What’s the Risk? What Passengers in Rental Cars in South Carolina Should Know, 0520 SCBJ, SC Lawyer, May 2020, #44

AuthorBy Constance Anastopoulo and Melissa McKenzie
PositionVol. 31 Issue 6 Pg. 44

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...

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