemental liability insurance as a part of
the vehicle rental agreement.
(more)
AB 2059 (Calderon)
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CHANGES TO EXISTING LAW
Existing law specifies restrictions on rental vehicle agreements
and regulates a renter's liability for loss due to theft, a
rental company's loss of use, damage, or loss to the car, damage
waivers and damage waiver fees. (Civ. Code Sec. 1936.)
Existing law provides that a rental car company may act as a
rental car agent for an authorized insurer in connection with
liability insurance, which may include uninsured motorist
coverage, that provides coverage to the renter and is not
duplicative of any standard liability coverage, for liability
arising from the negligent operation of the rental vehicle.
(Ins. Code Sec. 1758.85(b).)
Existing law provides that a nonresident driver impliedly
consents to the appointment of the director of the Department of
Motor Vehicles (DMV) as his or her agent for service of process
in any action against the nonresident driver for injuries caused
by an accident or collision. Existing law provides that service
of process shall be made by delivering a copy of the summons and
complaint to the director. The plaintiff must also send a copy
of the summons and complaint by registered mail to the
nonresident driver, return-receipt requested. (Veh. Code Secs.
17451, 17454, 17455, 17456.)
This bill would require a rental car company that enters into a
vehicle rental agreement with a renter who is not a resident of
this country to do both of the following when that renter
purchases supplemental liability insurance, as defined in
Insurance Code Section 1758.85(b), as part of the agreement:
1. accept service of process of any complaint against the
renter regarding harm, loss, or damage related to the use or
operation of the rental car. Process may be served by
first-class mail, return receipt requested, or by personal
service by a registered process server; and
2. provide a copy of the summons and complaint to the renter
by first-class mail, return receipt requested.
This bill would provide the above-described mechanism for
service of process only where the plaintiff agrees to limit his
or her recovery to the limits of protection provided by the
insurance.
AB 2059 (Calderon)
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This bill would sunset on December 31, 2013.
COMMENT
1. Stated need for the bill
The author writes:
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. 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. . . .
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 [See Comment 4b] would cause a
serious burden to the police officer's recovery. . . . 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.
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Sponsor Consumer Attorneys of California (CAOC) writes that the
bill will help Californians because the service of process
requirements under the Hague Convention are "onerous obstacles
[which] can be avoided if the rental company simply accepts
service of process on behalf of its renter." CAOC also points
out that:
[w]hen service of process cannot be accomplished, often
California 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.
2. Recent amendments narrowed the bill
The author recently amended this bill to narrow its provisions
in several ways. First, this bill had previously required a
rental car company to accept service of process for out-of-state
renters. The bill has been amended to now impose that
requirement only as to renters who are not residents of this
country. The bill also previously would have required the
rental car company to accept service of process for authorized
drivers, in addition to the renter. The most recent amendments
deleted "authorized drivers" in response to concerns that
California law automatically authorizes a renter's spouse or
co-worker to drive the rental car, and the rental car company
may not know that individual's identity. The bill was also
amended to clarify that "supplemental liability insurance" means
liability insurance as defined in Insurance Code Section
1758.85(b). The most recent amendments also deleted a notice
requirement that appeared to be unnecessary and inserted a
sunset date of December 31, 2013.
3. Bill would require rental car companies to accept service of
process for out-of-country renters
This bill would require a rental car company to accept service
of process for out-of-country renters who purchase supplemental
liability insurance as a part of the vehicle rental agreement.
The bill would also require the rental car company to mail a
copy of the summons and complaint to the renter, return receipt
AB 2059 (Calderon)
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requested.
a. Accepting service of process for out-of-country renters;
plaintiff's recovery limited
This bill would require a rental car company to accept service
of process for out-of-country renters and would specify that a
plaintiff who elected to serve the renter in the manner
prescribed by the bill would be limited in his or her recovery
against the renter or the rental company to the limits of the
protection extended by the supplemental liability insurance.
Under this bill, the plaintiff would serve on the rental car
company the summons and complaint against the out-of-country
renter by first-class mail, return receipt requested. Once
service of process requirements are met in this way, the
plaintiff would be able to bring his or her claim against the
supplemental liability insurance policy in order to recover.
b. Supplemental liability insurance
This bill's requirement that a rental car company accept
service of process for out-of-country renters applies when
that renter has purchased supplemental liability insurance as
a part of the vehicle rental agreement. The most recent
amendments to the bill define supplemental liability insurance
as defined in Insurance Code Section 1758.85(b) which provides
that a rental car company may act as a rental car agent for an
authorized insurer in connection with liability insurance,
which may include uninsured motorist coverage, that provides
coverage to the renter and is not duplicative of any standard
liability coverage, for liability arising from the negligent
operation of the rental vehicle.
That amendment defining supplemental liability insurance
pursuant to Insurance Code Section 1758.85(b) makes clear that
the insurance coverage referenced in the bill is the coverage
purchased from the rental car company as part of the vehicle
rental agreement rather than the renter's own automobile
insurance policy.
Rental car companies offer supplemental liability insurance
policies at an additional cost which varies, depending on the
company. In one case, the charge for supplemental liability
insurance for a recent rental would be $11.99 per day.
Another company charged $14.80 per day. These policies
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generally cover up to $1 million for third party liability
claims, although at least one company provides coverage up to
$2 million, depending on the location.
c.Requirement to mail summons and complaint to the renter
Opponents Avis Budget Group and Hertz Corporation assert that
the bill's requirement that rental car companies provide a
copy of any summons and complaint served to the renter by
first class mail "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." The Civil
Justice Association of California makes similar arguments.
It does not appear, however, that the bill would require a
rental car company to do anything more than provide a copy of
any summons and complaint served on the company to the
out-of-country renter by first-class mail, return receipt
requested. The rental car company is in the best position to
be able to forward the summons and complaint to the renter
since the company has the renter's contact information (and
the plaintiff likely does not). And, as long as the company
mailed to the renter the summons and complaint, the company
would be in compliance with the statute.
In addition, the bill specifically provides that the requirement
that the rental car company accept service of process shall
not create any duty, obligation, or agency relationship other
than the responsibility to provide the summons and complaint
to the renter.
Avis Budget Group additionally argues that this bill raises due
process concerns because a defendant may not receive notice of
the action. Specifically, Avis asserts that the service of
process proposed by the bill is not "reasonably calculated to
give actual notice."
Because it appears that return receipt is available only to
certain countries, the Committee should amend the bill to
provide that service by the rental car company may also be
made by registered mail. The following amendment, which would
help to address the due process concern mentioned above, would
achieve this:
Suggested amendment:
AB 2059 (Calderon)
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On page 18, line 13, after "requested" insert "or
registered mail."
AB 2059 (Calderon)
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4. Existing service of process mechanisms
a.Vehicle code provisions
Under existing law, a nonresident driver impliedly consents to
the appointment of the director of the DMV as his or her agent
for service of process in any action against the nonresident
driver for injuries caused by an accident or collision. (Veh.
Code Sec. 17451.) "Nonresident" is defined as a person who is
not a resident of California at the time of the accident or
collision. (Veh. Code Sec. 17450.) Service must be made upon
the director, and a notice of service and a copy of the
summons and complaint must be sent by registered mail to the
defendant. (Veh. Code Secs. 17454, 17455.) A return receipt
is required to show proof of compliance. (Veh. Code Sec.
17456.)
Opponents Avis Budget Group and Hertz Corporation argue that
this bill is therefore unnecessary because these Vehicle Code
provisions "already [authorize] the DMV director to accept
service of process for nonresident drivers." The sponsor
points out, however, that the U.S. Postal Service does not
accept return receipts for many international deliveries so
plaintiffs may not use these code sections in those instances.
In addition, even if the Postal Service did accept return
receipts in all cases, the Vehicle Code provisions still
impose difficult burdens on the plaintiff because they require
that a copy of the summons and complaint be sent by
registered mail to the nonresident renter. This requires that
the plaintiff know the renter's address, which may only be
accessible from the rental car company's records.
b.Hague Convention of 15 November 1965 on the Service Abroad of
Judicial and
Extrajudicial Documents in Civil or Commercial Matters
(Hague Convention)
The author and his sponsors assert this bill is necessary
because "[s]ervice 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." Legal commentators have
AB 2059 (Calderon)
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also noted the complexity of serving international defendants.
(See, e.g., Comment, Dysfunctional Equivalence: The New
Approach to Defining "Postal Channels" Under the Hague Service
Convention, (2007) 55 UCLA L. Rev. 205; Greenwood, Serving
Them Right: When Taking on International Defendants, Expect
Challenges, Even Complications, (2005) 91 A.B.A.J. 24.)
One supporter describes a case "in which a Denmark resident
caused my client to suffer a serious injury as a result of
negligent driving of a vehicle that was rented here in
California. The Denmark driver purchased bodily injury
liability insurance through the rental company. The insurance
company knows of the bodily injury and the negligence that
caused my client to suffer damages. The insurance company
will eventually cover the loss, however, the insurance company
is refusing to even negotiate on the claim unless and until we
effect service of process on the driver in Denmark. This has
unnecessarily delayed the claim, which is causing additional
damages to my client, and that is preventing other companies
here in California to be reimbursed for medical expenses that
they incurred as a result of the Denmark driver's negligence.
Moreover, this has caused an unnecessary lawsuit to be filed,
just so that we can effect service in Denmark complying with
the Hague Service Convention. Furthermore, we will incur
substantial additional cost and delay as a result. All of
this would have been unnecessary if your [b]ill had already
been the law."
By requiring rental car companies in certain instances to
accept service of process for international renters, this bill
implicates service of process outside of the United States.
Both California law and the Hague Convention govern the
transmission of documents outside the United States. In
addition, under the Supremacy Clause (U.S. Const. Art. VI),
the Hague Convention preempts any inconsistent state laws.
(Volkswagenwerk Aktiengesellschaft v. Schlunk (1988) 486 U.S.
694.) There are currently 61 countries, or "Contracting
States," that are parties to the Hague Convention, which
"deals primarily with the transmission of documents; it does
not address or comprise substantive rules relating to the
actual service of process." (Outline, Hague Service
Convention, Hague Convention of 15 November 1965 on the
Service Abroad of Judicial and Extrajudicial Documents in
Civil or Commercial Matters,
http://www.hcch.net/upload/outline14e.pdf .) Contracting
States may opt out of one or more forms of service.
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California law provides that, except as otherwise provided
by statute, a summons shall be served on a person outside the
United States as provided in the Code of Civil Procedure, as
directed by the court in which the action is pending, or, if
the court before or after service finds that the service is
reasonably calculated to give actual notice, as prescribed by
the law of the place where the person is served or as directed
by the foreign authority in response to a letter rogatory.
(Code Civ. Proc. Sec. 413.10.) These rules are subject to the
provisions of the Hague Convention. (Id.)
While the rules governing service of summons outside of the
United States are subject to the provisions of the Hague
Convention, depending on the receiving country, it would
appear that this bill's provisions requiring rental car
companies to mail a copy of the summons and complaint to the
out-of-country renter would likely meet service requirements.
The sponsor provides the following rationale:
. . . AB 2059 provides for an agent for service of process
within the United States (rental car company); therefore,
the Hague Convention is not the exclusive means of service.
[Also] AB 2059 is not inconsistent with the Hague
Convention. AB 2059 seeks to facilitate service of process
abroad. The Hague Convention "was formulated in 1964-65 by
delegates from the United States and 22 other nations?.with
the original intent to help ensure that defendants sued in
foreign jurisdictions would receive actual and timely
notice of suit and to facilitate proof of service abroad."
(citations omitted) The U.S. Supreme Court has stated
that: "We do not think that any country will draft its
internal laws deliberately so as to circumvent the
Convention in cases in which it would be appropriate to
transmit judicial documents for service abroad?we
anticipate that parties may resort to the Convention
voluntarily, even in cases that fall outside the scope of
its mandatory application." (Volkswagenwerk at 705-706.)
AB 2059 is consistent with the intent and with the express
language of the Convention.
5. Opposition
The California Chamber of Commerce writes in opposition to the
measure:
AB 2059 (Calderon)
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[This bill] would shift the responsibility and cost of
notifying the renter . . . from the plaintiff to the car
rental company, regardless of the burden posed to the
plaintiff in notifying the particular driver . . . So long
as plaintiffs expect that their recovery will be within the
limits of the insurance coverage, they will happily pass on
the burden and expense of locating and notifying renters . .
. regardless of whether the plaintiff is actually in a better
position to locate the driver, and regardless of whether
notification would pose a significant burden for the plaintiff
at all. This is an unreasonable burden that goes
significantly beyond what is necessary to address the
scenarios offered by the sponsor as justification for the
bill. . . . Neither the bill sponsor nor the author cite any
evidence to support the assertion that insurance sales are
"very profitable" for car rental companies. To the extent
that car rental companies price their policies reasonably to
address their risks, while keeping them affordable so that
renters take advantage of the coverage, they will need to
raise rates to compensate for increased exposure and the costs
associated with having to identify and notify drivers far and
wide.
6. Technical amendments needed
The following technical correction amendments are needed:
On page 18, line 12, delete "(B)" and insert "(A)"
On page 18, line 23, delete "(B)" and insert "(A)"
On page 18, line 25, delete ", authorized driver,"
On page 18, line 26, delete "coverage, benefit, or insurance"
and insert "supplemental liability insurance"
AB 2059 (Calderon)
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Support : One individual
Opposition : Avis Budget Group; California Chamber of Commerce;
Civil Justice Association of California; Hertz Corporation
HISTORY
Source : Consumer Attorneys of California
Related Pending Legislation : None Known
Prior Legislation : None Known
Prior Vote :
Assembly Judiciary Committee (Ayes 7, Noes 3)
Assembly Floor (Ayes 48, Noes 28)
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