Is Collision Damage Waiver Insurance ?
In Truta v. Avis Rent a Car System, Inc., supra, 193 Cal. App. 3d 802 the defendants were car rental companies which allegedly offered their customers a collision damage waiver.
Under the defendants' standard contracts, any renter who did not buy a collision damage waiver would have to pay the rental company for any damage to the car; any renter who did buy a collision damage waiver would not have to pay the rental company for such damage. ( Id., at p. 807.)
The appellate court held the collision damage waiver was not insurance. ( Truta v. Avis Rent a Car System, Inc., supra, 193 Cal. App. 3d at pp. 812-815.)
It conceded that "a persuasive argument can be made" that the collision damage waiver did involve both a shifting of the risk of loss and the distribution of that risk. ( Id., at p. 812.)
It noted, however, "'the question turns, not on whether risk is involved or assumed, but on whether that or something else to which it is related in the particular plan is its principal object and purpose.' [Citation.]" ( Id., at p. 814, quoting Transportation Guar. Co. v. Jellins, supra, 29 Cal. 2d at p. 249.)
"The principal object and purpose of the transaction before us . . . is the rental of an automobile. Peripheral to that primary object is an option, available to the lessee for additional consideration, to reallocate the risk of loss . . . to the lessor in the event the vehicle sustains damage during the rental term." (193 Cal. App. 3d at p. 814.)
The court also relied on a memorandum opinion in which Department of Insurance had concluded that a collision damage waiver was not insurance. ( Truta v. Avis Rent a Car System, Inc., supra, 193 Cal. App. 3d at pp. 809-810, 814-815.)
As the court quoted the memorandum: "'This is not a spreading of risk within insurance concepts, but is rather an allocation of risk by contractual agreement. As the parties can contract to place full responsibility for damage on the lessee, it seems no less reasonable that they can contract to place this responsibility on the lessor.'" ( Id., at p. 815.)
'If the situation were such that the lessor was agreeing to pay any monies to third parties, then this conclusion would be different. . . . Here, there is no interest of the public which would be protected by our assuming jurisdiction. Since the lessor is not agreeing to pay anybody anything, but is simply agreeing not to hold the lessee liable, there is no need for accumulating reserves.'" (Ibid.)
"Insurance is defined as 'a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event.' ([Ins. Code,] 22.)
Case law has interpreted this statute as requiring two elements:
(1) a risk of loss to which one party is subject and a shifting of that risk to another party;
(2) distribution of risk among similarly situated persons." ( Title Ins. Co. v. State Bd. of Equalization (1992) 4 Cal. 4th 715, 725-726, 842 P.2d 121, quoting Metropolitan Life Ins. Co. v. State Bd. of Equalization (1982) 32 Cal. 3d 649, 654, 186 Cal. Rptr. 578, 652 P.2d 426.)
However, "' . . . the mere fact that a contract contains these two elements [shifting and distribution of risk of loss] does not necessarily mean that the agreement constitutes an insurance contract for purposes of statutory regulation.'
Rather than simply look to whether the contract involves an assumption of a risk, we will instead ask '"whether that [assumption of risk] or something else to which it is related in the particular plan is its principal object and purpose." ( Title Ins. Co. v. State Bd. of Equalization, supra, 4 Cal. 4th at p. 726, quoting Truta v. Avis Rent a Car System, Inc. (1987) 193 Cal. App. 3d 802, 812, 238 Cal. Rptr. 806, and Transportation Guar. Co. v. Jellins (1946) 29 Cal. 2d 242, 249, 174 P.2d 625, respectively.)