1. Forms
2. CA
3. CA-20-10

What the form is

The CA 20 10 endorsement is designed for businesses engaged in leasing or renting automobiles. Its primary function is to modify the physical damage coverage (Comprehensive or Specified Causes of Loss) provided under the Business Auto Coverage Form or Motor Carrier Coverage Form. Specifically, it addresses losses arising from dishonest acts such as conversion (wrongful retention of the vehicle), embezzlement, or secretion (hiding the vehicle) by a customer (lessee or renter) or someone who has lawful possession of the auto under a lease, rental agreement, or similar arrangement. This endorsement can be used in two ways: either to explicitly exclude coverage for these types of losses or to buy back coverage for them, as standard policy language might otherwise exclude such losses.

Classes of business it applies to

This endorsement is specifically for businesses involved in the leasing or rental of automobiles. This includes:

• Car rental agencies (short-term rentals)
• Automobile leasing companies (long-term leases)
• Any business that rents or leases vehicles to others as a primary part of their operations.

Real-world example: A car rental company experiences a situation where a customer rents a vehicle for a week but never returns it and cannot be contacted. This would be considered a conversion. The CA 20 10 endorsement would determine if the rental company's commercial auto policy covers the financial loss of that unrecovered vehicle.

Special considerations

It's crucial to understand that standard auto physical damage coverage often contains exclusions for losses if the vehicle is in the lawful possession of someone (like a renter) who then dishonestly deprives the owner of it. The CA 20 10 endorsement directly addresses this potential gap or ambiguity.

• Exclusion vs. Buy-Back: The endorsement can be structured to either remove coverage for these specific perils (potentially lowering the premium) or to affirm and provide coverage (buy-back), which would typically increase the premium. The choice depends on the insured's risk appetite, risk management practices, and the cost of the coverage.
• Impact on Comprehensive/Specified Perils: This endorsement modifies how Comprehensive or Specified Causes of Loss coverage applies to the unique risks faced by rental and leasing operations.
• Underlying Agreement: The terms of the rental or lease agreement itself are also important, as they outline the renter's/lessee's responsibilities. However, insurance coverage provided by this endorsement operates based on the policy terms.

Real-world example: A leasing company might choose to buy back conversion coverage if they have a high volume of leases and want to protect their assets against lessees who abscond with vehicles, despite having screening processes in place.

Key information for agents and underwriters

For Agents:

• Thoroughly discuss with leasing/rental clients whether they want to exclude or buy back coverage for conversion, embezzlement, and secretion. Explain the potential financial impact of an uncovered loss.
• Review the client's rental/lease agreements and their procedures for screening renters/lessees and for recovering missing vehicles.
• Ensure the client understands the definition of conversion, embezzlement, and secretion as it pertains to the coverage.

For Underwriters:

• When considering the buy-back option, assess the applicant's loss history related to these types of perils.
• Evaluate the strength of the applicant's rental/lease agreements, their customer screening processes, vehicle tracking systems (if any), and their protocols for dealing with overdue vehicles.
• The premium for the buy-back will reflect the perceived risk. Businesses with robust controls and a good loss history may obtain more favorable terms.
• Be clear in the policy documentation whether the endorsement is providing the exclusion or the buy-back of coverage.