Loss of Use Claim
Simply put, a claim for loss of use can be described as seeking financial compensation for the amount of time reasonably necessary to repair or replace your vehicle. Loss of use is calculated by referencing the rental value of similar property which the plaintiff can hire for use during the period when he is deprived of the use of his own property.[1]
Loss of Use Coverage
Most states only allow recovery of loss of use damages from a negligent third-party. For example, if you lose control over your vehicle and collide with a wall, typically you would not be able to seek reimbursement for loss of use. This would also be true in the event that you lent your car to friend or other permissive use driver, and they damaged your vehicle.
The “exception” to this is rental coverage that is party of your own insurance policy, otherwise known as first-party coverage. Rental coverage is a non-fault type of coverage, where you pre-purchase a certain daily rate that typically has a per-accident maximum. For example, you might see a coverage on your policy for $30 per day, up to $1,500 per accident. If you are involved in an accident due to the negligence of a third-party, their insurance will typically reimburse for any reasonable rental expense you may have incurred during the repair period.
Unfortunately, rental reimbursement is almost always mistaken for loss of use by both insurance adjusters and your average car accident victim. This happens because the rental reimbursement for is often identical to loss of use damages when it comes to most standard consumer cars.
Example
If your 2017 Honda Civic was negligently damaged by a third-party and required repair for 30 days, you would be entitled to the rental value of similar vehicle during the repair. Insurance companies typically allot between $25-$50 a day for rental reimbursement. In this case let’s say a similar subcompact rents for about $40 per day. If you rented a similar subcompact for 30 days, at $40 per day, the amount of the rental reimbursement would be equal to your loss of use damages.
Rental Reimbursement: 30 Days x $40 = $1,200
Loss of Use: 30 Days x $40 = $1,200
Amount Owed to You: $0
In practice, even with an ordinary consumer car, the rental reimbursement is often less that the loss of use damages. The framework insurance companies use for rental reimbursement seems to derive from the rates they are used to paying from their first-party rental coverage. As a result, what insurance is willing to pay is often less than what it will actually cost you to rent a standard rental car. While it varies, a car rental in a major city is often at least $60 per day for even the most basic rental. You will also be required to pay additional taxes and fees beyond the base daily rate. Contrasted with what insurance companies are actually willing to pay, which usually tops out $50 per day, the average consumer ends up coming out of pocket for the rental, even after the insurance reimbursement.
Loss of Use is Not Rental Reimbursement
In in many states including California, a substitute vehicle doesn’t actually need to be rented in order to use rental value as a measure of loss of use.[2][3] In this way, a claim for loss of use could best be described as the loss of your option to use your vehicle, whether you needed to or not.
Under the same facts as the previous example with the 2017 Honda Civic, if you owned a second car and chose to drive that during the period of time the vehicle was being repaired, you would still be entitled to $1,200 because you lost the ability to use that vehicle for a 30-day period, and the cost of renting a similar vehicle would have been $40 per day.
Rental Reimbursement: 30 Days x $0 = $0
Loss of Use: 30 Days x $40 = $1,200
Since you do not need to rent a car to be entitled to the loss of use, it could only be true that damages for the loss of use are fixed, regardless of what car you actually decide to rent, if any. It is important to note that while damages for loss of use are not the same as rental reimbursement, you cannot double dip. Loss of use is a ceiling which would prevent recovery for rental expenses incurred in excess of the loss of use. For example, if your Honda Civic is in the shop, and you decide to rent a Ferrari while the car is being repaired, you would only be entitled to the rental value of the Civic. If, on the other hand, your Ferrari is in the shop, you are entitled to the rental rate of a Ferrari, whether you actually rent another car or not.
Example
Your Ferrari is in the shop for 30 days, but the insurance company for the at-fault party does not have a direct billing system for rentals, so they explain they will reimburse you for reasonable rental expense while your vehicle is being repaired. Let’s say you don’t feel like spending $1,500 per day to get an equivalent vehicle so instead you decide to rent a Mustang GT for $100 a day instead. What does the insurance company owe you?
Rental Expense: 30 days x $100 = $3,000
Loss of Use: 30 days x $1,500 = $45,000
Amount Owed to You: $45,000
In this case, the insurance would owe you a total of $45,000 for loss of use, $3,000 of which would go toward reimbursing you for the rental of the Mustang. You would not be entitled to both the rental and loss of use.
First Party Insurance Subrogation
The most common circumstance that arises where this distinction is relevant is when the owner of luxury vehicle elects to repair their vehicle using their own insurance, which provides for a pre-determined amount of rental coverage.
In these circumstances, the vehicle owner typically never loses or gains any money as the rental reimbursement is paid directly from one insurance carrier to another through their subrogation department. Subrogation can loosely be defined as your insurance company’s right to seek reimbursement for the costs they incurred as a result of the accident from the at-fault driver or their insurance.
Claims for loss of use and diminished value may only be asserted by the vehicle owner. Therefore, your insurance can only assert a subrogation right against the at-fault insurance carrier for the costs they incurred, not the amount you are actually owed in loss of use damages. Again, you cannot double dip, so in the event the rental reimbursement to your insurance equals your loss of use damages, the at-fault carrier would not owe you additional money for the loss of use.
However, what happens when the rental reimbursement due to the insurance is less than your loss of use damages? Using the previous example of the Ferrari and the Mustang, lets assume that your personal insurance only covers the first $100 per day of rental, so you rent a Mustang GT through your own insurance coverage while your Ferrari is in the shop. What would the at-fault insurance carrier owe you for the loss of use?
Rental Reimbursement: 30 days x $100 = $3,000
Loss of Use: 30 days x $1,500 = $45,000
Amount Owed to You: $42,000
Instead of the smaller number being folded into the larger one, your insurance would assert a subrogation right for $3,000, and you would be entitled to the difference of $42,000.
The second most common scenario, almost identical to this one, is when an insurance carrier for the at-fault driver pays for your rental, but unjustifiably refuses to pay more than a certain amount.
Unless you sign a release of your property damage claims after receiving an inadequate amount of compensation for your loss of use, you may continue to pursue the remainder of your loss of use claim as long as you are within the statute of limitations.
Limitations on Recovery
Statutes of Limitation (SOL)
Statutes of limitations prevent individuals from pursuing a legal claim after a certain period of time has passed, typically judged from the time at which the precipitating event that gave rise to the subject claim occurred. Each claim may have its own specific statute of limitations.
In California for example, you have two years from the date of a car accident to pursue a personal injury claim against the other driver. In contrast, you have three years to pursue a claim for property damage. Claims for both Loss of Use and Diminished Value follow the three-year SOL in California, but it may vary from State to State.
Policy Limits
Generally, most auto insurance companies divide their third-party liability coverage into two different parts, Property Damage (PD) and Bodily Injury (BI). Claims for loss of use, diminished value, and the cost of repairing your vehicle are all paid out from the property damage portion of an insured’s policy. While each State has its own mandatory minimum amount of coverage it requires drivers to carry, the amount of coverage an individual driver chooses can vary significantly for person to person.
For example, the mandatory minimum coverage in California is $15,000 per person/$30,000 per accident for bodily injury coverage, but only $5,000 for property damage! Since all three kinds of property claims come out of the same portion of the policy, it is often the case that one or more of those claims is not fully paid out when someone with low PD limits damages your luxury vehicle. This is why it is important to have collision coverage on your own policy to ensure that no matter what level of coverage the other party has, at least your vehicle will be fixed or paid for in the event of a total loss.
In these circumstances, you will often find yourself between a rock and hard place.
- If you do not have collision coverage, there will probably not be enough money to even pay the entire repair bill for your car, let alone ancillary claims like loss of use or diminished value.
- If you do have collision and rental coverage through your own insurance, you may not have to come out of pocket for any property damage expenses, but there will typically not be enough money to pursue additional property damage claims because your insurance company will likely try to assert a subrogation right to the entire property damage policy limit of the at-fault carrier.
What do you do if someone has low property damage limits? If you do not have collision coverage, your only recourse would be to pursue the driver in court for the excess damages. Most attorneys do not favor this, as the prospect of trying to recover money from someone who could not afford good insurance is likely going to cost more money than you would ever be able to recover.
“[A]n owner’s recovery for being deprived of the use of a damaged vehicle is generally to be determined with reference to the period of time reasonably required for the making of repairs.” (Valencia v. Shell Oil Co. (1944) 23 Cal.2d840, 844 [147 P.2d 558].)
The nature of ‘loss of use’ damages is described in California Jurisprudence Third as: ‘The measure of damages for the loss of use of personal property may be determined with reference to the rental value of similar property which the plaintiff can hire for use during the period when he is deprived of the use of his own property.’ ” (Collin v. American Empire Insurance Co. (1994) 21 Cal.App.4th 787, 818)
[1] 23 Cal. Jur.3d, Damages, § 69, pp. 129-130; Collin v. Am. Empire Ins. Co., 21 Cal.App.4th 787, 818, (Cal. App. 1994).
[2] A substitute vehicle doesn’t actually need to be rented in order to use rental value as a measure of loss of use. Malinson v. Black, 188 P.2d 788 (Cal. App. 1948).
[3] The measure of plaintiff’s damages for loss of the use of his automobile while being repaired, after injury from collision through defendant’s negligence would be the cost of hiring another machine for his use, whether he hired one or not. Meyers v. Bradford (1921) 54 Cal.App. 157.