What’s the Risk? What Passengers in Rental Cars in South Carolina Should Know
No. Vol. 31 Issue 6 Pg. 44
South Carolina BAR Journal
May, 2020
By
Constance Anastopoulo and Melissa McKenzie
For the
fourth year in a row, Charleston, South Carolina, has been
named the best city in the world.[1] Tourism in the state is at
an all-time high and visitors come from near and far to drive
to the state’s beaches and visit its majestic
mountains. As a result, the use of rental cars by South
Carolina tourists is increasing. Unfortunately, there exists
a hidden danger to rental vehicle passengers involved in
automobile accidents. In some situations, rental car
passengers are left exposed without the opportunity for
coverage when the car they are riding in is self-insured or
commercially insured.
When an
individual person steps up to the counter to rent a car,
he/she is offered many options within the rental car
agreement. The first question usually addressed is who will
be driving the car. In insurance terms, this is called the
permissive driver. Rental car companies often give permissive
drivers the option to purchase Personal Accident Insurance
(PAI), which would provide benefits to the renter (permissive
driver) of the car as well as to the renter’s
passengers.[2] How-ever, many renters decline this
coverage, mistakenly believing that in the event of an
accident their own personal car insurance policy would
provide the same coverage as PAI for themselves and their
passengers.[3] That is not a safe assumption.
Insurance
coverage issues arise when the passenger in the rental car is
not a resident relative of the renter/permissive driver, thus
coverage from the renter’s policy may not apply.
Conversely, if the passenger/guest is a resident relative
then he/she can reach back to the permissive driver’s
own car for coverage (Uninsured Motorist or Under-insured
Motorist) if the passenger does not have a vehicle of his/her
own. In other words, if the passenger is a non-resident,
non-relative of the driver, the passenger may have no
coverage available unless the passenger has his/her own auto
policy should he/she sustain injury as a result of an
accident in the vehicle.[4] This occurs when the passenger does
not have his/her own vehicle from which they can reach back
for their own coverage. Additionally, now that Uber and Lyft
and other rideshare services are commonplace even in less
urban areas, many people do not purchase their own cars and
therefore do not have automobile insurance available to them
when the renter does not purchase PAI.
The
purpose of this article is to examine current South Carolina
law for rental car passengers and to explore the availability
of bad faith claims and coverage for their injuries when the
car in which they are riding is insured by a self-insurer.
Definitions
and terms
Many of
the insurance terms applicable to these issues have a
slightly nuanced meaning in this circumstance. The following
definitions are intended to introduce the reader to how the
same will be used in this article. Each of the terms will be
discussed in the sections following. An Individual Car
Insurance Policy as defined by South Carolina Code
§38-77-140 requires every policy delivered in this state
to include a provision insuring a person defined as an
insured against loss that at a minimum provides liability
coverage of $25,000 for bodily injury to one person at any
one accident for damages arising out of the operation,
maintenance, or use of an automobile.[5] An insured is defined as
the named insured, and while a resident of the same
household, the spouse of any named insured and relatives of
either, and any person who uses with consent, express or
implied, the vehicle of the named insured, and any
guest.[6] An uninsured motor vehicle is
defined as a motor vehicle as to which there is not bodily
injury liability insurance at least in the amount of $25,000
or there is nominally that insurance but the insurer denies
coverage thereunder or the owner of the motor vehicle has not
qualified as a self-insurer in accordance with the applicable
provisions of law.[7] Additionally, a motor vehicle is
considered uninsured if the owner or operator is
unknown.[8] Lastly, under S.C. Code Ann.
§38-77-150, no automobile insurance policy or contract
may be issued unless it contains an Uninsured Motorist (UM)
coverage provision providing UM coverage to insureds as
defined above.[9]
Requirements
for self-insurers
In
South Carolina, there are specific statutory requirements for
self-insurance and its availability to rental car passengers
involved in an accident using a rental car from a
self-insured rental car company. The current coverage applied
to self-insured rental cars is based on statutory provisions
outlined in the South Carolina Code. South Carolina Code
§56-9-60 provides the conditions required in order for
an entity to be a self-insurer for motor vehicles in the
state and the financial responsibilities of a self-insurer.
[10]
A person or company that has more than 25 motor vehicles
registered in its name may qualify as a self-insurer if it
can satisfy that the entity can pay any judgments obtained
against it.[11] A self-insurer must provide its
latest financial statement prepared by a certified public
accountant and must have a net worth of $20 million or may be
required to deposit in a segregated self-insured account the
sum of $3,000 for each vehicle to be covered by the
self-insurer’s certificate.[12] This is compared to the
minimum of $25,000 for coverage for a single automobile
driver buying liability and Underinsured Motorist (UIM)
coverage through a commercial insurer.[13]
As
stated above, the South Carolina Code provides the
requirements for the UM coverage.[14] This provision makes it
mandatory in South Carolina for drivers to have with any
automobile insurance policy or contract coverage that will
“pay the insured all sums which he is legally entitled
to recover as damages from the owner or operator of an
uninsured motor vehicle.”[15] The minimum amount of
coverage for UM is also $25,000 per person for each
vehicle.[16]
Judicial
development of rules to address rental car scenarios
An
early South Carolina case addressed the responsibilities of a
self-insuring rental car company in providing coverage. In
Southern Home Ins. Co v. Burdette’s Leasing
Service, Inc.[17], the defendant, a self-insurer,
leased a vehicle to a lessee whose employee injured someone
while driving negligently.[18] The theory of the
plaintiff’s case in seeking reimbursement was that
defendant Burdette’s, as a self-insurer, was
obligated to provide to the public the same protection which
a liability policy of insurance meeting the requirements of
the statute provided.[19] The court addressed a key
question: “Does a self-insurer, qualified under our
statute, provide the same coverage to automobiles owned by it
as that which is required of an automobile liability
insurance policy by our Motor Vehicle Financial
Responsibility Law?”[20] In addressing this question, the
court noted that “a self-insurer is not an insurer at
all. In actuality, a self-insurer provides a substitute for
an insurance policy.”[21] Additionally, the court found
that it was the intention of the legislature that a
self-insurer provide the same protections to the public as
statutory commercial liability provides.[22] The court further
held that as a self-insurer, the defendant should have
similar responsibilities as those required under commercial
insurance policies including abiding by the statutory
definition of an insured to include a permissive user.
[23]
Specifically stating, “when one becomes a self-insurer
under the Motor Vehicle Financial Responsibility Act, he must
pay those claims which normally would arise under the terms
of the Act and which are covered by the insurance policies
described in the Act itself.”[24] Therefore any effort on
the part of the defendant to relieve itself of...