Fees on Optional Rental Car Liability Insurance Are Not Premiums in Excess of Approved Rates

In Adhav v. Midway Rent A Car, Inc. (No. B285586; filed 7/24/19), a California appeals court held that fees charged by a car rental agency for the purchase of supplemental liability insurance were not premiums in excess of approved rates.

In Adhav v. Midway, the rental agency was the named insured under master policies issued by licensed insurers. The premium charged to the rental agency was based on the number of renters actually purchasing the coverage, and was approved by the Department of Insurance (DOI). The insurance was also subject to a significant self-insured retention. Plaintiffs were renters who had purchased the coverage, suing under the Unfair Competition Law (UCL), Business and Professions Code sections 17200, et seq. They sued the rental agency and its insurers asserting that various Insurance Code provisions required the rental agency to disclose to them what rate it was paying the insurers and, further, to charge them that same rate. And Plaintiffs contended that the insurers were liable because the extra fees charged by the rental agency were imputed to the insurers on an agency theory, and therefore the insurers constructively “received” a premium in excess of that authorized by the DOI.

Finding that the rates approved by the DOI were for the commercial policies issued to the rental agency, the court concluded the DOI-approved rates did not govern charges imposed by the agency on rental car customers. The court found that the agency did not charge plaintiffs insurance premiums in excess of the DOI authorized rate, and that the “amounts received by the agency for the sale of rental insurance are not imputed to any defendant insurer because the agency was not acting with the powers of a general agent or with substantial oversight and control by any insurance carrier.” The court further found the fees charged by the agency should not be imputed to the insurer defendants because the rental agency was the policyholder, and the insurance coverage it provided was ancillary to its primary business of renting vehicles. In addition, the agency operated under a $25,000 self-insured retention and was solely responsible for claims up to that amount, as well as administering claims.

Accordingly, the court concluded Insurance Code sections 1861.01 (concerning approved rates) and 381, subdivision (f) (concerning disclosure of premium) did not apply to the rental agency’s interaction with its customers and there was nothing unlawful or fraudulent about the agency’s conduct that created UCL liability. The court also found plaintiffs had not suffered any actual economic injury, because the fees the rental agency charged were fully disclosed, plaintiffs obtained the bargained for insurance at the bargained for price, and plaintiffs failed to establish that the rental agency’s optional insurance charges were in excess of the charges for such insurance by other rental car companies.

Having conducted an exhaustive analysis of the various statutes, the Adhav v. Midway court closed by also citing the doctrine of judicial abstention, saying that: “The self-insured retentions and markups of the commercial policy rate to rental car customers may be good, bad, or indifferent—that is a regulatory judgment we do not make and leave to the special competence of the DOI. To the extent the DOI may seek in a future filing review to disapprove of a self-insured retention or other arrangement that results in a rental car company charging more than the premium it pays under a commercial policy, or may seek to regulate the end charge to the rental car customer, nothing in our decision should be read to delimit the scope of the DOI’s authority in that regard one way or the other.”

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July 29, 2019