More payments are likely in the long-running Hertz lawsuits.
Hertz announced Monday that it will pay $168 million to 364 customers who have sued the company after being arrested for driving their rental cars. It says that it will make these payments in the next three-and-a-half weeks (that is, before the end of the year) and that they will settle “95 percent of its pending theft reporting claims.” But the company’s very brief statement leaves a lot of questions unanswered.
“My intention is to lead a company that puts the customer first. In resolving these claims, we are holding ourselves to that objective,” Stephen Scherr, Hertz CEO since February, in a statement about the settlement. Both the statement and the settlement itself seemed intended primarily to reassure investors about these rapidly multiplying lawsuits. Although the announcement offers no details at all about the settlements, it does make a point of saying that it expects its insurance carrier to absorb the bulk of the costs. “The Settlements and related payments are not expected to have a material impact on the Company’s capital allocation plans for the balance of 2022 or 2023,” the announcement says.
For years, Hertz has faced lawsuits by customers who were pulled over, held at gunpoint, and/or arrested and spent time in jail merely for driving cars they had rented and that the company had reported stolen. Why would Hertz report cars as stolen after renting them to paying customers? According to the plaintiff’s attorneys, this usually happens for one of two reasons. The first is that the company’s antiquated inventory management system often fails to keep track of its cars, and when they lose track of a car, Hertz employees routinely report it as stolen. If they lose track of a car that they rented, then the person behind the wheel is liable to get arrested, often with guns drawn. The second reason is that a renter extends the period of their rental. In some cases at least, Hertz employees agreed to the extension, but then the customers’ debit or credit card company declines the new hold that Hertz has put on their card, for instance because they’re already at their credit limit. At that point, some of the plaintiffs say, Hertz would rescind the extension, reset the due date to its original date, and report the car stolen, leaving the drivers to face arrest. In a statement to Inc., a Hertz representative said that renters are arrested “only after exhaustive attempts to reach the customer.” But some who were arrested say that a Hertz representative told them the extension was approved and that they never heard anything further from the company.
For the 364 plaintiffs who have apparently settled with Hertz, it’s likely a relief to put these unpleasant episodes behind them. But Hertz’s announcement leaves several questions unanswered.
1. How much more will Hertz pay to settle these lawsuits?
It seems unlikely that $168 million will be enough to make this problem go away. About a year ago, plaintiffs’ attorneys announced that their clients were suing Hertz for a total of $529.7 million. Since then, dozens more plaintiffs have joined the case, and many plaintiffs are now suing the company in state court as well as bankruptcy court. (Hertz emerged from bankruptcy on July 1, 2021.) It seems safe to say that $168 million represents less than a third of what it’s being sued for–probably a lot less. And while some of the plaintiffs may simply have been stopped and briefly detained, others were confronted at gunpoint by police officers who believed they were dealing with dangerous car thieves, or, in some cases, spent months in jail. Although Hertz isn’t saying, it seems highly possible that these plaintiffs may be part of the 5 percent that have not agreed to settle with the company. It also isn’t clear whether the suits Hertz has settled are those filed in bankruptcy court, or whether or not they include the dozens of newer lawsuits filed in state courts around the U.S. Considering all this, it seems possible that the company will have to pay a lot more to make this problem go away.
2. What about the renters who are currently being prosecuted?
As recently as May of this year, there were still at least 40 Hertz customers facing ongoing prosecution for car theft based on stolen car reports that Hertz filed and then never withdrew. In the past, Hertz claimed that it could not withdraw the stolen car charges against these renters; instead it was law enforcement’s role to do so. Shortly after taking over as Hertz CEO, Scherr seemed to contradict this statement, saying that the company should indeed have rescinded those theft reports. Some of those renters are facing prosecutions that have been going on for several years. Hertz’s announcement does not indicate whether those theft reports have been withdrawn, or whether any of those cases were dropped by prosecutors.
3. Does the company really believe its insurers will pay the damages?
Apparently, the insurers disagree. On the same day it issued the press release, Hertz also filed a form 8-K about the settlement with the SEC. While a company can choose what it does and doesn’t disclose in a press release, the 8-K is a legally binding filing intended to disclose information to shareholders about any event that could impact the value of their investment. And so, in its SEC filing–but not in its press release–Hertz discloses that it’s having a dispute with its insurance company over who should bear the expense of this settlement. “In May 2022, the Company filed a complaint against several of its insurers seeking a determination that certain of its commercial general liability and directors’ and officers’ liability insurance policies provide coverage for the Claims; that litigation is currently pending.”
I have no insight at all into the insurance companies that cover Hertz or its officers. But in general, insurance policies are intended to cover both people and companies against unforeseen occurrences, not predictable events that have been going on for a long time. And Hertz’s settlement falls into the second of those categories. Lawsuits against the company over false arrests go back at least 45 years.
When Scherr became CEO, he told reporters that the false arrests were “unacceptable,” and that he’d taken steps to prevent them in the future. Whatever the outcome of the remaining lawsuits and whatever Hertz winds up paying, let’s hope that’s true, for the sake of anyone who ever rents one of their cars.