Personal injury plaintiff counsel assessing the merits of a motor vehicle accident (MVA) can find the case complicated if a rented vehicle is involved. Whether the injured person was the driver or passenger in a rented vehicle, or was struck by a rental, raises a host of issues.

In Canada, purchasing additional auto insurance from a rental company is not mandatory. Like standard auto insurance, this type of coverage is designed to protect the vehicle, its passengers and their belongings, and passengers of other vehicles and their personal possessions, in the event of a covered risk, including a collision.

But one expert has revealed that the “insurance” offered by rental car companies is not insurance at all. “Car rental agencies insure their fleets,” says Matt Hands, business director of insurance at Ratehub.ca. “[The renter’s] money goes into an overall fund, so … they can’t pursue [the renter] for any damages … By signing the agreement, you’re paying the car rental agency to waive its right to pursue you for damages or losses.”

Vehicle rental insurance provides four types of coverages, according to Insurance Business Canada:

Liability insurance (LI) protects the driver if they are at fault in a collision and cause injury or damage to other people or their property. This coverage pays accident-related costs including medical expenses and vehicle repair.

Personal accident insurance (PAI) provides accidental death and dismemberment coverage to anyone riding the rental vehicle at the time of the accident. Typically, the driver is covered up to $100,000 while passengers are covered up to $10,000.

Personal effects coverage (PEC), also referred to as personal effects protection, covers the driver’s personal belongings if they are lost, damaged, or stolen while inside the rental car. Coverage often has a limit (typically $500 per person), and a deductible (usually $25 per passenger).

Collision damage waiver (CDW) or loss damage waiver (LDW) protects only the rental vehicle, nothing else. Like collision and comprehensive insurance in standard auto policies, it covers the cost if anything happens to the vehicle such as accident, fire, or theft. Mr. Hands notes that CDW or LDW is not an insurance policy.

Purchasing rental agency insurance is recommended for the following types of drivers, according to Ratehub.ca. An MVA case can become complicated if a renter in one of these categories did not purchase rental insurance:

  • The driver does not have an auto insurance policy
  • The driver’s auto insurance policy covers only the minimum or does not have the right endorsement that allows it to be transferable to the rental vehicle
  • The driver is considered high-risk and cannot afford a claim
  • The driver’s credit card does not provide rental car coverage
  • The driver is renting a sports car, truck, luxury, or specialized vehicle
  • The driver is travelling for business.

Most car insurance in Ontario offers additional coverage for non-owned automobiles, formally referred to as Ontario Policy Change Form (OPCF) 27. This endorsement provides coverage to any vehicle the policyholder drives, including rental cars. Other provinces offer a similar endorsement – SEF27 in the other private-insurance provinces, namely Alberta and Atlantic Canada.

People who carry life insurance or group health benefits plan with short- or long-term disability coverage can choose to waive the personal accident insurance offered by the rental company, but policyholders should check with their insurers to ensure they are fully covered from MVAs involving rented vehicles.

Many credit cards provide collision damage on rental vehicles, but third-party liability is not covered, according to consumer website CreditcardGenius.ca. Rental car insurance obtained by purchasing travel insurance through a credit card often comes with an upper limit.

As we have noted in previous articles, drivers often opt for the cheapest auto insurance policy they can purchase to keep driving, and industry polling shows that many don’t understand their policy or know what’s covered. It’s unlikely that many people know whether their disability coverage includes MVAs involving rentals. Deciding whether to take a case involving a rented vehicle requires considerable investigation by plaintiff counsel.

NOTE: This article is based on information available in March 2022.

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