Hearty v. HarrisHearty v. Harris
COLE, Justice.
The issue in this case is whether a self-insured rental car agency, which enters into a rental agreement insuring against liability only the renter and one named additional driver, is mandated by public policy to provide omnibus coverage insuring other persons using the vehicle with the express or implied permission of the renter. Plaintiffs seek to assess liability for damages arising out of an accident involving a driver not named in the agreement.
I. Facts and Procedural History
On October 13, 1986, Nathaniel E. Willis rented an automobile from Budget Rent-A-Car. Budget‘s vehicles are self-insured in accordance with
USE OF RENTED VEHICLE BY DRIVER OTHER THAN ONE SPECIFICALY QUALIFIED AND IDENTIFIED ON THIS CONTRACT WILL CANCEL AND TERMINATE INSURANCE COVERAGE; AND IN THE EVENT OF DAMAGE TO RENTED VEHICLE, OTHER PERSONS, OR PROPERTY, THE RENTER WILL BECOME LIABLE TO BUDGET/SEARS RENT A CAR FOR ALL COST, EXPENSES, CLAIMS, LOSSES AND ATTORNEY‘S FEES.
The back of the agreement provided in pertinent part as follows:
2. The following restrictions are cumulative and each shall apply to every use, operation or driving of vehicle. Under no circumstances shall vehicle be used, operated or driven by any person:
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(g) By any person other than (1) the Renter who signed this agreement, or (2) any additional driver who signed this agreement.
* * * * * *
7. BUDGET/SEARS agrees to provide to the renter, and additional driver, liability coverage within limits of liability equal to the minimum limits required by the compulsory motor vehicle liability security law, (or so called `financial responsibility law‘) of the state in which the vehicle is rented. As a condition for this coverage, Renter and driver agree to comply with, and be bound by, all terms, conditions, limitations, and restrictions related to said coverage.... The insurance coverage referred to in this paragraph 7 does not apply:
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(e) While said vehicle is used, driven or operated in violation of the provisions of paragraph 2 ... (g), hereof. This paragraph 7 constitutes the entire agreement between BUDGET/SEARS and the Renter and driver regarding the terms and conditions of the insurance provided by BUDGET/SEARS to the Renter and driver and no alteration thereof shall be valid unless agreed to by BUDGET/SEARS, in writing. If any provisions of this paragraph shall be found to be unlawful, unenforceable, or contrary to public policy, then that portion of this paragraph which is unlawful, or unenforceable, or contrary to public policy shall be modified to provide the minimum amount of insurance coverage necessary to comply with the law or public policy, and the remainder of this paragraph shall remain in full force and effect.
On October 20, 1986, the vehicle in which the plaintiffs, Louis L. Hearty and Leo R. Bias, were traveling was struck by the leased vehicle. At the time of the accident, the rental car was driven and solely occupied by the defendant, Russlane Harris. The plaintiffs filed suit against Harris, Elwood,1 and Budget. Specifically, the plaintiffs
Budget filed a motion for summary judgment based on the provisions in the rental agreement which provided for termination and cancellation of liability insurance coverage if the vehicle was driven by any person not specified as a renter or additional driver. The trial court heard the motion on April 7, 1989 and granted summary judgment dismissing the plaintiffs’ claims against Budget on April 20, 1989.
The Court of Appeal, Fourth Circuit, affirmed. Hearty v. Harris, 559 So.2d 884 (La.App. 4th Cir. 1990). The appellate court found the omnibus-insured analysis, used in previous cases in which coverage had been found to exist despite provisions in the rental agreement which prohibited operation of a leased vehicle by an unauthorized driver, was inapplicable in the instant case. The Fourth Circuit distinguished the prior cases because Budget was self-insured.2 Additionally, the appellate court found the prohibitory language in the rental agreement to clearly evidence the lack of permission on the part of Budget for Harris to operate the vehicle. Although the Fourth Circuit recognized the plaintiffs’ allegation of an employer-employee relationship between Willis and Harris, the court refused to consider this allegation because the amended petition was not filed until after the trial court had granted Budget‘s motion for summary judgment.3
II. Jurisprudential Background
In Normand v. Hertz Corp., 254 La. 1075, 229 So.2d 104 (1969), we concluded an omnibus clause in Hertz‘s insurance policy did not apply to a driver who was not listed as a qualified driver in the rental agreement. However, in Jones v. Breaux, 289 So.2d 110 (La.1974), we overruled Normand, and held a non-named driver could fall under the omnibus clause in the rental agency‘s insurance policy under certain circumstances. In Jones, the rental car was operated by an unauthorized driver in violation of a provision in the lease agreement which prohibited use except by the lessee or others named in the agreement. We held the rental agreement, which limited the application of the omnibus insured clause contained in the lessor‘s insurance policy, changed the contract of insurance in violation of
We agree with the appellate court that the instant case is distinguishable from Jones. Obviously, the existence of the lessor‘s insurance policy in Jones played an important role in the outcome of the case, as the omnibus clause contained in the lessor‘s policy was the major reason behind the court‘s refusal to honor the prohibitory provisions in the rental agreement.5 Thus, the Jones decision and its progeny provide little insight into this case involving a self-insured rental agency because there is no lessor‘s liability policy.
We add it is questionable whether the Jones holding is viable today because its reasoning is no longer accurate based on
With the exception of Whittington, the appellate courts of this state have skirted the legal issue concerning the validity of unambiguous provisions in rental agreements which prohibit operation by unauthorized drivers. Instead, the lower courts have treated this legal issue as a factual one by enforcing specific prohibitions when the unauthorized driver operated the vehicle without the lessee‘s permission, while holding the same prohibitions unenforceable when the unauthorized driver had the lessee‘s implied or express permission to operate the vehicle.6 Absent statutory regulations to the contrary, there would appear to be no basis for the lower courts’ disregard of the unambiguous restrictive language in the rental contracts.
III. The Louisiana Motor Vehicle Safety Responsibility Law
A. The Nature of Self-insurance
Having concluded the prior jurisprudence involving the liability of rental agencies when the leased automobile is driven by an unauthorized driver in violation of the lease agreement offers us little guidance, a discussion of the nature of self-insurance under Louisiana law is necessary. The Louisiana Motor Vehicle Safety Responsibility Law7 (LMVSRL) provides a mandatory, comprehensive scheme for the protection of the public from damage caused by motor vehicles. At the heart of this statutory scheme is the decision to attach the financial protection to the vehicle rather than to the operator.8
Pursuant to
It is important to understand that self-insurance is, in actuality, not insurance at all. It is merely one of the four methods by which an owner of a motor vehicle is allowed to meet the requirements of the LMVSRL. Pursuant to
While Louisiana courts have consistently recognized that a certificate of self-insurance indicates the self-insurer possesses sufficient assets to satisfy judgments if found legally liable, the courts have refused to consider a certificate of self-insurance an insurance “policy.” Jones v. Henry, 542 So.2d 507, 509 (La. 1989) (self-insurers do not have to provide uninsured motorist coverage); Jordan v. Honea, 407 So.2d 503, 504 (La.App. 1st Cir.1981), writ denied, 409 So.2d 654 (La. 1982) (uninsured motorist coverage is required only if there is an insurance policy). Instead, the courts have treated each of the four methods listed above as a distinct means of establishing proof of financial responsibility.
B. Statutorily Required Omnibus Coverage
Under a provision commonly referred to as an “omnibus clause,” insurance coverage may be extended to other persons who are using the insured vehicle with the insured‘s express or implied permission.9 An omnibus clause is intended to extend liability beyond the law of principal and agent.10 The Louisiana legislature requires a “Motor Vehicle Liability Policy,” as defined, to include an omnibus clause which “insure[s] the person named therein and any other person, as insured, using any such motor vehicle or motor vehicles with the express or implied permission of such named insured...,” subject to certain statutory limits.
C. Extent of the Self-insurer‘s Liability
We find no provision in the LMVSRL which expressly requires a self-insured to be responsible for the actions of a person using the vehicle with the express or implied consent of the self-insured or the authorized driver(s). Had the legislature intended for self-insurers to provide omnibus coverage, it could easily have included a mandatory omnibus provision in
IV. Effect of the Rental Agreement Between Budget and the Lessee
Although our analysis supports the conclusion that Budget, as a self-insured, is not required to provide omnibus coverage, the plaintiffs contend Budget is required to provide omnibus coverage in its capacity as an automobile liability insurer. We agree with the plaintiffs that the lease agreement between Budget and the lessee clearly constitutes a contract to provide liability coverage.13 However, an insurer has a right to restrict his liability unless such restriction conflicts with statutory requirements or is contrary to public policy. Pareti v. Sentry Indem. Co., 536 So.2d 417 (La. 1988); Oceanonics, Inc. v. Petroleum Distrib. Co., 292 So.2d 190 (La. 1974); Muse v. Metropolitan Life Ins. Co., 193 La. 605, 192 So. 72, 75 (1939).
A. Applicability of La.R.S. 32:900
The plaintiffs contend the prohibitory clauses contained in the Budget rental contract conflict with
The plaintiffs fail to discern the distinction between a “motor vehicle liability policy” and an “automobile liability policy.”14 The term “motor vehicle liability policy” is defined by
A language of
Because there is no allegation of prior conduct which would have required the lessee to provide proof of financial responsibility under the LMVSRL, we find the contract of insurance between Budget and the lessee to be a voluntary “automobile liability policy” to which
Furthermore, the only means by which an insurance policy may serve as proof of financial responsibility sufficient to satisfy the requirements of the LMVSRL is when it has been officially certified and issued by an insurance carrier duly authorized to transact business in this state. The lease agreement provided by Budget was not certified as provided by
In support of their argument that
The plaintiffs also rely on an opinion of the Louisiana Attorney General20 to buttress
In conclusion, because the LMVSRL does not normally require the operator of a vehicle to carry public liability insurance, we find the contract of insurance between Budget and the lessee to be a voluntary “automobile liability policy” to which
B. Applicability of La.R.S. 22:655
We find the plaintiffs’ argument that the Budget rental agreement should provide mandatory omnibus coverage to a permissive user pursuant to
[I]t is the purpose of all liability policies to give protection and coverage to all insureds, whether they are named insured or additional insureds under the omnibus clause, for any legal liability said insured may have as or for a tort-feasor within the terms and limits of said policy.
Our reading of the statute does not support the plaintiffs’ allegation that
Furthermore, the Louisiana jurisprudence has never indicated that
C. Public Policy Considerations
Absent an existing statutory provision mandating the inclusion of an omnibus clause in the insurance contract between Budget and the lessee, the issue becomes whether the provisions of the lease agreement, which attempt to terminate and cancel insurance coverage if the rented vehicle is operated by one not named in the agreement,
Louisiana courts have consistently held exclusions of specific drivers in “automobile liability policies” are permitted and are not against public policy. Smith v. Western Preferred Casualty Co., 424 So.2d 375 (La.App. 2nd Cir. 1982), writ denied, 427 So.2d 1212 (La.1983); Hudson v. Thompson, 422 So.2d 640 (La.App. 3rd Cir. 1982); Washington v. Dixie Leasing of New Orleans, Inc., 352 So.2d 363 (La.App. 4th Cir.1977), writ denied, 354 So.2d 210 (La. 1978). Although we acknowledge that “automobile liability policies” are issued primarily for the protection of the public rather than the insured, it is not the public policy of this state to protect and provide compensation to injured persons at all times. Consequently, we believe it is not against public policy for an automobile rental agency to restrict liability coverage to certain named drivers. The agency has an interest in protecting its property and the right, as the owner of the vehicle, to impose restrictions on the operation and use of the vehicle. This comports with the freedom to contract23 and the constitutional protection against the impairment of contracts.24
V. Statutory Exception for Owners Engaged in the Business of Renting Motor Vehicles
In addition to the above reasons, we note an additional justification for our conclusion that Budget should not be held liable in the instant case. In enacting the LMVSRL the legislature, apparently recognizing the unique nature of rental car agencies, specifically stated in
VI. Conclusion
In the absence of statutory regulation to the contrary and in consideration of the express exception to the LMVSRL created for rental agencies, we find no reason to disregard the unambiguous provisions in Budget‘s rental agreement which terminate insurance coverage when the vehicle is operated by one other than the renter or additional driver named on the agreement. Accordingly, the summary judgment granted in favor of Budget Rent-A-Car is affirmed.
AFFIRMED.
CALOGERO, J., concurs and assigns.
DENNIS, J., dissents with reasons.
LEMMON, J., dissents and assigns reasons.
WATSON, J., dissents, assigns reasons and also joins in the reasons assigned by DENNIS, J.
Were it not for the Legislature‘s expression in
I am also concerned about this unregulated company engaging in the sale of what is essentially automobile liability insurance, without having their policy filed with and approved by the commissioner of insurance, see
The Legislature saw fit in 1989 to pass an Act regarding collision damage waivers, which are contractual provisions found in motor vehicle rental agreements whereby the lessor agrees for a charge to waive any and all claims against the lessee for any damages to the rental vehicle during the term of the rental agreement. See
On the other hand, the Legislature has not addressed liability insurance coverage, which is also offered by car rental companies. In my view the Legislature should consider requiring such policies, as well as those policies offered by authorized insurance carriers, to carry omnibus coverage. However, the formulation of public policy is for the Legislature, not the courts. Accordingly, I concur in the majority opinion.
DENNIS, Justice, dissenting.
I respectfully dissent.
The legislature under its power to control and regulate travel on the public highways and to provide for public safety by reasonable regulations of dangerous undertakings has enacted a statute which requires that the owner of every motor vehicle, before it is allowed to be registered for use on the highways, must give security for the discharge in liability in damages for injuries to person or property caused by the faulty operation of the motor vehicle by taking out a policy of motor vehicle liability insurance, or by depositing cash, bond or other securities, or by becoming certified as a self-insurer.
A basic fault running through the plurality and concurring opinions is the failure to distinguish between the statutory provisions resulting from the enactment of the Compulsory Motor Vehicle Liability Insurance Law,
Our brethren‘s failure to notice the difference between the statutes has led them into serious error.
Under the Compulsory Liability Insurance Law, if access to use of the highways of this state by a motor vehicle is gained by the issuance of a policy of liability insurance covering the vehicle, that policy is required to contain certain minimum coverages specified by law.
In particular, the compulsory motor vehicle liability security law, in
The liability insurance contract issued by Budget in the present case does not contain the minimum omnibus provision required by law under which the policy covers as an insured not only the named insured but also anyone using the vehicle with the named insured‘s permission. On the contrary, the Budget policy contains a provision diametrically opposed to the statutorily prescribed omnibus clause. Thus, the Budget insurance contract is an obvious attempt to issue liability insurance without the minimum coverages specified by law. Consequently, that policy provision must be disregarded as in conflict with legal requirements and the minimum statutory omnibus clause must be deemed by law to be incorporated into Budget‘s policy.
Budget contends that the fact that it holds a certificate of self-insurance somehow exempts its liability insurance policy from the requirements of law. The contention is without merit. The certificate authorizes Budget‘s own use of the highways with its vehicles without obtaining insurance but it does not authorize Budget to permit other legally separate entities or persons to use the vehicles without insurance containing the minimum coverages required by law.
“Self insurance” does not involve the issuance of insurance at all. It is really a technique of risk management by which assets are set aside to meet future losses. Thus, it is more appropriately characterized as “risk retention.” See Keeton and Widiss, Insurance Law: A Guide to Fundamental Principles, Legal Docterines and Commercial Practices, § 1.3 at p. 14 (1988) [hereinafter “Keeton and Widiss” ]. Thus, as an exception to the requirement of liability insurance or other liability security,
Budget‘s issuance of liability insurance to one of its lessees is not merely a retention of its own risk for which it has set aside assets. It is in reality part of a separate insurance enterprise whereby the risks created by other parties, the lessees, are transferred to Budget acting as an insurance company. Thus, the contracts of insurance entered by Budget are governed by the liability security requirements of
The plurality and concurring opinions represent major setbacks to the development of a coherent and effective compulsory insurance law and policy. The view of the concurring opinion is the most damaging if it should gain acceptance. Under its author‘s interpretation, the compulsory insurance law does not require any insurer to include an omnibus clause in any liability insurance policy. In this regard, the concurring opinion stands alone and parts company with the plurality and all other authority. Rudison v. Richard, 526 So.2d 369 (La.App. 4th Cir. 1988); Clarke v. Progressive America Ins. Co., 469 So.2d 319 (La.App. 2d Cir.1985); Fields v. Western Preferred Casualty Co., 437 So.2d 344 (La. App. 2d Cir.), writ denied 440 So.2d 528, 754 (La.1983); Boudreaux v. ABC Ins. Co., 689 F.2d 1256 (5th Cir.1982); Op.Atty.Gen., No. 78-875 (Dec. 5, 1978). It is difficult to believe that the legislature would have allowed the interpretation of these authorities to continue for so long if it had intended the effect of the compulsory insurance law to be as narrow as the concurrence asserts.
The plurality opinion, on the other hand, while conceding that the compulsory insurance law requires that, in general, liability insurance policies must contain the statutorily prescribed omnibus clause, nevertheless takes the position that liability insurance policies issued by self insurers are totally exempt from the minimum requirements of that law. This partially mistaken interpretation results from the plurality‘s confusion on two points: first, its misguided but abiding assumption that self-insurance is a form of insurance—despite the disavowal of such a belief in its opinion; and, second, its failure to recognize that when a self-insurer agrees to insure a third person against liability the self-insurer steps out of the role of self-insurer and into that of an insurer. The plurality bases its view principally on the fact that the statutes do not include a mandatory omnibus provision in the requirements and obligations of self-insurers. The plurality asserts that this shows “there is no legislative intent to require self-insurers to provide such coverage.” But there is the rub. Self-insurers as such do not provide any
Conscious of the weakness of its arguments based on the self-insured status of Budget, the plurality presents an alternative argument based on a perceived distinction between a “motor vehicle liability policy” and an “automobile liability policy“. Because the argument is subtle and complex, indeed somewhat gossamer, it is difficult to follow and hard to summarize briefly. Suffice it to say, however, that the argument is invalid because the distinction between automobile and motor vehicle liability policies seems to be important only when a party seeks to bar an insurer from asserting an insured‘s breach of a policy condition as a defense because the policy has been certified under a financial responsibility provision. In such cases, some courts have dubbed policies that have been certified as proof of a motorist‘s financial responsibility for the future, following his involvement in an accident, as “motor vehicle liability policies” to distinguish them from “automobile liability policies” which have not been so certified. These courts have held that the official certification of a liability policy as proof of a motorist‘s financial responsibility bars the insurer from asserting an insured‘s breach of a policy condition as a defense. See the commentary cited by the plurality: Comment, Compensation for Motor Vehicle Accident Victims: The Louisiana Motor Vehicle Safety Responsibility Act, 27 Tul.L.Rev. 341, 350 (1953). Because no one in the present case has alleged that the liability policy had been certified as proof of anyone‘s financial responsibility following a previous accident and no one has contended that the insured breached a policy condition, the classification of the policy as one kind or the other seems totally irrelevant. Indeed, it is difficult to understand why the plurality thinks that this argument supports its position. Near the end of its discussion, the plurality does give a clue when it asserts that it “finds the contract of insurance between Budget and the lessee to be a voluntary `automobile liability policy’ to which
Ultimately, this is a simple case. The laws pertaining to self-insurance are not applicable because the risk created by the
WATSON, Justice, dissenting.
The majority errs in holding that self-insurance is not insurance. Under the Louisiana Insurance Code, insurance is a contract whereby one undertakes to indemnify another or pay a specified amount upon determinable contingencies.
The lease form, a printed contract of adhesion which gives the rental customer no choice of terms, violates the public policy of Louisiana which protects injured persons against damage by omnibus clause insureds as well as named insureds. In allowing giant rental companies to write insurance but restrict coverage for permissive users, this court sides against innocent victims of rental car operators for no discernable reason.
Other states have refused to enforce provisions in rental car agreements which attempt to exclude coverage for permissive users. See, for example, Metz v. Universal Underwriters Insurance Company, 10 Cal.3d 45, 513 P.2d 922, 109 Cal.Rptr. 698 (1973); Allstate Insurance Co. v. Travelers Insurance Co., 49 A.D.2d 613, 370 N.Y.S.2d 675 (1975); Financial Indemnity Co. v. Hertz Corp., 226 Cal.App.2d 689, 38 Cal. Rptr. 249 (1964) and Roth v. Old Republic Insurance Company, 269 So.2d 3 (Fla. 1972).
I respectfully dissent.