Is Loss of Use a Legitimate Charge By Rental Car Companies When Vehicles are Damaged?

Y ou rent a car. You get into an accident. The damage on your rental car is minor. You return the car. You receive your statement. You pay your bill. You hope that your insurance will cover the minor damage; but even if it does not, fixing the car should not cost too much.

You then receive a bill for $1,000.00 for what the rental car company calls “loss of use.” Are you required to pay it — and without question?

Loss of Use Defined — and a Landmark Court Case

Loss of use is defined as the time the car is out of use while in the process of being repaired when it could have been rented by other customers — meaning that the car rental company lost out on revenue and profit as a result of the accident. In turn, the rental car company bills you the amount of money which it claims you owe to compensate it for the loss of use of the vehicle — even if it supposedly suffered no financial loss.

A precedent of sorts was established on Monday, September 10, 2012 when the Supreme Court of the State of Colorado ruled in favor of PurCo Fleet Services, Incorporated, a Utah corporation, when the company sued Judith Koenig — a customer who rented a car from National Car Rental, which assigned its damage claim to PurCo — to collect damages related to an accident in which she was involved when the rental car she was driving hit a deer; and those damages included $378.00 in loss of the use of the vehicle during the time it was being repaired.

PurCo “sought to measure loss of use damages by using the reasonable rental value of a substitute vehicle”, according to this document pertaining to Supreme Court Case number 10SC159. “Koenig filed a motion for summary judgment which the trial court granted holding that PurCo could prevail on its loss of use damages claim only if it suffered actual lost profits. The court of appeals reversed the trial court’s summary judgment ruling on loss of use damages and remanded the case. It agreed with the trial court’s conclusion that, in general, the appropriate measure of loss of use damages in a commercial setting is actual lost profits, but concluded the rental agreement in this case altered the measure of loss of use damages and held that PurCo was required to show certain loss prerequisites.”

The contract between Koenig and National Car Rental stated that Koenig is responsible for all damage to or loss of the vehicle, based on repair cost or estimated repair cost, at the option of National Car Rental, diminished value of the vehicle as determined by National Car Rental, plus towing and the loss of use of National Car Rental — regardless of fleet utilization — and administrative charges, regardless of who is at fault.

This means that although Judith Koenig theoretically could not prevent the accident from occurring, she would be subject to pay what could be considered a “reasonable” amount of money as determined by National Car Rental to compensate for the supposed loss of use of the car — even if National Car Rental might not have been able to rent the car during the period of time used to repair the car had the car not been damaged.

The last paragraph of the advance sheet headnote of the aforementioned document continues with “The supreme court affirms the court of appeals judgment on different grounds, holding that under Denver Building & Construction Trades Council v. Shore, 287 P.2d 267 (Colo. 1955), loss of use damages in a commercial setting may be measured either by actual lost profits or by reasonable rental value. PurCo is entitled to recover loss of use damages irrespective of its actual lost profits. The supreme court vacates the court of appeals opinion with respect to loss of use damages and loss prerequisites. Because the trial court granted summary judgment in Koenig’s favor, it did not reach the question of how reasonable rental value would be calculated in this case. Accordingly, this case is remanded for calculation of the reasonable rental value of a substitute vehicle.”

According to this article written by David Purinton — who is the owner and president of PurCo — for Auto Rental News, the “historic ruling” in the case was “a win” for the rental car industry. Among the eight tips in recovering loss of use and administrative fees is that rental car companies should “understand that loss of use and administrative fees are not profit centers”…

…but are rental car companies really not using loss of use and administrative fees as a profit center? What exactly is considered “reasonable rental value of a substitute vehicle”? Should every day in which the car is out of service be considered loss of use — even if there may have been some time during the period of repair in which the car could have sat idle on the parking lot of the rental car facility anyway? Could the substitute vehicle be of an upgraded rental class and therefore be worth more in terms of loss of use?

Even worse: does the potential for abuse of loss of use by rental car companies exist — and will it become prevalent throughout the United States as well as worldwide?

Is Loss of Use a Legitimate Charge By Rental Car Companies When Vehicles are Damaged?

Christopher Elliott — who has covered loss of use for several years in a number of articles through several publications — says that “under the hood, loss of use looks more like a junk fee” for a number of reasons, according to this article at The Huffington Post.

For one, car rental agreements are “one-sided ‘adhesion’ contracts” which virtually no one reads, as the clause for loss of use is buried in a vast sea of fine print somewhere on the back of a hidden page.

Another reason is that car rental companies are not strictly regulated by government entities; and loss of use is one of the areas of renting a car where there is virtually no protection for the consumer. What is to prevent someone at a rental car company from “fudging” the amount of time needed to repair a car? Just add a couple of days. The customer will never know — right?

Rental car companies will certainly not volunteer to prove the car would have been rented — or to justify the loss of use in general unless forced to do so, which is unlikely to happen.

If customers of rental car companies or insurance providers challenge the value of a claim, the loss of use calculated by rental car companies according to a formula — often using a theoretical rate — may seem fabricated to customers and can be difficult to prove; and in turn prompt customers and consumer advocates to believe that the concept of loss of use is “on shaky legal, if not also moral, ground” overall in general.

“While loss of use might be allowed in some states, it sets a problematic precedent”, claims Elliott. “Every time you pay it, you are effectively agreeing that a business has the right to charge you for what it might make if circumstances had been different. In other words, it is holding you responsible for more than the car rental bill and the repairs. It wants you to make up for its lost earnings.”

Even worse is that some insurance policies for coverage of rental cars — especially those provided by your credit card or through your primary automobile insurance policy — do not cover loss of use.

Final Ruling of PurCo v. Koenig

According to this article, “the district judge in PurCo v. Koenig ordered Judith Koenig to pay PurCo $247,890.00 in attorney’s fees and $11,120.25 in litigation costs for prevailing on its claim of $378.00 in loss-of-use damages and a contractual administrative fee” on Thursday, January 2, 2014. These amounts represent the fees and costs incurred by PurCo in the lawsuit, which was considered “another litigation victory” which is considered “heralded in the rental car industry as a turning point for defining loss-of-use damages in the rental car context.”

Summary

If a rental car company is rarely forced to justify its loss of use, what prevents them from turning loss of use into a potentially profitable fee imposed on a hapless customer? Should loss of use be considered a cost of doing business for the rental car company instead of passing the “expense” on to the customer, as implied by Christopher Elliott — especially as many insurance companies refuse to pay loss of use? Can a renter of a car argue that certain clauses — especially loss of use — are unenforceable and violate public policy?

Think about the following questions posed by Elliott. “What if other businesses embraced this idea that you are responsible for a lost revenue opportunity? Would a restaurant charge you more for your meal if you lingered for an extra hour, depriving it of the ability to serve another guest? You would scoff if your menu price doubled because you took your time with dinner, wouldn’t you?”

Loss of use could — in many cases; but especially when the vehicle suffers from minor damage — by far be the most significant expense incurred by renting a vehicle if you become involved in an automobile accident; so you will want to be as prepared for that eventuality as possible.

Elliott gives some advice on how to fight loss of use charges with a rental car company should you be unfortunate enough to be involved in an accident with a vehicle you rented:

  • Request for assistance from your insurance company. “Insurance companies take a no-nonsense approach to junk fees, including loss of use”, advises Elliott. “The fight is usually over before you get involved.”
  • Ask for the documents. Rental car companies do not always keep accurate records of the rental; so ask them to “prove the car would have been rented and see what they say. Once the company refuses to justify the fee by failing to show you the paperwork, a successful credit card dispute may be a slam dunk.”
  • Threaten litigation. “This is one of those rare times when the threat of a lawsuit may offer an escape”, says Elliott. Not all states consider loss of use as part of the law when renting vehicles; but unless you are renting a car in Colorado or Texas — which is another state with precedents pertaining to loss of use of rental vehicles while they are being repaired — the rental car company will be reluctant to litigate for fear of setting a precedent for future loss of use cases. Besides — unless employees and management of the rental car company are virtually certain that they will win — like you, they will not want to expend the time, money or other resources to resolve the issue in a court of law. If you do decide to go this route — which should be used as a last resort — do not outright definitively threaten litigation; but rather, state that you will consider legal action.
  • Check your insurance coverage prior to renting a vehicle. This piece of advice is from me and not Christopher Elliott. Carefully read the insurance policy which you intend to cover the vehicle which you are renting — regardless of whether that policy is provided by your primary automobile insurance provider; the credit card which you will use to pay for the rental of the vehicle; or outright purchasing insurance from the rental car company itself — and ensure that loss of use is indeed included as part of the coverage in case you are involved in an accident.

Photograph ©2015 by Brian Cohen.

4 thoughts on “Is Loss of Use a Legitimate Charge By Rental Car Companies When Vehicles are Damaged?”

  1. Gizmosdad says:

    So then every time that I rent a car and there isn’t one available in the timeframe that I reserved, I can charge the rental car company for my own personal “loss of income” because I was spending my time at the rental desk, instead of billing my clients?? It would only seem fair that the logic the rental car companies are using would work both ways…

    1. Brian Cohen says:

      I think similar thoughts about doctors and dentists when patients wait patiently in their waiting rooms past the times of their appointments, Gizmosdad.

    2. Penguin says:

      I believe if you write a contract stating the charge to the rental company for your loss of income and have the rental company sign it, then yes, you could charge them legally — just like how the rental companies make you sign and agree to loss of use clauses in their contract. Individual customers don’t have the leverage to write such a contract, but huge corporations who rent big fleets probably do 🙂

  2. NYBanker says:

    While there may be some abuse at the margin, loss-of-use is a reasonable concept for when a customer damages a car rental company’s property.

    There are not excess profits in the car rental industry. If there were, large amounts of capital would flow into the industry.

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