State Farm Ends Some Coverage on Rental Cars : Auto insurance: Automatic collision and liability provisions eliminated for some policyholders. But move does not yet affect California.

State Farm Mutual Automobile Insurance Co., the nation’s largest auto insurer, is eliminating automatic collision and liability coverage for some policyholders who rent cars on business. Instead, State Farm has begun selling the coverage as a $40-a-year option.

The company has implemented the change in 22 states so far, but says it has no plans for now to do so in California, where most changes in auto premiums and coverage have been frozen during the four-year dispute over Proposition 103, the insurance-rate rollback initiative.

Still, the move--which mainly affects small businesses and the self-employed--adds to the confusion in a marketplace that one rental-car company official says is “already really swampy”:

* Farmers Insurance Group and the Automobile Club of Southern California--the state’s No. 2 and No. 5 auto insurers, respectively--both provide automatic coverage for policyholders using rental cars on business and have no plans to change, officials said.

* However, 20th Century Insurance Co.--another of the state’s largest auto insurers--does not provide such coverage, according to a spokesman.

* Some corporate credit cards offer automatic, free insurance for rentals that customers charge. But others have quietly reduced or eliminated such coverage.

American Express, for example, stopped offering automatic free coverage for its large corporate customers two years ago, a spokeswoman said. Small companies--generally those with 100 or fewer employees--get free “secondary” coverage, meaning that American Express pays the claim only if the cardholder can demonstrate that he or she has no other coverage.

Corporate cards from Visa and Mastercard offer primary coverage for business car renters.