The California Court of Appeal, Second Appellate District, has upheld the decision of a trial court ruling finding that fees rental car agencies charge for optional insurance need not be included in rate filings and are not regulated by the California Department of Insurance.
In Adhav, et al. v. Midway Rent A Car, Inc., et al., National Specialty Insurance Co. and KnightBrook Insurance Company provided Midway Rent A Car Inc. with master insurance policies that allowed the rental car company to offer optional coverage to customers.
By way of litigation, 70,000 class members alleged that the price Midway charged for that insurance exceeded the rates approved by the California Department of Insurance.
The policies included a $25,000 per claim self-insured retention that was the responsibility of Midway in the event of a customer loss. The indemnity obligation on the part of the insurers—National Specialty and KnightBrook—was triggered only when such a loss exceeded the self-insured retention.
Midway charged customers more than the premium it paid to the carriers, and the rates for the optional coverage were specified in customers’ rental agreements.
The class sued the insurers and Midway, maintaining, among other things, that the fee the rental car agency charged its customers for optional insurance violated various provisions of the Insurance Code.
The plaintiffs specifically maintained that National Specialty and KnightBrook were liable because the insurance code required funds collected by Midway from customers purchasing insurance be imputed to them.
The class argued the result of this imputation was that the insurer defendants constructively “received” a premium in excess of that authorized by the CDI.
After a bench trial, the lower court disagreed and, on appeal, the appellate court affirmed that determination, ruling that the plaintiffs’ claims against National Specialty and KnightBrook were based on Insurance Code provisions inapplicable to their interactions with Midway.
It was also held that the plaintiffs failed to establish any illegal business practice or economic injury.
“Companies like Midway can continue to offer optional insurance to their customers, now knowing that they’re not bound by the rates approved for underlying master policies,” Mona Hanna, a partner at Michelman & Robinson, LLP, counsel for National Specialty and KnightBrook, said in a statement. “And for carrier clients like mine, they can continue to offer rate-approved master policies without exposure to liability for transactions with third parties over which they have no control. Taken together, this is a big win.”
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