A rental customer, through operator error, drives your backhoe off a bridge and into a stream. The backhoe is destroyed, and its fuel pollutes the stream, contaminating the community's ground water. Is your rental company responsible for the customer's error? If you don't have a properly worded rental contract, your attorney or insurance carrier could be defending you in a massive lawsuit.
Rental companies spend millions of dollars each year on insurance premiums and loss prevention measures, yet one powerful legal defense system is often overlooked: the rental contract.
From an insurance company's perspective, rental centers need to be aware of a number of important aspects of the contract before a customer takes a tool off the lot. Among the areas rental center operators should be familiar with are hold harmless; inspection of equipment; disclaimer of warranties; damage waiver; and employee and customer signatures.
Hold harmless One of the most important clauses in the rental contract is hold harmless. An example of a typical hold harmless clause is: "Customer agrees to hold harmless rental center from and against any and all liability, claims, judgments, attorney's fees and costs, of every kind and nature, including, but not limited to, injuries or death to persons and damage to property, arising out of the use, maintenance, instruction, operation, possession, ownership or rental of the equipment rented." This clause, if worded correctly in your state, can be effective as a legal defense if a customer improperly uses your equipment. As was the case in this article's lead-in example, you might not be responsible for your customer's actions, but you could incur hefty legal fees unless this wording is in place.
Equipment inspection Considering the amount of repair and maintenance a rental company performs, another great clause is the inspection of equipment clause. This clause should detail that the equipment is received on an "as is" basis and that the customer has acknowledged, by signing the agreement, that he has inspected the equipment and found it in good working order before operating it.
Warranty disclaimer How many times have you given advice on the proper equipment to rent for a specific job without visually inspecting the job? If your company is like most rental centers, this advice is given freely every day. Yet if you or your employee is provided with an incorrect description of the job, your company could be providing improper expert advice that could have disastrous consequences.
A disclaimer of warranties clause is important to add to the rental contract. The clause should state that there is no warranty or representation that the equipment is fit for the customer's particular intended use, or that the rental center is not responsible for any bodily injury or property damage as a result of using the equipment.
Damage waiver One of the most misunderstood clauses of a rental contract is the damage waiver. Have your employees ever referred to the clause as insurance?
The damage waiver clause is not insurance, and it should state so in the contract. A damage waiver is an agreement between the rental center and the customer that the rental center will waive any claim against the customer for direct physical damage to the equipment while in use by the customer. Often included in this agreement are several conditions that are not covered. Notable examples of excluded conditions are equipment not returned for any reason, including theft; damage resulting from vandalism or malicious mischief; and damage to equipment from failure to transport or maintain the equipment properly. Some damage waiver clauses will go so far as to say that the waiver is in excess over any available insurance of the customer's. It is very important that you and your employees describe what is covered in the waiver correctly and that you have the customer sign off that she or he has understood it.
The signatures The most common rental contract mistake concerns the signature of the rental contract. How many times has your company dropped off equipment without getting a rental contract signed? Without a signature, the contract is worthless in the event of a lawsuit. A good rental contract should have several signature sections:
* The overall signature, and date, for the contract, acknowledging that your customer agrees to its terms and conditions.
* A sign-off that the customer has been offered safety equipment and safety instructions.
* A signature that the customer has declined or accepted the damage waiver. The damage waiver acceptance clause should say that the customer has read and understands the clause.
* A signature, and date, from the employee who rented the equipment to the customer and a signature, and date, from the employee who received the equipment after the rental. This is important for depositions in the event of a lawsuit.
Time spent updating your rental contract now could save your company from lawsuits and increasing insurance premiums in the future. [as opposed to those wanted lawsuits?]
For further assistance on rental contracts, consult your company's attorney before changing your rental contract to be sure that wording changes comply with the laws of your state. Also, the Rental Industry Association and American Rental Association can serve as valuable resources.
McGeary has insured rental dealers for over 10 years, and he is the vice president of sales at Allied Insurance Brokers in Pittsburgh.
