A notice from the La Trobe University Student Legal Service
The La Trobe Student Legal Service has noticed an increase in students who have been scammed by rental car companies/rental car owners about insurance coverage on rental vehicles.
Key points:
- Rental car companies/owners do not provide insurance
- Rental car companies/owners may represent to you that the vehicle is covered by insurance, when in fact the vehicle is not covered
- Check your rental contract. If the company says that the vehicle is insured or has damage cover – ask for a copy of the policy
- Get advice early
Rental cars and insurance
Rental car companies/Rental car owners do not provide insurance.
A rental car company/rental car owner may provide a ‘liability limitation’ product. This is not the same as insurance. This type of product provides very limited cover if you damage the rental car and often has significant exclusions.
Some rental car companies/rental car owners mislead customers into thinking that the rental vehicle has proper insurance (like the insurance you would have on a vehicle you owned) by using terms such as “comprehensive motor vehicle coverage” and “third party coverage”.
How does the scam work?
The customer rents a vehicle through a rental company or rental car owner, sometimes via an advertisement on Facebook Marketplace.
The rental car company and/or rental car owner tells the customer that the rental vehicle is covered by insurance or has coverage that is equivalent to insurance if there is an accident or the car is stolen.
The customer signs a rental car contract. The contract may have an insurance or liability cover clause. The clause will say something like:
‘Motor vehicle cover
Rental vehicle has comprehensive damage cover. Excess fee of $1500 to be paid by renter’
An accident occurs where the customer is at fault. The customer exchanges their details with the other driver. The customer then notifies the rental car company/rental car owner and pays the excess fee.
The customer does not hear anything back from the rental car company or their alleged insurer. The customer assumes that the matter has resolved.
The customer then receives notice that the other driver is pursuing them in the court for thousands of dollars in damages and legal fees.
The customer discovers that the rental vehicle was never insured and that that the car company/owner has taken the money they paid for the excess and never contacted the other driver to resolve the dispute.
The customer is left to deal with the court proceedings and might be liable for damages to the other vehicle as well as legal fees.
What are the consequences?
- You may be required to attend court to defend the claim by the other driver.
- You may be held liable by a court for damages to the other driver’s vehicle and be required to pay for those damages as well as legal fees.
- You may be entitled to take legal action against the rental car company/owner and seek orders that they cover the damages you owe to the other driver. However, this is a timely and costly process, and you may not be able to recover damages from the rental car company/owner.
What can you do to protect yourself?
- Avoid renting vehicles from individual owners via Facebook Marketplace.
- Check that the rental car company is a member of the Australian Finance Industry Association: Find a Member — AFIA.
- Read the rental car contract and make sure you understand the terms and conditions.
- If the contract states that the rental car has “insurance” or “cover” – Ask for a copy of the policy or for the full terms and conditions of the cover. If they cannot provide details about the cover/insurance, this is a good indication that the vehicle is not insured, or the cover provided is extremely limited.
- Search the rental company and company that is providing the alleged cover. Check that they are a legitimate business.
- Check whether you have other insurance that may cover you (e.g. travel insurance or rideshare insurance).
What can you do if you suspect or find out that your rental vehicle is not insured?
- After notifying the rental car company/rental car owner about the accident, follow up with the other driver or their insurer to check that they have been contacted by the rental car company. If they have not been contacted, follow up with the rental car company and seek legal advice.
- If you have received notice that the other driver has filed a claim in the Magistrates’ Court, you will have 21 days to file a notice of defense. Seek legal advice urgently.
- If you do not file a defense the court will make a decision without you and an order against you. This is called a default judgment.
- Report the scam to the Australian Competition and Consumer Commission (ACCC) on the Report a Scam webpage.
Where can you go for help?
- La Trobe Student Legal Service – Provides students with free legal advice
- Legal Referral Service – Helps you to find a law firm (private firm with fees) that offers legal help for your particular legal issue
- International Student Services – Provides a range of support to international students – Call (03) 9479 1199.
- For more information on rental cars and insurance, see Rental Cars and Insurance – Financial Rights Legal Centre.
This article provides general information and should not be relied upon as legal advice. It is recommended that you seek legal advice about your situation.