equipment as they move forward, and damage waivers have since become a big part of that. So the AED was kind enough to ask me to put on this webinar explaining how damage waivers work, what they are, and how they benefit both lessors and lessees. So with that as an opener, let's start with an explanation of what damage waivers are. A damage waiver is an optional waiver of claims of the equipment owner or lessor against the rental customer or lessee, typically only for physical damage to rented equipment. Let's think about that for a minute. What we're doing here is we're saying, I, the equipment owner, when I rent equipment to you, I'm agreeing to waive my claims, my rights to recover from you for physical damage done to my equipment during that rental. Now what does that consist of? Well, start with your rental contract. Your rental contract, if properly written, should make the lessee or your customer responsible for repair and replacement of rented equipment. And it should do that very clearly, and there should be very few limits on what your customer is responsible for. If it doesn't do that, then you need to start to begin with, with rewriting your rental contract, because these two work hand in hand. So the more protective your rental contract is, the more value your damage waiver has, and that means a lot in terms of your ability to sell damage waivers going forward. Now damage waivers can typically be purchased by a rental customer for a fee, ranging depending on where you are in the country and what your local competitive environment looks like, of 6 to 15% of the rental charge. And I'll show you on the following slide more detail about what that means. But here's the issue. You want to be able to sell that damage waiver to your customers because that damage waiver is generating revenues for you over and above typically what it costs you to repair or replace your equipment. And that's okay for only a few instances. So one of the ideas behind damage waivers, much like insurance companies use it, or use their own risk profiles, is they're there to make money, rightfully so, as should equipment owners and lessors. So if you're going to offer a damage waiver, yes, it should fund repairs and replacements of your equipment, but it also should serve as an additional revenue stream. We'll talk about that a little bit more going forward. Okay, how does a damage waiver work? So lessors typically make damage waivers available for purchase by the lessee on or prior to the commencement date. Now, this is really critical. It's one of those things that I see get missed a lot. You want to make certain that if you offer a damage waiver, the lessee accepts or declines that damage waiver right at the time the lessee contracts with you. You don't want that equipment leaving your facility and getting a call back later saying, hey, I'd like to buy a damage waiver now, because at that point, you've lost control of your equipment. You don't know what the status is. I qualify that by saying Telematics has created an enhanced ability for some equipment owners to monitor their equipment remotely. But at least historically, the situation has been that if that equipment is off your premises, you do not want to offer a damage waiver on it. Okay, so the lessee accepts or in many cases does not decline. And what I mean by that is there's two ways to offer a damage waiver. On the front of your rental contract, typically, you can either have an accept or decline box offering to let the lessee either accept it or decline it volitionally by initialing a box. Or what most rental operators continue to do is they have a decline only format box. And it says you will be deemed to have accepted damage waiver unless you decline it by initialing this box. That's still really, that's probably 90, 95% of what I see around the country in terms of how people wind up selling damage waiver. And what my clients tell me is that that is a much more effective selling tool than making the customer acknowledge all the facts and circumstances surrounding damage waiver and accept or decline. But there is some risk associated with selling it that way, and we'll talk about that in a few minutes. Okay, why do lessors sell damage waiver, why do equipment owners sell this? Well, there's two rapid benefits here. One is benefits to the customers and the other is benefits to obviously the owners and lessors. Let's talk about the customers first. Number one, and these are, by the way, these are important sales tools for you and your sales people and your counter people. Very often what I find is that my clients tell me their customers really don't understand the value of damage waiver and their counter people or their sales people don't know how to sell it. They don't know what the value is. So this is a brief explanation of what that value consists of for most rental operators. Number one, obviously it allows customers to avoid repair and replacement costs for damaged equipment. What's going on? There are some collateral benefits that are very important. Additional rental charges. Now parking back to your rental contract for a second. If you take a look at your rental contract, one of the things that it should say is that the customer remains responsible for payment of rent and all other charges accruing into this rental contract until the equipment is returned to and accepted by the lessor. That means that you get to collect rent during that repair and replacing period, whatever it is. As you know, that might be a week, it might be two weeks, it might be 10 weeks. You at least want the ability, whether you decide to go back after and pursue the customer for all of that rent and other charges is your business. But the point is your rental contract needs to give you the option. That does two things. Obviously it enhances the amount of money that you can collect from customers, but it also enhances the value of your damage waiver because now what you're selling is not just repair and replacement costs, it's also the ability to avoid all those additional charges. If you look down at number three on this slide, other charges like late fees, transportation, storage, interest, attorney's fees, court costs, if you wind up going to court seeking to collect these amounts. All those things now get passed aside. That's what I'm seeing and my clients tell me has a much greater impact nowadays than it used to. Customers understand the value and they're buying more damage waiver because of this. Fourth, it saves the time and hassle of negotiating either a settlement on that damaged equipment, but also the making of the repairs itself. If a customer turns around and says, I want to make or oversee the making of the repairs, you may have a legal argument there that the customer is entitled to do that and cut down on the fees associated with the making of those repairs. You don't want to get into any of that. Damage waiver allows you to avoid all of it. Finally, and again, this is a very, very important issue that's often forgotten, insurance claims. If your rental contract is properly written, it should require your customers to maintain their own insurance. The caveat here is if any of you rent to individuals, you know as well as I do, they're not going to have insurance. Those folks, the individual homeowners, will never bring you an insurance endorsement or a certificate, but for contractors, businesses of all kinds, they're going to have an insurance policy and their insurers are typically going to be well aware of the process of providing an insurance certificate and naming you as an additional insurer to loss payee on your equipment. If they don't buy damage waiver, they wind up having to turn back to their own insurance company to cover that claim. Well, that of course increases their loss history and ultimately their premiums. It may compel their insurer to ultimately drop them and they're going to have to pay the deductible on their own policy in addition to negotiating with you for it and concerning themselves with that throughout the repair process as well as their insurance company is not going to cover all of those interim costs. The rent, delivery, transportation, storage, etc. Their insurance policy is not going to cover those things typically, just the repair and replacement costs. So all those things now factor into the value to the lessee, makes it easier for your people to sell damage waiver. The value to the lessor, what's the value to you? Well, obviously, it creates a pool of funds for unfunded maintenance, repairs, and replacements. You need that anyway. You're not going to probably go back after every customer who comes back with a damn or danger scratch on a piece of equipment. So you're going to need a certain amount of funds to fund those types of repairs and replacements. But also, as has been shown through throughout the rental industry, this has turned into a significant source of profits for many rental operators. As a matter of fact, if you look at the annual reports of the large rental companies like Hertz or United or RSC, you'll see that they show damage waivers, at least historically they have shown damage waivers as a significant source of revenue. Now, those guys are charging anywhere from 14 to 15% typically, so that gets to be a very big number, the more damage waiver they sell. So that shows you, that gives you an idea of how much money is being generated and a portion that's going to have to be used to fund repair and maintenance, but the rest of it's going to be profit. And lastly, it avoids conflicts with customers. When you think about having to go and chase down your customers for every little bit of every scratch or ding or dent, those customers get upset and they'll hurt your reputation if you do that a lot. And they'll complain that you're nickel and diming them and that scratch existed before I rented the equipment and now you're ordering over a check-in, check-out certificate. Better to avoid that conflict entirely and just charge the damage waiver and know that you've got a pool of funds there to fund those kind of minor repairs and maintenance. So what do lessors typically charge for it? Well, again, as I said, I represent hundreds of equipment lessors around the country. And so this is what I've seen with the caveat. These damage waivers are going to be priced very competitively in your local areas. Every county, city, and even within a few blocks of your operation, you're not going to want to charge significantly more or less than your competitors are charging for damage waiver, typically because it's going to create a competitive disadvantage for you. But in broad strokes, this is what I see around the country. Along the Eastern Seaboard, I'm seeing damage waivers of 10% to 15%. They're a bit more aggressive than the rest of the country for whatever reason. Maybe it's the number of large metropolitan areas. But actually, within this range, I see many more at the top end of this range, closer to 15%, than I do at 10%. That's 10% to 15% of the rental charge on covered equipment. In the West, a little bit less aggressive, but still fairly so, 10% to 14% is what I'm used to seeing. They tend to span that range pretty evenly. So I don't see necessarily more at the top end than the low end. Probably the average is somewhere close to 12%. In the South, a little bit less aggressive, 8% to 14% is what I'm used to seeing. Within that range, probably most often I see 10% to 12%. You get a little bit more aggressive in major metropolitan areas like Houston or Dallas. But by and large, 10% to 12% is what I'm used to. In the Midwest, the least aggressive. These folks, for whatever reason, maybe it's the rural atmosphere. But I see a lot between the 6% and 12% range, and actually, I see a surprising. I still encounter a lot of people charging 6% to 8% for damaged rivers, until you get to places like Kansas City, or Omaha, or Chicago, where it tends to top out at the top of that range. But as you can see, these numbers are pretty significant. If you actually were to sell damaged river on a million dollars worth of rentals a year, you can do the math as easily as I can, but these wind up being fairly significant numbers. So the question becomes, how much, naturally, how much revenue can I generate, versus how much risk am I taking associated with covering those pieces of equipment that go out on damaged river? We're going to talk about the exclusions and exceptions in a minute. But let me hold up here. I think Rebecca has a question. Yeah, James, I was just waiting for you to finish your thoughts. Just a question on damaged waiver funds and what they can be used for. Does it just have to be used for repairs and maintenance? No. As a matter of fact, what I generally advise clients is, keep the funds, identify the funds within a pool, so that you can, if you ever get called in front of a judge or jury and questioned about whether you're actually using any of the funds to fund repair and maintenance, you've got a fairly easy proof that you can, so that you can show them, yes, these funds are actually being used to fund repairs and replacements of equipment. And of course, there's going to be a certain amount of funds that have to go into fleet replacement just for obsolescence over time. So it's fairly convenient to use that pool of funds for both purposes anyway. And that way, we're going to talk about the Hertz case as we go along a little bit. Many of you have now heard about that case. One of the issues raised by the plaintiffs was that they couldn't identify specifically whether Hertz ever used any of this money to fund repairs or maintenance. So at least being able to identify it as a good idea, that said, the rest of it is profit. And you can use it as you need to use it. There aren't any restrictions out there saying you can't use it for any particular purpose. One thing to note, there was also an environmental fee issue that started to come up maybe 10, 15 years ago when environmental regulation was really hot. That since died down a bit. But in that Hertz case that I mentioned, Hertz was charging a roughly 2% fee, if memory serves, for an environmental protection fee. One of the claims in the case was that they couldn't show that any money was ever used for any form of environmental remediation or cleanup. So you don't want to add in charges like that unless you can show that somehow they're useful for some purpose approaching at least what you say they're going to be used for. Okay. Moving on. When should damage waiver fees be collected? The answer is always, always before the rental commences. After the rental has commenced, as I mentioned before, it may be difficult or impossible to tell whether the equipment has already been lost, damaged, or destroyed. You will most likely not be present unless you're using a pretty advanced set of telematics. You are not going to know whether your equipment has been damaged. And that's true even if you get a call half an hour later after your equipment has left your premises from the customer saying, oh, hey, by the way, I wanted to buy that damage waiver. Don't do it. That equipment may have been damaged or destroyed in transit. And if you sell damage waiver on it, now we're talking about the possibility of a $50,000 repair that the customer just paid $1,500 to get out of. So be very careful with that. Never sell it after the equipment has left your premises. And be careful, by the way. Renewals are sort of a less obvious way for that to happen to you. The equipment goes out for a month, stays out on rent. You get a call on the 28th day from the customer saying, hey, I'd like to renew this for another month. Oh, and by the way, I want to buy that damage waiver. Be careful because during that period, you may not know that equipment may have been damaged or destroyed already. If you're going to consider selling damage waiver at that point, send a rep out there and inspect that equipment and make sure it's still functioning properly. If you sell damage waiver at that point, you're taking a huge risk. My advice to my clients is never, never do that. Only prior to the time the equipment leaves your premises. Okay, what are the typical limits? Damage waiver historically covered all damage. After a while, however, lessor started to, of course, accumulate some experience and realized that certain things should be limited, certain types of issues should be excluded, and they'd probably benefit by adding a deductible. Now, why is that? Let's just talk about deductibles for a second. Because what's the real purpose behind deductibles? If you think about that, what you're trying to do is you're trying to make sure that your customer has some financial incentive, some skin in the game to avoid overusing or misusing your equipment, but not only that. You want your equipment to be the equipment that's protected on that job site. So, if there's a storage facility or a barn, or if there's big weather event headed in, you want your equipment to be the equipment that gets protected. And which equipment is going to get protected on that site? Well, the equipment that's going to cost the customer a significant amount of money if he doesn't protect it, that's going to be the equipment that gets protected. So, you're building a deductible to make sure that your customer has that financial incentive and doesn't ignore or misuse or abuse or overuse your equipment. Now, what should that deductible look like? Well, again, historically, people started out by saying, well, we're going to have a $500 deductible, or the greater of $500, or four weeks rental, or maybe $1,000, and those deductibles started to decline. But one of the problems that created was, what if your deductible exceeds the value, the replacement value of the equipment itself? That's the problem with setting a hard floor deductible. This doesn't happen with big equipment, obviously, but it can happen with smaller items, or peripheral items, or attachments. If you sell damage waiver on things like that and the damage waiver deductible exceeds the value of the equipment itself, what have you done? You've sold nothing. That's the kind of thing that gets you sued. So, you want to have a flexible deductible, and probably the easiest way to do that is consider using a percentage of the cost of repair or replacement. So, when clients ask me, how do I incorporate a deductible, I typically tell them, you know, use a 90-10 format, cover 90% of the loss, make the customer reliable for the other 10%. This, by the way, actually benefits large equipment less or it's more. Because when you think about, you know, a $500,000 wheel loader goes out and gets destroyed, if the customer's bought damage waiver on that, at least now, you don't have a $500 deductible, you got a $50,000 deductible because the customer took 10% of that risk. So, naturally, the question came up, well, how high can I make that deductible? Can I make it 50%? Can I make it 70%? How much do I have to cover here? The answer is there is no legislative or judicial mandate that says you must limit your deductible to X. It doesn't exist right now. But here's the problem. That leaves it up to the court to decide on a reasonableness basis what your deductible should be. And if you're patently unreasonable about it, not to suggest that you would be, but I do get the questions periodically, if you're unreasonable about it, a court is just as likely to just throw it out. That is called unconscionability. Something that's so unreasonable that it shocks the conscience and makes the court feel morally irresponsible for enforcing it is the kind of thing that a court will look at and say, well, we're either going to throw this whole contract out or we're going to throw that provision out. We're not going to enforce it. And by the way, unconscionability is actually contemplated in the Uniform Commercial Code, which is the framework of all these laws that deal with equipment rentals. So, it's widely recognized as a reason for ignoring contracts. So, on top of all these other issues you have to consider when you're writing your contract, one of the things you need to be cognizant of is be reasonable about what you're doing. Because if you're not reasonable, which admittedly is in the eye of the beholder in many cases, but if you're not reasonable, you risk having a court throw it out completely. So, limit this percentage. When I get asked that question, what's the maximum minimum that I can go to? I will tell clients typically don't go beyond 80-20. So, don't include a deductible ever of more than 20%. I just think after 20%, my personal opinion, you're getting too far into the unreasonableness arena. And a court's likely to say, beyond 20%, we just want to enforce it. And you risk having your whole contract thrown out of court. Okay, let me stop there for a second. Yeah, I was just going to wait for you to take a breath. Okay. So, just a question about what a damage waiver should cover, just related to theft. And then I have a couple other things, but I'll give them to you one at a time. Okay, great. Theft, never, ever cover theft under a damage waiver. If you do, think about the mechanics of this. Customer comes in and pays a damage waiver fee, and what happens to your equipment? It disappears. What did you do by selling a damage waiver that covered theft? You created an incentive for it. Because if I can pay $1,500 and walk away with $100,000 worth of equipment, not me personally, but it does create the incentive for people to say, all right, that equipment's going to Tijuana. So, never cover theft or any failure to return rented equipment, because that invites people to either steal it and sell it or completely destroy it, overuse it, misuse it so badly that there's nothing left to return. Never sell damage waiver on anything. Never cover it if, never cover failure to return of any kind. What's the next question? The, what about covering total destruction of the equipment? Okay, yeah. Well, that's the, yeah, that's the other issue. Failure to return equipment. If the equipment, the customer claims the equipment is totally destroyed, you still want it back for a couple of reasons. One, you need proof, obviously, that the equipment has been destroyed, but that it hasn't been sold off at auction. And the other is, there may yet be value. Think about getting that totally destroyed equipment back. You're still going to be turning back to your own insurance company for coverage. Now, your insurance company is going to say what? They're going to say, we want to see it, and we want to see if there's any value that remains in that equipment that we can tap in order to mitigate our loss. I just had this happen on a case in the Midwest where a big crane got run onto a gas site, some gas escaped from a well site, was ingested by a diesel engine and blew it up. Sure enough, the client went back to its insurer and said, we need to cover this claim. The insurer demanded and got the engine core, which was worth about $10,000. So it's important to get return of totally destroyed equipment regardless. So you can cover it. You're taking a risk there if you cover total destruction, but you still need it back if it is totally destroyed. James, I had someone ask in relation to that, what if you require a police report? Yeah, a police report's a good idea. On the first issue, with respect to the evidence, that can help a great deal. It doesn't help you at all with respect to the insurance issue, but yes, always require a police report or some form of, you know, sometimes the police in some areas are more or less likely to give you that kind of report depending on the circumstances and timing of the issue. There was no police report on this one, this crane issue that I just described on the Midwest but but yes if there's an accident a reportable accident yes get a police report. And then the last question related to the what should cover is lessee's breach of the contract. Okay yeah this is an important exclusion never cover the customer's breach of your rental contract so exclude coverage write a specific exclusion into your damage waiver provision or your damage waiver addendum for the customer's breach of this contract. Now let's think about this again for a second what I said earlier about the importance of your rental contract. Your rental contract can provide you with a whole waterfront of protections. If you think about it one of those protections can consist of using equipment in a reasonable manner solely for its intended purpose. You want the customer to be obligated to protect care for and maintain your equipment. Other things like compliance with applicable laws rules and regulations, comply with use restrictions, refrain from misusing abusing and or overusing equipment. All those things should be written clearly into your rental contract and if they're not you need to review your rental contract. Now other things I can think of comply with manufacturers instructions and warranties or warnings rather and warranties by the way a breach of warranty should also be a breach of all contract. Comply with OSHA and ANSI standards because becoming very important as most of you know ANSI standards were originally meant to be voluntary standards but they've sort of de facto become requirements as they've been incorporated into OSHA's guidelines and now courts are looking around for sort of a framework for proper use and and on negligence issues and they're looking to ANSI more and more so so make sure OSHA and ANSI standards are referenced specifically in your contract. And finally the customer should be obligated to make sure that all other users are properly trained and familiarized and certified and licensed of course and if they're not all of those things should be breaches of your contract. Now if that happens if one of those things then constitutes a breach all of those things now get excluded from damage, wear, and coverage as they should be and this that becomes very important with respect to another issue revolving around negligence that I'll talk about in a minute. So what are some typical exclusions? Let me stop. Rebecca any other questions? No that was it. Okay so moving on then to other typical exclusions here's the things that are probably the most common by way of exclusions that I see from damage, wear, and coverage. Gross negligence, intentional abuse of course, violation of the rental contract as a breach that I just talked about. Theft and mysterious disappearance of course. A few others a violation of applicable laws. Overturning and that's particularly true of items that are in danger of overturning. You generally want to exclude overturning when you're renting things like skid steers or of course lifts. A big issue there. So you want to just you want to just not cover that altogether right as a separate exclusion. And exceeding the equipment's rated capacity. That sort of relates to overturning to a lot of different types of equipment as you know. But so exceeding the equipment's rated capacity also not only presents turnover issues but it will simply destroy your equipment. So those things you want to exclude from damage, wear, and coverage in all instances. And then think about other issues that your particular types of equipment your particular type of equipment might warrant exclusion for. Things like a tract equipment you might want to exclude. Tracks or belts or chains or knobs or hoses. Things like that that very often are very easy to damage. You want to think about including in your damage waiver program as exclusions. So you are not covering those items. All right. James back to that list you just had. If you could go back one slide. What's in your opinion what do you think is the most important exclusion of all the ones from the list? You know I my personal the two bottom on the on the most common exclusions are probably the most important violation of the rental contract and theft or mysterious disappearance. As between those two violation of the rental contract is probably the most important exclusion to build into your damage waiver program. And that's because you have so much latitude there. You so much ability to protect yourself with your rental contract that building in an exclusion for violations then means that you're substantially mitigating your risk from selling damage waiver. And really ideally what we'd like here is to generate as much in terms of revenue as possible and as little risk. Well that pretty much does it. Theft and mysterious disappearance obviously a huge issue so that's always got to be excluded. But those those probably rank one two in any damage waiver program. Okay so let's go let me jump to negligence for a second because here's a question I get very... James I got one question sorry. Any thoughts on any thoughts on self-funding damage waivers in-house or versus backed by insurance carrier? Oh good question good question yeah. So there there are there are some carriers out there who offer a special form of insurance on the back end of damage waiver that will cover it it will cover all risks associated with damage waiver losses. For the charges typically somewhere around five six percent maybe seven in some cases. Those guys sell that insurance on the back end and take all the risk off of the equipment owners and lessors selling damage waiver. So when you think about the economics here you sell damage waiver for 14 or 15 percent and you pay five six percent on the back end to get full coverage for that same damage waiver. What you've done is made the Delta. That's pure profit. We're talking about you know eight nine ten percent of every rental that's on which damage waiver is sold is pure profit no risk or substantially no risk. The those back end policies will of course have a few exclusions but the ones I run across most often Bates and EPG I know are a couple of good policies. They they're pretty comprehensive policies and I actually refer clients to them quite often because I think it's a good idea nothing to gain for me from it but but I think it's a good way to to take all the risk off it. Now there's a caveat there some insurance policies some of your regular insurance policies your equipment damage policies already cover the equipment on which damage waiver is sold. You're still going to have a deductible and loss history issue if you go turn in equipment claims on your own in the marine or property damage policies but so I know the ARA insurance automatically covers damage waiver as part of its program and there are others who specifically exclude it really important issue by the way I'll touch on in a minute. Check your insurance if you're going to sell damage waiver. Check your own insurance policy and make sure that it does cover that equipment. I've seen those policies a lot of them exclude equipment. Your own policies will exclude equipment on which you sell damage waiver unless you buy an endorsement. Some of them I know of at least two that require you to buy an endorsement if you're going to sell damage waiver. It's still worth it generally speaking because you're going to make more money by selling damage waiver then you're going to pay for that endorsement but it does beg the question if you're going to have to pay for an endorsement on your own policy versus buying a policy from Bates or EPG one of the back-end just damage waiver policies probably makes sense to just compare the costs and see which costs you last. For my money I the one the one critical issue is you absolutely need to have your insurance to make sure your insurance whether it's your own in-house property damage policy or your or a separate policy cover it with your own insurance because one big hit you know one quarter million dollar piece of equipment goes and that's a big big loss for a rental operator and it may constitute a breach on your financing agreement by the way so that's that's another you may have to pay it off immediately if you finance that equipment so just sort of a big issue there. Rebecca anything else on that issue? No no other questions. Okay so let me jump to negligence real quick because this is a question I get quite a bit from clients should I exclude from my damage waiver coverage ordinary negligence and that's a fair question right if a customer is negligent with a piece of equipment that seems like an obvious one to exclude from your damage waiver coverage but there's a problem with that this is this is where legal parlance and ordinary everyday people speak conflict because the negligence as defined in blacks law dictionary you can read this definition it's on the slide but the short story is that's failure to exercise proper care here's the problem that creates legally no matter what the incident no matter what kind of accident occurs the first or maybe second words out of a plaintiff's attorney's mouth they're going to be well that's clearly negligent well that everything sort of becomes negligence at some point right so so every virtually every type of mishap associated with any kind of equipment is driven by some kind of that somebody was negligent somehow and so what that does is that that sort of makes excluding negligence the equivalent of excluding everything and that's a problem for courts because invariably when you get in front of a judge the other side is on that damage waiver issue so the other side is going to be arguing excluding negligence is like excluding everything that just makes this damage waiver completely unfair and it should be thrown out of court this is that unconscionability issue I was talking about before so I I will write a damage waiver that excludes negligence if if one of my clients insists on it but I don't recommend it because I think that negligence is just too broad an exclusion to be reliably enforceable especially if you're in front of a hometown judge or jury who's not all that pleased about the idea of looking at all these exclusions anyway long lists of exclusions from damage warrant coverage very quickly start looking unfair to judges and jurors and by the way there's an alternative to this which is what I discussed before if you write your rental contract effectively enough you can you can create just about the same coverage by by refusing to cover customers breaches the damage caused by customers breaches of your rental contract and now when you get in front of a judge or jury and you're saying well yeah we we offer damage waiver coverage but we exclude gross negligence and we exclude breaches the damage caused by the customers breach of our rental contract well that seems inherently fair there's there's very few judges or juries are going to look at that and say well we're not going to enforce it of exclusion for breaching a contract because the customer breached it first so the moral sort of pendulum tends to swing back in your favor when you do it that way as opposed to just trying to full-on exclude negligence altogether okay which begs the question of course does the damage waiver have to cover everything this is probably the most common question I get from clients who are implementing a damage waiver program do I have to cover anything yeah you do be very careful with this overriding your damage waiver limitations or over enforcing remember you have some latitude here as to whether to enforce all these exclusions and limitations or not and and again being a reasonable good guy can have immense value especially when you get called in front of a judge or jury trying to who were trying to decide your case so based in part on whether you were a reasonable person or not so don't overwrite them you know I wrote an article that was published in RER magazine some years ago about the Hertz case seven hundred and forty six thousand nine hundred and fifty nine class-action plaintiffs sued Hertz for providing a damage waiver that was unfair now that Hertz had gone and engaged some some some very smart lawyers and written a tremendous damage waiver program the problem was it was so tremendous it didn't cover anything and as a matter of fact testimony came out or that the Hertz had a policy of virtually never covering anything and it got them sued and there was a that case I heard settled and it settled for many millions of dollars so that's the side of that that's the side of that gun barrel you don't want to be in don't overwrite your damage waiver so much that it covers nothing and don't enforce it that way so write a fairly aggressive damage waiver program but enforce it as a reasonable person would and don't seek to avoid covering anything doing doing failing to do that if you do try to avoid ever covering anything eventually there are plaintiffs lawyers out there soliciting those lawsuits and eventually one's going to come knocking at your door all right contract considerations did the lessee actually buy let me back up for a second Rebecca another question yeah I was sorry I was waiting for you to finish um must purchasing a damage waiver always be optional or can I require my customers to require that all my customers buy it must it be optional okay there's no law out there that necessarily says it has to be optional but if you think about the mechanics of offering damage waiver again if you advertise a piece of equipment this rents for $1,500 a week the customer gets in there to rent that piece of equipment you say oh there's a there's a there's a damage waiver fee that you can't waive it is not optional you have to buy it for every well well what is that that's the problem that creates is that's potentially false advertising that's sort of a that is a potential bait-and-switch claim we got you in here under the pretense of offering one price and we turned around and made you pay more I mean we won't read through if you don't if you don't pay that additional charge that's another one of those kind of issues that's that's a fairness analysis and they have done that's another one that can get you sued in the big class action so there's a sort of an artful way to do that make it optional but make it optional in a certain way say this as one example and your damage waiver provisions damage waiver is optional provided that you comply with all of the other terms of this agreement now think about that for a second if one of the other terms of your rental contract requires the customer to maintain insurance then what have you done you've only made it optional if the customer has provided insurance well that's exactly what you want if the customer does not provide insurance you want your customer buying damage waiver every time because otherwise when you think about it you're just taking the risk yourself if the customer doesn't provide you with an insurance certificate and you're not being compensated for it so if the customer can't provide you with an insurance certificate you do effectively wind up charging that customer for damage waiver but you still made it optional so that's the kind of protection you build in that helps you avoid getting sued but also mitigate your risk to agree to a degree and get you compensated for the risk you're taking so that's the over-under you want to make it optional but you don't want to expose yourself to additional risk that you don't necessarily have to expose yourself to Rebecca anything else on that no that's it I just want to let you know it's around 1050 okay so we're just about we need to wrap up all right so so very quickly be careful with boilerplates if you go down the street and get somebody else's rental contract or damage waiver addendum or if you get one from a software provider or a printer you're taking a big risk and here's why those guys aren't lawyers and they may have gotten that contract from somebody who's not a lawyer there's somebody didn't even know there's so many rental contracts that I see around the country have just been pilfered from the guy down the street but nobody knows where the guy down the street got his contract or his damage waiver provision or his damage waiver addendum so be really really careful with that I'll give you an example of what happened about six months ago I got a call from a woman in Minnesota who said I lost a $30,000 piece of equipment customer came in and rented on my rental contract here's my rental contract I don't sell damage waiver I've never sold damage waiver but the customer claimed he had he was entitled to the benefits of damage waiver well the problem was the contract she sent me included a damage waiver provision on the back of it bigger problem was that damage waiver provision didn't require payment of the damage waiver fee it just said unless you decline damage waiver on the front of this rental contract you will be deemed to have purchased damage waiver she was out of luck she went to court on that issue and they was done the court said listen this was your rental contract you presented this rental contract to the customer therefore you are responsible for what appears in it it had a damage waiver provision in it and even though you've never sold damage waiver this customer had the right to rely on your contract and she lost a $30,000 claim so one of the things you need to do is include a fallback if you write a damage waiver not only do you need to say you need to accept or decline it on the front of your rental contract but you also need to say you must pay for it and do that in advance at the time that you went before your rental term begins pay for the damage waiver fee or you're not entitled to damage waiver coverage even if you didn't accept or decline even if you said nothing on the front of the rental contract if you didn't pay the damage waiver fee you are not covered by the way if the lessee does purchase a damage waiver include a separate line item charge for it that's a fair disclosure issue another one of those things that was factored into the Hertz case I talked about a little bit ago okay the best way to address these issues I'm going to skip over this slide because there's too much detail here and for me to cover in the last minute or two I will tell you that there's there has become so many issues so many issues have accumulated regarding damage waiver that I have begun saying it's really not pragmatic or realistic to think that you can include all of them in a little tiny contract provision on the back of an 8 to half by 11 rental contract so my suggestion now is be clear get some clarity here be prepared if you if you get hauled into court on a damage waiver use a separate damage waiver addendum with the customer signature on it so that you can point to it and say here's a here's your fairness issue here's what the customer agreed to here are the exclusions he acknowledged it here's a signature at the bottom of this damage waiver addendum there is no way to avoid enforcing this that's one of those moral issues that now swings the pendulum further in favor of the owner or less or and helps you win that case all right wrapping up there are a few additional slides in this presentation about what insurance less you should provide I'll let you read those on your own one important issue this slide about if the customer declines damage waiver if the customer declines damage waiver generally there are five options here but really numbers one and number five are really your takeaways require insurance or take your chances right you can decline to rent you can collect the damage deposit but that's sometimes very difficult especially with bigger machines so you need to require insurance or you're taking your chances a big chance with respect to equipment you let go out without an insurance certificate there are some other means of reducing your damage waiver risk on the last slide I want to reiterate make certain check with your own insurance carrier make certain it is not excluded or that equipment that you sell damage waiver on is not excluded from your from your damage waiver from your insurance coverage and you get surprised down the road after a loss and finally if you're if you're dropping off early this issue has come up more in recent years as contractors are requesting equipment owners and less so as to drop off equipment at the job site the night before so they can come in the next day a big question is now coming up if that equipment is damaged between the time you drop it off and the time the contractor takes possession who's responsible for it did the damage waiver cover it the answer if you're selling damage waiver is typically yes so two options two three options but two are realistic one is don't sell damage waiver on early drop-off equipment that's the safest thing to do but it of course means you don't get to sell damage waiver on a lot of your equipment and more and more as time goes by as more contractors are requesting this but look down at option number three acknowledge going back to your rental contract acknowledge the customers assumption of the risk upon drop-off which is what's what your rental contract should say anyway and exclude damage due to failure to secure or protect that equipment because remember even if you're dropping equipment off there are still ways to protect that equipment and secure it on that job site I put it in a storage shed or a barn or behind a locked gate are several ways that come off the top of my head so there are ways to protect it and if the customer doesn't do that you still effectively excluded from damage waiver coverage that dropped off equipment but those issues need to be very carefully addressed in your rental contract don't rely on your insurance alone there's no reason to do that and there are all kinds of issues associated with the potential just relying on your insurance yes you need to make certain it's there but no it's it's it's inadvisable to put it as diplomatically as I can to rely solely on your insurance contract around these issues there are so many protections that people are forgetting about in the rental contracts and the damage with visions that they can easily avoid so many of these tens hundreds of thousands of dollars of losses that they could simply contract around it doesn't take much time it's quite easy to do and customers virtually always agree to it you may get a negotiation here and there but generally speaking customers going to sign these without reading them or only with glancing over them unless you have a in the odd case where a larger contractor customer wants to sit out and negotiate yes you will have those issues on occasion but most people are not going to object to your standard terms of your rental contract so my very strong suggestion is write those terms to protect yourself both from lawsuits and from equipment damage last slide we write these things for for clients all over the country feel free to contact us we give special discounts to AED members you can even get our forms online there at equipmentrentalcontracts.com and lastly we're giving a special discount for the attendees of this webinar today if you do come to us and decide to buy a rental contract or one of the many attend the way offer for equivalent source will credit the cost of what you paid for this webinar today against the purchase price of that if you do it by closing business on Friday of this week so feel free to contact us my contact my contact information is on these slides if you do that you let us know you're an AED member and you attended this webinar we'll credit you back the full price of what you pay for this webinar that's it that's into my presentation thanks for coming Rebecca we have any other questions no I think you did a great job you covered a lot in the last 10 minutes so I appreciate that certainly if anyone wants to type in the last minute question please do and I feel free to I'll read it off to James additionally I mean as James said please feel free to contact him with any questions after the webinar if you didn't receive the emailed version of the PowerPoint please let me know and I'll resend it to you following this webinar James doesn't look like anything's come through so I just want to say thanks again and everyone has a great day okay great well I'll leave this up I will leave this this last slide up on the screen for a bit in case people are looking at it for rub for contact information and feel free to contact us thanks a lot for coming

damage waiver

equipment owner

rental customer

physical damage

rented equipment

rental contract

repair and replacement

responsibility

damage waiver coverage