How Rental Companies Can Save Insurance Premiums with Risk Management Techniques

When you are in a rush to meet rental clients' deadlines, risk management is often the last thing on your mind. Unfortunately, if a serious lawsuit involving your rental equipment arises, it can consume your valuable time and affect your company's loss history and insurance premiums for up to five years.

For rental companies, there are minimum basic risk management techniques to reduce the risk of a lawsuit. Below are simple methods that you can implement when renting equipment.

Never Rent Without a Signed and Properly Worded Rental Contract

The indemnity and hold harmless wording of your rental agreement is often your first line of defense in the event of a claim arising from a lessee's use of your equipment. Your company should not be held responsible for the misuse of equipment by your customer.

The most common mistake with rental contracts is the lack of a signature (or signatures in California) to contractually bind you and your customer. Have you ever sent out a piece of equipment without a signed rental contract in a rush to get out an order? Without that signature, you may have “signed away” a lawsuit settlement or, at the very least, you've had to spend money on attorney fees defending against your customer's improper use of rental equipment.

Rental contracts should be updated at least every three years with the most current state specific indemnity and hold harmless wording. Local rental associations such as the American Rental Association or Scaffold Industry Association can be of assistance. Always have your legal counsel review any changes to make sure your rental contract meets national, state, and local legal standards.

Establish a Documentation Trail When Maintaining Your Equipment

If your equipment injures one of your customers, the first piece of information the personal injury attorney and the attorney representing the manufacturer will request is the maintenance file. These attorneys will attempt to prove your company did not maintain or repair the rental equipment properly according to its specifications.

Maintenance files can be made up of computer documentation, a paper file, or a properly worded ready-to-rent tag attached to the rental contract. Whatever your system, it should include documentation showing when the equipment was inspected, what repairs, if any, were made, and the name of the employee responsible for the maintenance. Simple items, such as worn-off warning labels, can be extremely important in a lawsuit and should be documented along with all other maintenance.

Pay Special Attention to Any Special Certificate Wording Requests

Rental customers' risk consultants have become quite crafty in requesting certificate wording that they know is legally one sided, and they depend on your company not to review it. An improperly worded certificate of insurance can impede your insurance carrier's right to defend a claim.

In conjunction with your legal counsel, formulate certificate wording templates that address such issues as blanket additional insured, blanket waiver of subrogation, or primary and noncontributory wording. Be sure to involve your insurance and legal representation in any contract that may impede your company's rights to litigate. If you sign a contract with your customer that foregoes those rights, you may find out later you have bought an insurance claim that may or may not be covered under your insurance policies.

Take Special Care When Renting Aerial Lifts and Trailers

As any insurance specialist in the rental industry will tell you, the two main causes of loss are aerial lifts and trailers.

Be sure to constantly check your aerial equipment to see that the safety labels on the equipment have not worn off. This is a typical defense made by personal injury attorneys when the lift either falls over while extended on a ramp or hits an electrical line.

When renting an aerial lift for more than 30 days, it is wise to obtain general liability and equipment certificates naming your company as an additional insured. Over extended time periods, maintenance issues can pop up, so you want to make it clear that the customer is responsible for the condition of the equipment while on the jobsite unless they contact you for repairs.

For most rental companies, trailers are necessary to deliver equipment. Some of the largest claims in rental have been trailers that became disconnected and hit oncoming traffic. The biggest mistakes rental companies make from a legal standpoint are having a trailer that is more than 15 years old, renting a homemade trailer, not having surge brakes (or experiencing surge brake failure), and failure of the dual safety chain.

The first line of defense for a rental company in the event of a trailer malfunction is the manufacturer, which can be nullified if there is no manufacturer to fall back on or the trailer has outlived its expected life span because of maintenance. The most proactive course of action for any rental company is to purge your fleet of homemade trailers, trailers more than 15 years old, and trailers without some sort of braking system. Trailer braking systems are now required in most states. And as stated before, make sure you accurately document all maintenance, damage, and repair on your trailers.

A final piece of advice: “Knowledge is Power!” Explore all information possible on risk management through industry publications, magazines, insurance professionals, and peers in your industry. The more time spent developing sound risk management practices now, the less time and money you will spend defending yourself in a lawsuit or paying higher premiums later.

About the Author: 

Jeff McGeary

Jeff McGeary is senior vice president of sales for Allied Insurance Brokers, Inc., Pittsburgh, Pa. He has 18 years experience in insurance and specializes in the rental equipment, aerial lift, scaffold and crane industries. McGeary can be reached at jmcgeary@alliedinsbrokers.com.