Hertz 2008 Annual Report Download - page 46

ITEM 1. BUSINESS (Continued)
Third-Party Liability
In our domestic operations, we are required by applicable financial responsibility laws to maintain
insurance against legal liability for bodily injury (including death) or property damage to third parties
arising from the operation of our cars and on-road equipment, sometimes called ‘‘vehicle liability,’’ in
stipulated amounts. In most places, we satisfy those requirements by qualifying as a self-insurer, a
process that typically involves governmental filings and demonstration of financial responsibility, which
sometimes requires the posting of a bond or other security. In the remaining places, we obtain an
insurance policy from an unaffiliated insurance carrier and indemnify the carrier for any amounts paid
under the policy. As a result of such arrangements, we bear economic responsibility for domestic vehicle
liability, except to the extent we successfully transfer such liability to others through insurance or
contractual arrangements.
For our car rental operations in Europe, we have established two wholly-owned insurance subsidiaries,
Probus, a direct writer of insurance domiciled in Ireland, and Hertz International RE Limited, or ‘‘HIRE,’’ a
reinsurer organized in Ireland. In European countries with company-operated locations, we have
purchased from Probus the vehicle liability insurance required by law, and Probus reinsured the risks
under such insurance with HIRE through December 31, 2006. Effective January 1, 2007, reinsurance is
provided by another subsidiary of ours, HIRE Bermuda Limited. Thus, as with our domestic operations,
we bear economic responsibility for vehicle liability in our European car rental operations, except to the
extent that we transfer such liability to others through insurance or contractual arrangements. For our
international operations outside of Europe and for HERC’s operations in Europe, we maintain some form
of vehicle liability insurance coverage with unaffiliated carriers. The nature of such coverage, and our
economic responsibility for covered losses, varies considerably. In all cases, though, we believe the
amounts and nature of the coverage we obtain is adequate in light of the respective potential hazards.
Both domestically and in our international operations, from time to time in the course of our business we
become legally responsible to members of the public for bodily injury (including death) or property
damage arising from causes other than the operation of our cars and on-road equipment, sometimes
known as ‘‘general liability.’’ As with vehicle liability, we bear economic responsibility for general liability
losses, except to the extent we transfer such losses to others through insurance or contractual
arrangements.
To mitigate our exposure to large vehicle and general liability losses domestically and in our car rental
operations in Europe, we maintain excess insurance coverage with unaffiliated insurance carriers
against such losses to the extent they exceed $10 million per occurrence (for occurrences in Europe
before December 15, 2003, to the extent such losses exceeded $5 million per occurrence). The
coverage provided under such excess insurance policies is limited to $200 million for the current policy
year, which began on December 21, 2008 and ends on December 21, 2009 (for occurrences between
December 21, 2007 and December 21, 2008, the limit was $200 million; between December 21, 2005
and December 21, 2007, the limit was $100 million; between December 15, 2005 and December 21,
2005, the limit was $235 million; between December 15, 2004 and December 14, 2005, the limit was
$185 million). For our international car rental operations outside of Europe and for HERC’s operations in
Europe, we also maintain liability insurance coverage with unaffiliated carriers in such amounts as we
deem adequate in light of the respective potential hazards, where such insurance is obtainable on
commercially reasonable terms.
Our domestic rental contracts, both for car rental and for equipment rental, typically provide that the
renter will indemnify us for liability arising from the operation of the rented vehicle or equipment (for car
rentals in certain places, though, only to the extent such liability exceeds the amount stipulated in the
applicable financial responsibility law). In addition, many of HERC’s domestic rental contracts require
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