How to handle customer requests for insurance amendments
In a standard rental transaction, liability risk is transferred from the equipment owner to the renter through the rental contract, shielding the shop owner from claims caused by customer carelessness or equipment misuse. However, increasingly, renters are seeking to transfer their potential obligation to pay a loss by requesting amendments to equipment owners’ insurance policies. More specifically, renters are requesting that their potential liability obligations be covered by equipment owners’ insurance policies.
Although transferring risk away from the renter and onto the equipment owner’s insurer is never desirable, there are times when equipment owners must strike these agreements or lose the business, particularly in the case of a city, a very large corporation or chain store. Consequently, insurance companies have provided endorsements to their contracts that can assist their insureds in accommodating these requests, says Robert Muhlbach, Esq., an insurance law and coverage expert with the law firm of Kirkland and Packard, El Segundo, Calif.
One method is adding the customer as a named additional insured under the rental shop’s policy, says Muhlbach. “The equipment owner typically can’t do this unilaterally. Generally, they have to request this from the insurance company and the insurance company has to agree. Any agreement by an insurance company to accept the renter as an additional insured must be confirmed in writing,” he says.
“There are two lessons here. You don’t have it if it isn’t in writing and the second is that normally, the equipment owner must assume there may be an increased premium since adding the customer as an additional insured increases the risk to the insurance company,” he says.
In order to expedite rental transactions, ARA Insurance policies include language that automatically provides additional insured status to a rental customer when its contract with the rental store requires it. ARA Insurance also will amend an insured’s policy to add a specifically named additional insured. Neither requires a surcharge.
A renter also may want to add “Primary” and “Non-Contributory” wording to the contract, says Muhlbach. “This would keep the renter’s insurance out of the loop in the case of an accident within the limits of the rental business’s insurance,” he explains. “If you don’t have this language in the contract, both insurance companies could be on the hook. When such an endorsement is issued, the risk increases to the insurance company and so does the possibility of increased premiums.”
Waivers of Subrogation also are sometimes requested by rental customers. All insurance companies inherit the named insured’s rights to pursue a wrongdoer if a claim is paid. If an insurance company waives this, it gives up the potential right to get back some of the money it paid out on a claim. If an equipment owner asks an insurance company to do this, it eliminates the insurance company’s right to recover what it paid against a party who may be responsible for the loss.
It sometimes makes sense for certain rental customers to request these endorsements and it might make equal sense, in some cases, for equipment owners to agree. They must understand that if they agree to transfer risk away from their renter and to their insurers — assuming the insurer agrees — and do this as a part of their business practice, they should assume this request will be routinely made and include the premium increase in their rental fee, says Muhlbach.
“Equipment owners need to analyze if this is going to occur in their business,” he says. “Evaluate your business. Are the majority of your customers requesting this? If so, you need to get a handle on what the premiums would be with these types of endorsements and factor this into what you’re charging for equipment, just like any other business expense.”
Still, it’s important to understand that for ARA Insurance, endorsements that transfer liability away from renters are not preferred options, since they run counter to the terms of the rental contract and increase the cost of risk that has to be covered in the insurance premiums.
Even so, if attempts to convince a rental customer not to make these special requests aren’t successful, ARA Insurance wants to facilitate the customer’s ability to transact business. Some endorsements come with fees ranging from $50 to $100. However, pricing may vary as there may be situations where real exposure may add to these base costs. ARA Insurance suggests consulting with your agent before you sign the renter’s contract.
Steve Zastrow is vice president, underwriting, for ARA Insurance Services, Kansas City, Mo. For more information, call 800-821-6580 or visit ARAinsure.com.